The government wants to protect the purchasing power of families - the Congo Indépendant

2024-08-11 15:29:15

The measures announced by the Minister of Economy – reduction of fiscal and parafiscal taxes on essential products, regulation of the internal market with price controls and removal of illegal barriers on the roads – do not bring anything new. Similar measures had already been tested during the era of Marshal Mobutu. Without success. The government should reduce the cost of institutions. The majority of public expenditure is focused on the consumption of goods and services as well as investments without economic profitability.

Gaston Mutamba Lucas

During the Council of Ministers on Friday 9 August, the government adopted a series of measures intended to combat the high cost of living. These measures presented by the Minister of Economy relate in particular to reducing fiscal and parafiscal taxes on essential products, regulating the internal market with price controls and getting rid of illegal barriers on the roads. So many measures have already been taken by the various governments since the time of Marshal Mobutu but have not shown their effectiveness. Is this still an announced effect? It is paradoxical to note that the Ministry of Finance and the Central Bank of the Congo declare that there is a stabilization of the exchange rate and a deceleration of inflation. Some say that social tension is strong because of the rise in prices. Inflation takes the elevator and purchasing power takes the stairs painfully. Everything is expensive. The population struggles every day to find work and the means to survive. Moving from country to country is another great torture. Life is just a long, exhausting battle. These tensions are exacerbated by preparations for the 2024-2025 school year in September.

Exchange rates and price control

Unlike the government, the Central Bank of the Congo believes that the economic situation is under control. According to an August 8 press release from the Monetary Policy Committee, “Economic activity remained sustained and pressures on the exchange rate and domestic prices eased during the first seven months of 2024. The Congolese franc depreciated by 6.4% during this period, compared to 17% at the end of July 2023,. reflecting the impact of the ongoing implementation of the stabilization measures adopted in the monetary and budgetary areas. Inflation slowed significantly, standing at 8.5% at the end of July 2024, compared to 16.5% in the same period of 2023. Therefore, the main rate was kept at 25%.. According to the Economic Note of the Central Bank of the Congo on August 2, international reserves reached 6,000.80 million USD as of July 31, 2024, which corresponds to a 14-week coverage of imports of goods and services.

Regarding public finances, for the month of August 2024, “The projected cash flow plan expects to achieve a deficit of 653.8 billion CDF, as a result of a low level of public revenue of 2,448.9 billion and public expenditure of approximately 3,102.7 billion. This trend is likely to erode previously established cash margins unless alternative methods of financing are considered.. There is a risk that this situation will increase the depreciation of the franc, the resumption of inflation and the collapse of the economy, which will lead to the removal of the State from its mode of operation. The State should therefore reduce their lifestyle. But there is no political will in this direction. On the contrary, public expenditure has multiplied in proportions that do not correspond to a falling level of income.

Most of these expenditures are often spent on the consumption of goods and services for a privileged few and on investments without economic profitability. Referring to past experiences, this policy leads to the depreciation of the currency and the rise in prices. The depreciation of the currency causes the price of goods to rise, especially imported goods, and devalues the national currency, encouraging distrust among the population, in favor of foreign currencies. So it contributes to the reduction in consumption, the flight of investors, an increase in speculative activities and the dollarization of the economy.

The limits of the policies proposed by the government to combat the high cost of living

At a time when the State is looking for income to finance its lifestyle and to make investments, it is not advisable to lower taxes. Rather, it is necessary to find budgetary resources for the State, which can be used to increase the general level of income. In the past, by lowering fiscal and parafiscal taxes, consumer prices did not follow. Sometimes it was the opposite. Inspectors from the Ministry of Economy found a way to cover the end of the month. They were corrupt. They closed their eyes. Regarding the announced price control, we should not forget the law no. 18/020 of 9 July 2018 relating to price freedom and competition. This law provides that price freedom gives the right to anyone conducting an economic or commercial activity to set the price of their goods or services under the conditions provided for in this law. “The prices of goods and services are freely set by those who offer them. They are not subject to prior approval but they must, after being arranged and communicated, with the relevant file, to the Minister responsible for the National Economy, for a posteriori control..

Price increases are not always explained by monetary reasons or exchange rate effects. There are also structural problems. This is in the case of transport difficulties from the interior of the country to urban centers due to the reduction in the number of vehicles due to their obsolescence, lack of spare parts, police roadblocks, deterioration of land routes, railways and lakes. There are also the phenomena of anticipation. Fuel prices are yet another determining factor in the price level due to its implications on transport costs. Finally, there is the ability of local industry to supply goods at competitive prices. In addition to poor product quality, systematic overcharging of imported inputs and equipment is a significant reason for high prices of locally produced products.

The lack of renewal and modernization of equipment, due to a lack of confidence in the country, also contributes to the increase in cost prices and the poor quality of the products. Local cement does not usually cost three times more than in the world market. It is also not understandable that bananas from Kongo Central cost as much in Kinshasa, located less than 200 km away, as bananas in Brussels from Costa Rica, almost 9,000 kilometers away, after be in good condition and have crossed the seas as well as customs! Instead of banning imports of beer, soft drinks, cement, tiles and earthenware, we need to implement a policy that guides industries to minimize production costs. Credit interest rates and bank charges are excessive. The hourly labor cost is very high due to the frequent theft of workers and their low productivity. To this must be added two administrations as well as untimely cuts of water and electricity. The State must encourage local industries to face foreign competition. They will then be able to offer the products at lower costs and export them.