On behalf of my Gabonese authorities, I would like to express my appreciation to the Executive Board, Management and staff for their continued advice and technical assistance to Gabon. My authorities found very useful the Article IV discussions with staff held in Libreville in November 2014. They appreciate staff recommendations and inputs in their economic policy agenda.
Over the past two years, my Gabonese authorities have pursued the implementation of their national development plan, Plan Stratégique Gabon Emergent (PSGE), which was rolled out in 2010. This plan, which is underpinned by a large public investment program and a set of institutional and structural reforms, aims at accelerating the structural transformation of the Gabonese economy in order to diversify sources of growth and reduce its dependence on oil. My authorities seized the opportunity offered by continued high level of oil prices in the past few years to accelerate the implementation of the PSGE, which is boosting economic activity in the country. GDP grew consistently by more than 5 percent annually since 2010 driven by the large public infrastructure projects and expansion of the non oil sector. In order to make growth more inclusive, the social component of the PGSE was strengthened following a study on poverty in Gabon by a global management consulting firm and a national roundtable on social policy held in April 2014.
However, in light of the experience gained during the four years of implementation of the PSGE, my Gabonese authorities decided to slow down its pace in order to align related expenditures with the absorptive capacity of the country and the level of budgetary resources, and preserve fiscal sustainability. The 2014 budget was revised accordingly in July 2014 with notably a halving of the public investment spending. Furthermore, as international oil prices declined sharply toward end-2014, my authorities withdrew the initial draft 2015 budget they had already submitted to the Parliament to prepare a new draft with more conservative revenue assumptions. In January 2015, following a 3-day governmental retreat to further examine the impact of the oil price shock, several adjustment policies were adopted to maintain the fiscal sustainability of the PSGE. Many of the measures taken are consistent with staff recommendations and will be reflected in the 2015 budget under revision.
Recent economic developments
Real growth slowed down but remained high in 2014 at 5.1 percent, down from 5.6 percent in 2013. The lower growth reflects the cutback in public investment spending decided in mid-2014. Growth was driven by a good performance in the mining and wood-processing sectors. Due to base effects, inflation rose sharply from 0.5 percent in 2013 to 4.4 percent in 2014. The sustained high level of international commodity prices translated in large current account surpluses since 2010. As those prices weakened towards the end of 2014, the current account surplus declined in 2014.
The fiscal position continued to be under pressure due to the high level of expenditures related to the implementation of the PSGE. Despite curtailing public investment, the fiscal overall balance in cash basis turned negative in 2014, owing to an acceleration of arrears payments and VAT reimbursements. Public debt remained low at 27.6 percent of GDP in 2014, well below the regional convergence criterion of 70 percent and the Gabonese authorities’ self-imposed debt ceiling of 35 percent. Gabon successfully issued a US$ 1.5-billion eurobond in December 2013.
The financial soundness indicators show that the banking sector is liquid, profitable and well-capitalized, with a low level of non-performing loans (NPLs). My authorities have appointed international experts to undertake an assessment of the three banks experiencing financial difficulties and define an action plan towards their resolution.
On the structural front, my authorities pursued policies aimed at improving the business climate. In particular, they streamlined the institutional framework for investment promotion with the creation of a special agency for that purpose in 2014. In addition, delays to open a business, process construction permits and get utility connections for businesses have been considerably reduced. As regard transparency in oil revenue management, my authorities have adopted an action plan to become EITI-compliant in 2015.
As indicated above, social policy took a center stage in the PSGE following a study on poverty in Gabon conducted in 2013 showing that poverty remains widespread despite having one of the largest per capita GDP in Africa and posting a strong growth performance. Therefore, in order to forcefully address unemployment and poverty, my authorities launched in 2014 several initiatives that aim, among others, at promoting income-generating activities, developing human capital and improving the social conditions of the most vulnerable segments of the population. In particular, an agricultural program, Programme GRAINE,, developed in partnership with a Singapore-based multinational corporation, was launched to promote the development of agriculture through the provision of a multiform assistance to producers organized in cooperatives. Through this program, my authorities expect to increase individual empowerment and tackle rural exodus while improving land use planning and contributing to economic diversification.
In the same vein, institutions in charge of providing vocational training and promoting employment are being reformed or created to better respond to labor market needs and increase prospects of professional integration and reintegration. In particular, an Oil and Gas Institute has been inaugurated in early 2014 and a Mining and Metallurgy school is expected to open in September 2015. Moreover, the national employment office will open branches in the main cities, besides the capital city, to better assist jobseekers. Furthermore, social safety nets are being strengthened through various schemes to facilitate access to utilities, health services and affordable housing.
Policies for 2015 and beyond
My authorities are determined to maintain economic and social growth over the medium term while preserving macroeconomic stability and fiscal sustainability. They agree that the recent oil price shock is complicating the implementation of their development plan and has adversely affected the country’s medium term economic prospects. Nevertheless they remain committed to further progress in upgrading infrastructure while enhancing the quality of investment, developing human capital and accelerating structural reforms in order to remove bottlenecks to economic diversification and improve the country’s competitiveness.
As Gabon continues to maintain good sovereign ratings from international rating agencies despite the adverse international environment, my authorities agree that preserving these ratings hinges on their ability to pursue prudent policies in order to maintain fiscal and debt sustainability and improve the attractiveness of the country. This is all the more important that they plan to tap international markets in 2015 to finance capital spending over the medium-term. This consideration, together with the objective of sustained economic and social growth, was prominently reflected in the recent package of adjustment policies identified during the governmental retreat last month to respond to the oil price shock.
These policies aim to improve oil revenue management, improve domestic revenue mobilization, contain current expenditures, and accelerate public financial management reforms. My authorities have already started to act on these recommendations with the adoption of many measures including the suppression of petroleum subsidies, the creation of an oil price stabilization fund, the launching of a civil service reform and the merger of two large public works agencies with similar missions. Short-term measures to improve non oil revenue performance and reduce nonessential expenditures have also been adopted. All these measures will be reflected in the 2015 budget currently being finalized.
The budget for 2015 is being revised with very conservative oil price and exchange rate assumptions. The budget envisages a significant reduction of current expenditures while preserving social and investment spending. Despite the fiscal adjustment measures taken and contemplated, a financing gap is expected to emerge, which my authorities envisage to fill through rescheduling domestic debt and issuing a eurobond. Until the finalization of the budget, only 15 percent of the initial draft budget for 2015 will be executed. My authorities are committed to remain current in VAT reimbursements and pursue the payments of external arrears.
My authorities will accelerate fiscal-related reforms, with the assistance of international organizations. Public financial management and tax administration will be strengthened in line with the recommendations in the PEFA report and Fund TA reports. In addition, the civil service reform underway aims, among others, at improving the management of civil service administration and reviewing the compensation system with a view to containing the wage bill.
On tax policy, my authorities continue to believe that tax on non-bank wire transfers does not affect cash transfers and is consistent with proposals in the international arena to tax capital flows. Furthermore, the removal of this tax remains a politically sensitive issue as the proceeds of this tax go to the health insurance fund. Likewise, they do not intend to make changes to the incentives for businesses operating in the special economic zones (SEZs) as these incentives are critical to the successful development of the zones. However, they plan to follow through on the governmental retreat’s recommendation to eliminate existing tax exemptions with no legal basis, in order to improve domestic revenue mobilization.
As regards the development of the financial sector, my authorities will continue reforms to increase financial access and depth in the economy. In particular, the credit registry being set up is expected to lower barriers to finance. They will continue to monitor closely the development of microfinance to preserve the soundness of this growing segment of the financial sector.
My authorities agree with the staff’s assessment of risks to Gabon’s growth outlook and the expected impact on the economy if they materialize. They believe that the actions already taken go in the right direction towards reducing downside risks identified by staff. They remain committed to implement their adjustment policies and stand ready to take additional adjustment measures if necessary.
My Gabonese authorities have continued to implement their ambitious development plan in 2013 and 2014 and have strengthened its social component to ensure a more inclusive growth. They have adjusted its pace of implementation to make it consistent with the country’s absorptive capacity and level of resources. More recently, my authorities took additional adjustment measures to cope with the oil price shock. In particular, they decided to set up an oil revenue stabilization fund in order to shield the budget from the oil price swings in the future and hence preserve the fiscal sustainability of the PSGE. Looking forward, my authorities agree that maintaining growth momentum in 2015 represents a significant challenge given the current adverse external conditions. They are committed to pursuing prudent macroeconomic policies and structural reforms in order to improve the competitiveness of the economy and rebuild buffers. They will continue to monitor economic developments and take additional actions to meet their policy objectives as needed.