Statement by Damian Ondo Mañe, Executive Director for Gabon

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.

Abstract

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.

My Gabonese authorities would like to thank the staff for a very comprehensive report on the Gabonese economy. The report describes well the challenges that the economy faces, the efforts being undertaken by the authorities and the policy requirements for the medium term. My authorities highly appreciate the cordial atmosphere in which the discussions have taken place, and which have been ongoing over the past year, and the advice provided by the staff, as well as their assistance in putting in place a comprehensive medium-term program of economic and structural policies to address the many challenges facing the economy, including the declining oil production and the high external debt.

The previous Fund-supported program went off track in 2001 due to implementation weaknesses. However, since January 2002 the government strengthened its efforts and committed itself to undertake major reforms and to implement polices aimed at addressing those challenges.

As a first step, and with staffs assistance, my authorities took measures to address the main causes of the slippages in the past. These efforts were focused on improving governance, reforming tax and customs administrations, strengthening the Budget and Treasury Departments, restructuring public enterprises, and creating an environment conducive to private sector development. The government also adopted an austerity Budget for 2003. In consultation with staff, and in order to establish a track record, budgetary targets were set and observed for the first part of 2003. This included the repayment of all external debt-service arrears to multilateral institutions, as well as arrears to post-cut off date debt and debt service under the last Paris Club rescheduling owed to bilateral creditors. The authorities’ efforts were further strengthened in mid-2003 in the context of a Staff Monitored Program. All the prior actions measures have been implemented, and these actions are consistent with the medium-term framework that has been established. At the same time the authorities have been taking actions to build consensus at the national level for the reform program, and my authorities are hoping that they can receive the full support of the international community, including the Fund in its implementation.

I. Economic performance in 2002 and 2003

During 2002, although real GDP growth was flat, it was better than the projected—0.6 percent, as the decline in oil output was less than had been projected due to the oil companies’ efforts to exploit marginal fields. For 2003, real economic growth rate is expected to be higher than forecast as oil production and oil prices have been above the assumptions retained in the budget, and the declining trend in the forestry sector is being reversed. An important objective of my authorities is the broadening of the non-oil sector, and in this context, it is worth noting that the non-oil sector after growing by 0.6 percent in 2002 in real terms is projected to grow further over the medium term. Inflation has been kept under 2 percent, and the current account balance is likely to register a small deficit in 2003, following a small surplus in 2002.

Fiscal policy

Since 2002, the government has been progressively restoring fiscal discipline. The 2002 fiscal year even recorded oil revenues surpluses which the authorities decided to put aside in the Fund for Future Generations located at the regional Central Bank. The fiscal consolidation efforts were strengthened in 2003 and for the first 9 months of the year, budgetary execution was broadly in line with the targets set in consultation with Fund staff. This achievement reflects a tighter control of expenditures thanks to a better monitoring of budget execution and the full effects of numerous measures implemented the previous year aimed at improving revenue collection and spending processes, as well as increasing non-oil revenue. However, while fiscal targets have been met, end-June target for the government position vis-à-vis the banking system was missed due to larger payments of domestic arrears.

For 2003 as a whole, the fiscal target is a primary surplus of 10.9 percent of GDP. It is an ambitious target but it is also indicative of the determination of the authorities to strengthen budgetary management. This fiscal surplus target should be assessed in the context of declining oil revenue from 21.8 percent of GDP in 2001 to 16.2 percent of GDP in 2003. To achieve this surplus, the authorities have taken measures which have reduced current expenditure from 25 percent of GDP in 2001 to 18.5 percent in 2003, and non-oil revenue has increased from 12.2 percent of GDP in 2001 to 15.5 percent in 2003. As noted above, the authorities are using a large part of this surplus to meet external overdue obligations.

The measures adopted in 2003 have included, among others, increases in beverage and tobacco excise taxes, increases in area taxes and stumpage fees in the forestry sector, and a rise in the domestic consumption tax on fuel. Administrative measures were also taken. These included the strengthening of customs procedures, stepping up of personal income tax audits, tax audits of large companies, and increased efforts to collect tax arrears. Furthermore, the government has eliminated a number of exemptions granted to construction companies and agribusinesses. The government has also taken steps to reduce public consumption spending and to contain the wage bill, and is rigorously controlling civil service staffing levels. However, consistent with the efforts to reduce poverty, the authorities raised capital spending on health and education to 0.7 percent of GDP in 2003. Measures have also been taken to control and monitor capital expenditure.

Structural reforms

Since 2002, the government has been strengthening its efforts to enhance fiscal management and to build institutional capacity for program implementation as well as to improve governance, restructure public enterprises and promote private sector development. Box 3 of the staff report gives a non exhaustive list of the measures implemented. The implementation of reform measures has been in line with the timetable defined with the staff.

In the fiscal sector, the budgetary execution Integrated Information System (SII), formerly called Crystal, was reactivated in early 2003. Several measures to contain expenditures are being carried out including the reduction of the number of high-level advisory positions in the civil service to contain the wage bill. The budget classification was completed and has been the basis for the 2004 budget. On the revenue side, the audits of the oil companies were completed in September 2002 and an action plan to implement the resulting recommendations is being carried out. A new General Directorate of Taxes has also been created as a result of the merger of two general directorates and forestry taxes have been revised.

Concerning governance, laws to combat illicit enrichment were adopted by the Parliament in 2002 and promulgated in May 2003. A commission to combat illicit enrichment has been created in 2002 and its members were appointed in June 2003. The Commission subsequently participated in a seminar organized with the assitancc of the Fund’s Legal Department on this issue. The new procurement code was adopted and a General Directorate of Public Procurement was created.

Regarding the improvement of the business climate, a one-stop center has been set up to facilitate procedures and reduce the delays for the creation of businesses. Moreover, the significant efforts have been made in the recent past to improve the functioning of judicial system and legal environment. In particular, Gabon has adopted the Uniform Acts of the Organization for the Harmonization of Law in Africa (OHADA).

The privatization process is progressing, although it has experienced some delays. In the agricultural sector, the authorities are determined to restructure the agribusiness enterprises with a view to their privatization. Thus, as regards the palm oil company, AGROGABON, and the rubber production company HEVEGAB, following unsuccessful bids, temporary administrators have been appointed with the task of launching tenders for privatization, while rehabilitating the processing plants. The tender for privatization of HEVEGAB was launched in September 2003. The privatization of GABON TELECOM has been delayed as investors were more interested in a management contract than in taking over the company. Taking into account investors’ sentiments, a new strategy has been defined and tenders have been launched in June 2003 for the sale of controlling shares, coupled with a management contract. A reorientation of the restructuring strategy for AIR GABON has been done in partnership with a major airline company. A new financial manager has been appointed following the tenders launched worldwide.

Within the framework of the ongoing reform of the National Social Security Fund (CNSS) and with the assistance of the ILO and the World Bank, the government has launched tenders for the privatization of the management of the three CNSS’ hospitals in July 2003.

The government recognizes the importance of a strong financial sector in the development of the Gabonese economy. In this context, it is implementing measures to deepen the sector and maintain its soundness. The regional banking commission has increased the number of inspectors and more focus will be placed on risk diversification. Regulations establishing operating conditions for microfmance organizations have been adopted, and the creation of a network of mutual savings and loan institutions in rural areas has also been undertaken.

My authorities are very grateful for the technical assistance provided by the Fund in the fiscal, legal statistical and policy management areas. Fund assistance has proven to be useful as it has enabled the identification of weaknesses and helped in designing the solutions to address them.

II. The Debt Situation

Gabon’s debt situation is very difficult. The external debt to GDP ratio stood at about 63 percent in 2002, and was over 108 percent of export receipts. The external-debt-service (before rescheduling) burden is very heavy and absorbs about 34 percent of government revenue. With oil exports projected to decline rapidly in the coming years, this debt burden will likely increase. Despite the strong fiscal adjustment effort of the authorities to develop a large primary surplus, this effort is not enough to cover the financing gap, unless it is accompanied by a rescheduling of debt obligations from bilateral creditors. Rescheduling at appropriately concessional terms will support the authorities’ efforts at diversification and in the fight against poverty, which, as noted by the staff, is very similar to HIPCs.

III. I-PRSP

In view of the high level of poverty in the country, the Government has made poverty reduction a central part of its economic strategy over the medium term. This has been translated into the preparation of an I-PRSP in consultation with many stakeholders. The IPRSP has been adopted by the government and is consistent with the Loi de Développement et d’Aménagement du Territoire (LDAT) that has 7-year horizon period. In the I-PRSP, the authorities identify the areas that will receive attention, and these include education, health, vocational training and agriculture, among others.

The I-PRSP describes the consultative process, the depth of poverty and outlines the strategy to address the poverty issue and identifies the sources of growth and employment creation. It also outlines the strategy that will be pursued to improve the education level and health services. It explains clearly that the efforts of the authorities will focus on consolidating macroeconomic equilibria, diversifying the economy, and developing human resources.

On the basis of comments by stakeholders and partners, the authorities will develop a full PRSP which they hope will be ready by the middle of next year. Moreover, the authorities have launched since 2002 a revolving investment program within the country. This program aims at annually investing in two different provinces in the renovation and the building of social infrastructures such as roads, schools and health centers.

IV. Medium-term Outlook, Policies and Objectives

Over the next years, my authorities will pursue steadfastly their adjustment efforts already started, and address the increasing social needs and promote economic diversification through the implementation of a coordinated set of policies. In their LDAT, my authorities identify forestry, tourism, fisheries and agro-industry as non-oil sectors where there is a potential for growth. The non-oil sector is projected to average a growth rate of 4 per cent per annum during 2004-06 fuelled by higher investment and an improvement in the business climate. The average annual inflation is expected to be around 2 percent. With oil output projected to fall by one-third in that period, the external current account balance is projected to shift from a surplus of 0.7 percent of GDP in 2002 to a deficit of 5.5 percent in 2006.

A major effort will be focused on fiscal consolidation, which will require an even greater mobilization of non-oil budgetary revenue and more efficient management of oil revenue. Nonpriority expenditure will be reduced and the wage bill will be more rigorously controlled. The measures that the authorities are introducing are expected to offset partially the decline in oil revenue. As oil revenue declines from 17.7 percent of GDP in 2002 to 8.9 percent in 2006, non-oil revenue is projected to increase from 13.9 percent of GDP to 18.1 percent, so that by 2006, government revenue should remain around 27 percent of GDP, compared to 31.5 percent in 2002. The authorities will also take strong measures to reduce expenditure on goods and services and transfers. As a result primary current expenditure will be reduced from 19.7 percent of GDP in 2002 to 16 percent in 2006, while capital expenditure will be stabilized at around 5 percent of GDP.

V. Policies for 2004

Fiscal policy

Fiscal consolidation will remain the cornerstone of my authorities’ adjustment efforts in 2004 with the authorities continuing to enhance the effectiveness and transparency of budget management. Non-oil revenue is projected to increase to 15.9 percent of GDP on the basis of measures already taken in 2003, and a further strengthening of tax administration and the effective implementation of new tax provisions. In this context a Fund FAD Technical Assistance mission is presently in Libreville helping the authorities to strengthen tax administration. Primary expenditure is targeted to decline to 20.7 percent of GDP, as the authorities continue to implement measures to contain and reduce outlays. As a result, the primary surplus is projected at 8.4 percent of GDP, which will allow for a further reduction of the public debt-to-GDP ratio. The authorities, however, expect that the reduction in nonpriority current expenditure will allow for increases in the outlays for the social sector and economic infrastructure.

Structural reforms

The reform agenda comprises of measures to improve governance, facilitate economic diversification and combat poverty. Those consist of accelerating and completing the civil service reform, notably the preparation of new organization charts to streamline cumbersome government structure and the computerized civil service management system to ensure consistency between the payroll and the civil service roster. Likewise, the privatization program will be pursued with the expected sale of Gabon Telecom, HEVEGAB and AGROGABON in 2004.

As regards governance, the government will finalize the decree on the wealth declaration by public officials, for which it has benefited from Fund T/A, and adopt the draft ethics code for government officials currently under preparation. The 2004 Budget includes adequate provisions for the operations of the Commission Against Illicit Enrichment and the Commission will publish quarterly and annual reports on its activities.

In order to stimulate the growth in the non-oil economy, the government will continue to take steps to improve the business climate, promote competition and create adequate infrastructure. To this aim, it will give priority to sectoral infrastructure program such as the improvement of the road network and the rehabilitation of the ports in the context of the Priority Action Program for Urban Sector and Transport (PAPSUT) supported by foreign lenders and donors, and improvement of telecommunication services. The government will also improve the operation of the one-stop center for investors. In coordination with the Foreign Investment Advisory Services (FIAS) of the IFC, the World Bank will carry out and complete an analysis of the impediments to investing in Gabon. Meanwhile, the government will abolish the General Directorate of Price Controls by end-December 2003 and will create a General Directorate of Competition and Consumption. It will also remove all remaining import surtaxes. On the judicial front, further mechanisms to facilitate recourse to arbitration as a means of resolving commercial disputes will be established over time.

Monetary policy and financial sector issues

Regional monetary policy will continue to be pursued in a manner consistent with the fixed exchange rate regime. Fiscal consolidation during 2003-06 will reduce the need for bank lending to the government and will allow for an expansion in bank credit to the private sector in line with the projected nominal GDP growth of the non-oil sector. The regional commission COBAC will continue to monitor the developments in the banking system in Gabon, which remains sound.

VI. Staff Monitored Program

As noted above and described in the staff report, the authorities are implementing an SMP that covers the period September-December 2003. At end-September, the overall fiscal balance was met. However, there were slight differences from the program, as regards revenue and expenditure. While indirect tax collections were running above targets, the overall non-oil revenue fell short of program, mainly due to lower than projected non-oil sector growth. As regards the shortfall in company profit taxes, this was mainly due to the large provisioning by the biggest commercial bank, in compliance with banking laws in the context of strengthening financial stability. Oil revenues exceeded program projections, but the excess revenue will not be used to finance higher expenditure. On the expenditure side, outlays for the wage bill were slightly higher than programmed because of the regularization of advancements following the 2001 civil service census. These regularizations are consistent with the ongoing reforms. The measures to curtail the number of special advisors were taken in August, but because of the need to comply with labor laws, the budgetary savings have not been felt yet. All other current expenditures were on target, and debt service on non-reschedulable arrears was serviced on a timely manner, except for some small payments on which clarifications from creditors are required. On the larger than programmed bank financing to the government, it was due also to the lower than projected non-oil revenue, and the drawing down by various quasi-government agencies of their accounts at Treasury. The authorities do not expect this situation to continue, and are confident that the end of year target will be achieved.

Although my authorities recognize that minor deviations occurred as regards indicative fiscal targets, they would also point out that they met the September fiscal benchmarks, and that they have fully implemented the policy measures. My authorities will continue to monitor closely the revenue and expenditures performance, and will take any additional measure deemed necessary to keep the program on track. In addition to the pursuit of adjustment policies in the fiscal sector and of the reform agenda as described above, the government has adopted a draft budget law for 2004 based on the new budget classification system, in which budget of the road fund and adequate operational resources for the anti-corruption commission has been integrated. Together with the 2004 draft budget law, a report on the execution of the investment for the three first quarters of 2003 will be prepared.

VII. Conclusion

While recognizing that program implementation in the past has been mixed, since 2002 the government, in close collaboration with the staff, has been implementing a comprehensive program of reforms that addresses the many challenges that the country faces. These challenges include declining oil production, an excessive debt level, and the increase in the incidence of poverty. The program of economic and financial adjustment that they are following and the encouraging results that they are obtaining, in particular, towards macroeconomic stabilization, are strong testimony to that effort. The significant improvement in the fiscal sector and the deepening of reforms, as well as the broadening of the non-oil sector that is taking place indicate well that the authorities’ strategy are appropriate. The adjustment program that they have followed has helped to set a strong foundation for further reforms. But the deepening of these reforms and the replacement of the oil and government sectors by the non-oil sector will take time and will require large amount of resources. Therefore, my Gabonese authorities are requesting the support of the international community for their efforts. They look to the Paris Club for further debt rescheduling and to the Fund for a medium-term program, which they view as most appropriate for the large structural reforms that they are committed to undertake.

Finally, I would like once again to ask my colleagues for their full support for my authorities’ efforts as well as for the request for a Fund-supported program that could start early next year.