Gabon: Staff Report for the 2003 Article IV Consultation and Staff-Monitored Program—Staff Report

The continued decline in oil production and the absence of sustained adjustment policies have contributed to Gabon's uneven economic performance over the past three years. To strengthen further the track record before discussing a possible IMF-supported program, a staff-monitored program has been established for the period September–December 2003. The authorities emphasized their determination to confront the challenges facing the country by pursuing policies aimed at diversifying the economy, sustaining growth, and reducing poverty while containing financial imbalances.


The continued decline in oil production and the absence of sustained adjustment policies have contributed to Gabon's uneven economic performance over the past three years. To strengthen further the track record before discussing a possible IMF-supported program, a staff-monitored program has been established for the period September–December 2003. The authorities emphasized their determination to confront the challenges facing the country by pursuing policies aimed at diversifying the economy, sustaining growth, and reducing poverty while containing financial imbalances.

I. Introduction

1. In concluding the 2001 Article IV consultation on April 1, 2002, Directors noted the efforts made to move the economy toward medium-term sustainability; however, they regretted the shortcomings in program implementation. Directors stressed that the prospects for growth and poverty reduction in the medium term depended critically upon the extent to which the non-oil sector will replace oil and the government sector as the engine for growth. Accordingly, they urged the authorities to formulate and implement a new program embodying a revamped fiscal and structural reform effort that could obtain the support of the international community, including through debt rescheduling from bilateral creditors.

2. Discussions on a new possible Fund-supported program were conditional on the establishment of a solid track record of policy implementation. In view of the slippages in the implementation of the program supported by the 18-month Stand-By Arrangement approved in October 2000, and also under the 1995–98 program supported by the Extended Fund Facility (EFF), it was agreed during staff missions to Libreville in October 2002 and February 2003 that, before requesting a new arrangement, Gabon would have to make substantial progress in the structural area and establish a satisfactory track record of macroeconomic policy implementation. In the event, all preconditions for program negotiations were implemented. Subsequently, other measures were set as prior actions for the start of a program, including achieving fiscal targets for the first half of 2003. These prior actions were met, with the exception of the government’s position vis à vis the banking system. A staff-monitored program was agreed for the period September-December 2003 to strengthen the track record before discussing a possible Fund-supported program.

3. In the annexed letter to the Managing Director, dated October 20, 2003 (Appendix I), and the attached memorandum of economic and financial policies (MEFP), the authorities describe their program for 2003–06, including the main lines of the budget for 2004, and the detailed objectives and policies for the period September-December 2003, which constitute a staff-monitored program. Relations with the Fund and the World Bank are summarized in Appendices II and III, respectively. Appendices IV, V, VI, and VII present the debt sustainability assessment, the safeguards assessment, statistical issues, and the background section of the public information notice (PIN), respectively.

II. Main Challenges

4. Over the last ten years, the authorities have not taken sufficient actions to reduce Gabon’s oil dependency, and have pursued a procyclical fiscal policy that has not encouraged diversification and has failed to improve the country’s poor social indicators. As the old oil fields have become less productive and no new major discoveries have been made, oil production has been on a declining trend after peaking in 1997 (table below). Although the production decline slowed in 2001–02 compared with earlier projections, the medium-term prospects for oil production remain grim, as they depend on the exploitation of marginal fields and the secondary recuperation of abandoned fields through improved technology. Political considerations also played a role in hampering the adjustment effort, as expenditure was boosted during election periods.

Gabon: Key Fiscal Indicators, 1979–2002

(In percent of GDP, unless otherwise indicated)

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Sources: Gabonese authorities; and Fund staff estimates.

5. The dependency on oil has also led to a high-cost structure across the economy, with a high salary level in the public sector, excessive dominance by the public sector in the economy, and weak governance. In particular, public enterprises have been inadequately managed, leading to recurrent costly bailouts by the government. The combination of high public sector wages and a large public sector workforce has been a serious impediment to private sector development. However, there are indications that Gabon’s competitiveness improved during 1990–2002, as reflected by the substantial decline of unit labor costs in the manufacturing sector (see Box 1).

6. Even though Gabon’s GDP per capita (US$ 3,900 in 2002) is similar to that of middle-income countries, its social indicators remain similar to those of low-income countries. While extreme poverty declined substantially, from 56 percent in 1968 to 11 percent in 1993, the poverty incidence indicator has decreased only marginally; as a result, 62 percent of the population lives below the poverty line, and access to basic social services remains limited for a large segment of the population, particularly in rural areas.

External Competitiveness

Following the discovery of oil four decades ago, the cost structure of the Gabonese economy increased substantially. In particular, civil service wages are very high by regional standards and represented in 2001-02 about 350 percent of average wages in Kenya, 250 percent of that in Cameroon, 150 percent of that in Senegal, and 120 percent of that in Côte d’lvoire. However, as a ratio to per capita income, Gabon’s civil service wages are lower than in the four other comparator countries. Wage policy during 1990–2002 was prudent, so that the average civil service wage declined by 17 percent in real terms. In addition, as noted below, unit labor costs in manufacturing, as expressed in U.S. dollars, fell during that period both in absolute terms and relative to comparator countries. In addition to labor costs, the cost of public utility services, transportation, and other factor inputs is also crucial for an assessment of cost competitiveness. In this regard, the cost of electricity in Gabon is higher than in competitor countries.12 Key developments in the real effective exchange rate and unit labor costs can be summarized as follows:

  • In 2002, the CPI-based real effective exchange rate (REER) index was 1 percent above the level attained in 1994, a year when the real effective rate depreciated by 33 percent as a result of the 50 percent nominal devaluation of the CFA franc against the French franc in January (Figure 2). This suggests that the gains of the 1994 devaluation have been preserved.

  • Over the period 1990–2002, Gabon’s index of unit labor costs in manufacturing, converted into U.S. dollars, declined faster than the index for Morocco, Tunisia, and South Africa; meanwhile, in Kenya the index rose (see figure below). Such an index is not available for Côte d’lvoire, Senegal, and Cameroon.

Finally, overall competitiveness also depends on the quality of infrastructure, the quality of institutions, including the legal and judicial system and the business climate, including costs and availability of finance. Indications that Gabon’s overall competitiveness is likely to have improved over recent years stem from the good performance of non-oil exports during 1994—2002, which rose by 20 percent.


Unit Labor Costs in Selected African Countries 1990-2002

(In U.S. dollars)

Citation: IMF Staff Country Reports 2004, 028; 10.5089/9781451813890.002.A001

12/ Medium voltage electricity cost the equivalent of US$0.09 per kilowatt-hour in 2002. This compares with US$0.08 in Côte d’lvoire, US$0,125 in Senegal, US$0.07 in Morocco, US$0.09 in Kenya, and US$0.15 in South Africa.

III. Recent Economic Developments

7. Gabon’s economic performance in recent years reflects declining oil production and a pattern of only sporadic and insufficient adjustment. Oil production declined by 17 percent between 1999 and 2002; and a recovery of the non-oil sector took place during 2000–01 but was short-lived, as growth fell to less than 1 percent in 2002 (Table 1 and Figure 1). There are signs that, in the first half of 2003, economic activity in the non-oil sector picked up, with non-oil exports growing by 11 percent in value, driven by processed wood and agricultural products. New export-oriented private initiatives in agriculture have contributed to this outcome. For the year as a whole, it is projected that oil production will decline only slightly. However, the decline in oil GDP at constant prices is expected to be larger than that of oil production, because of the increase in production costs, as marginal fields are exploited and expensive secondary recuperation undertaken. Non-oil GDP at constant prices is presently expected to increase by 2.4 percent, because of a recovery in the forestry sector; there are downside risks to this estimate, if the drop in imports during the first half of the year is not reversed. However, nominal GDP may decline by less than the 5 percent presently projected, if present trends for international oil prices are maintained in the remainder of 2003.

Table 1.

Gabon: Selected Economic Indicators, 2000–06

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Sources: Gabonese authorities, and Fund Staff estimates and projections.

Including the Fund.

Figure 1.
Figure 1.

Gabon: Selected Real and External Sector Indicators, 1999–2006

Citation: IMF Staff Country Reports 2004, 028; 10.5089/9781451813890.002.A001

Sources: Gabonese authorities; and staff estimates and projections.

8. The external current account worsened in 2001–02, reflecting the fall in oil exports and unfavorable performance of non-oil exports, mainly consisting of logs (Table 4).1 Imports rose by 16 percent per year on average in the same period, mainly owing to investment in the forestry sector, and a pick up in petroleum exploration. Over the last three years, the contribution of Gabon to the external reserves of the regional central bank (Bank of Central African States, BEAC) was positive, but external arrears accumulated because of a weak budgetary position. Inflation, as measured by the consumer price index, was low over the period, averaging less than 2 percent. Despite a modest appreciation of the real effective exchange rate in 2002, caused by the nominal depreciation of the U.S. dollar vis-à-vis the euro, the real effective depreciation associated with the devaluation of the CFA franc in 1994 (33 percent) has largely been preserved (Figure 2).

Figure 2.
Figure 2.

Gabon: Nominal and Real Effective Exchanges Rates, January 1993–June 2003

Citation: IMF Staff Country Reports 2004, 028; 10.5089/9781451813890.002.A001

Source: IMF, International Financial Statistics (IFS).1/ Index, 1990 =100. A decrease means a depreciation of the CFA franc.2/ End-of-period exchange rate. A decrease means an appreciation of the CFA franc.

9. After the considerable fiscal adjustment of 2000, overall fiscal policy was relaxed during the second half of 2001, but efforts were undertaken in 2002 to tighten the budget (Tables 2 and 3, and Figure 3).2 Non-oil revenue increased by 1.7 percentage points of GDP to 13.9 percent in 2002, reflecting improved revenue collection efforts, including a revamping of tax administration. In particular, receipts from personal income taxes, business profit taxes, and the tax on petroleum consumption rose sharply. Also, collections of back taxes on account of the value-added tax (VAT) and the income tax were strong, at 0.6 percent of GDP. For the first time since the creation of the Fund for Future Generations (FFG) in 1998, a substantial amount of deposits was made to the fund, totaling CFAF 70 billion (2 percent of GDP) and representing the bulk of the excess of oil revenue over the 2002 budgetary forecast.3 However, adjustment efforts on the expenditure side were hampered by costs related to the restructuring of public enterprises (2 percent of GDP), and by some overruns in sovereignty and security expenditure partly related to regional instability.

Table 2.

Gabon: Fiscal Operations of the Central Government, 2001–04

(In billions of CFA francs, unless otherwise indicated)

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Sources: Gabonese authorities; and staff estimates and projections.

During 2003, the government pays end-2002 non-reschedulable arrears (CFAF 82 billion) and accumulates arrears on reschedulable current maturities (CFAF 156 billion) The stock of reschedulable arrears at end-2003 is projected at CFAF 340 billion. This stock, together with the reschedulable current maturities in 2904 (CFAF 158 billion), is projected to be rescheduled in 2004.

The 2002 budget column includes CFAF 16.5 billion for telephone bills; relating to 2001, which the authorities had classified under domestic debt repayment in the draft budget.

For 2001: equity participation in Compagnie Minière de I’Oguoué (COMILOG) (CFAF 4.1 billion), advance to OPT (CFAF 6.6 billion), the payment of Air Gabon’s debt (CFAF 14.2 billion), and down payments for the purchase of airplanes for Air Gabon (CFAF 13 billion), For 2002 assistance to Air Gabon; and repayment of the CFAF 6.6 billion advance to Gabon Telecom (for the acquisition of a marine cable)

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

Including old debt repayments to Societé d’Eau et d’Energie de Gabon (SEEG), National Social Security Fund (CNSS), and Office des Postes et Telecommunication (OPT), as well as debt service on new debt agreements with Gabon Telecom, Gabon Poste, Air Gabon’s suppliers, and CNSS.

Restructuring costs refer to social costs of privatization and voluntary departures. During 2092, the government also took over suppliers’ credit to Air Gabon and debt owed by public enterprises to CNSS, for CFAF 31 billion and CFAF 35 billion, respectively.

Collectivity locales consist of variations in local entities’ account balances and fonds d’équipement.

Table 3.

Gallon: Fiscal Operations of the Central Government, 2000–06

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Sources: Gabonese authorities; and staff estimates and projections.

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

Including Air Gabon’s suppliers’debt and debt of public enterprises to National Social Security Fund (CNSS) taken over by the government during 2002.

Outlays of the Road Maintenance Fund (FER) and special funds arc recorded off budget

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

The end-2003 reschedulable arrears (CFAF 340 billion) and the 2004 current maturities (CFAF 158 billion) are projected to lie rescheduled in 2004.

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 arc US$t-2 lower.