High fuel prices from war in Ukraine may hurt the DRC, IMF warns

Higher commodity costs linked to Russia’s invasion of Ukraine risk slowing down the Democratic Republic of the Congo’s (DRC) economic recovery from the coronavirus pandemic, the International Monetary Fund warned.

Crude has soared by almost a third since the start of the war to a 2008 high of more than $126. The surge could squeeze the DRC’s budget for development spending as the government subsidises fuel prices, the IMF said Monday in an e-mailed statement, after a weeklong mission led by Mercedes Vera Martin to evaluate the lender’s loan agreement with the Central African nation.

“Higher oil prices generate significant budgetary pressures due to untargeted fuel subsidies, reducing fiscal space for needed social and infrastructure spending,” Martin said.

Coupled with rising global food costs and mineral price volatility due to sanctions on Russia and the war in Ukraine higher oil prices also pose risks to inflation and growth, she said.

The DRC’s finance ministry didn’t immediately respond to a request for comment. The IMF has long counselled the government to decrease or eliminate its fuel subsidies. 

Despite the headwinds, the IMF said the DRC’s 2022 economic outlook still remains “favourable” and encouraged the government to bolster its reserves to protect itself from unstable commodity markets. The DRC is the world’s third-largest producer of copper and the top producer of cobalt, vital for making rechargeable batteries in electric cars. 

Copper hit an all-time high of $10,845 per tonne earlier on Monday before reversing its gains.

The IMF forecasts the economy grew 5.7% last year, compared with 1.7% in 2020 amid a recovery in the mining and service industries, while inflation was 5.3% at the end of 2021. 

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