Gabon: Request for Stand-By Arrangement

The staff report for the Request for Stand-By Arrangement on Gabon highlights economic developments and policies. A higher-than-anticipated rise in oil GDP more than offset lower-than-expected growth of non-oil GDP. Overall fiscal performance was strong, as the non-oil primary deficit was reduced by 8.6 percentage points to 8.2 percent of non-oil GDP in 2003. The authorities have strengthened their medium-term program to address the weaknesses in public finances that came to the fore under the staff-monitored program (SMP) and to tackle the impediments to private sector development while improving social indicators.

Abstract

The staff report for the Request for Stand-By Arrangement on Gabon highlights economic developments and policies. A higher-than-anticipated rise in oil GDP more than offset lower-than-expected growth of non-oil GDP. Overall fiscal performance was strong, as the non-oil primary deficit was reduced by 8.6 percentage points to 8.2 percent of non-oil GDP in 2003. The authorities have strengthened their medium-term program to address the weaknesses in public finances that came to the fore under the staff-monitored program (SMP) and to tackle the impediments to private sector development while improving social indicators.

I. Introduction

1. Gabon’s economy continues to face major challenges, including a drop in oil production, a heavy debt burden, and weak social indicators. Following a pattern of intermittent adjustment and recurrent excess spending, the authorities have shown since mid-2002 a new resolve to address these challenges through sustained fiscal adjustment and comprehensive structural reforms, having realized that the decline in oil revenue is irreversible. The determination for change, which is shared by all levels of government and by civil society,1 has manifested itself in improved policy performance since 2002, in particular under the staff-monitored program (SMP) covering the period September-December 2003.

2. Even though its income per-capita is similar to that of middle-income countries (US$4,675 in 2003), Gabon’s social indicators remain weak. About 62 percent of the population lives below the poverty line and access to basic social services is limited. Economic activity is dominated by the public sector, which is the main employer and maintains relatively high wages. While there is considerable potential for development of the non-oil economy (see Country Report 04/28, Box 4), this is hampered by relatively high production costs and weak governance.

3. President Omar Bongo Ondimba has been in power since 1967 and is expected to run again in the next presidential elections scheduled for late 2005. Election periods have represented in the past the occasion of serious fiscal slippages.

4. In early 2003, the authorities prepared a medium-term program aimed at sustaining fiscal adjustment and boosting non-oil growth, including measures to speed up the privatization process, improve governance, and enhance the investment climate. The measures already undertaken under that program include the following: (i) strengthening budgetary management through the introduction of a computerized budget information system based on a new, detailed budget classification system, and through the abolition of advance payments outside the regular expenditure process; (ii) reorganizing the tax administration; (iii) adopting and implementing the new procurement code; and (iv) implementing reforms in the area of governance, including the establishment of the National Commission Against Illicit Enrichment and the adoption of an ethics code for civil servants. In order to build a track record that could lead to a Fund-supported program, the authorities entered into an SMP for September-December 2003, that incorporated the first phase of their medium-term program for 2003-06. On the basis of the broadly satisfactory performance under the SMP, and the strength of their program, the authorities have requested, in a letter dated May 6, 2004 accompanied by a memorandum of economic and financial policies (Appendix I, Attachment I), that the program for 2004-05 be supported by a 14-month Stand-By Arrangement, covering the period May 2004-June 2005, in an amount equivalent to SDR 69.44 million, or 45 percent of Gabon’s quota.

II. Recent Economic Developments and Performance Under the SMP

5. Macroeconomic performance in 2003 was generally positive, although non-oil GDP grew by less than expected (Table 1):

Table 1.

Gabon: Selected Economic Indicators, 2000–06

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

Including the Fund.

  • Preliminary information shows that real GDP grew by 2.8 percent in 2003; the unexpected rise in oil production and oil GDP more than offset the lower-than expected growth of non-oil GDP. Oil production reached 13.4 million tons, compared with 12.3 millions tons in the program and 12.6 million tons in 2002, as a result of the large investments made in the Rabi field to introduce new extraction technologies and increased production in small, recently developed fields. The non-oil sector grew by 1.0 percent, compared with a program projection of 2.4 percent. This weak performance resulted from a contraction of construction and public works and a sluggish growth of services, partly offset by satisfactory performance in the mining, transports, and agriculture sectors. In the crucial forestry sector, the volume of timber cut and exports of logs declined by 1 percent and 3.3 percent, respectively, on account of a decline in exports to the Chinese market in the last quarter of the year.2 On the other hand, the volume of production and exports of processed wood products continued to rise sharply, as new processing units entered in production. Mining performed better than expected, reflecting a 5 percent rise in the production of manganese.

uA01fig01

Real GDP Growth Rates, 1999–2006

(In percent change)

Citation: IMF Staff Country Reports 2004, 168; 10.5089/9781451813937.002.A001

Sources: Gabonese authorities; and staff estimates and
uA01fig02

Oil Sector, 1999–2006

(In millions of tons, unless otherwise indicated)

Citation: IMF Staff Country Reports 2004, 168; 10.5089/9781451813937.002.A001

Sources: Gabonese authorities; and staff estimates and
  • The 12-month inflation rate continued to be subdued, at 2 percent in December 2003, in line with the program. The real effective exchange rate appreciated in 2002 and 2003 because of the nominal depreciation of the U.S. dollar vis-à-vis the euro; however, the real effective depreciation associated with the devaluation of the CFA franc in 1994 (33 percent) was largely preserved.

uA01fig03

Nominal and Real Effective Exchange Rates, January 1993–December 2003

Citation: IMF Staff Country Reports 2004, 168; 10.5089/9781451813937.002.A001

Source: IMF, Information Notice System (INS).1/ Index 1990=100. A decrease means a depreciation of the CFA franc.2/ End of period exchange rate. A drecrease means an appreciation of the CFA franc.
  • The overall central government budgetary balance, on a commitment basis and including grants, increased in 2003 to 7.4 percent of GDP, from 3.5 percent in 2002, buoyed by higher oil revenues and lower capital expenditures. The non–oil primary deficit was reduced to 8.2 percent of non-oil GDP in 2003 from 16.8 percent in 2002 (Tables 2 and 3). However, non-oil revenues were lower than expected, and the wage bill was not contained as envisaged (see below).

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.

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 l’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 Société d’Eau et d’Energie de Gabon (SEEG), National Social Security Fund (CNSS), and Office des Postes et Télécommunication (OPT), as well as debt service on new debt agreements with Gabon Telecom, Gabon Poste, Air Gabon’s suppliers, and CNSS. During the last quarter of 2003, there was a deferral of debt obligations amounting to some CFAF 11 billion.

Restructuring costs refer to social costs of privatization and voluntary departures. During 2002, the government also took over suppliers’ credit to Air Gabon and debt owed by public enterprises to CNSS, for CFAF 31 billion and CFAF 36 billion, respectively.

Local authorities consist of variations in local entities’ account balances with the Treasury.

The financing gap for the program period is expected to be covered by debt rescheduling.

Table 3.

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

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Sources: Gabonese authorities; and staff estimates and projections.

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

In the budget for 2004, outlays of the Road Maintenance Fund (FER) are in an annex to the budget. Other special funds are recorded off budget.

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

The financing gap for the program period is expected to be covered by debt rescheduling.

Defense spending is partly included under current expenditure and partly under capital spending.

The corresponding national oil prices are US$1-2 lower.