On behalf of my Gabonese authorities, I would like to express my appreciation to Management and staff for their continued support and useful advice to Gabon.
My authorities experienced some difficulties in the program implementation, mainly due to food and fuel crises, which forced them to take measures to alleviate the effects on the most vulnerable and preserve social peace. In particular, they had to postpone a new adjustment of fuel prices following that of March 2007 and the implementation of the automatic fuel price-setting mechanism (two structural performance criteria for the period under review). As a result, they could not complete the second review as scheduled. Nevertheless, over the last few months, they have taken several corrective actions, including the implementation of the fuel-price related measures, to bring the program back on track and have prepared contingent plans in the event that international developments differ significantly from the assumptions of the macroeconomic framework for 2009. Given the strength of these actions and the program for 2009, as described in the Letter of Intent, my authorities are requesting waivers for nonobservance of performance criteria and are also asking for the combined completion of the second and third program review.
After a robust performance in the first half of 2008, economic activity slowed down in the latter months of that year, due primarily to the weakening global economy, which has particularly affected the manganese and timber sectors. As a result, non-oil real GDP growth is estimated at 3.0 percent in 2008, against 6.2 percent in 2007. The oil production also declined by 1.2 percent, mainly due to a two-week long oil workers' strike and delays in bringing new fields into production. My authorities continued to keep the inflation at lower single digits of 5.6 percent at end-2008, although still high by CEMAC regional standard. Gabon's external position has been strong and the BOP remains in surplus.
Fiscal consolidation continued in 2008. Non-oil primary deficit (NOPD) declined from 18.0 percent in 2007 to 13.8 percent in 2008. As indicated above, my authorities decided in December 2008 to take advantage of the current low international oil prices to implement the fuel price-related measures envisaged in the program. Therefore, prices of gasoline and diesel are being adjusted monthly since January 2009 while the price of kerosene has been revised upward in February 2009. Furthermore, since March 1, the price of butane has been increased. Those measures were accompanied with extensive communication with the public, in order to ensure that it understands both the mechanism and its rationale. As a result, fuel subsidies are projected to decline by CFAF 60 billion in 2009, an amount equivalent to almost 2 percent of non-oil GDP. Starting next year, my authorities will seek to eliminate the remaining subsidies and replace them by measures better-targeted to the most vulnerable.
My authorities made further strides with respect to public financial management and budget transparency. In particular, a global PRSP-based medium-term expenditure framework (MTEF) was prepared and applied to improve the preparation of the current and capital budgets. The oil revenue model is operational since February 2008 and has become an important tool in oil revenue management; and the 2006 EITI report was published in March 2008. In addition, the list of projects selected for the 2008 and 2009 Independence Day Celebrations have been published in July 2008 and January 2009 respectively. All related expenditures have been subject to regular budgetary procedures since 2007.
My authorities also prepared an action plan specifying the costs, services levels and sources of financing of the health insurance and social security system. However, my authorities inadvertently introduced an exchange restriction when they imposed a tax on non-bank money transfers as a source of financing for the system. My authorities will amend the tax in the context of the forthcoming revision of the budget to eliminate this exchange restriction, and will consult with Fund staff regarding this tax amendment.
In the monetary and financial sectors, monetary policy, which is conducted at the regional level by the BEAC, has been relaxed, as the central bank lowered its interest rates on its credit and deposit facilities in December 2008, in response to the international financial crisis. While the FSAP indicated that the financial sector in Gabon is generally profitable and stable, it also identified structural weaknesses and risks in Gabon's financial sector, including undiversified bank portfolios and underdevelopment of nonbank financial institutions. My authorities are continuing to implement the recommendations of the FSAP.
On debt issues, following the successful bond issuances in December 2007 and January 2008, my authorities prepared a draft comprehensive government asset and liability management strategy, in order to improve debt management. In addition, the government established in October 2008 a national committee on public debt (CNEP), which, among others, is charged with monitoring the assumption by the government of debts of public enterprises undergoing privatization or restructuring, and ensuring the coordination of related repayment schedules with budget objectives.
Recognizing that accelerated and sustained growth in non-oil GDP is critical to Gabon's long-term economic progress, the government has been accelerating its program to build the country's infrastructure and promote economic diversification. A new National Diversification Commission has been created to oversee this program.
The restructuring of public enterprises is continuing. In particular, the commission appointed to solve the problems pertaining to the concession with Société d'électricité et d'eau du Gabon (SEEG) is continuing its work. The final audit report of SOGARA, the oil refinery, was completed in August 2008. Since then, the government has been working with the other shareholders of SOGARA to develop a concrete program to restructure the company, enhance its efficiency and eliminate production subsidies over time. That said, recognizing that the privatization program, while successful in many respects, has not contributed meaningfully to increase competition and efficiency in the Gabonese economy, my authorities will launch a comprehensive review of their privatization experience, seeking ways to enhance competition in the local market place.
II – Policies for 2009
My authorities are mindful of the urgent need to press ahead with the implementation of a strong economic program to make the economy less dependent on oil, ensure budget and debt sustainability, maintain high non-oil GDP growth, and reduce poverty. However, the global financial crisis and resulting economic slowdown have severely impacted Gabon's economic prospects for 2009, with its three main industries–oil, manganese, and lumber–all experiencing either sharply falling prices or sharply declining output, or both. The macroeconomic framework for 2009 has been revised to take account of these developments. In particular, growth in oil production was revised downward from its previous projection of 11.9 percent to 7.8 percent, to reflect likely delays in plans for bringing marginal oil fields on stream and boosting productivity in mature fields. Real non-oil GDP growth is projected to decelerate further to 2.3 percent, with manganese production expected to decline by 13 percent, and timber production by over 14 percent. Annual average inflation is projected to decline to 3.5 percent.
My authorities remain committed to fiscal consolidation with the objective of achieving a non-oil primary deficit of 6 percent by 2011, as agreed in the arrangement. To this effect, the 2009 budget aims to bring the NOPD from 13.8 percent of non-oil GDP in 2008 to 11.8 percent of non-oil GDP. The reduction in the NOPD will be achieved through continued containment of expenditures on goods and services, and subsidies, while maintaining expenditures aimed at helping the most vulnerable to deal with high costs of food and rising energy prices. My authorities have begun to prepare contingency plans to adjust the budget downward, through expenditures cuts in the event that the international developments deteriorate significantly relative to budget assumptions.
My authorities are aware that achieving the medium-term objectives of the SBA program will require continued progress in the public financial management reform. In this regard, they will continue to improve budget preparation, execution, reporting and transparency, strengthen revenue administration and raise the quality of spending, as explained in the Letter of Intent. To this end, they will take into account the recommendations of the September 2008 Fund TA mission on revenue and customs administration reforms and those of the Public Expenditure Management and Financial Accountability Review (PEMFAR) to improve the efficiency of public spending. In particular, a medium-term expenditure framework (MTEF), including consistent sectoral programs, will be developed by June 2009 and used to prepare the 2010 budget. My authorities also intend to select, by end-April 2009, an external auditor to audit all government expenditures on the 2006, 2007, and 2008 Independence Day Celebrations.
My authorities will pursue their efforts to promote an enabling environment for the development of the financial sector. They will continue to support the regional supervisory authorities in their efforts to ensure that banks comply with prudential ratios. They will also press ahead with the implementation of a regional Treasury bond market. In this context, my authorities will work with other CEMAC countries to clarify the tax and prudential treatment of government bonds. Moreover, they will take a proactive role to advance all other issues of regional interest such as trade liberalization and central bank operations.
As regards transparency in the oil sector, efforts will also continue to reduce the discrepancies between different accounts of oil revenue. The 2007 EITI report is expected to be published by June 2009 and the 2008 report by December 2009. A reconciliation of the various accounts of oil revenue (TOFE, EITI, Model estimates) will also be provided at that time.
My authorities recognize the importance of strengthening national statistics, and have launched a comprehensive effort to accomplish that. In particular, they are in the process of drafting a statistics law, and are committed to having the law adopted by the government and submitted to parliament before the end of 2009.
My authorities remain strongly committed to their program objectives. They have taken important measures to correct difficulties experienced during the program implementation in the midst of the crises and to keep the program on track going forward. On the basis of these measures, my authorities are requesting waivers for nonobservance of performance criteria and are also asking for the combined completion of the second and third program review. I will appreciate Directors support to my authorities' requests.