On behalf on my Equatorial Guinean authorities, I would like to thank staff for the fruitful dialogue held in Malabo during the 2012 Article IV Consultation. My appreciation also goes to management, for the continued support of the Fund to the development efforts the authorities are undertaking. My Equatoguinean authorities are especially thankful of the Fund’s valuable technical assistance (TA) which has benefitted Equatorial Guinea in recent years.
Recent Economic Developments
Economic development in Equatorial Guinea remains mostly driven by the oil sector, notably by gas derivatives, which partly compensate for the sharp decline experienced in primary oil output. Robust investment in the construction and infrastructure-related sectors also contribute to economic activity. As a result, real GDP which grew by 4.9 percent in 2011 is estimated to have decreased to 2.5 percent in 2012, with a decline of about 1.7 percent, projected for 2013, mostly due to lower output in the hydrocarbon sector. Inflation has remained stable at single digit, although above regional average, as a result of intense construction activities and the related increased domestic demand. The external current account remains in deficit, mainly due to high level of imports of capital goods and services.
As regards fiscal policy, the focus has been to use revenue from oil to build and upgrade basic infrastructure. The infrastructure created and upgraded has generated new opportunities for private sector activity and raised living standard. As staff note, the public investment program has been undertaken in a fiscally responsible manner, with limited external borrowing. As a result, the fiscal accounts have returned to surplus in 2011, in line with CEMAC convergence criteria.
With the culmination of the first phase of the National Development Plan (NDP) (2008-2012) mainly focused on putting in place the basic infrastructure that would support economic diversification, attention is now to tighten policy targets. Thus, the volume of public investment is planned to be scaled down to 2010 levels, as contemplated in the 2013 budget framework, focusing on economic diversification and social sectors development.
For the medium-term, in view of the decreasing available revenue and needed urgent actions to productive and social sectors, my authorities are contemplating a more conservative spending program that is closely adaptive to broad base growth. In this regard, the authorities are giving full consideration to the staff’s advice and recommendations. However, a major issue is weak capacity in fiscal administration. My authorities are addressing this issue with Fund technical assistance and are hopeful that their request for renewal for the contract of the resident advisor will be approved soon.
In the monetary and financial sector, memberships in the Bank of Central African States (BEAC) and the pegged exchange rate regime have served the economy of Equatorial Guinea well. Key fundamental financial indicators are sound. Additionally, limited exposure to outside risky banking systems have also contributed to the resiliency of the sector. Nonetheless, steps to enhance competitiveness will be ongoing. Although the financial system remains healthy, further efforts are needed to increase private sector development and financing, while maintaining a lower rate of None Performing Loans (NPLs), so as to further boost the non-oil economic growth and deepen financial intermediations.
Over the medium term, the authorities expect the growth rate to slow down, along with the declining production activities in oil sector, together with the scaled down capital spending in the construction sector. However, the authorities would note the accelerated pace to which the first phase of NDP was implemented, and which have resulted in important outcomes, as several of the desired social, economic and financial objectives are being accomplished. The authorities are undertaking a review of the first phase of implementation, and lessons learned from that exercise will help to improve on the implementation of the next phase of their development planning. The hydrocarbon sector will continue to support the diversification initiatives at least beyond this second phase of the strategy, which should make its objectives a bit more achievable.
The authorities will pursue their efforts to reduce the non-oil primary deficit as the focus of this second phase is to strengthen economic diversification away from resource sectors. Fiscal targets are currently met through quarterly reviews of the budget and subsequent adjustments when needed. Targeting expenditure on priority sectors, including public service provision, poverty reduction initiatives will be improved. On the revenue side, efforts will continue towards the broadening of the tax base and revenue collection, including better monitoring, with the provision of taxpayer identification number, strengthening custom administration through computerization, and the adoption of pre-shipment inspections. These, together with the creation of a single unit in charge of large tax-payers should enhance non-resources revenue collection. My authorities remain committed to pursue their efforts geared towards combating over invoicing and tax evasion. They will also continue their efforts to strengthen capacity in the fiscal sector with assistance from the Fund, the World Bank and the African Union.
Improving the business climate and external competitiveness, coupled with promoting the private sector led growth, and reducing poverty constitute the main focus and key objectives of the authorities’ next development phase. Structural reforms toward achieving such objectives are being undertaking. Important emphasis is being placed on capacity building within the local work force, together with efforts to improve access to credit, in addition to improving financial and property legal framework. With regard to data shortcomings, the recent changes and improvements within the Ministry of Planning and Statistics Department should help address the issue.
Reducing poverty and improving the standard of living of the population remain major objectives of the authorities. Much has been accomplished in the past few years and the data referred to by the staff which is from 2006 do not reflect fully the progress that has been achieved. Progress is continuing in all areas: education, health and importantly in infrastructure building. My authorities agree that that much remains to be done and they intend to pursue their efforts to improve the standard of living of the Equatoguinean population with determination.
Despite the many challenges, Equatorial Guinea has made considerable progress towards achieving its development goals. Lack of readily available statistics constitutes one of those challenges preventing a full appreciation of the progress achieved. While there are downside risks to the economy due to its dependency on the hydrocarbon sector, there are also upside opportunities. The hydrocarbon sector has supported the development of the country and the authorities expect this sector to continue playing a vital role in future development, and enabling the country to implement the required policies. Strengthening human capital, developing a strong non-hydrocarbon sector, and creating a conducive environment for private sector development constitute some of the upmost objectives presently at the authorities’ development agenda.