Journal Issue
Share
Article

Gabon: Staff Report for the 2014 Article IV Consultation—Debt Sustainability Analysis

Author(s):
International Monetary Fund. African Dept.
Published Date:
February 2015
Share
  • ShareShare
Show Summary Details

Public Debt Sustainability Analysis

Public debt level and structure. Gabon’s public debt has rapidly increased in recent years as the government sought additional funds to finance the PSGE. From approximately 16.7 percent of GDP in 2008, total public debt reached 27.3 percent of GDP in 2013. Gabon’s government debt is mostly external (external debt accounts for 90 percent of total public debt) and medium-to-long term. It is worth noting that while the CEMAC regional group sets a public debt ceiling at 70 percent of GDP (deemed too high in recent CEMAC regional surveillance staff reports), Gabon sets a more conservative ceiling of 35 percent of GDP.

Baseline scenario. The baseline scenario reflects projections made in the macroeconomic framework described in Tables 1 to 6. This scenario assumes that the government, significantly eliminates tax exemptions, rapidly removes most of the existing oil subsidies, further adjusts public investment spending, and curbs other current spending items from 2017. International oil and other commodity prices, as well as exchange rates reflect World Economic Outlook projections through 2020. The public DSA shows that the macroeconomic framework presented in this staff report would result in debt levels that briefly exceed the government’s debt ceiling in 2016 and gradually decrease from 2017.

Shocks. A historical scenario, in which financial needs are much lower than in the baseline, translates into a reduction in public debt levels over the projection period. On the other hand, assuming that the primary fiscal balance remains in deficit (equivalent to 1.3 percent of GDP), which could result from insufficient fiscal adjustment, leads to a substantial accumulation of public debt, surpassing 60 percent of GDP. Assuming real GDP growth is 1 percentage point lower in the projection period (a supply shock) leads to a substantial increase in public debt up to almost 60 percent of GDP. This is similar to the result of a combined shock of a reduction in government revenues by 2 percentage points of GDP (which could result if oil prices decline by 20 percent, for example) and a reduction in GDP growth by 1 percentage point.

Table 1.Gabon: Public Sector Debt Sustainability Analysis (DSA) - Baseline Scenario(in percent of GDP unless otherwise indicated)
Debt, Economic and Market Indicators 1/
ActualProjectionsAs of January 20, 2015
2004–2012 2/20132014201520162017201820192020Sovereign Spreads
Nominal gross public debt31.326.927.734.435.733.733.232.931.9Bond Spread (bp) 3/687
Public gross financing needs−1.23.9−0.26.33.13.41.82.53.65Y CDS (bp)n.a.
Real GDP growth (in percent)2.55.65.14.45.55.65.75.75.9RatingsForeignLocal
Inflation (GDP deflator, in percent)7.2−2.7−4.6−9.42.61.90.50.00.6Moody’sBa3Ba3
Nominal GDP growth (in percent)10.02.70.2−5.48.27.66.35.76.5S&PsBB-BB-
Effective interest rate (in percent) 4/5.78.76.35.05.05.04.74.74.6FitchBB-BB-
Contribution to Changes in Public Debt
ActualProjections
2004–201220132014201520162017201820192020cumulativedebt-stabilizing
Change in gross public sector debt−5.15.80.86.71.3−2.0−0.5−0.3−1.04.2primary
Identified debt-creating flows−9.5−3.2−0.24.4−2.0−2.9−2.8−2.5−2.4−8.2balance 9/
Primary deficit−7.7−3.6−4.61.3−1.0−2.0−2.4−2.2−1.8−8.0−0.6
Primary (noninterest) revenue and grants28.030.827.822.324.124.424.624.624.6144.5
Primary (noninterest) expenditure20.327.223.223.623.022.422.322.422.8136.5
Automatic debt dynamics 5/−1.80.44.53.0−1.0−0.9−0.5−0.3−0.6−0.3
Interest rate/growth differential 6/−1.61.21.63.0−1.0−0.9−0.5−0.3−0.6−0.3
Of which: real interest rate−1.02.43.04.30.71.01.31.51.210.1
Of which: real GDP growth−0.5−1.1−1.4−1.3−1.7−1.9−1.8−1.8−1.8−10.3
Exchange rate depreciation 7/−0.2−0.82.8&&&&&&&
Other identified debt-creating flows0.00.00.00.00.00.00.00.00.00.0
Please specify (1) (e.g., privatization receipts) (+ reduces financing needs) (negative)0.00.00.00.00.00.00.00.00.00.0
Contingent liabilities0.00.00.00.00.00.00.00.00.00.0
Please specify (2) (e.g., other debt flows) (+ increases financing needs)0.00.00.00.00.00.00.00.00.00.0
Residual, including asset changes 8/4.49.01.02.43.30.92.32.21.412.5
Source: IMF staff.

Public sector is defined as general government.

Based on available data.

Long-term bond spread over German bonds (bp).

Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.

Derived as [r - π(1+g) - g + ae(1+r)]/(1+g+π+πg) times previous period debt ratio, with r = effective nominal interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).

The real interest rate contribution is derived from the numerator in footnote 5 as r - π (1+g) and the real growth contribution as -g.

The exchange rate contribution is derived from the numerator in footnote 5 as ae(1+r).

Includes asset changes and interest revenues (if any). For projections, includes exchange rate changes during the projection period.

Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

Source: IMF staff.

Public sector is defined as general government.

Based on available data.

Long-term bond spread over German bonds (bp).

Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.

Derived as [r - π(1+g) - g + ae(1+r)]/(1+g+π+πg) times previous period debt ratio, with r = effective nominal interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).

The real interest rate contribution is derived from the numerator in footnote 5 as r - π (1+g) and the real growth contribution as -g.

The exchange rate contribution is derived from the numerator in footnote 5 as ae(1+r).

Includes asset changes and interest revenues (if any). For projections, includes exchange rate changes during the projection period.

Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

Figure 1.Gabon: Public DSA - Composition of Public Debt and Alternative Scenarios

Source: IMF staff.

Figure 2.Gabon: Public DSA Risk Assessment

Source: IMF staff.

External Debt Sustainability Analysis

External debt level and structure. After a considerable restructuring and consequent reduction in the late 2000s, Gabon’s external debt went up from US$2.1 billion in 2009 to about US$4.3 billion in 2013 (equivalent to 24.8 percent of 2013 GDP). Such an increase is partly the result of the issuance of a US$1.5 billion eurobond in 2013. By end-2013, debt to multilateral institutions accounted for 13 percent of total external debt, bilateral debt for 23 percent, debt to commercial institutions for 24 percent and the remaining 40 percent was placed in financial markets.

Baseline scenario. The baseline scenario is the same as in the public debt sustainability analysis, reflecting projections made in the macroeconomic framework described in Tables 1 to 6. With respect to external debt, the macroeconomic framework assumes that the authorities are able to issue eurobonds for US$500 million in 2015 and for US$250 million in 2016, half of what they had previously intended, due to tighter market conditions. The framework assumes that the international bond for US$1 billion that was issued in 2007 is not rolled over, as is the case in projections provided by the authorities. Under this scenario, the external debt sustainability framework projects an increase in external debt-to-GDP ratio to a peak of 31.7 percent in 2016, after which external debt gradually declines to 28.1 percent in 2020.

Shocks. Alternative scenarios include a historical scenario in which main variables are assumed to be the same as in the past ten years, and others that incorporate a 0.25 standard deviation applied to real interest rate, growth rate, and the current account balance. While the historical scenario, in which financial needs are much lower than in the baseline, lead to a drastic reduction in external debt, other shocks to the baseline lead to a substantial debt escalation. Most notably, shocks to the non-interest rate current account and the real exchange rate lead to an increase in external debt by 2020 up to 41 and 42 percent of GDP, respectively.

Table 2.Gabon: External Debt Sustainability Framework, 2009-2020(In percent of GDP, unless otherwise indicated)
ActualProjections
20102011201220132014201520162017201820192020Debt-stabilizing non-interest current account 6/
Baseline: External debt14.412.417.624.822.530.531.729.529.128.728.1−6.7
Change in external debt−3.6−2.05.27.1−2.28.01.1−2.2−0.4−0.4−0.6
Identified external debt-creating flows (4+8+9)−15.5−18.6−23.5−21.5−16.8−4.4−8.4−9.0−8.1−6.4−5.1
Current account deficit, excluding interest payments−8.7−13.8−22.1−16.4−12.52.6−1.2−1.9−1.40.31.4
Deficit in balance of goods and services−20.2−25.2−37.4−29.9−25.0−9.0−12.0−12.3−11.6−10.2−8.7
Exports49.153.572.464.861.143.044.745.044.643.441.7
Imports28.928.234.934.936.134.032.732.733.033.333.0
Net non-debt creating capital inflows (negative)−3.2−3.4−5.1−5.6−5.6−7.3−7.3−7.0−6.7−6.7−6.5
Automatic debt dynamics 1/−3.6−1.43.80.51.30.20.10.0−0.1−0.1−0.1
Contribution from nominal interest rate0.90.70.91.51.41.41.61.61.51.51.5
Contribution from real GDP growth−0.80.0−0.8−0.9−1.3−1.2−1.5−1.6−1.6−1.6−1.6
Contribution from price and exchange rate changes 2/−3.6−2.23.7−0.11.2
Residual, incl. change in gross foreign assets (2–3) 3/11.916.628.728.614.612.49.56.87.76.04.5
External debt-to-exports ratio (in percent)29.423.224.338.236.971.070.965.665.266.067.3
Gross external financing need (in billions of US dollars) 4/−0.8−2.3−3.1−1.6−1.41.10.30.40.30.60.9
in percent of GDP−5.3−11.6−18.8−9.2−8.310-Year10-Year7.52.12.41.43.04.3
Scenario with key variables at their historical averages 5/30.519.76.4−6.1−20.2−35.5−3.0
Key Macroeconomic Assumptions Underlying BaselineHistorical AverageStandard Deviation
Real GDP growth (in percent)6.30.05.55.65.13.23.74.45.55.65.75.75.9
GDP deflator in US dollars (change in percent)25.317.8−23.10.5−4.66.319.0−18.23.13.01.71.00.6
Nominal external interest rate (in percent)6.96.15.79.25.76.11.35.35.85.55.45.55.6
Growth of exports (US dollar terms, in percent)23.537.19.8−5.0−5.411.422.8−39.912.99.66.54.02.2
Growth of imports (US dollar terms, in percent)8.923.20.36.13.610.89.1−19.54.48.88.77.65.7
Current account balance, excluding interest payments8.713.822.116.412.515.95.5−2.61.21.91.4−0.3−1.4
Net non-debt creating capital inflows3.23.45.15.65.64.21.97.37.37.06.76.76.5

Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.

The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).

For projection, line includes the impact of price and exchange rate changes.

Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.

Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.

The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).

For projection, line includes the impact of price and exchange rate changes.

Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.

Figure 3.Gabon: External Debt Sustainability: Bound Tests 1/2/

(External debt in percent of GDP)

Sources: International Monetary Fund, Country desk data, and staff estimates.

1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.

2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.

3/ Permanent ¼ standard deviation shocks applied to real interest rate, growth rate, and current account balance.

Other Resources Citing This Publication