On February 18, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Gabon.
Gabon’s growth performance has recently been strong, but fiscal pressures have increased significantly. Real GDP growth has averaged about 6 percent in the last four years on the back of substantial scaling-up of capital spending as the authorities implement their strategy Plan Stratégique Gabon Emergent (PSGE) to promote economic diversification and growth inclusiveness. The external current account has been in surplus, while inflation has remained in the low single digits. Partly as a result of the scaling up in public investment, the fiscal situation has come under pressure and arrears have been accumulated, notwithstanding historically high oil prices until recently.
The medium-term growth outlook has weakened as a result of the sharp decline in oil prices, but is expected to remain relatively strong. Growth is expected to be driven by a number of projects underway in agro-industry, mining, and wood processing. The government is aiming to keep public debt below its target of 35 percent of GDP in the medium run by broadening the non-oil tax base, controlling growth in current spending, and moderating public investment growth after significantly cutting it in 2014. To protect infrastructure investment in the face falling oil revenues spending, the government intends to have recourse to the international capital markets for financing.
The main downside risks to the economic outlook in the short to medium term is an insufficient adjustment to fiscal policy, leading to further depletion of fiscal buffers, and weak investment execution capacity. Both could lead to further depletion of fiscal buffers and insufficient fiscal space to implement the PSGE and address binding constraints to growth, such as infrastructure bottlenecks, lack of qualified labor, and a weak business environment. In turn, lower oil prices and failure to implement PSGE could considerably reduce much needed non-oil growth. In the longer run, there is upside potential to raise growth if the binding constraints are addressed.
Executive Board Assessment2
Directors welcomed the robust economic growth in recent years under favorable economic conditions, but regretted that growth has not been sufficiently inclusive or broad-based, with poverty and unemployment rates remaining high. Directors expressed support for the authorities’ diversification strategy, predicated on improvements in infrastructure and human capital development, and an acceleration in business climate reforms. With the recent major decline in oil prices, Directors underscored the need for the diversification strategy to be financed sustainably.
Directors supported the authorities’ efforts to adjust the fiscal stance in 2014, in order to avoid a rapid escalation of public debt levels and an accumulation of arrears, given weaker oil revenues. Noting that investment spending was unsustainably high during 2010–13, Directors agreed that the expenditure cuts in 2014 preserved infrastructure development while promoting fiscal sustainability. They also welcomed the authorities’ intention to adopt a revised budget for 2015 reflecting recent oil price trends.
Looking ahead, Directors underscored the need for further fiscal adjustment to rebuild policy buffers while preserving medium-term fiscal sustainability. They noted that this would require curbing growth in current spending, including the wage bill, and effectively phasing out general oil subsidies, while safeguarding priority infrastructure and social spending. Directors also highlighted the need to expand the non-oil tax base, notably by reducing tax exemptions and improving tax administration. In addition, efforts to improve the management and transparency of the public finances should be sustained, and the quality of public investment improved. In this context, Directors welcomed the authorities’ efforts to increase the transparency of natural resource revenues and commitment to become compliant with the Extractive Industries Transparency Initiative (EITI) during 2015.
Directors called for stepped-up efforts to boost external competitiveness through structural reforms designed to reduce factor costs. They recommended “horizontal” policies aimed at improving the business climate—such as addressing infrastructure bottlenecks in energy and transport; boosting investment in human capital; and strengthening the business regulatory framework. Noting the potential for regional spillovers, Directors encouraged the authorities to lead by example and play a constructive role in setting and implementing appropriate common policies within CEMAC (Economic Community of Central African States) to support regional stability and growth.
Directors supported efforts to improve financial depth and inclusion, including through the establishment of a credit registry. They called for a strengthening in the supervisory capacity of the regional banking supervisory authority, COBAC (Commission Bancaire de l’Afrique Centrale), and for prompt actions to address the weak financial situation of the three distressed public banks and to enhance the monitoring of the microfinance sector. Directors looked forward to the completion of the ongoing regional FSAP (Financial Sector Assessment Program) exercise.
Directors encouraged the authorities to improve data quality and timeliness, with Fund technical assistance. They also noted that Gabon maintains a tax on wire transfers, which is inconsistent with its obligations under Article VIII
|(Annual percent change, unless otherwise indicated)|
|GDP at constant prices||5.5||5.6||5.1||4.4||5.5||5.6||5.7||5.7||5.9|
|of which: primary oil||−4.2||−5.3||−0.9||−6.0||0.1||−0.4||−0.6||−1.3||−1.6|
|Terms of trade (deterioration= -)||−14.2||1.7||−5.9||−40.2||11.6||6.2||2.7||0.1||−0.8|
|Central government finance|
|(Percent of GDP, unless otherwise indicated)|
|Non-oil primary balance (in non-oil GDP)||−25.1||−19.6||−15.0||−11.6||−11.2||−9.8||−8.9||−8.2||−7.9|
|Overall balance (commitment basis)||2.6||1.8||2.9||−3.1||−0.9||0.1||0.6||0.4||0.0|
|Overall balance (cash basis)||2.4||0.2||−2.2||−3.8||−2.2||−1.1||0.6||0.4||0.0|
|Net domestic financing||−3.6||−10.1||2.7||0.6||−1.6||1.4||−2.6||−2.3||−1.5|
|Net external financing||−0.4||9.7||0.6||4.5||4.6||0.1||1.8||1.7||1.5|
|External public debt (including to the Fund)||17.2||24.0||24.3||30.5||31.5||29.3||28.9||28.7||28.1|
|Total public debt (Percent of GDP)||21.1||26.9||27.7||34.4||35.7||33.7||33.2||32.9||31.9|
|(Percent Change, unless otherwise indicated)|
|Money and credit|
|Credit to the economy||24.1||23.6||−7.5||7.2||7.5||9.0||7.3||7.4||9.3|
|(Percent of GDP, unless otherwise indicated)|
|Gross national savings||42.3||40.6||36.9||28.5||30.4||31.9||33.3||33.2||33.5|
|Gross fixed investment||21.0||25.8||25.8||30.9||31.2||31.8||33.6||35.2||36.3|
|of which: private||9.0||14.9||18.7||23.5||24.6||24.9||26.1||27.2||27.7|
|Current account balance||21.3||14.8||11.1||−4.0||−0.4||0.3||−0.1||−1.8||−2.9|
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.