Journal Issue

IMF Executive Board Concludes Article IV Consultation with Equatorial Guinea

International Monetary Fund
Published Date:
May 2005
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On April 25, 2005, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Equatorial Guinea.1


Hydrocarbons dominate economic developments in Equatorial Guinea and will continue to be the engine of growth in the foreseeable future. Since oil production began in 1995, hydrocarbon production has increased from 6,000 barrels of oil equivalent per day (boe/day) to 282,000 boe/day in 2003, supporting an average annual growth of 31 percent. In 2004, real GDP grew by 34 percent, reflecting a sharp increase in oil production. Non-oil GDP increased by 13 percent fueled by growth in the infrastructure and construction sectors, driven by increasing government capital expenditure. However, the primary sector remained sluggish as labor migration from rural to urban areas continued in search of higher earnings and the enforcement of sustainable logging program was maintained. Although inflation has decelerated to 5 percent in 2004, the inflation differential between Equatorial Guinea and its trading partners and the appreciation of the euro have led to the appreciation of the real effective exchange rate by 5 percent in 2004, for an accumulated real appreciation of 32 percent since 2000, further undermining external competitiveness.

Monetary development continues to be dominated by fiscal policy. Broad money increased by 45 percent owing to large foreign exchange inflows of government oil revenue and transfers from oil companies that contributed to the buildup of net foreign assets.

Government spending failed to sterilize these inflows. Excess liquidity in the banking system rose without any significant impact on domestic prices because of limited lending opportunities that kept credit to the economy in check.

Fiscal outcome was marked by an increase in the fiscal surplus in 2004 compared to 2003 on account of a stronger-than-expected revenue performance due to higher oil prices and increased in hydrocarbon production that was partly offset by a substantial increase in capital expenditure. The persistent overruns in capital expenditures over the past years underscore weak budgetary discipline and a need for a better public expenditure management.

The overall balance of payments surplus has more than doubled compared to 2003, driven by oil exports and large inflows of foreign direct investment (FDI) in the hydrocarbon sector. Official international reserves increased to about 18 months of imports of goods and services not financed by FDI. The overall terms of trade has improved significantly owing to the increase in the price of oil.

Important progress has been made with regard to transparency and accountability of oil-related revenues and public finance. At the request of the authorities, the World Bank has been providing assistance regarding their participation in the Extractive Industries Transparency Initiative (EITI). A fiscal transparency Report on the Observance of Standards and Codes (ROSC) was completed in early 2005. Moreover, the Article IV mission was able to reconcile the fiscal surplus with movements in government account at the Bank of Central African States (BEAC) and government oil production share, exports and revenue. The authorities at the highest level indicated their commitment to implement the recommendations of the fiscal transparency ROSC and to participate in the EITI. A key structural fiscal reform has been implemented with the adoption of a new tax code that consolidates dispersed legislation in one document, thereby enhancing transparency.

Unfortunately, the country’s oil and gas wealth has not yet let to a measurable improvement in living conditions for the majority of the population. Against that background, the authorities have assessed their National Development Plan for 1997–2001 and have recognized that the objectives poverty reduction has not been achieved. They therefore intends to prepare an Interim poverty reduction strategy paper (PRSP) that could serve as a roadmap for the provision of donor’s technical support.

Executive Board Assessment

Executive Directors welcomed the strong economic performance achieved in 2004, with continued rapid economic growth, a deceleration in the rate of inflation, better-than-expected revenue performance, a doubling in the overall balance of payments surplus, and a further increase in official international reserves. Directors underscored, however, that with the hydrocarbon sector continuing to dominate macroeconomic developments, the ensurance of a prudent and transparent use of the oil wealth, and the implementation of sound macroeconomic policies along with the implementation of structural measures would be crucial to create an environment conducive to ensuring continued broad-based growth and reducing poverty by strengthening the climate for private sector investment and diversifying the economy.

Directors noted with concern the substantial increase in public spending had more than offset improved revenue performance in 2004, particularly in the absence of a comprehensive guiding framework. They observed that the high level of public spending could place upward pressure on prices and the real effective exchange rate, thereby undermining the competitiveness of the economy. Against this background, they urged the authorities to strengthen public expenditure management and control, and welcomed the intentions of the authorities to move forward in this area, including an undertaking to review public expenditure with assistance from the World Bank.

In light of the need for fiscal consolidation, Directors were encouraged by the fiscal stance set out in the 2005 budget. Noting the absence of a formal mechanism for enforcing budget limits, they urged the authorities to remain within the budget parameters and recommended that a specific expenditure target be set in the supplemental budget law, with any increases in aggregate spending during the year requiring prior approval by parliament.

Directors welcomed the adoption of a new tax code that increased the corporate income tax rate and replaced the domestic turnover tax with a value added tax (VAT) as well as the recent reorganization of the tax authority and further strengthening of the tax administration, which will help broaden the tax base and pave the way for increased non-oil revenues. Directors recommended that export taxes be phased out at an early date, in support of economic diversification.

Directors expressed concerns over the liquidity overhang, which they observed could jeopardize price stability and financial sector soundness. Given the limitations of monetary policy instruments and absorptive capacity constraints, they urged that these factors be taken into account in setting fiscal policy.

Directors noted that the economic expansion over the past decade had not led to a measurable improvement in living conditions and that poverty remains widespread in Equatorial Guinea. They observed, however, that rapid progress toward the achievement of the Millennium Development Goals (MDGs) should be possible, given hydrocarbon resources and the outlook for oil prices. Directors emphasized that a comprehensive development strategy would help in guiding the country’s vast oil wealth into priority sectors, strengthening capacity building, and tackling widespread poverty, in particular by strengthening the focus on health and education, while safeguarding macroeconomic stability, with supporting technical assistance. In this regard, Directors encouraged the authorities to prepare an interim poverty reduction strategy paper that could serve as a roadmap and facilitate support from the country’s development partners.

Directors commended the authorities’ commitment to regional integration and the progress toward meeting the Central African Monetary and Economic Union (CEMAC) macroeconomic convergence criteria. They considered that the regional currency union has served Equatorial Guinea well in helping to control inflation and foster macroeconomic stability. Directors called on the authorities to monitor competitiveness closely, noting that the deliberate implementation of reform initiatives would contribute to improving overall economic efficiency. They encouraged the authorities to support more actively regional initiatives in the areas of trade, customs liberalization, and banking supervision. Directors also urged Equatorial Guinea to actively participate in setting up the regional institution for anti-money laundering.

Directors commended the authorities for recent progress in the area of transparency and accountability in resource management and public finance, noting that the initial steps need to be backed up with resolute action. They welcomed the authorities’ decision to deposit all government oil receipts with the regional monetary authority and supported the authorities’ claim for appropriate remuneration of government deposits by the BEAC.

Directors welcomed the completion of a fiscal transparency ROSC and the decision to publish the report and advised the authorities to implement the recommendations. They also welcomed the prospective participation in the EITI and as a pilot case for the G-8 corruption and transparency compact and recommended that they take the necessary actions to participate in the EITI and the G-8 compact as soon as possible. They saw these as important steps in the direction of increased transparency and accountability and as a break from past practices. Directors recognized that sustained progress in each of these areas would require improvements in institutional capacity and urged the country’s development partners to help build such capacity in areas within their core competencies. In this context, there were concerns about the recent decision to require foreign investors to obtain local partners.

Directors urged the authorities to increase the quality of macroeconomic data as this would improve Fund surveillance and lead to better informed policy discussions. They welcomed the staff’s plans to help build capacity in this area and the authorities’ plans for a more frequent sharing of information and policy dialogue with the staff.

Public Information Notices (PINs)form part of the IMF’s efforts to promote transparency of the IMF’s views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The Staff Report for the 2004 Article IV Consultation with Equitorial Guinea is also available.

Equatorial Guinea: Selected Economic and Financial Indicators


(Annual percentage change, unless otherwise specified)
Domestic economy
Real GDP19.340.79.718.734.24.8
Of which: non-oil GDP10.
Oil production (thousands of barrels per day) 1/119.7210.1250.6282.2383.3397.3
Consumer prices (annual average)
External economy
Exports, f.o.b.79.937.223.636.268.7-1.6
Imports, c.i.f.19.657.755.8-10.7103.47.0
Exchange rate (CFA Francs/U.S. dollar)709732694580528
Real effective exchange rate (depreciation -) 2/-
Financial variables
Government revenue65.6142.919.113.784.6-22.0
Government expenditure and net lending63.756.8-11.894.747.3-31.6
(In percent of GDP, unless otherwise specified)
External economy
Current account balance (including official transfers; deficit -)-24.6-48.4-65.1-27.2-13.7-16.0
Outstanding medium- and long-term public debt20.514.914.
Debt service-to-export ratio0.
Financial variables
Gross investment57.870.373.050.844.654.7
Gross national savings27.015.63.521.029.638.4
Government revenue 3/16.729.532.631.136.730.1
Of which : oil revenue13.325.728.627.133.727.1
Government expenditure and net lending16.018.214.924.322.916.4
Overall government balance (including oil revenue; deficit -)-0.510.417.66.712.813.0
(In millions of U.S. dollars, unless otherwise specified)
External economy
Exports, f.o.b.1,2051,6532,0432,7834,6954,620
Imports, c.i.f.-612-966-1,504-1,343-2,732-2,922
Current account balance (deficit -) 4/-297-779-1,191-710-616-725
Overall balance of payments (deficit -)182296297324713741
Financial variables
Gross international reserves (excl. oil reserve fund) 5/2272862329451,666
(equivalent months of imports, c.i.f.)
(equivalent months of non-oil sector imports, c.i.f.)
Sources: Equatorial Guinean authorities; and IMF staff estimates and projections.

Including oil equivalent of methanol and liquefied gas during 2001-04.

Period average changes; for 2004, the average of the first half of 2004 over the first half of 2003.

Excluding foreign-financed public investment.

Including grants.

Excludes offshore government oil savings accounts.

Sources: Equatorial Guinean authorities; and IMF staff estimates and projections.

Including oil equivalent of methanol and liquefied gas during 2001-04.

Period average changes; for 2004, the average of the first half of 2004 over the first half of 2003.

Excluding foreign-financed public investment.

Including grants.

Excludes offshore government oil savings accounts.

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities.

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