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Republic of Equatorial Guinea: Staff Report for the 2012 Article IV Consultation

Author(s):
International Monetary Fund
Published Date:
March 2013
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Context

1. Equatorial Guinea has the highest level of per capita income of SSA countries, but ranks among the lowest in available social indicators. Government revenue, predominantly from hydrocarbon extraction, is comparable in per capita terms to central Europe.1,2 But the most recent national poverty estimates for 2006 suggest that three-quarters of the population were then living below the national poverty line.3 Less than half the population had access to clean drinking water.

2. The first phase of the government’s National Development Plan (NDP), which aims at emerging market status by 2020, has achieved a massive scaling up of public investment. Roads, sea and air ports, and power generation have been transformed, and urban housing has been expanded. A new center for public administration has been built on the main island, Bioko, and a new city is being constructed on the mainland, Rio Muni. A number of other prestige projects have also been completed including luxury facilities for the meeting of the African Leaders’ Summit in 2011 and football stadiums for the African Cup of Nations in 2012.

3. Private sector commercial activity remains extremely limited outside the hydrocarbon sector. Since the near demise in the 1970s of the country’s coffee, cocoa, and palm oil plantations, few agricultural products are marketed. Fishing and sustainable timber exploitation is limited. Manufacturing activities are very small in scale. In the private sector, more than half of the insured labor force is employed in construction.

4. The business climate is perceived as unwelcoming, and broader governance issues continue to concern the international community. Unwieldy bureaucracy hinders investment and often requires ministerial intervention. Limitations on civil society participation undermined Equatorial Guinea’s unsuccessful candidacy in the Extractive Industries Transparency Initiative (EITI).

5. Official projections imply that hydrocarbon production may now be in long-term decline.4 Output of gas derivatives rose to an equivalent of about 200 thousand barrels of oil per day (bpd) in 2011, but current proven levels of reserves suggest that secondary hydrocarbon output will now start to fall, except for a short burst later this decade. Meanwhile, primary oil production appears to have peaked in 2008 at 350 thousand bpd.

6. The prospect of falling hydrocarbon revenues adds urgency to the case for a medium-term fiscal framework. Although the overall fiscal accounts are currently close to balance, the current level of the non-resource primary fiscal deficit—130 percent of non-hydrocarbon GDP—will not be sustainable over the medium term.5 To provide space for additional pro-poor current spending, investment will need to be cut and non-resource revenue must rise.

7. The 2013 budget proposes a small overall fiscal surplus on the basis of global oil prices below $90 a barrel. Public investment is scaled down to about 20 percent of GDP (76 percent of non-hydrocarbon GDP), while government current spending remains below 7 percent of GDP. Membership in the Central African Economic and Monetary Community (CEMAC) ensures a stable monetary framework, with the discount interest rate at the central bank (BEAC) currently steady at 4 percent.

8. Discussions covered similar ground to the 2011 Article IV consultations. In the interim, the authorities have chosen not to follow staff advice to adopt a front-loaded fiscal adjustment in 2011, embark on a fundamental reform of public financial management (PFM), or develop a comprehensive action plan to strengthen the business climate. However, they have requested further IMF technical assistance (TA) on PFM and issued new decrees to help centralize revenue collection and coordinate investment planning. Equatorial Guinea has also made a substantial foreign currency deposit at the BEAC.

Recent Developments

9. The hydrocarbon sector has continued to be the main driver of the economy, accounting for about three-quarters of estimated GDP (Figure 1). Expanding output of gas derivatives since 2007 has largely compensated for the onset of a trend decline in primary oil production. Exports of hydrocarbons averaged US$12 billion during 2007–11, generating annual government revenues of US$5 billion. Active exploration has raised expectations of further potential gas fields for development.

Figure 1.Equatorial Guinea: Economic Indicators, 2007–12

Sources: Equatoguinean authorities; BEAC; and IMF staff estimates and projections.

10. Although data deficiencies preclude any comprehensive assessment of the non-hydrocarbon economy, its average annual growth rate has clearly been very strong—probably exceeding 15 percent—since 2007. Inflation rates persistently above the CEMAC convergence criterion and some project bottlenecks are evidence of stretched capacity limits. The construction sector has benefited from strong public investment; distribution, telecommunications, finance, and housing are now becoming more firmly established as growth sectors.

11. Public investment has recently been the mainstay of non-hydrocarbon activity. Annual government capital spending has doubled in real terms since 2007 and currently accounts for about 35 percent of the estimated level of domestic demand (Figure 2). Although much of the contracting, materials and labor for infrastructure spending has been sourced overseas, the rapid expansion of public investment has provided a sizeable boost to domestic construction and utility output. In contrast, the agricultural sector—now mostly subsistence farming—appears to have remained moribund, and the development of the fishing sector is not yet under way.

Figure 2.Equatorial Guinea: Fiscal Composition

Sources: Equatoguinean authorities; and IMF staff estimates and projections.

12. Despite strong hydrocarbon exports, the external current account is estimated to have been in sustained deficit in recent years (Figure 3). A large share of hydrocarbon earnings flows to overseas parent companies, and high levels of investment by the public and hydrocarbon sectors have induced substantial imports of capital goods and services. Although hydrocarbon sector transactions have probably largely been financed by foreign direct investment, the external sector will remain a potential source of vulnerability as long as the public sector continues to generate a sizeable import bill.

Figure 3.Equatorial Guinea: Macroeconomic Balances, 2004–12

Sources: Equatoguinean authorities; BEAC and IMF staff estimates and projections.

13. Equatorial Guinea’s external competitiveness within the CEMAC region— from where many food imports are sourced—has been eroded by a rate of inflation consistently above that of other member states. The inflation differential narrowed to 2.2 percent in 2011, but the cumulative impact on the level of consumer prices relative to the rest of CEMAC over the last decade reached 30 percent.6 The real effective exchange rate is estimated to have appreciated 18 percent in this period.

14. The 2013 budget is premised on GDP growth of 1.8 percent in 2013. With global oil prices assumed to decline below US$90 a barrel, provision for capital spending in 2013 is set 16 percent lower in current prices than the original budget provision for 2012. Staff’s projections assume that cash payments in 2012 and 2013 will be about 34 percent and 45 percent, respectively, above the original levels of provision because of the underlying strength of work under way.

Equatorial Guinea: Government Budget, 2011—13(Percent of non-hydrocarbon GDP)
20112012201220132013
OutturnBudgetProjectionDraft BudgetProjection
Revenue148.0128.8143.2101.8138.1
Resource revenue134.3115.2127.188.0122.2
Tax revenue26.420.925.022.933.0
Other revenue107.994.4102.065.189.2
Non-resource revenue13.713.616.113.815.9
Tax revenue10.29.010.59.010.0
Other revenue3.54.65.74.85.9
Grants0.00.00.00.00.0
Expenditure143.7121.0153.6101.5134.3
Expense26.024.123.425.623.9
Net acquisition of non-financial assets117.796.9130.276.0110.4
Net lending/borrowing (overall fiscal balance)4.37.8-10.40.33.8
Non-resource primary balance-128.6-104.5-137.4-85.0-118.5
Sources: Equatoguinean authorities; and IMF staff projections.
Sources: Equatoguinean authorities; and IMF staff projections.

Policy Issues

A. Anchoring and Rebalancing Fiscal Policy

15. The authorities heralded the successful scaling up of public investment under the first phase of the NDP:

  • Upgraded infrastructure had generated new opportunities for private sector activity and raised living standards. Fewer bottlenecks, better access to modern facilities, and lower costs had already made doing business more predictable and attractive.

  • All this had been achieved in a fiscally responsible manner. External borrowing had been limited to drawings of about US$1 billion from a US$2 billion credit line with China Eximbank. The fiscal accounts had returned to surplus in 2011 in line with CEMAC convergence criteria.

16. Staff noted nevertheless that the conduct of the public investment program (PIP) had exposed the budget to high opportunity and legacy costs and had adversely affected economic stability:

  • A number of elements of the PIP, particularly prestige projects, would involve substantial continuing outlays that were unlikely to yield equivalent economic returns (Box 1). No evidence was made available that project choices had been based on objective appraisal.

  • The scale and pace of the investment program had exposed Equatorial Guinea’s vulnerability to external shocks. For instance, at the start of the 2009 global recession, a planned acceleration of activity had to be sharply cut back because lower hydrocarbon revenue forced the authorities to draw down public sector deposits. In the last five years, execution of government capital spending had differed from plans by an average of 20 percent.

  • Although recourse to external borrowing during the infrastructure boom had been very limited, and low current levels of government debt meant that there was no need to undertake a debt sustainability analysis at this stage, fiscal buffers would be eroded if recent levels of public investment were maintained.

17. A presentation by staff of an alternative framework for fiscal policy that would reduce future spending volatility, while allowing the government to make clear long-term choices about investment and savings, provoked limited positive response from the authorities. The framework, described more fully in Annex I, was anchored on a target path for the non-resource primary balance that would establish and maintain adequate fiscal buffers and spread the use of hydrocarbon wealth over time. In line with existing NDP documentation, the representative target path—which underpins staff’s medium-term projections—assumes a substantial scaling down of government capital spending over the rest of this decade, although less front-loaded than the draft 2013 budget. Current spending is assumed to rise over time as a share of non-hydrocarbon GDP, primarily in order to improve provision of education, health, and other pro-poor services. The revenue take from non-hydrocarbon activities is assumed to rise eventually to international ratios, building on recent initiatives to improve customs collection and inhibit tax exemptions, as well as a broader income tax base combined with tighter enforcement mechanisms.

18. Staff highlighted that, on current oil price projections, the framework would produce a small positive overall fiscal balance over the next three years, consistent with the mandatory CEMAC surveillance criterion on the basic fiscal balance. Emphasizing that no decisions would be taken on medium-term spending issues until completion of the review on the first phase of the NDP, the authorities did not raise any specific concerns about staff’s projections, but reiterated their additional long-standing objective to achieve a surplus of non-resource revenue over current spending.

19. Staff emphasized that external stability would be reinforced by commitment to a prudent medium-term fiscal framework on the lines proposed (Box 2). Current account imbalances and inflationary pressures would ease if government spending, particularly capital investment, more closely reflected absorption and financing capacity. Adverse shocks such as the “lower global growth scenario” in the October 2012 World Economic Outlook (WEO) could then be readily accommodated (Annex 2). Over the medium term, fiscal adjustment would be crucial in restoring the external current account to a sustainable level.7

20. Perceptions on the impact of the recent scaling up of investment on government current spending differed widely:

  • The authorities noted that spending on health services had recently risen, and that the social security system had increased its coverage for disadvantaged families. All children were required to attend primary school, and the enrolment rates for 7-year olds had risen substantially.

  • Staff stressed however that the ratio of government current spending to GDP remained much lower than in countries with similar levels of per capita income, or elsewhere in SSA, with limited budget provisions for education and health. A firm political commitment to implementing universal primary education might help mobilize resources in an area that was critical for both current social policy and future labor force needs.

  • Staff also observed that some current spending has been poorly directed. For example, fuel subsidies had been used to keep pump prices for gasoline and aircraft fuel fixed at 2007 levels, at a cost, in 2011, of over 1 percent of GDP (Box 3). Additional government resources had been committed to the sector by building retail outlets for the national oil company GEPetrol. While welcoming the authorities’ studies of ways to phase out fuel subsidies for commercial users, staff encouraged a more general unwinding of government involvement in petroleum distribution.

Equatorial Guinea: Selected Social Indicators
Latest FigureReference YearSub-Saharan Africa (latest)
Population (millions)
United Nations estimate0.72011860
National authorities’ estimate1.62011
Poverty incidence177200651
Mortality rate, infant (per 1,000)93200969
Primary school enrollment ratio (%, net)51200975
Ratio: female to male in primary enrolment (%)97201093
Life expectancy (years)51201154
Access to clean drinking water (% of population)46200661
Sources: Equatoguinean authorities (MDG report, 2009); UN (MDG report, 2010); and World Development Indicators 2012

Equatorial Guinea: National Household Survey (2006); percentage living below national poverty line of US$2 a day. Sub-Saharan Africa: UN MDG Report (2010); percentage living below US$1.25 a day in 2005.

Sources: Equatoguinean authorities (MDG report, 2009); UN (MDG report, 2010); and World Development Indicators 2012

Equatorial Guinea: National Household Survey (2006); percentage living below national poverty line of US$2 a day. Sub-Saharan Africa: UN MDG Report (2010); percentage living below US$1.25 a day in 2005.

Box 1.Capital Expenditure, 2008–12

The first phase of the National Development Plan “Guinea Equatorial 2020” focused on the development of basic infrastructure to improve competitiveness and boost growth. Capital spending was scaled up rapidly, to a total of about US$23 billion during 2008–12, or 165 percent of annual GDP (650 percent of non-hydrocarbon GDP). Execution was roughly double the amount originally envisioned in the National Development Plan (NDP), partly reflecting higher budgetary provisions because of international events and partly budgetary overruns because oil revenue windfalls exceeded expectations. Capital spending exceeded 80 percent of total government expenditure in the period.

Capital Expenditure Budget and Realization (2008-13)(Billions of CFA francs, unless otherwise indicated)
Actual
NDP-2020BudgetActualRatio Actual to BudgetPercent of Total ExpenditurePercent of Non-Hydrocarbon GDP
20081,0241,1301,3921.279.1128.9
20091,0652,0002,4821.287.8157.3
20101,1072,0102,0631.082.0121.0
20111,1521,7702,2661.381.9117.7
20121,1992,1122,83811.362.996.0
20137961,762
Source: IMF staff estimates based on data from Equatoguinean authorities.

Staff projection is reported for 2012 instead of actual.

Source: IMF staff estimates based on data from Equatoguinean authorities.

Staff projection is reported for 2012 instead of actual.

In 2011, based on preliminary data, physical infrastructure accounted for nearly 50 percent of capital spending, with a focus on transport and electricity. The road network was extended; and the expansion and modernization of airports and ports in Malabo, Bata, and other locations was continued. Large capital projects completed in 2011 included the new city of Sipopo, involving a conference center; the construction of a 6-lane highway; electrification and public lighting; and new monuments, squares, and waterfront developments. Public administration absorbed around 22 percent of total capital expenditure, including work on the “Malabo 2” district. About 18 percent of capital spending was spent on behalf of “productive sectors,” including commerce, telecommunications, industry, energy, hydrocarbons, transport, aeronautic, agriculture, hotels and tourism, and environment. Education and health accounted for about 3 percent of total capital spending.

Box 2.External Sector Vulnerabilities

Overall assessment: an unsustainable external position in the long run, but not an urgent issueBackground. Despite a steady accumulation of current account deficits and weakening competitiveness, Equatorial Guinea’s external position remains stable, supported by ample official reserves and a steady inflow of foreign direct investment (FDI). However, unless policies adjust, depletion of hydrocarbon resources in the future threatens eventually to undermine external stability.

Potential policy responses. Lower levels of government capital spending and an improved business environment would reduce current account deficits by cutting investment related imports and strengthening competitiveness.
Current account: vulnerabilities stemming from public investment-related imports and hydrocarbon companies’ profit repatriationBackground. Despite large hydrocarbon exports, Equatorial Guinea has accumulated current account deficits since 2006. The two major factors have been investment-related imports and profit repatriation by hydrocarbon extraction companies.

Assessment. Current account deficits are tightly related to the size and composition of the fiscal expansion and the ownership structure of natural resource production. But the ownership structure also ensures ready financing of the deficits by hydrocarbon-related FDI inflows. When hydrocarbon resources decline, domestic factors and external competitiveness will become much more important.
Real exchange rate: overvalued, but limitations in data and methodology preclude realistic quantificationBackground. Using the external stability approach proposed by Bems and Carvalho (2009)1, the large current account deficit and a low assumed exchange rate elasticity would lead to an estimate that the real exchange rate is overvalued by about 60 percent.

Assessment. Although the Bems and Carvalho methodology takes into account some important characteristics of resource-rich countries, it still has serious shortcomings. Neither the domestic production capacity of non-resource sectors nor profit repatriation by extraction companies is well addressed. Furthermore, weak data seriously hinder any assessment. Therefore, it is difficult to assess with any accuracy the magnitude of the real exchange rate overvaluation.
Capital and financial account: stable in short term, but vulnerable when hydrocarbon resources declineBackground. Equatorial Guinea has received large amounts of FDI inflows, which have been major sources of financing of current account deficits.

Assessment. Because of recent successful oil and gas exploration, stable FDI inflows are expected in the medium term although their size will gradually shrink as hydrocarbon resources are depleted. Meanwhile, little is known about other financial transactions, because of data limitations.
Foreign exchange reserves: ample usable external resourcesBackground. Thanks to hydrocarbon wealth, Equatorial Guinea has accumulated substantial foreign reserves in the BEAC and continues to hold sizeable foreign currency deposits in commercial banks.

Assessment. The amount of usable external resources (BEAC official reserves + government offshore savings) is about 8 months of imports.
Foreign assets and liabilities position: no issuesBackground. Equatorial Guinea’s external debt, more than 90 percent of which is public debt, is small (about 9 percent of GDP).

Assessment. The government has no plans to take on additional external debt. Therefore, neither external nor public debt is an urgent concern.

Bems and Carvalho Filho, 2009, “Exchange Rate Assessments: Methodologies for Oil Exporting Countries”, IMF Working Paper, WP/09/281.

Bems and Carvalho Filho, 2009, “Exchange Rate Assessments: Methodologies for Oil Exporting Countries”, IMF Working Paper, WP/09/281.

Box 3.Equatorial Guinea: Fuel Subsidies

Retail prices of refined fuel products have been fixed at current levels since February 2007. All refined oil fuel products are imported. The government has recently built facilities for the national company, GEPetrol, to distribute refined products as a competitor to Total Oil, which is currently the only bulk distributor of petroleum products to the private retail sector.

The total cost of fuel subsidies was CFAF 104 billion in 2011 (1.3percent of GDP). The authorities are considering a potential elimination of the subsidy for commercial users, who currently account for about 60 percent of total fuel consumption. Sales to private users of gasoline, diesel, and kerosene, and to foreign and domestic companies for aviation jet fuel, all of which are subsidized, account respectively for the remaining 25 and 15 percent.

Fuel prices

Sources: Equatoguinean authorities; and IMF staff estimates.

21. Staff suggested that deep-seated deficiencies in public financial management were impeding progress toward a better allocation and use of government resources.8 The limited integration of the PIP into the budgetary planning and execution processes had made it more difficult to align the composition of budgetary outlays with plans, particularly when hit by external or internal shocks, such as the drive to complete large projects in time for the 2011–12 international events. Project appraisal has been limited, monitoring of spending has been stretched, little formal provision has been made for consequential recurrent spending, and payments to contractors are reported to have often been long delayed (although no arrears have been recorded in government accounts). Staff also pointed to the absence of detailed information on budget execution, including a functional or administrative breakdown of expenditure, as further confirmation of weaknesses in monitoring and control mechanisms.

22. The authorities refuted the implications of poor project selection and implementation. They noted however that a new budget decree would involve the finance ministry more closely in all planning and execution functions of the budget, as well as tightening up procedures for depositing revenue with the treasury. Technical assistance from the African Development Bank would also accelerate the computerization of public financial management, which is currently the major impediment.

Box 4.Equatorial Guinea: Recent Technical Assistance for Public Financial Management

Public financial management missions in May 2011 and September 2012 by AFRITAC (central) discussed fundamental legal and regulatory framework issues and public accounting practices and made recommendations on budget and project monitoring systems. Two follow-up technical assistance missions are scheduled. Following a request from the authorities for a renewal of backstopping arrangements for resident fiscal advisers, the IMF Fiscal Affairs Department is planning to conduct a diagnostic mission in early 2013.

B. Encouraging inclusive growth

23. Diversifying the economy and addressing poverty were core motivations of the NDP, but many fundamental policy issues remain unaddressed. Staff noted that making growth inclusive requires a comprehensive approach to policy that encompasses addressing social needs, developing human capital, and improving the challenging business climate to help create jobs. Resuscitation of subsistence and commercial agriculture would also offer substantial potential to raise household living standards and generate employment.

24. Staff emphasized the importance of ensuring adequate competition in product markets, encouraging a deeper financial sector, opening access to opportunities and information, and addressing broader governance concerns. Government should not crowd out the private sector by itself becoming involved in new commercial activities. An efficiently managed rules-based approach to regulation that does not involve ministerial intervention offers the most welcoming climate for business. Adherence to recent regional initiatives including on labor mobility and trade barriers would contribute further.

25. The authorities were unable to indicate how policy would evolve in the second phase of the NDP (beginning in 2013) because of the ongoing review of the first phase. They noted however that agriculture and fishing had already been accorded priority status in the NDP and that pilot initiatives had been launched in education and health. A one-stop shop for investment would also be introduced, but capacity limitations had slowed progress.

26. There is considerable scope for an expansion of financial sector lending to the private sector. The banking sector appears soundly based (Box 5) and a new, fifth bank—part of the pan-African Ecobank group, which has a track record of small business support—is poised to begin operations. The government is also closer to developing a loan guarantee scheme for small businesses, which have experienced considerable difficulty obtaining loans in the past, reportedly because of the owners’ inability to provide adequate business plans, perceived biases toward companies working on government projects, and difficulties with contract enforcement. Staff noted however that such issues were generally better addressed at source, or using market-based incentives, because government guarantees tended to provide unwelcome opportunity for official discretion and could result in large contingent liabilities.

Box 5.Equatorial Guinea: Financial Sector

The financial sector currently consists of four banks. Three of these have foreign parent companies, whereas Banco Nacional de Guinea Ecuatorial (BANGE) is owned by the government. A fifth bank, part of the pan-African Ecobank group, is poised to start operations shortly. CCEI bank, a subsidiary of Afriland First bank, accounts for about 70 percent of total credits and 45 percent of total bank assets. Societe Generale and BGFI bank share about 13 and 11 percent of total credits, respectively. Microfinance is insignificant.

Financial depth in Equatorial Guinea is very low. The ratio of bank credit to the private sector to non-hydrocarbon GDP was about 35 percent in 2011 and the density of borrowers from commercial banks is about one tenth of the SSA average. The construction sector accounts for more than 60 percent of bank credits. Private companies are the primary source of bank funds (about 60 percent of total bank deposits).

The banking sector appears sound, with a capital ratio averaging about 18 percent, and an average non-performing loan rate of about 6 percent. Liquid assets account for about 40 percent of total assets. Banks with a higher share of non-performing loans hold relatively higher shares of liquid assets.

Financial Soundness Indicators (End of Period), 2009–11 (Percent)
200920102011
Ratio capital / Assets10.410.912.9
Ratio capital / Risk-weighted assets31.526.624.2
Capital / Risk-weighted assets23.320.218.2
Non-performing loans / Total loans11.87.25.5
Provisions / Non-performing loans64.488.6101.7
Average return on assets1.31.50.6
Return on average equity18.514.95.4
Liquid assets / Total assets44.045.437.4
Liquid assets / Current liabilities192.9220.5185.7
Source: Central African Banking Commision (COBAC).
Source: Central African Banking Commision (COBAC).

27. Staff also highlighted the importance of transparency, accountability, and the enforcement of law as preconditions for a vibrant private sector. A major effort, involving all levels of government, is required to answer the international community’s concerns regarding the use of public resources, independence of civil society, human rights, and open access, as well as labor restrictions and hold-ups to business operations (Figure 4). The authorities observed however that external observers failed to give due weight to the national values and expectations that underpinned their methods of operation, including in the business sector, and to the progress that had already been made in difficult circumstances. They also noted developments in two areas:

  • An action plan is under way to reactivate Equatorial Guinea’s candidacy in the Extractive Industries Transparency Initiative (EITI). To facilitate civil society involvement in monitoring hydrocarbon activities and revenues, consultants would be advising on updating legislation, training programs are being provided, and an information center is planned. In response to staff’s suggestions that regular reports of resource revenue would quickly advance the transparency agenda, the authorities said that these had not yet been considered in the absence of engagement with the EITI.

  • Extensive work is being undertaken in conjunction with the CEMAC financial authorities to set up and enforce mechanisms to prevent money laundering and counter the financing of terrorism. Staff noted particularly in this respect the importance of implementing international standards on politically exposed persons, cross-border transportation of currency and bearer bonds, and an operational finance intelligence unit.

Figure 4.Equatorial Guinea: Governance and Business Climate

Equatorial Guinea has continued to score very poorly across a wide range of indicators of governance and the business climate. Like much of the CEMAC region, it performs worse than most other countries in sub-Saharan Africa (SSA) and is near the bottom of global rankings. Even in the relatively small number of indicators where Equatorial Guinea’s scores have improved in recent years, the gains in other countries have generally been larger. The sample of business indicators below compares Equatorial Guinea’s scores over time with average scores in CEMAC and SSA.

Citation: 2013, 83; 10.5089/9781484351604.002.A001

Sources: International Finance Corporation and World Bank’s Doing Business Indicators years: 2007–12. World Bank’s Governance Indicators, 2011, (average of control of corruption, government effectiveness, rule of law, regulatory quality, political stability and voice and accountability); and IMF staff calculations.

C. Meeting Regional Obligations

28. A large proportion of Equatorial Guinea’s external financial assets is still held in foreign commercial banks rather than the BEAC. This contravenes the CEMAC region’s foreign currency surrender requirements and reserve-pooling arrangements. The government held the equivalent of over CFAF 2140 billion in foreign currency deposits in overseas banks at end-2011, compared with holdings of CFAF 800 billion at the BEAC. However, the authorities noted that Equatorial Guinea had transferred CFAF 474 billion to the BEAC in 2011 (bringing BEAC deposits close to the level of M2 deposits) and that other oil-producing countries in the region also held assets outside the BEAC.

29. Staff noted two additional adverse consequence of Equatorial Guinea’s continued deposits in commercial banks rather than the BEAC. First, because overseas deposits are not reported in budget documentation (and neither is the Chinese Eximbank loan) the fiscal and financial accounts are not fully reconciled. Second, Equatorial Guinea’s potential leadership in attempts to reform the BEAC reserves framework (and particularly the remuneration of long-term savings) is compromised by not following current obligations.

D. Compiling and publishing reliable data

30. Staff observed that macroeconomic and socio-demographic statistics are still deficient and hamper surveillance. Progress toward the Millennium Development Goals cannot be effectively monitored. Statistical capacity is very low. Deficiencies are manifold and deep-rooted:

  • National accounts statistics are very poorly grounded (using a 1985 base year) and lack the minimum indicators necessary to track annual developments in the non-hydrocarbon economy. Official data for economic growth are based on computations and projections, rather than survey evidence.

  • The reliability of price statistics is unclear in the absence of an up-to-date household survey and adequate capacity to monitor price changes across the country.

  • Fiscal data are only available on a cash basis; there is no functional breakdown; and there is no full reconciliation with financial data.

  • Balance of payments data do not reflect transactions actually recorded by customs or the banking sector.

  • Several planned surveys have been delayed. Poverty and population data have been challenged.

31. Noting that even the most basic data are very hard for the public to access, staff suggested that a clear publication timetable for critical macroeconomic and socio-demographic data would both assist transparency and act as a powerful incentive to improve statistical capacity. Another important step would be to implement the decree establishing an autonomous national statistics institute. Technical support on statistics and administration would be available under the General Data Dissemination System (GDDS) but, as in previous years, the authorities had not responded to staff’s encouragement to join.

32. The authorities noted that the Ministry of Planning, Economic Development and Public Investment is undertaking an exercise to rebase the national accounts and improve the coordination of economic data within government. The World Bank has posted a long-term statistics expert to provide assistance and training. The nearly-completed demography and health survey and the four major surveys planned for 2013 (including the population and housing censuses) would provide much-needed additional source data.

Staff Appraisal

33. Equatorial Guinea has laid down some important physical foundations to advance toward its goal of emerging market status. The upgraded national road network and new ports will provide better access to commercial opportunities, the enhanced power infrastructure will reduce costs and production bottlenecks, and modern public buildings and housing will raise administrative and living standards. Costs and wastage have been high, however, because of limitations in oversight and pressure for prestige projects.

34. A clear fiscal anchor is needed to help insulate the economy from oil price volatility and improve the allocation and efficiency of expenditure over time. Fiscal policy should be guided by a medium-term target path for the non-resource primary balance that establishes fiscal buffers sufficient to maintain expenditure commitments even when oil prices fluctuate. Some accommodation may need to be sought in CEMAC fiscal guidelines. The target path should reflect the expected future profile of hydrocarbon revenue, the likely efficiency of domestic investment, and immediate poverty and development needs, as well as short-term absorption and financing considerations. A first step would be to recast the 2013 budget proposals to highlight the non-resource primary balance and the implications for the overall fiscal balance of alternative hydrocarbon production and price profiles.

35. External stability would be reinforced by commitment to a prudent medium-term fiscal framework on the lines proposed. Analysis shows that the real effective exchange rate is above its equilibrium level (although the magnitude is uncertain), pointing to an erosion in external competitiveness. Lower levels of government capital spending, in conjunction with improvements to the business climate, will be critical in addressing this.

36. Broad guidelines should be set under the NDP for the composition of spending and revenue that would underpin the target path for the non-resource primary balance. Both expenditure rationalization and non-resource revenue mobilization will be required over the medium term. Expenditure should be rebalanced to provide adequate room for a higher level of real current spending, and revenue might be enhanced by improving customs collection and broadening the base and efficiency of income tax (including limiting tax holidays and other exemptions).

37. In the next phase of the NDP, improving the business climate and enhancing social services will need to take center stage. This will require decisive and sustained action by government to overcome its negative reputation for poor governance and to overhaul its weak infrastructure for delivering education, health and personal services. Priorities in capital spending should also switch from infrastructure toward education and health.

38. To enhance and extend business opportunities, bureaucratic procedures should be streamlined, and scope for political intervention should be curtailed. The proposed one-stop shop for investment would reduce some of the costs and delays that currently hinder business development. Problems that have slowed loan availability to small enterprises should, where possible, be addressed at source by enhancing training and business services. While local employment is a primary objective of economic regeneration, regulations that restrict the ability of local or foreign companies to recruit adequate personnel should be avoided.

39. Direct public sector involvement in commercial activities should be avoided. “Picking winners” by governments is rarely successful, particularly where commercial experience is limited and political connections can distort judgment. The government’s comparative advantages lie instead in establishing infrastructure, ensuring a welcoming and predictable business climate, and supporting labor force enhancement.

40. A fast-track approach to making high-quality primary education available to all should be considered. Ambitious targets should be set for the number and quality of teachers, adequate financial resources should be committed, and programs should be developed to encourage student enrollment and attendance.

41. Equatorial Guinea should meet its obligations to the BEAC. The government’s foreign currency deposits should be held in the BEAC rather than in commercial banks. Equatorial Guinea would then be in a stronger position to take a leadership role in discussions about the future of the reserves framework.

42. A strong political commitment to transparency could accelerate the production of basic economic and social statistics. Priority should be given to: developing and publishing evidence-based annual national accounts and balance of payments statements; reporting government expenditure commitments and arrears and all financial assets and liabilities; and conducting, in 2013, population and agricultural censuses and household and enterprise surveys. These should be reinforced by a clear publication timetable for economic data. Regular publication of reports on oil revenues would demonstrate Equatorial Guinea’s continued commitment to EITI principles.

43. IMF staff recommends that the next Article IV consultation take place on the standard 12-month cycle.

Equatorial Guinea: Risk Assessment Matrix
Sources of RiskLikelihood1Impact if Realized1
A substantial decline in hydrocarbon prices stemming from a sustained global slowdownLow

Spillovers from Europe and/or unresolved US fiscal issues could lead to a marked and perhaps sustained softening of global growth, which in turn would lead to sustained lower hydrocarbon prices.
Medium

Equatorial Guinea is highly dependent on hydrocarbon exports. Hydrocarbons account for about 75 percent of GDP, 98 percent of goods exports, and 90 percent of fiscal revenue. Experience suggests that EG authorities may prune capital spending sharply in response to lower hydrocarbon revenues. This would impact immediately on the construction sector. However, large international reserves provide buffers that could support spending for up to three years if the authorities wish to use them.
Continuous loose fiscal policyHigh

Capital spending has recently been on an unsustainable trajectory, although the authorities aim to keep an overall fiscal balance and staff expects capital spending to turn down. Since 2009, the government has failed to increase fiscal buffers despite their vast hydrocarbon revenues.
High

Further scaling-up of capital spending would accentuate the strains on administrative and absorptive capacity, with consequential impacts on project selection, inflation, competitiveness, imports, and scope for corruption. Worsening competitiveness will further inhibit development of the non-hydrocarbon sector over the medium term. Fiscal buffers would be further eroded. Introducing a fiscal framework anchored on the non-resource fiscal balance would discipline expenditure practice and reduce risks.
Widening inequalities in income and job opportunitiesMedium

Poverty, governance, and business indicators suggest that growth has so far not been inclusive.

Non-hydrocarbon sectors remain rudimentary and offer few opportunities to the local population.
Medium

Continued social exclusion heightens the risk of political unrest. Exclusion will further reduce human capital and impede sustainable development.

Strategies to revitalize the non-resource sector, including better governance and business climate, need to be considered. Resources should be directed particularly to primary education.
Unchanged data qualityMedium

Despite several efforts, improvement of data quality and dissemination of official data are limited.
Medium

Inaccurate understanding of the economy. Ineffective economic policies, in particular inappropriate reallocation of hydrocarbon wealth.

Classified as high, medium/high, medium, low/medium, or low. The Risk Assessment Matrix shows events that could materially alter the baseline path discussed in this report (which is the scenario most likely to materialize in the view of staff). The relative likelihood of risks reflects the staff’s subjective assessment (at the time of discussions with the authorities) of the risks surrounding this baseline.

Classified as high, medium/high, medium, low/medium, or low. The Risk Assessment Matrix shows events that could materially alter the baseline path discussed in this report (which is the scenario most likely to materialize in the view of staff). The relative likelihood of risks reflects the staff’s subjective assessment (at the time of discussions with the authorities) of the risks surrounding this baseline.

Table 1.Equatorial Guinea: Selected Economic and Financial Indicators, 2009–17
200920102011201220132014201520162017
Est.Est.Est.Proj.Proj.Proj.Proj.Proj.Proj.
(Annual percentage change, unless otherwise specified)
Production, prices, and money
Real GDP0.8-1.74.92.5-1.7-0.3-6.82.8-4.4
Hydrocarbon sectors-10.8-3.94.7-1.8-4.2-2.7-12.83.1-9.4
Oil and gas primary production-18.9-2.32.1-0.6-6.1-3.0-12.3-1.0-16.6
Hydrocarbons secondary production110.8-6.910.0-4.1-0.6-2.2-13.810.82.8
Non-hydrocarbon sectors40.93.05.511.12.83.72.52.42.3
GDP deflator-30.026.324.411.11.0-1.7-2.5-0.4-0.9
Hydrocarbon sectors-36.537.231.416.21.2-2.4-2.7-2.5-2.3
Oil and gas primary production-34.236.126.912.21.1-4.1-3.9-3.6-3.9
Hydrocarbons secondary production1-37.638.247.325.72.11.5-0.4-0.4-0.1
Non-hydrocarbon sectors3.74.97.01.93.52.83.63.84.4
Oil price (U.S. dollars a barrel)258.075.3100.3102.4101.396.992.789.085.2
Consumer prices (annual average)5.75.34.85.55.05.45.25.04.7
Consumer prices (end of period)5.05.44.95.95.25.14.94.94.7
Broad money18.848.96.14.77.16.110.64.55.7
Nominal effective exchange rate (- = depreciation)-1.3-4.5-1.1n.a.n.a.n.a.n.a.n.a.n.a.
Real effective exchange rate (- = depreciation)3.11.14.0n.a.n.a.n.a.n.a.n.a.n.a.
External sector
Exports, f.o.b.-42.321.238.53.7-4.9-4.2-13.8-1.0-9.3
Hydrocarbon exports-42.720.639.03.8-5.1-4.3-14.1-1.3-9.9
Oil and gas primary production-44.720.030.01.5-6.9-5.7-14.0-6.3-16.5
Hydrocarbon secondary production1-33.822.176.810.6-0.4-0.8-14.39.72.5
Non-hydrocarbon exports13.965.49.1-2.74.33.97.013.518.4
Imports, f.o.b.15.0-2.027.112.1-10.0-2.8-9.5-3.6-9.9
Terms of trade-20.3-9.111.918.02.5-0.4-2.6-2.6-3.6
Government finance
Revenue-22.4-9.232.59.62.6-5.2-9.6-10.6-6.6
Expenditure60.7-11.09.921.0-7.0-4.1-9.2-3.1-10.7
(Percent of GDP, unless otherwise specified)
Investment and savings
Gross investment68.263.854.051.044.143.542.940.437.8
Public50.834.028.631.428.527.126.023.720.6
Private17.529.925.419.615.516.317.016.717.1
Gross national savings47.341.044.635.933.631.830.226.725.3
Public41.427.929.628.929.527.726.421.519.9
Private5.913.115.07.04.04.13.85.25.3
Government finance
Revenue48.435.435.934.635.734.534.430.029.6
Of which: resource revenue43.731.032.630.731.630.229.725.324.5
Expenditure57.841.434.937.134.734.034.032.130.3
Overall fiscal balance after grants-9.4-6.01.0-2.51.00.60.4-2.1-0.7
Non-resource primary balance (percent of non-hydrocarbon GDP)3-164.4-130.9-128.6-137.4-118.5-105.6-89.2-81.2-66.4
Gross government deposits (billions of CFAF)3,3683,2622,9612,8342,7312,5712,4222,2552,206
External sector
Current account balance (including official transfers; - = deficit)-20.9-22.8-9.3-15.0-10.5-11.7-12.7-13.7-12.5
Outstanding medium- and long-term public debt5.85.98.88.38.05.73.61.11.1
Debt service-to-exports ratio (percent)0.20.30.31.13.33.53.50.00.1
External debt service/government revenue (percent)40.81.61.45.114.715.415.00.20.3
(Millions of U.S. dollars, unless otherwise specified)
External sector
Exports, f.o.b.8,52610,33214,30614,83814,10413,51511,64911,53710,464
Hydrocarbon exports8,41310,14514,10314,64013,89813,30111,41911,27710,156
Oil and gas primary production6,5597,87010,23410,3919,6789,1247,8507,3546,144
Hydrocarbons secondary production11,5601,9053,3673,7243,7083,6803,1553,4633,549
Non-hydrocarbon exports113187204198206214229260308
Imports, f.o.b.-5,597-5,485-6,972-7,813-7,034-6,837-6,190-5,967-5,375
Current account balance (- = deficit)-2,170-2,793-1,565-2,622-1,774-1,932-1,898-2,092-1,798
Overall balance of payments-1,328-660838-38213734-26-263-77
Outstanding medium- and long-term public debt6207241,3791,4191,361946532169165
Usable external resources58,5198,2887,2806,5776,3736,0045,6155,2735,159
Reserve assets at the BEAC3,2522,3543,0542,5502,6832,7072,6692,3962,309
Of which: government deposits at BEAC2,1016641,5791,2921,4271,5021,5521,2921,211
Government bank deposits abroad5,2675,9354,2274,0273,6903,2962,9452,8772,850
Usable external resources5 (months of next year’s imports)13.410.28.38.38.38.68.38.6n.a.
Nominal GDP (billions of CFA francs)4,8906,0737,9319,0358,9658,7857,9788,1727,743
Non-hydrocarbon GDP (billions of CFA francs)1,5781,7051,9252,1802,3192,4702,6222,7892,978
Sources: Equatoguinean authorities; BEAC; and IMF staff estimates and projections.

Including LNG, LPG, butane, propane, and methanol.

The price of oil is the average of three spot prices: dated Brent, West Texas Intermediate, and Dubai Fateh; and includes a discount for quality.

Excluding oil revenues, oil-related expenditures, and interest earned and paid.

The rise in external debt service starting in 2012 reflects the amortization of Chinese loans under a 2006 US$2 billion credit line from the Chinese government. The loans are earmarked for infrastructure, including four projects in electrification and improvements to Bata harbor. Loan terms are non-concessional, carrying an interest rate of 5½ percent, five years maturity with two years’ grace.

Usable external resources include official reserves in the BEAC and government offshore deposits.

Sources: Equatoguinean authorities; BEAC; and IMF staff estimates and projections.

Including LNG, LPG, butane, propane, and methanol.

The price of oil is the average of three spot prices: dated Brent, West Texas Intermediate, and Dubai Fateh; and includes a discount for quality.

Excluding oil revenues, oil-related expenditures, and interest earned and paid.

The rise in external debt service starting in 2012 reflects the amortization of Chinese loans under a 2006 US$2 billion credit line from the Chinese government. The loans are earmarked for infrastructure, including four projects in electrification and improvements to Bata harbor. Loan terms are non-concessional, carrying an interest rate of 5½ percent, five years maturity with two years’ grace.

Usable external resources include official reserves in the BEAC and government offshore deposits.

Table 2.Equatorial Guinea: Balance of Payments, 2009–171(Millions of U.S. dollars, unless otherwise specified)
200920102011201220132014201520162017
Est.Est.Est.Proj.Proj.Proj.Proj.Proj.Proj.
Current account-2170-2793-1565-2622-1774-1932-1898-2092-1798
Trade balance292848477334702470716678545855705088
Exports of goods, f.o.b.85261033214306148381410413515116491153710464
Hydrocarbon exports84131014514103146401389813301114191127710156
Crude oil65597870102341039196789124785073546144
Liquefied natural gas133316212921328532343216274830073103
Liquefied petroleum gas000000000
Methanol227283447439474464407456446
Non-hydrocarbon exports113187204198206214229260308
Imports of goods, f.o.b.-5597-5485-6972-7813-7034-6837-6190-5967-5375
Petroleum sector-587-1230-1926-1964-1866-1885-1791-1701-1616
Petroleum products-230-323-485-590-589-588-567-579-592
Public sector equipment-4206-3332-3915-4492-3818-3589-3067-2887-2375
Other2-575-600-646-767-760-775-766-799-792
Services (net)-1802-2055-2638-2882-2646-2586-2346-2309-2150
Income (net)3-3191-5477-6155-6646-6074-5909-4892-5237-4618
Current transfers-106-108-107-119-124-116-119-117-118
Capital and financial account64124042602223919111967187218291721
Capital account000000000
Financial account64124042602223919111967187218291721
Direct investment130427341975201519141933183617451657
Portfolio investment (net)000000000
Other investment (net)-663-330627225-334358564
Medium- and long-term transactions49490639-77-392-437-388-29-32
General government503104656-58-370-413-364-4-7
Of which: amortization-5-5-5-103-415-413-364-4-7
Banks000000000
Other sectors-9-14-17-20-22-24-25-25-26
Short-term transactions-1157-420-1230239047142411496
General government4, 5-1255-655332043383943526827
Banks104157-763258-1628
Other sectors-67832674668884461
Errors and omissions200-272-199000000
Overall balance-1328-660838-38213734-26-263-77
Financing1328660-838382-137-342626377
Change in net international reserves6 (- = increase)1328660-838382-137-342626377
Memorandum items:
Reserve assets at the BEAC (a)325223543054255026832707266923962309
Of which: government deposits at BEAC (b)21016641579129214271502155212921211
Government bank deposits outside BEAC (c)526759354227402736903296294528772850
Usable external resource (a + c)851982887280657763736004561552735159
Gross government deposits (b + c)736865995805531951164798449741704061
Usable external resource (months of next year’s imports)13.410.28.38.38.38.68.38.6n.a.
Current account balance (percent of GDP; - = deficit)-20.9-22.8-9.3-15.0-10.5-11.7-12.7-13.7-12.5
Overall balance (percent of GDP; - = deficit)-12.8-5.45.0-2.20.80.2-0.2-1.7-0.5
Growth of hydrocarbon exports (percent)-42.720.639.03.8-5.1-4.3-14.1-1.3-9.9
Growth of non-hydrocarbon exports (percent)13.965.49.1-2.74.33.97.013.518.4
Growth of other imports2 (percent)42.14.47.818.7-1.02.0-1.14.3-0.9
Sources: Equatoguinean authorities; BEAC; and IMF staff estimates and projections.

The BOP data in this table are not compiled in accordance with the IMF’s Balance of Payments Manual, fifth edition. The historic data have not been derived from customs’ and bank records’ data, but from estimates of the BEAC. IMF staff has made ad hoc adjustments to the data.

Including private sector consumption and non-hydrocarbon sector investment imports.

Including investment income of oil companies, which includes reinvested earnings (with an offsetting entry in foreign direct investment).

Includes purchase of Devon’s share of oil fields in 2008 by Equatorial Guinea.

Since 2000, entries represent changes in government deposits in commercial banks abroad.

Consists only of items on the balance sheet of the BEAC (i.e., excluding government bank deposits abroad).

Sources: Equatoguinean authorities; BEAC; and IMF staff estimates and projections.

The BOP data in this table are not compiled in accordance with the IMF’s Balance of Payments Manual, fifth edition. The historic data have not been derived from customs’ and bank records’ data, but from estimates of the BEAC. IMF staff has made ad hoc adjustments to the data.

Including private sector consumption and non-hydrocarbon sector investment imports.

Including investment income of oil companies, which includes reinvested earnings (with an offsetting entry in foreign direct investment).

Includes purchase of Devon’s share of oil fields in 2008 by Equatorial Guinea.

Since 2000, entries represent changes in government deposits in commercial banks abroad.

Consists only of items on the balance sheet of the BEAC (i.e., excluding government bank deposits abroad).

Table 3a.Equatorial Guinea: Summary of Central Government Financial Operations, 2009–17(Billions of CFA francs, unless otherwise specified)
20092010201120122012201320132014201520162017
BudgetProj.BudgetProj.Proj.Proj.Proj.Proj.
Revenue2,3682,1512,8492,8083,1222,3613,2023,0352,7442,4522,290
Resource revenue2,1391,8842,5852,5132,7702,0402,8342,6562,3682,0641,899
Tax revenue747436509455546530766742699576600
Other revenue1,3921,4492,0762,0582,2241,5102,0681,9151,6681,4881,300
Royalties7609521,4261,5361,4111,1141,2211,112920864682
Profit sharing632485649519813394845802748624618
Bonuses and rents012121211110
Non-resource revenue229267264296351320368379376387391
Tax revenue159177197195228209233237230237234
Taxes on income, profits, and capital gains9499113107122116130138133138138
Domestic taxes on goods and services14446546168616565626361
Taxes on international trade and transactions1012141518181717161717
Other taxes1120161220142018191919
Other revenue709066100123111136141146151157
Grants00000000000
Expenditure2,8282,5172,7672,6383,3492,3553,1142,9852,7112,6262,345
Expense345454501526511593554602639692747
Compensation of employees71788084111105112112103106102
Purchase of goods and services154187211197251241253252231240229
Interest3202864306431312833
Domestic31121211111
Foreign0182662296230302722
Subsidies2114168180178116179155205275340410
Other expense22232323333
Transfers22232323333
Domestic arrears payments00000000000
Net acquisition of non-financial assets2,4822,0632,2662,1122,8381,7622,5592,3832,0711,9341,598
Gross operating balance2,0231,6972,3482,2822,6111,7682,6482,4332,1051,7601,543
Net lending/borrowing (overall fiscal balance)-459-36682170-2286885033-174-55
Net financial transactions-459-36682170-2286885033-174-55
Net acquisition of financial assets-47-286-241417-25864-108-170-161-176-59
Currency and deposits-47-286-241417-25864-108-170-161-176-59
Change in government deposits abroad768321-7700-1050-179-209-188-37-15
Government deposits outside BEAC768321-7710-1050-179-209-188-37-15
Gepetrol/Sonagas deposits abroad00100000000
Monetary sector-815-608528417-15264714027-140-44
Deposits at BEAC-828-635469417-15264714027-139-44
Deposits at domestic banks13275900000000
Loans00000000000
Net lending00000000000
Shares and other equity00000000000
Net acquisition of equities00000000000
Other financing00000000000
Net incurrence of liabilities23751280247-3057-196-220-194-2-4
Domestic00000000000
Foreign23751280247-3057-196-220-194-2-4
Loans2405428724524208240000
Amortization (-)-3-3-72-53-151-220-220-194-2-4
Exceptional financing00000000000
Errors and omissions-175-2860300000000
Memorandum items:
Tax revenue906612706650774739999979929813834
Other revenue1,4621,5392,1432,1582,3481,6222,2032,0561,8141,6391,456
Overall fiscal balance-459-36682170-2286885033-174-55
Percent of GDP-9.4-6.01.01.9-2.50.11.00.60.4-2.1-0.7
Non-resource primary balance3-2,595-2,231-2,476-2,279-2,996-1,971-2,749-2,609-2,338-2,265-1,978
Percent of non-hydrocarbon GDP-164.4-130.9-128.6-104.5-137.4-85.0-118.5-105.6-89.2-81.2-66.4
Nominal GDP4,8906,0737,9319,0359,0358,9658,9658,7857,9788,1727,743
Nominal non-hydrocarbon GDP1,5781,7051,9252,1802,1802,3192,3192,4702,6222,7892,978
Sources: Equatoguinean authorities; BEAC; and IMF staff estimates and projections.

The VAT was legislated in early 2005; previously this was a sales tax.

Includes social benefits.

Equal to the overall balance excluding grants minus hydrocarbons sector corporate income tax and other revenue plus hydrocarbons revenue generated in the secondary LNG, LPG, and methanol production and purchase of share in hydrocarbons projects, minus interest on savings funds plus interest expenditure.

Sources: Equatoguinean authorities; BEAC; and IMF staff estimates and projections.

The VAT was legislated in early 2005; previously this was a sales tax.

Includes social benefits.

Equal to the overall balance excluding grants minus hydrocarbons sector corporate income tax and other revenue plus hydrocarbons revenue generated in the secondary LNG, LPG, and methanol production and purchase of share in hydrocarbons projects, minus interest on savings funds plus interest expenditure.

Table 3b.Equatorial Guinea: Summary of Central Government Financial Operations, 2009–17(Percent of GDP, unless otherwise specified)
20092010201120122012201320132014201520162017
BudgetProj.BudgetProj.Proj.Proj.Proj.Proj.
Revenue48.435.435.931.134.626.335.734.534.430.029.6
Resource revenue43.731.032.627.830.722.831.630.229.725.324.5
Tax revenue15.37.26.45.06.05.98.58.48.87.17.7
Other revenue28.523.926.222.824.616.823.121.820.918.216.8
Royalties15.515.718.017.015.612.413.612.711.510.68.8
Profit sharing12.98.08.25.79.04.49.49.19.47.68.0
Bonuses and rents0.00.20.00.00.00.00.00.00.00.00.0
Non-resource revenue4.74.43.33.33.93.64.14.34.74.75.0
Tax revenue3.32.92.52.22.52.32.62.72.92.93.0
Taxes on income, profits, and capital gains1.91.61.41.21.31.31.41.61.71.71.8
Domestic taxes on goods and services10.90.80.70.70.80.70.70.70.80.80.8
Taxes on international trade and transactions0.20.20.20.20.20.20.20.20.20.20.2
Other taxes0.20.30.20.10.20.20.20.20.20.20.2
Other revenue1.41.50.81.11.41.21.51.61.81.82.0
Grants0.00.00.00.00.00.00.00.00.00.00.0
Expenditure57.841.434.929.237.126.334.734.034.032.130.3
Expense7.17.56.35.85.76.66.26.98.08.59.7
Compensation of employees1.41.31.00.91.21.21.31.31.31.31.3
Purchase of goods and services3.23.12.72.22.82.72.82.92.92.93.0
Interest0.10.30.40.70.30.70.30.40.40.00.0
Domestic0.10.00.00.00.00.00.00.00.00.00.0
Foreign0.00.30.30.70.30.70.30.30.30.00.0
Subsidies22.32.82.32.01.32.01.72.33.44.25.3
Other expense0.10.00.00.00.00.00.00.00.00.00.0
Transfers0.10.00.00.00.00.00.00.00.00.00.0
Domestic arrears payments0.00.00.00.00.00.00.00.00.00.00.0
Net acquisition of non-financial assets50.834.028.623.431.419.728.527.126.023.720.6
Gross operating balance41.427.929.625.328.919.729.527.726.421.519.9
Net lending/borrowing (overall fiscal balance)-9.4-6.01.01.9-2.50.11.00.60.4-2.1-0.7
Net financial transactions-9.4-6.01.01.9-2.50.11.00.60.4-2.1-0.7
Net acquisition of financial assets-1.0-4.7-3.04.6-2.90.7-1.2-1.9-2.0-2.2-0.8
Currency and deposits-1.0-4.7-3.04.6-2.90.7-1.2-1.9-2.0-2.2-0.8
Change in government deposits abroad15.75.3-9.70.0-1.20.0-2.0-2.4-2.4-0.4-0.2
Government deposits outside BEAC15.75.3-9.70.0-1.20.0-2.0-2.4-2.4-0.4-0.2
Gepetrol/Sonagas deposits abroad0.00.00.00.00.00.00.00.00.00.00.0
Monetary sector-16.7-10.06.74.6-1.70.70.80.50.3-1.7-0.6
Deposits at BEAC-16.9-10.55.94.6-1.70.70.80.50.3-1.7-0.6
Deposits at domestic banks0.30.40.70.00.00.00.00.00.00.00.0
Loans0.00.00.00.00.00.00.00.00.00.00.0
Net lending0.00.00.00.00.00.00.00.00.00.00.0
Shares and other equity0.00.00.00.00.00.00.00.00.00.00.0
Net acquisition of equities0.00.00.00.00.00.00.00.00.00.00.0
Other financing0.00.00.00.00.00.00.00.00.00.00.0
Net incurrence of liabilities4.90.83.52.7-0.30.6-2.2-2.5-2.40.00.0
Domestic0.00.00.00.00.00.00.00.00.00.00.0
Foreign4.90.83.52.7-0.30.6-2.2-2.5-2.40.00.0
Loans4.90.93.62.70.32.30.30.00.00.00.0
Amortization (-)-0.10.0-0.10.0-0.6-1.7-2.5-2.5-2.40.00.0
Exceptional financing0.00.00.00.00.00.00.00.00.00.00.0
Errors and omissions-3.6-0.57.60.00.00.00.00.00.00.00.0
Memorandum items:
Tax revenue18.510.18.97.28.68.211.111.111.79.910.8
Other revenue29.925.327.023.926.018.124.623.422.720.118.8
Overall fiscal balance (billions of CFA francs)-459-36682170-2286885033-174-55
Percent of GDP-9.4-6.01.01.9-2.50.11.00.60.4-2.1-0.7
Non-resource primary balance3 (billions of CFA francs)-2,595-2,231-2,476-2,279-2,996-1,971-2,749-2,609-2,338-2,265-1,978
Percent of non-hydrocarbon GDP-164.4-130.9-128.6-104.5-137.4-85.0-118.5-105.6-89.2-81.2-66.4
Nominal GDP (billions of CFA francs)4,8906,0737,9319,0359,0358,9658,9658,7857,9788,1727,743
Nominal non-hydrocarbon GDP (billions of CFA francs)1,5781,7051,9252,1802,1802,3192,3192,4702,6222,7892,978
Sources: Equatoguinean authorities; BEAC; and IMF staff estimates and projections.

The VAT was legislated in early 2005; previously this was a sales tax.

Includes social benefits.

Equal to the overall balance excluding grants minus hydrocarbons sector corporate income tax and other revenue plus hydrocarbons revenue generated in the secondary LNG, LPG, and methanol production and purchase of share in hydrocarbons projects, minus interest on savings funds plus interest expenditure.

Sources: Equatoguinean authorities; BEAC; and IMF staff estimates and projections.

The VAT was legislated in early 2005; previously this was a sales tax.

Includes social benefits.

Equal to the overall balance excluding grants minus hydrocarbons sector corporate income tax and other revenue plus hydrocarbons revenue generated in the secondary LNG, LPG, and methanol production and purchase of share in hydrocarbons projects, minus interest on savings funds plus interest expenditure.

Table 3c.Equatorial Guinea: Summary of Central Government Financial Operations, 2009–17(Percent of non-hydrocarbon GDP, unless otherwise specified)
20092010201120122012201320132014201520162017
BudgetProj.BudgetProj.Proj.Proj.Proj.Proj.
Revenue150.1126.2148.0128.8143.2101.8138.1122.9104.787.976.9
Resource revenue135.5110.5134.3115.2127.188.0122.2107.590.374.063.8
Tax revenue47.325.626.420.925.022.933.030.026.720.720.1
Other revenue88.285.0107.994.4102.065.189.277.563.653.443.6
Royalties48.255.874.170.564.748.052.745.035.131.022.9
Profit sharing40.128.533.723.837.317.036.532.528.522.420.7
Bonuses and rents0.00.70.00.10.00.10.00.00.00.00.0
Non-resource revenue14.515.613.713.616.113.815.915.314.313.913.1
Tax revenue10.110.410.29.010.59.010.09.68.88.57.9
Taxes on income, profits, and capital gains6.05.85.94.95.65.05.65.65.14.94.6
Domestic taxes on goods and services12.82.72.82.83.12.62.82.62.42.32.0
Taxes on international trade and transactions0.60.70.70.70.80.80.70.70.60.60.6
Other taxes0.71.20.80.50.90.60.90.70.70.70.6
Other revenue4.55.33.54.65.74.85.95.75.65.45.3
Grants0.00.00.00.00.00.00.00.00.00.00.0
Expenditure179.2147.6143.7121.0153.6101.5134.3120.8103.494.278.7
Expense21.926.626.024.123.425.623.924.424.424.825.1
Compensation of employees4.54.64.13.95.14.54.84.53.93.83.4
Purchase of goods and services9.810.910.99.011.510.410.910.28.88.67.7
Interest0.21.11.42.91.42.71.41.31.10.10.1
Domestic0.20.10.10.10.10.10.10.10.00.00.0
Foreign0.01.11.42.81.32.71.31.21.00.10.1
Subsidies27.39.99.48.25.37.76.78.310.512.213.8
Other expense0.20.10.10.10.10.10.10.10.10.10.1
Transfers0.20.10.10.10.10.10.10.10.10.10.1
Domestic arrears payments0.00.00.00.00.00.00.00.00.00.00.0
Net acquisition of non-financial assets157.3121.0117.796.9130.276.0110.496.579.069.453.6
Gross operating balance128.299.5122.0104.7119.776.3114.298.580.363.151.8
Net lending/borrowing (overall fiscal balance)-29.1-21.54.37.8-10.40.33.82.01.3-6.3-1.8
Net financial transactions-29.1-21.54.37.8-10.40.33.82.01.3-6.3-1.8
Net acquisition of financial assets-3.0-16.8-12.519.1-11.82.7-4.7-6.9-6.1-6.3-2.0
Currency and deposits-3.0-16.8-12.519.1-11.82.7-4.7-6.9-6.1-6.3-2.0
Change in government deposits abroad48.618.9-40.00.0-4.80.0-7.7-8.5-7.2-1.3-0.5
Government deposits outside BEAC48.618.9-40.00.0-4.80.0-7.7-8.5-7.2-1.3-0.5
Gepetrol/Sonagas deposits abroad0.00.00.00.00.00.00.00.00.00.00.0
Monetary sector-51.6-35.627.419.1-7.02.73.11.61.0-5.0-1.5
Deposits at BEAC-52.5-37.224.419.1-7.02.73.11.61.0-5.0-1.5
Deposits at domestic banks0.81.63.10.00.00.00.00.00.00.00.0
Loans0.00.00.00.00.00.00.00.00.00.00.0
Net lending0.00.00.00.00.00.00.00.00.00.00.0
Shares and other equity0.00.00.00.00.00.00.00.00.00.00.0
Net acquisition of equities0.00.00.00.00.00.00.00.00.00.00.0
Other financing0.00.00.00.00.00.00.00.00.00.00.0
Net incurrence of liabilities15.03.014.511.3-1.42.5-8.5-8.9-7.4-0.1-0.1
Domestic0.00.00.00.00.00.00.00.00.00.00.0
Foreign15.03.014.511.3-1.42.5-8.5-8.9-7.4-0.1-0.1
Loans15.23.214.911.21.19.01.00.00.00.00.0
Amortization (-)-0.2-0.2-0.40.1-2.5-6.5-9.5-8.9-7.4-0.1-0.1
Exceptional financing0.00.00.00.00.00.00.00.00.00.00.0
Errors and omissions-11.1-1.631.30.00.00.00.00.00.00.00.0
Memorandum items:
Tax revenue57.435.936.729.835.531.943.139.635.529.228.0
Other revenue92.790.2111.399.0107.769.995.083.269.258.848.9
Overall fiscal balance (billions of CFA francs)-459-36682170-2286885033-174-55
Percent of GDP-9.4-6.01.01.9-2.50.11.00.60.4-2.1-0.7
Non-resource primary balance3 (billions of CFA francs)-2,595-2,231-2,476-2,279-2,996-1,971-2,749-2,609-2,338-2,265-1,978
Percent of non-hydrocarbon GDP-164.4-130.9-128.6-104.5-137.4-85.0-118.5-105.6-89.2-81.2-66.4
Nominal GDP (billions of CFA francs)4,8906,0737,9319,0359,0358,9658,9658,7857,9788,1727,743
Nominal non-hydrocarbon GDP (billions of CFA francs)1,5781,7051,9252,1802,1802,3192,3192,4702,6222,7892,978
Sources: Equatoguinean authorities; BEAC; and IMF staff estimates and projections.

The VAT was legislated in early 2005; previously this was a sales tax.

Includes social benefits.

Equal to the overall balance excluding grants minus hydrocarbons sector corporate income tax and other revenue plus hydrocarbons revenue generated in the secondary LNG, LPG, and methanol production and purchase of share in hydrocarbons projects, minus interest on savings funds plus interest expenditure.

Sources: Equatoguinean authorities; BEAC; and IMF staff estimates and projections.

The VAT was legislated in early 2005; previously this was a sales tax.

Includes social benefits.

Equal to the overall balance excluding grants minus hydrocarbons sector corporate income tax and other revenue plus hydrocarbons revenue generated in the secondary LNG, LPG, and methanol production and purchase of share in hydrocarbons projects, minus interest on savings funds plus interest expenditure.

Table 4a.Equatorial Guinea: Depository Corporation Survey, 2009–17(Billions of CFA francs, unless otherwise specified; end of period)
200920102011201220132014201520162017
Dec.Dec.Dec.Dec.Dec.Dec.Dec.Dec.Dec.
Proj.Proj.Proj.Proj.Proj.Proj.
Depository corporations survey
Net foreign assets1,5611,1571,5881,3741,4441,4571,4511,3101,270
(Millions of U.S. dollars)3,4292,3563,1332,5952,7222,7382,7142,4412,357
Net domestic assets-882-136-516-283-331-329-324-130-32
Domestic claims-69984-289-42-59-40-5203318
Claims on central government (net)-1,125-497-1,022-871-942-982-1,009-869-825
Claims on other sectors4265817338298839421,0041,0731,144
Other items (net)-184-220-226-241-272-289-320-333-350
Broad money liabilities6951,0351,0981,1501,2321,3071,4461,5101,596
Currency outside depository corporations127169225236253268296309327
Deposits and other liabilities included in broad money5688668739149801,0391,1491,2011,269
Memorandum items:
CPI inflation (average annual)5.75.34.85.55.05.45.25.04.7
Broad money (M2, annual percentage change)18.848.96.14.77.16.110.64.55.7
Monetary base (MB, annual percentage change)57.020.214.9-7.8-0.3-4.1-7.5-1.00.9
Credit to the private sector (annual percentage chage)11.033.730.813.96.76.86.77.06.8
Credit to the private sector (percent of non-hydrocarbon GDP)25.531.536.536.736.836.937.237.437.4
Broad money (percent of overall GDP)14.217.013.812.713.714.918.118.520.6
Velocity (Overall GDP/end-of-period M2)7.05.97.27.97.36.75.55.44.8
Velocity (Non-hydrocarbon GDP/end-of-period M2)2.31.61.81.91.91.91.81.81.9
Reserve money multiplier (M2/BM)1.41.81.61.92.02.22.62.82.9
Currency/M2 ratio0.20.20.20.20.20.20.20.20.2
Lending rate1 (annual average, percent)n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.
Deposit rate (annual average, percent)3.33.33.3n.a.n.a.n.a.n.a.n.a.n.a.
Sources: BEAC and IMF staff estimates and projections.

Lending rate is not regulated by BEAC, beginning July 2008.

Sources: BEAC and IMF staff estimates and projections.

Lending rate is not regulated by BEAC, beginning July 2008.

Table 4b.Equatorial Guinea: Central Bank and Other Depository Corporations Surveys, 2009–17(Billions of CFA francs, unless otherwise specified; end of period)
200920102011201220132014201520162017
Dec.Dec.Dec.Dec.Dec.Dec.Dec.Dec.Dec.
Proj.Proj.Proj.Proj.Proj.Proj.
Central bank survey
Net foreign assets145511281524132613981416140312621220
(Millions of U.S. dollars)319622983006250426372661262423502264
Net domestic assets-970-545-854-708-783-826-857-721-675
Claims on central government (net)-975-340-809-657-729-769-795-656-612
Claims on other depository corporations000000000
Claims on other sectors000000000
Other items (net)5-205-45-51-54-58-61-65-62
Monetary base485583670617616590546541546
Currency in circulation127169225236253268296309327
Liabilities to other depository corporations373428470381362322249231218
Currency161425128122108847873
Deposits357414444253240213165153145
Liabilities to other sectors111111111
Other depository corporations survey
Net foreign assets1062965484541494850
(Millions of U.S. dollars)23358128918677919093
Net domestic assets461837808806814819781822861
Claims on central bank373428470381362322249231218
Currency161425128122108847873
Reserve deposits and securities other than shares357414444253240213165153145
Required reserves000000000
Excess reserves357414444253240213165153145
Other claims000000000
Domestic claims276424520615670729791860931
Claims on government (net)-150-157-213-213-213-213-213-213-213
Claims236555544
Liabilities152160219219219218218218218
Claims on other sectors426581733829883942100410731144
Public enterprises222427282929303031
Private sector40253870380185491397410431113
Other items (net)-188-15-181-191-218-231-259-268-288
Deposit liabilities to nonbank residents5688668739149801039114912011269
Sources: BEAC; and IMF staff estimates and projections
Sources: BEAC; and IMF staff estimates and projections
Table 5.Equatorial Guinea: Financial Soundness Indicators for the Banking Sector, 2006–11(Percent)
200620072008200920102011
Capital
Regulatory capital to risk-weighted assets1, 213.08.65.39.36.67.4
Tier 1 capital to risk-weighted assets211.87.44.08.05.46.2
Capital to total assets37.68.37.910.410.912.9
Asset quality
Non-performing loans (gross) to total loans (gross)14.311.39.911.87.25.5
Loan loss provisions to non-performing loans84.894.076.964.488.6101.7
Earnings and profitability
Return on assets41.21.01.71.31.50.6
Return on equity517.713.923.918.514.95.4
Liquidity
Ratio of net loans to total deposits666.864.547.044.045.437.4
Source: COBAC.

Current year profits are excluded from the definition of regulatory capital, following the Basel I capital accord guidelines. General provisions are included in Tier 2 capital up to an amount equal to 1.25% of risk-weighted assets. Regulatory capital is the sum of Tier 1 capital, and the minimum of Tier 1 and Tier 2 capital.

The risk-weighted assets are estimated using the following risk weights: 0% - cash reserves in domestic and foreign currency and claims on the central bank; 100% - all other assets.

Current year profits are excluded from the definition of capital (i.e., shareholders’ funds).

The ratio of after-tax profits to the average of beginning and end-period total assets. The numbers for 2007 are preliminary and to be confirmed by the authorities.

The ratio of after-tax profits to the average of beginning and end-period shareholders’ funds (excluding current-year profits). The numbers for 2008 are preliminary and to be confirmed by the authorities.

Including government deposits.

Source: COBAC.

Current year profits are excluded from the definition of regulatory capital, following the Basel I capital accord guidelines. General provisions are included in Tier 2 capital up to an amount equal to 1.25% of risk-weighted assets. Regulatory capital is the sum of Tier 1 capital, and the minimum of Tier 1 and Tier 2 capital.

The risk-weighted assets are estimated using the following risk weights: 0% - cash reserves in domestic and foreign currency and claims on the central bank; 100% - all other assets.

Current year profits are excluded from the definition of capital (i.e., shareholders’ funds).

The ratio of after-tax profits to the average of beginning and end-period total assets. The numbers for 2007 are preliminary and to be confirmed by the authorities.

The ratio of after-tax profits to the average of beginning and end-period shareholders’ funds (excluding current-year profits). The numbers for 2008 are preliminary and to be confirmed by the authorities.

Including government deposits.

Annex I. Anchoring Fiscal Policy: Curbing Expenditure Volatility and Ensuring Fiscal Sustainability

With limited proven hydrocarbon reserves, the authorities need to adopt a fiscal strategy that balances near-term development needs against finite resources, while maintaining macroeconomic stability and boosting financial management performance. The government has in the past considered different mechanisms to promote fiscal sustainability, such as using cautious oil price projections in budget planning and financing current expenditure only with non-hydrocarbon taxes. It has also looked at the implications of a permanent income framework and the establishment of a sovereign wealth fund. But these considerations have not yielded a firm framework that would guide fiscal policy over a sustained period.

In practice, two main guiding principles seem to have underpinned recent budget proposals. First, there has been a strong desire to follow the spending imperatives set out in the National Development Plan 2008–20 and to meet construction deadlines for major international events. Second, budget proposals have sought to deliver at least an overall fiscal surplus, in line with CEMAC convergence commitments on the basic fiscal balance.

To insulate public spending from volatility in oil revenue requires fiscal mechanisms that can establish and maintain strong fiscal buffers and effectively manage oil revenues over time. Without such fiscal buffers, government spending is likely to rise and fall with global price developments, thus amplifying economic cycles at home and impeding progress toward inclusive growth.

Equatorial Guinea currently has fiscal buffers sufficient to protect the budget from oil price volatility over a three-year horizon, provided the fiscal consolidation projected in this report’s baseline framework is undertaken. Staff estimates based on value-at-risk analysis suggests that resources at the BEAC, together with the government’s foreign currency deposits in commercial banks, provide sufficient liquidity to offset the impact of most conceivable fluctuations in oil prices for this period. The minimum required size of the stabilization buffer is estimated by simulating stochastically the impact of different oil prices on the fiscal accounts using a specified framework of the oil production profile and fiscal regime.1 The oil price is simulated 5,000 times.

A fiscal sustainability analysis based on the framework described in recent IMF work on resource–rich developing countries2 suggests there is sufficient fiscal room to maintain a moderately high level of investment over the medium term without jeopardizing fiscal stability. The analysis follows the steps outlined below:

  • Establish a medium-term path for spending consistent with a declining path for the non-resource primary fiscal deficit (NRPD). Having completed the first phase of the NDP aimed at building up basic infrastructure, the authorities can now accommodate a significant scaling-down in capital spending in 2012–20. This would also bring capital spending more in line with the country’s execution and absorption capacity and allow room for growth in current spending. The illustrative assumption incorporated here is that the level of capital spending will halve relative to non-hydrocarbon GDP over the next four years, establishing a baseline scenario that permits a phased, yet significant, fiscal consolidation during the second half of the NDP, reducing the NRPD from 135 percent of non-hydrocarbon GDP in 2013 to 36 percent in 2020. This would also keep net financial assets positive and help to secure external stability.

  • Determine the impact of both the scaling up of investment and subsequent consolidation on real growth. It is expected that the scaling up of investment in 2008–12 will have a positive impact on the productivity of the private sector and boost short-run growth. This will limit the direct negative impact on activity of the consolidation that is assumed to follow. The negative impact will also be limited because foreign companies and labor have been responsible for constructing much of the public investment. Real non-hydrocarbon growth is assumed to rise to a peak of 5.0 percent in 2023 and then slow down to a long-term growth of 3.0 percent.

    Table I.1.Equatorial Guinea: Selected Economic Indicators, 2012–30
    201220132016202020252030
    (Annual percent change, unless otherwise indicated)
    Real non-hydrocarbon GDP11.72.82.44.44.03.2
    Real hydrocarbon GDP-1.8-4.23.1-15.9-16.5-16.6
    Real GDP2.7-1.72.8-4.8-0.91.6
    Oil price (U.S. dollars a barrel)10210189858585
    Remaining reserves (million Bbls.)82973447225111360
    Consumer prices (annual average)5.55.05.03.22.82.5
    Source: IMF staff calculations
    Source: IMF staff calculations

  • Estimate the long-run level of the NRPD needed to maintain a given level of wealth.3 After 2020, it is assumed that the NRPD would decline gradually to reach a level of just over 1 percent of non-hydrocarbon GDP, which would be consistent with maintaining total net wealth at about 100 percent of non-hydrocarbon GDP in 2030. Interest rates are assumed to average 6.5 percent, 1 percent above the long-run growth of nominal GDP (Figure I.1).

    Figure I. 1.Equatorial Guinea: Non-Resource Primary Deficit, Financial Assets and Wealth

    (Percent of non-hydrocarbon GDP)

    Source: IMF staff calculations.

  • Calibrate assumptions of fiscal policy to ensure consistency with the fiscal sustainability framework assumed. An illustrative fiscal composition is presented in Table I.2. Reflecting lower levels of revenue in the long term, because of the depletion of hydrocarbon wealth, government capital spending declines to around 5 percent of non-hydrocarbon GDP. This is similar to the ratio observed in other high-income economies and would follow more than two decades of rising government capital stock. At the same time, primary current expenditure is expected to increase (to around 25 percent of non-resource GDP), driven by the higher costs of utilizing the enhanced capital stock and improved provision of social services. A substantial increase in non-resource revenue mobilization (almost doubling from 15 to 30 percent of non-hydrocarbon GDP) will be required to cover this level of expenditure when hydrocarbon revenues fall. This would likely entail a comprehensive approach to revenue mobilization that would include reforms of tax administration and enforcement aimed at increasing tax collection (the process is already starting in the customs area), the centralization of tax authority and collection, and the curtailment of tax exemptions (in line with the 2013 budget decree) and broadening the income tax base.

Table I.2.Equatorial Guinea: Selected Fiscal and Financial Indicators 2011–2030
2011201220132016202020252030
(Percent of non-resource GDP)
Non-hydrocarbon revenue13.716.516.314.313.419.529.9
Primary expenditure142.3151.3132.493.549.131.730.9
Capital117.7129.3109.769.023.45.95.5
Primary current24.622.022.724.525.725.825.4
Non-hydrocarbon primary balance (NRPB)-128.6-134.8-116.1-79.2-35.7-12.2-1.1
Hydrocarbon revenue134.3126.0121.273.533.110.22.5
Net financial assets139.7121.4126.7126.3111.895.495.4
Natural hydrocarbon wealth0.0712.4592.3324.9127.336.313.8
Total wealth930.0829.3719.0451.2239.1131.7109.2
Sources: Equatoguinean authorities; and IMF staff estimates and projections.
Sources: Equatoguinean authorities; and IMF staff estimates and projections.

As the exercise above demonstrates, while a gradual consolidation of capital expenditure that would allow completion of the NDP can be consistent with fiscal sustainability, it would entail drawing down a majority of the public sector’s existing wealth. This policy, if coupled with reforms aimed at strengthening public financial management and transparency, could transform financial wealth into growth-enhancing physical and social infrastructure. Sustainability of the fiscal position in the long run would also require a pronounced increase in non-oil revenues.

Annex II. Downside Scenario Analysis

In the main projections in this report, oil prices are assumed to decline only modestly in real terms over the medium term, consistent with a steady but modest recovery in the world economy as outlined in the baseline case of the World Economic Outlook (WEO), October 2012. However, among the more prominent global risks identified in the WEO, is a “lower global growth” scenario that would depress demand for commodities over a sustained period and lead to substantially lower commodity prices, particularly for energy. By 2016, global oil prices would be 30 percent below the levels of the baseline case.

The implications of the “lower global growth” scenario for the economy of Equatorial Guinea would be substantial, given the dependence of both government revenue and foreign currency earnings on hydrocarbon production. Indeed, if government spending were to follow the same path as in the main projections in this report, simulations suggest the reduction in hydrocarbon receipts would drain the bulk of government savings and official reserves within five years, with both falling to about 20 percent of their 2012 levels. In contrast, provided confidence was maintained, the impact on GDP would be relatively small because, outside the hydrocarbon sectors, the economy is not directly dependent to any significant extent on world demand, investment, or transfers, and lower energy prices would buttress investment and consumption.

Assuming, however, that the government would in fact cut spending in response to the lower oil revenue, the drain on savings and reserves would be considerably reduced—but at a cost in terms of domestic demand and hence GDP. In the example below, expenditure is reduced in parallel to the fall in prices, but less than proportionately. This mitigates the potential impact on GDP, but is not enough to preserve fiscal balance. Under such a scenario, government savings would maintain about 70 percent of its 2012 levels without a substantial decline of real GDP growth.

Alternative Scenario with Policy Reaction

Source: IMF staff calculations.

“Hydrocarbon” production includes both crude oil and gas condensate production (classified as primary sector output) and oil and gas derivatives, such as liquefied natural gas (secondary sector output).

In line with United Nations (World Population Prospects, 2010) the population in 2010 is estimated at 703,420. Equatorial Guinea authorities use a population estimate of 1,622,000 for 2010. A new population census is planned for 2013.

Republic of Equatorial Guinea, Ministry of Planning, Economic Development and Public Investment, 2007, “Poverty Profile of Equatorial Guinea in 2006.” The national poverty line was drawn at about US$2 a day.

Official projections provided by the Ministry of Mines, Industry, and Energy, which underpin staff projections, are based only on prospects for fields currently in or close to production.

Revenues associated directly with hydrocarbon production are removed from all “non-resource” fiscal aggregates

Newly available data for 2009 and 2010 point to lower inflation rates than previously assumed.

See also the CEMAC staff report and background note (Report No. 12/244).

See, for example, World Bank 2010 Public Expenditure Review and IMF FAD technical assistance mission March 2011 (Box 4).

Oil prices are modeled using an AR(1) process in logarithms. The current year’s oil price is estimated using the previous year price and a random variable (ε): log(Pt)=α + β log(Pt-1)+ εt, where α=0.058, β=0.90, and ε~N(0,0.29). These parameters were estimated using data from the BP Statistical Review 2011 covering 1969–2010 controlling for a possible regime change in the oil market in 1974.

Macroeconomic Policy Frameworks for Resource-Rich Developing Countries (IMF Policy Paper; August 24, 2012).

Net wealth is defined as the sum of the present value of future oil revenue plus net financial assets. For a formal definition of the net wealth-stabilizing level of the NRPD, see the annex to “Macroeconomic Policy Frameworks for Resource-Rich Developing Countries” (IMF Policy Paper; August 24, 2012).

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