Front Matter Page

© 2002 International Monetary Fund

May 2002

IMF Country Report No. 02/95

Gabon: 2001 Article IV Consultation—Staff Report; Staff Statement; and Public Information Notice on the Executive Board Discussion

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2001 Article IV consultation with Gabon, the following documents have been released and are included in this package:

• the staff report for the 2001 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on December 18, 2001, with the officials of Gabon on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on March 7, 2002. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

• a staff statement of April 1, 2002 updating information on recent developments.

• a Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its April 1, 2002 discussion of the staff report that concluded the Article IV consultation.

The document listed below has been or will be separately released.

• Selected Issues and Statistical Appendix Paper

The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.

To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to Publicationpolicy@imf.org.

Copies of this report are available to the public from

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Price: $15.00 a copy

International Monetary Fund

Washington, D.C.

Front Matter Page

INTERNATIONAL MONETARY FUND

GABON Staff Report for the 2001 Article IV Consultation

Prepared by the African Department

(In consultation with the Fiscal Affairs, Legal, Monetary and Exchange Affairs, Policy Development and Review, Statistics, and Treasurer’s Departments)

Approved by Jean A.P. Clément and Liam P. Ebrill

March 7, 2002

Contents

• Executive Summary

• I. Introduction

• II. Background and Recent Economic Developments

  • A. Political Situation

  • B. Macroeconomic Developments

  • C. Implementation of the Program

• III. Policy Discussions for 2002

  • A. Macroeconomic Outlook and Context of Discussions

  • B. Fiscal Policies for 2002

  • C. Monetary and Financial Sector Policies

  • D. Structural Reforms

  • E. Medium-Term Outlook

  • F. External Sector Policy Issues

  • G. Statistical Issues

• IV. Staff Appraisal

• Text Tables

• Savings and Investment Balances, 1999–2007

• Framework for the 2002 Budget

• Boxes

• 1. Flow of Funds, 2001

• 2. Indicators of Fiscal Consolidation, 1996–2001

• 3. Taxation of Domestic Petroleum Consumption and Excises

• 4. Structural Fiscal Reforms—Recent Progress and Agenda

• 5. Transparency in Financial Relations Between the Government and Enterprises

• 6. Financial System Stability Assessment

• 7. National Social Security Fund—Problems and Agenda for Rehabilitation

• 8. Domestic Pricing and Business Licensing Regulations

• 9. Poverty Reduction Strategy

• Figures

• 1. Government Fiscal Operations, 1993–2002

• 2. Selected Real and External Sector Indicators, 1993–2002

• 3. Nominal and Real Effective Exchange Rates, January 1993-November 2001

• Tables

• 1 Selected Economic Indicators, 1998–2007

• 2. Fiscal Operations of the Central Government, 2000-02

• 3. Quantitative Performance Criteria and Benchmarks Under the Stand-By Arrangement, 2000-01

• 4. Fiscal Operations of the Central Government, 1998–2007

• 5. Monetary Survey, 1998–2002

• 6. Balance of Payments, 1997–2007

• 7. External Public Debt Outstanding and Scheduled Debt Service, 1998–2007

• 8. Medium-Term Balance of Payments Outlook, 2000-07

• 9. Income and Social Indicators, 1970–99

• 10. Prior Actions and Structural Performance Criteria for 2000-01

• 11. Structural Benchmarks for 2000-01

• Appendices

• I. Relations with the Fund

• II. Relations with the World Bank Group

• III. Bank of the Central African States: Safeguards Assessment

• IV. Statistical Issues

Executive Summary

Recent economic developments

• Macroeconomic developments were favorable in 2001. Oil production and prices were higher than projected, and there was a pickup in real growth in the non-oil sector. Activity benefited from significant government repayments of domestic debt. Inflation remained under control at about 2 percent.

• During 2001, the authorities continued their efforts to consolidate public finances, with the primary fiscal surplus reaching some 17 percent of GDP. However, this outcome was below the program target and, combined with sizable unprogrammed outflows on the financing side, led the government to resort to bank financing that was much higher than programmed. This, in turn, was the main factor behind the large decline in net foreign assets.

• The primary surplus was largely used for external debt-service payments, which represented about 40 percent of government revenue. The considerable fiscal adjustment effort during 1999–2001 has helped to reduce significantly government debt.

		1998	1999	2000	2001		2002
					Prog. EBS/01/56	Prel. est.	Proj.
		(Annual percentage change)
Real GDP growth		3.5	-9.6	-1.9	-1.6	1.5	2.5
	Oil	-3.4	-11.1	-10.0	-14.8	-4.6	-6.8
	Non-oil	7.0	-8.9	1.7	3.6	3.9	5.9
Consumer prices (period average)		2.3	-0.7	0.4	2.0	2.1	2.0
		(In percent)
Primary fiscal balance/GDP (commitment basis)		-6.3	8.1	17.7	21.1	16.5	10.2
External current account balance/GDP		-18.7	-8.8	3.2	0.5	-1.1	-4.8
External debt service due/government revenue		42.3	47.0	36.1	47.4	48.5	39.3
External debt service paid/government revenue		15.3	14.6	20.8	46.0	39.5	45.3

View Table

		1998	1999	2000	2001		2002
					Prog. EBS/01/56	Prel. est.	Proj.
		(Annual percentage change)
Real GDP growth		3.5	-9.6	-1.9	-1.6	1.5	2.5
	Oil	-3.4	-11.1	-10.0	-14.8	-4.6	-6.8
	Non-oil	7.0	-8.9	1.7	3.6	3.9	5.9
Consumer prices (period average)		2.3	-0.7	0.4	2.0	2.1	2.0
		(In percent)
Primary fiscal balance/GDP (commitment basis)		-6.3	8.1	17.7	21.1	16.5	10.2
External current account balance/GDP		-18.7	-8.8	3.2	0.5	-1.1	-4.8
External debt service due/government revenue		42.3	47.0	36.1	47.4	48.5	39.3
External debt service paid/government revenue		15.3	14.6	20.8	46.0	39.5	45.3

Implementation of the Stand-By Arrangement-supported program

• The first and second reviews under the 18-month Stand-By Arrangement approved on October 23, 2000 were concluded on July 13, 2001. Owing mainly to non-oil revenue shortfalls, the provision of unforeseen financial support to public enterprises, and large withdrawals from treasury accounts, three quantitative performance criteria and benchmarks (primary fiscal balance, net credit to government, and external arrears) for end-June, end-September and end-December 2001 were missed by relatively large margins. Moreover, there were delays in the implementation of key structural reforms, notably in the area of governance. As a result, the third, fourth, and fifth (final) reviews were not concluded.

Report on the discussions

• Gabon’s main challenges in the medium term remain the projected sharp decline in oil production and the high external debt service burden. As a result of declining oil revenue, scheduled external debt service payments will continue to represent around 40 percent of government revenue. These challenges call for a strengthening of fiscal and structural reforms in order to diversify Gabon’s economic base and reduce poverty.

• Policy discussions centered on fiscal consolidation, public finance management, governance, and structural reforms. The authorities emphasized that the high external debt service in 2002 and beyond remained a major obstacle for adequately increasing public investment, which in turn was necessary for improving Gabon’s weak social indicators. They argued that a new Paris Club rescheduling under more favorable conditions was needed. The staff underlined that this would require a good track record in fiscal policies and governance, in conjunction with the formulation and implementation of a poverty reduction strategy.

• The budget law for 2002 adopted by parliament in mid-November 2001 included a reduction in government savings and a large unfinanceable gap. However, preliminary understandings were reached with the authorities on a framework for a revised 2002 budget that entails significant revenue measures, savings on nonsocial current expenditure, and more gradual increases in public investment, in line with improvements in expenditure management and the formulation of a poverty reduction strategy.

• The authorities concurred with the staff that the deepening of fiscal and structural reforms, essentially in the areas of governance, transparency of public finances, and the environment for private sector activity, was critical for the diversification of Gabon’s economy. They saw a new medium-term program as an instrument for carrying out these reforms.

Issues highlighted in the staff appraisal

• The authorities’ steps to improve public finances, regularize relations with external creditors, and reduce public debt are an indication of progress toward medium-term fiscal sustainability. However, the fiscal slippages recorded in 2001 and the delays in implementing the structural reforms under the program point to the need for strengthening expenditure management and enhancing program monitoring.

• Medium-term prospects for growth and poverty reduction depend crucially on the extent to which the non-oil sector can replace the rapidly declining oil sector. Achieving such an objective will require sustained fiscal consolidation and significant improvements in governance and the efficiency and equity of government spending. However, given the heavy external debt-service burden, the success of such a strategy will also depend on Gabon’s obtaining a reduction in its debt-service burden during the coming years.

• The staff welcomes the authorities’ intention to prepare a revised 2002 budget that would be in line with the government’s objective of fiscal and debt sustainability in the medium term. The authorities are encouraged to step up their efforts to improve transparency in oil revenue, to strengthen customs and tax administration, to contain the wage bill, and to ensure that investment projects are fully consistent with the priorities of the interim poverty reduction strategy paper.

• The staff welcomes the progress made in the implementation of structural reforms, particularly in public expenditure management. However, stronger efforts are required, notably in the areas of governance (anticorruption laws, the procurement code, and full implementation of the integrated budget information system), civil service reform, privatization, and the regulatory environment for the private sector.

• Despite the underimplementation of the fiscal and structural reform program during 2001, Gabon’s underlying efforts over the last few years to put public finances on a sound footing and regularize relations with external creditors represent an achievement. The authorities are encouraged to regain the momentum of fiscal and structural reforms, which could lay the basis for discussions on a new medium-term program that could obtain the support of the international community.

Front Matter Page

Public Information Notice (PIN) No. 02/50

FOR IMMEDIATE RELEASE

May 3, 2002

International Monetary Fund

700 19^th Street, NW

Washington, D. C. 20431 USA

On April 1, 2002, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Gabon.¹

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