GABON Staff Report for the 2001 Article IV Consultation
Author: International Monetary Fund
Publication Date:
03 May 2002
eISBN:
9781451813906
Language:
English
Keywords:
ISCR; CR; authority; petroleum audit; payments arrears; corruption law; staff appraisal; debt service; private sector; oil revenue; broad money; exchange rate
Download PDF (2.9 MB)

This 2001 Article IV Consultation highlights that the fiscal and structural reform efforts in Gabon continued during 2001 under the government’s program supported by an 18-month Stand-by Arrangement, approved on October 23, 2000. Non-oil economic activity in Gabon rose by 4 percent in 2001, following a severe contraction in 1999 and a moderate recovery in 2000. Private investment picked up as confidence strengthened further, helped by substantial repayments of government domestic debt. Services, agriculture, and wood processing were the main sectors contributing to growth.

Abstract

This 2001 Article IV Consultation highlights that the fiscal and structural reform efforts in Gabon continued during 2001 under the government’s program supported by an 18-month Stand-by Arrangement, approved on October 23, 2000. Non-oil economic activity in Gabon rose by 4 percent in 2001, following a severe contraction in 1999 and a moderate recovery in 2000. Private investment picked up as confidence strengthened further, helped by substantial repayments of government domestic debt. Services, agriculture, and wood processing were the main sectors contributing to growth.

I. Introduction

1. In concluding the 2000 Article IV consultation with Gabon on October 23, 2000, the Executive Board noted that the remedial measures taken since 1999 in the areas of governance, transparency, and fiscal management had helped improve confidence in government actions. They also pointed to the heavy external debt-service burden, the excessive dependence on oil revenue, and the disturbingly weak social indicators. They encouraged the authorities to pursue their adjustment efforts in the context of the Stand-By Arrangement-supported program, with a special focus on fiscal consolidation that would free up resources for critical investment in economic and social infrastructure, on the fight against corruption and improved governance, and on the acceleration of other structural reforms, so as to foster economic diversification, job creation, and poverty reduction.

2. Following completion, on July 13, 2001, of the first and second reviews under the 18-month Stand-By Arrangement approved on October 23, 2000, the remaining reviews could not be completed because of fiscal slippages and delays in key structural reforms, notably in the governance area. The staff proposes to let the Stand-By Arrangement lapse on April 22, 2002.

3. Gabon’s economic database is fairly comprehensive, and data are generally compiled in accordance with international standards. However, as indicated in Appendix IV, much remains to be done to improve the quality, consistency, and timeliness of data. Gabon’s recent intention to participate in the General Data Dissemination System (GDDS) should help address the existing shortcomings.

4. The World Bank has assisted Gabon under a privatization and regulatory capacity-building technical assistance loan approved in 1997, has provided support for the forestry sector and environment, and is expected to be involved in the preparation of a poverty reduction strategy paper (PRSP).

5. Gabon has accepted the obligations of Article VIII, Sections 2, 3, and 4 of the Articles of Agreement and maintains an exchange system that is free from restrictions on the making of payments and transfers for current international transactions. Gabon is on the standard 12-month Article IV consultation cycle. Relations with the Fund and the World Bank are summarized in Appendice I and II, respectively. Appendices III, IV, and V include the safeguards assessment, statistical issues, and the background section of the public information notice (PIN), respectively.

II. Background and Recent Economic Developments

A. Political Situation

6. The President’s ruling party (Parti Démocratique Gabonais, or PDG) and its allies won the parliamentary elections held in December 2001 with 107 of the 120 seats in the National Assembly. A government of national unity was appointed on January 27, 2002, consisting of 39 cabinet members (up from 33), and including four ministers from the two main opposition parties. Municipal elections scheduled for April 2002 will immediately be followed by the election of a new Senate.

B. Macroeconomic Developments

7. Following the modest recovery in non-oil output during 20001—from the severe economic recession of 1999—economic activity strengthened further during 2001, and non-oil GDP is estimated to have grown by some 4 percent, slightly above program projections (Table 1). The pickup in private sector activity, helped by significant reductions in government domestic debt, was strongest in the commerce, agriculture, and wood processing sectors. Buoyant activity in the latter sector helped offset a decline in world demand for Gabon’s logs that resulted from the worsening world recession after the September 11 events. Oil production stood at some 13 million tons, close to its 2000 level (13.5 million tons), instead of declining by nearly 15 percent as projected under the program. This favorable outcome reflected higher-than-anticipated world oil prices, which made profitable the exploitation of marginal oil fields. As a result, overall real GDP growth is estimated to have been 1½ percent in 2001, as opposed to a decline of similar magnitude anticipated under the program.2

Table 1.

Gabon: Selected Economic Indicators, 1998–2007

article image
article image
Sources: Gabonese authorities; and Fund staff estimates and projections.

Including the Fund.

Defined as net external inflows to the government over GDP, excluding gap financing.

8. Broad money and credit to the economy expanded by 7½ percent and 17½ percent, respectively, in 2001 (Table 5). Owing mainly to higher-than-programmed net credit to government (by 4.3 percent of GDP), net foreign assets declined by some 35 percent of beginning-of-period broad money. Consumer price inflation remained subdued, at about 1 percent during the 12-month period ended December 2001. The real effective exchange rate appreciated slightly in 2001 (Figure 3).

9. The authorities continued their efforts to consolidate public finances, and, helped by favorable oil revenue, the primary fiscal surplus reached the equivalent of some 17 percent of GDP in 2001 (Table 2-4 and Figure 1). However, this outcome was below the program target of 21 percent of GDP, largely because of non-oil revenue shortfalls and unprogrammed transfers to public enterprises. The primary surplus was to a large extent used for external debt-service payments (14 percent of GDP and almost 40 percent of government revenue).

Table 2.

Gabon: Fiscal Operations of the Central Government, 2000-02 1/

(In billions of CFA francs, unless otherwise indicated)

article image
article image
Sources: Gabonese authorities; and staff estimates and projections.

Staff projections include the proposed framework for the revised 2002 budget made in December 2001 and take into account most recent oil price projections, as well as the information on the availability of external financing and the budget execution at end-2001.

The new debt service reflects bilateral negotiations with Paris Club creditors.

Including equity participation in the manganese company COMTLOG (CFAF 4.1 billion) and the payment of Air Gabon’s debt, as well as down payments for the purchase of airplanes for Air Gabon (CFAF 6.7 billion).

End-June and end-September 2001 arrears were cleared in July and October; new arrears were recorded during the last quarter of 2001. End-200larrears are to be cleared in 2002.

Other float at the treasury includes mainly variations in consignments and operations with autonomous bodies.

The projections as well as the initial program for 2001 include CFAF 4.2 billion for the water and electricity company (SEEG) in 2001; the revised program for 2001 also includes CFAF 0.7 billion to the National Social Security Fund (CNSS).

The inclusion of payments on “regularization of civil servants’ salaries” under domestic financing rather than in the primary balance applies only to obligations incurred before 2001. Any such obligation incurred after 2000 will be considered as expenditure on wages.

Restructuring costs refer to social costs of privatization and voluntary departures (see the technical memorandum of understanding). The 2002 budget includes provisions for the repayment of the debt of public enteprises to social security (CNSS).

Collectivités locales includes variations in local entities’account balances and Fouds d’équipement.

Figure 1.
Figure 1.

Gabon: Government Fiscal Operations, 1993–2002

Citation: IMF Staff Country Reports 2002, 095; 10.5089/9781451813906.002.A001

Sources: Gabonese authorities; and staff estimates and projections.
Figure 2.
Figure 2.

Gabon: Selected Real and External Sector Indicators, 1993–2002

Citation: IMF Staff Country Reports 2002, 095; 10.5089/9781451813906.002.A001

Souces: Gabonese authorities; and staff estimstes and projections.
Figure 3.
Figure 3.

Gabon: Nominal and Real Effective Exchanges Rates, January 1993-November 2001

Citation: IMF Staff Country Reports 2002, 095; 10.5089/9781451813906.002.A001

Sources: IMF, International Financial Statistics (IFS); Information Notice System (INS); and World Economic Outlook (WEO).1/ Index 1990=100. A decrease means a depreciation of the CFA franc.2/ End-of-period exchange rate on a monthly basis. A decrease means an appreciation of the CFA franc.

10. The external current account deteriorated to a deficit of 1 percent of GDP in 2001 (from a surplus of 3 percent of GDP in 2000 and compared with a surplus of 0.5 percent of GDP projected under the program) (Table 6). The trade surplus fell sharply on account of lower oil prices, weaker forestry exports, and a strong increase in imports, the latter of which was associated with non-oil activity and a less tight than envisaged fiscal stance. The services balance improved, as lower factor payments in the oil sector more than compensated for the increase in interest on public debt.

11. In 2000, the significant improvement in the national savings-investment balance had largely reflected the increase in government savings, fed by favorable oil prices (see table below).3 In 2001, despite continued high oil prices, the government national savings-investment balance deteriorated by nearly 10 percent of non-oil GDP, mainly because of lower oil revenue, higher domestic transfers, and higher external interest payments. The national savings-investment deficit of the oil sector (after tax and dividend payments)—largely determined by new direct investment by foreign oil companies—narrowed somewhat in 2001. Private non-oil investment continued to increase—by over 2 percentage points of non-oil GDP in 2001—as confidence strengthened. The higher private investment and the continued large capital outflows were financed by significantly higher private savings and government repayments of domestic debt (Box 1).

Savings and Investment Balances, 1999–2007

(In percent of non-oil GDP)

article image
Sources: Gabonese authorities; and Fund staff estimates and projections.

Flow of Funds, 2001

The flow of funds highlights the enclave nature of the oil sector in Gabon and the high interest payments on government debt, which gives rise to large differences between GDP and income. It also provides a snapshot of the interaction between the private non-oil sector and the government, which in 2001 was characterized by significant transfers from the government.

  • The oil sector has little impact on the non-oil sector other than through payments of oil taxes, which can be compared with a foreign transfer. The oil sector brings its savings out and finances its investments through foreign capital.

  • After factor payments, the non-oil sector is left with a disposable income of about US$2,600 per capita, compared with a GDP of about US$3,750 per capita.

  • The government typically generates a significant savings-investment surplus. This characteristic is expected to continue in the medium term although at a declining level.

  • In 2001, capital outflows from the private non-oil sector were significant and were mainly financed by government repayment of domestic debt and arrears.

  • The government paid a significant amount of external and domestic debt in 2001, contributing to a substantial decline in net foreign assets.

article image

Profits by oil companies, government interest due, and other private factor payments.

Non-oil capital flows consist mainly of net payments on government debt and capital flows of the private sector.

Monetary counterparts of change in net foreign assets (Bank of Central African States and commercial banks): growth in credit to the private sector (net of growth in money holdings and other items net), and change in net credit to the government. The oil sector is assumed not to hold money.

C. Implementation of the Program

12. The first and second reviews under the Stand-By Arrangement were concluded by the Executive Board on July 13, 2001, based on performance at end-December 2000 and end-March 2001. At that time, the end-June targets for the primary fiscal surplus and the net bank credit to the government were modified to take into account adverse fiscal developments during the first four months of 2001. However, the fiscal targets for end-September and end-December 2001 were kept unchanged, in light of the corrective measures envisaged for the second half of the year (EBS/01/56, sup. 1, p. 17). In the event, non-oil revenue shortfalls and expenditure overruns continued and—combined with unprogrammed withdrawals from treasury accounts—resulted in the nonobservance of most of the quantitative performance criteria and benchmarks for end-June and end-September 2001 (Table 3). In light of this—and of delays incurred in the implementation of key structural reforms (see paras. 17–21)—the third and fourth program reviews were not concluded. These unfavorable fiscal developments continued in the last quarter of 2001, and three end-December 2001 quantitative performance criteria for the fifth review—for net bank credit to government, the primary fiscal surplus, and external payments arrears—were missed by margins equivalent to 6.8 percent, 3.5 percent, and 1.8 percent of GDP, respectively.

Table 3.

Gabon: Quantitative Performance Criteria and Benchmarks Under the Stand-By Arrangement, 2000-01

(In billions of CFA francs; cumulative flows from January 1)

article image

Performance criteria for end-2000, end-June 2001, end-September 2001, and end-December 2001, with the exception of the end-June 2001 targets for the primary fiscal balance and net bank credit to the government, which are indicative targets (see definitions and explanations in the technical memorandum of understanding (in EBS/01/56). The indicative targets for end-March 2002 were to be established at the time of the third quarterly review.

The criterion on the primary balance for end-2000 is adjusted upward by CFAF 115.4 billion for higher-man-programmed oil revenues; the criterion on net bank credit to the government is adjusted downward by CFAF 115.4 billion for higher-than-programmed oil revenues; upward by CFAF 56.3 billion and CFAF 9.8 billion for larger-man-programmed reduction in domestic and external arrears, respectively; and downward by CFAF 157.5 billion for higher-than-programmed rescheduling of external debt. Similar adjustments were made for end-March, end-June, end-September, and end-December 2001.

The performance criterion will be adjusted downward for any higher oil revenues, larger nonproject external financing disbursements net of external debt service paid, and smaller net reductions in domestic arrears as defined in die TMU relative to program targets. It will be adjusted upward for any lower oil revenues or lower nonproject financing net of external debt service paid, and higher net reduction in domestic arrears relative to the program targets, up to 50 percent of the total shortfall with a maximum of CFAF 30 billion (or 1 percent of GDP) in 2001. If the oil revenue shortfall exceeds 2 percent of GDP in 2001, the quarterly fiscal targets will be reassessed in consultation with Fund staff. The criterion will also be adjusted downward/upward for any larger/smaller privatization proceeds, as defined in the TMU.

If a treasury surplus materializes in 2001, the corresponding amount will be deposited in a special account at the Bank of Central African States (BEAC) and its eventual use will be discussed with, the Fund staff in the context of the quarterly reviews. The floor on the cumulative amount deposited in the special account for the projected cash treasury surplus will be adjusted upward for higher-than-projected oil revenue, and downward for lower-than-projected oil revenue (down to lower than zero).

This performance criterion applies not only to debt as defined in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt, adopted by the IMF Executive Board on August 24, 2000, but also to commitments contracted or guaranteed for which value has not been received. Excluded from this performance criterion are rescheduling arrangements and purchases from the Fund. For purposes of this performance criterion, the term “nonconcessional” means that the debt has a grant element of less than 35 percent calculated on the basis of currency-specific discount rates that are based on the OECD commercial interest reference rates (CIRRs).

The term “debt” has the meaning set forth in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt, adopted August 24, 2000. Excluded from this performance criterion are rescheduling arrangements, purchases from the Fund, and normal import-related credits. For purposes of this performance criterion, the term “nonconcessional” means that the debt has a grant element of less than 35 percent calculated on the basis of currency-specific discount rates that are based on the OECD commercial interest reference rates (CIRRs).

Continuous performance criterion.

The performance criterion on the primary fiscal balance will be adjusted upward for any higher-than-programmed oil revenue, and adjusted downward for 50 percent of any lower-than-programmed oil revenue, with a maximum of CFAF 30 billion (or 1 percent of GDP) in 2001 for the downward adjustment. If the oil revenue shortfall exceeds 2 percent of GDP in 2001, the quarterly fiscal targets will be reassessed in consultation with Fund staff.

Expenditure is measured on a commitment basis (engagements) up to and including 2000, and on a payment order basis (ordonnancements) thereafter.

Up to and including 2000 (original program), only current noninterest, nonwage expenditure. As of 2001 (revised program), total noninterest, nonwage expenditure.

Table 4.

Gabon: Fiscal Operations of the Central Government, 1998–2007

article image
article image
article image
Sources: Gabonese authorities; and staff estimates and projections.

For 1999, includes CFAF 94.9 billion (3.4 percent of GDP) in tax arrears recovered as a result of the audit of the domestic public debt.

See Box 1 of EBS/01/56 (4/12/2001).

Includes treasury correspondents, local governments, checks written but not yet cashed, and errors and omissions.

Defense spending is partly included under current expenditure and partly under capital spending, in line with Gabon’s existing budget classification. The budget classification is being revised, so as to include all defense spending under current expenditure.

The corresponding national oil prices are about US$1 lower.