DR Congo sees budget shrinking on low metals income

Lower than expected mining revenues will likely force Democratic Republic of Congo to cut its 2009 budget by up to a quarter, the budget minister said on Tuesday. As revenues and capital investment plans have collapsed, Congo has raised interest rates to 66 percent from 28 percent in two months and used up a large portion of its foreign exchange reserves to try to shore up its weakening franc currency.

Budget Minister Michel Lokola said the fall in demand for Congo's mining and oil exports had hit the country hardest. "These two sectors contribute around 70 percent of foreign currency revenues and compose 40 percent of the budget. This makes an impact on the budget. Our budgetary means will shrink," he told Reuters in the capital Kinshasa.

"I think we will see the budget revised in the second quarter. We risk going back to our budget levels of 2008," he said. The 2009 budget presently in force amounts to $4.9 billion, significantly more than last year's $3.5 billion budget. The increased spending was expected to be covered by increases in revenues from copper, cobalt and other minerals.

A global economic slowdown, and in particular falling demand from Asia for metals, has seen planned investments in Congo's mining sector scaled back in recent months. Gold, seen by many investors as a safe haven asset in times of economic uncertainty, has outperformed many other metals in the downturn, but Congo's output was not big enough to offset the shortfall in revenues from other commodities, Lokola said.

"We saw in the month of February that there was a recovery in gold and diamonds, but gold for example contributes just 1 percent of state revenues," he said.

© Thomson Reuters 2009