Statement by Damian Ondo Mañe, Executive Director for Gabon

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.


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.

On behalf of my Gabonese authorities, I would like to express my appreciation to Management and staff for their continuous advice and support, in particular, in the design of the comprehensive program of economic and structural adjustments. I would also like to thank staff for their report which describes well the major challenges facing Gabon, and the determined efforts of my authorities to address these challenges, which include declining oil production, high external debt and weak social indicators.

Fully cognizant of the challenges faced by the country and the need to change course, my authorities adopted in 2003 a medium-term adjustment program for the period 2003-2006. The objectives of this program, which has achieved broad consensus, is to diversify the economy, accelerate growth, and reduce poverty. The program also includes measures to speed up the privatization process, improve governance, and enhance the investment climate.

The measures undertaken were focused on strengthening of budgetary management, reforming tax and customs administrations, improving the functioning of the Budget and Treasury Departments, restructuring the public enterprises, establishing the National Commission Against Illicit Enrichment (CNLEI) and the adoption of an ethics code for civil servants, among others. These efforts were supported by a staff monitored program, and performance under the program was satisfactory. These policies were consistent with the medium term program, and with the objectives of the authorities’ poverty reduction strategy.

Moreover, my authorities would like to point out that all quantitative targets for end-March 2004 were met. It is to be noted also that non-oil revenue was higher than programmed, and that expenditures, including the wage bill, were contained within the agreed limits. The authorities have also implemented all prior actions, and on May 14, they indicated to the President of the World Bank Gabon’s interest to join the Extractive Industries transparency Initiative (EITI).

My Gabonese authorities are very much encouraged by the successful implementation of the SMP, and the results achieved. They are of the view that the measures implemented have laid a good foundation for a strengthening of the adjustment program, and to address the major challenges facing the Gabonese economy, and which include a vulnerable external sector and high debt service. The reform efforts are being implemented in a medium term context, and are also aimed at restructuring the economy and strengthening the non-oil sector. In this regard, my Gabonese authorities are requesting Fund support for a 14-month stand-by arrangement, with an access of SDR 69.44 million, corresponding to 45 percent of Gabon’s quota in the Fund.

I. Recent Economic Developments and Performance under the SMP

Economic and financial performance in 2003 has been much better than programmed, with real GDP growing at 2.8 percent, higher than the projected 0.1 percent and the inflation rate was 2 percent. The fiscal and external surpluses were larger than programmed, and the debt ratios were lower. A determined implementation of the policy measures in the program, and an improved oil sector environment helped in the over performance.

Fiscal Policy

The fiscal consolidation initiated in 2002 has been pursued in 2003 and 2004. The ambitious fiscal adjustment effort and the improving economic and financial situation resulted in a reduction of the non-oil primary deficit from 16.8 percent of non-oil GDP in 2002 to 8.2 percent in 2003. On the revenue side, a shortfall in non-oil revenue was more than offset by higher oil revenue. On the expenditure side, total expenditures, excluding interests, decreased significantly from 23.7 percent of GDP in 2002 to an estimated 18.5 percent of GDP in 2003. All expenditure lines, except the wage bill, contributed to that decline.

The increase in the wage bill was due to the impact of regularization of the civil servants’ administrative situation following the 2001 civil service census, and the recruitment in the security, education and health sectors. Although the financial impact of the reduction in the number of advisors at the Office of the President, and in the ministries and other institutions did not begin to be felt until December 2003, these measures were a strong signal of the government’s intention to restructure the civil service. My authorities have taken further measures since April 1, 2004 which together with the adoption of new statutes of the civil service should help to reverse the trend in the wage bill.

Gabon is current with respect to the servicing of non-reschedulable debt and all non-reschedulable external arrears were cleared. At end-2003, payments of small amounts of debt-service and non-reschedulable external arrears were delayed, but these have been settled in early 2004.

Monetary and Financial Sector

Credit to the economy contracted in 2003. This was due mainly to the large arrears payments by the government which in turn reduced its indebtedness to the banking system. A reduction in loans to the forestry sector also contributed to the contraction in credit. There was also an increase in provisioning by the commercial banks, as their portfolio deteriorated. Monetary policy which is conducted at the regional level by the Banque des Etats de l’Afrique Centrale (BEAC) was consistent with the fixed exchange rate regime, and geared at supporting the exchange rate peg with the euro. It contributed to maintaining the inflation rate low, and to the preservation of the competitiveness of the CFA franc, despite the appreciation in the real effective exchange rate due to the depreciation of the U.S. dollar against the euro.

Structural Reforms

Significant progress was made in the area of structural reforms in the past two years. The reform measures have been in the areas of governance, public expenditure management and public enterprises. Moreover, all the structural benchmarks included in the SMP were observed, with the exception of the benchmark relating to the adoption of the civil service ethics code which was met with a delay of one month, and the benchmark pertaining to the completion of the action plan for the restructuring of the timber marketing board.

As regards the forestry sector, the Gabonese authorities, with the assistance of the World Bank and the donor community, are implementing a comprehensive reform agenda. However, the study commissioned from an international firm and which came out in December 2003, did not address the main issues of concern to stakeholders, and did not help to gather a consensus on a restructuring plan. With World Bank assistance, a new consultant has been chosen for the study which is expected to be completed by November 2004. The letter of development policy, which was prepared with World Bank assistance, contains the main features of the reforms. These include the granting of concessions through an auction system, a freeze in the attribution of new concessions pending the introduction of the new system, and the termination of concessions by concession holders who do not meet their tax obligations.

In other areas, steps were taken to strengthen the control of expenditures, and significant progress was made in the privatization process, with the sale of the agribusinesses HEVEGAB and AGROGABON, the placement under private management concession of the two main ports and the placement under private management of the three Caisse Nationale de Securite Sociale’s (CNSS) hospitals. With regard to the telecommunications company, TELECOM, negotiations are underway with prequalified buyers.

On governance, the recommendations of the IMF Legal Department with respect to the CNLEI are being implemented with the establishment of two subcommissions on investigation, and prevention and education. The government adopted also an ethics code for government officials and the wealth declaration for public officials.

As regards the improvement of the business climate, my authorities abolished the General Directorate of Price Controls and created a General Directorate of Competition and Consumption instead. Moreover, the decree which had widened the list of products under price surveillance has been abrogated.

Social Truce

In devising the medium-term program, my authorities were conscious that the success of its implementation would require a broad consensus as well as the participation and support of all stakeholders in the country. In that sense, my authorities initiated discussions with labor unions and employers’ associations which led to an agreement on a social truce in September 2003. Under this agreement, the labor unions committed to refrain from wage increase claims in exchange for a commitment from the government to improve the functioning of the medical insurance system, restructuring the CNSS and regularizing the administrative position of civil servants. In addition, the government agreed to reduce the VAT on a number of basic commodities. The revenue loss was compensated by VAT increases on luxury goods.

III. Program for April 2004 – June 2005

Under the program for which an arrangement is requested, my authorities intend to maintain the stance of prudent policies already initiated, with a view to addressing the main challenges facing the Gabonese economy: projected decline of oil production, excessive debt burden and deteriorating social indicators. Development of a strong non-oil sector is also an important objective of the reform program, and will contribute to the achievements of a higher growth rate and to the reduction of poverty.

My authorities are aware that the increase in the oil sector has benefited from the current situation in the world oil market. While it has been an incentive to higher investments in the sector, thus boosting the extraction of oil, the authorities fully understand that this is only a temporary situation, and they do not believe that this will lead to a reversal of the declining trend. Accordingly, they remain committed to fiscal consolidation and structural reforms which are the cornerstones of the adjustment program. They will also continue the implementation of their ambitious reform agenda, in order to improve governance and the business climate, and will pursue the finalization of their PRSP.

In light of the projected decline in oil production, total real GDP is expected to grow by only 0.7 percent on average in 2004- 2005. However, with the efforts underway to promote non-oil sector, my authorities project a non-oil GDP growth of 3 percent in 2004 and 3.5 percent in 2005. The average annual inflation is expected to be around 2 percent, while the fiscal and current account surpluses are projected to shrink.

Fiscal policy

Over the arrangement period, my authorities intend to continue improving the public finance management through the strengthening of tax and customs administrations and a better control and streamlining of budgetary spending. With the effective implementation of fiscal measures related to forestry sector, enhanced tax arrears collections and the strengthened control of tax payers, my authorities project a slight increase in non-oil revenue of 0.4 percentage points of non-oil GDP in 2004 and a further 0.6 percentage points in 2005. Oil revenues are projected to decline from 16.2 percent of GDP in 2003 to 15.0 percent. Should oil projections be met, my authorities intend to replenish the Fund for Future Generations with 10 percent of oil revenues.

The primary expenditure is projected to decline by 1.3 percentage points of non-oil GDP between 2003 and 2005, to 30.5 percent. This will result mainly from cuts in the wage bill as explained in paragraph 22 of the MEFP and further tightening of expenditures related to security and public utility consumption. Social spending will be maintained and will be monitored closely. Likewise, room will be created to increase gradually public investment which is expected to reach 7.5 percent of non-oil of GDP in 2005 against 6.4 percent in 2003. My authorities intend to initiate a thorough assessment of its system of scholarships allocations, for which they will seek technical assistance from donors, and are contemplating the restructuring of the pension system. As a result of the measures taken, the non-oil deficit will be reduced from 8.2 percent of non-oil GDP in 2003 to 5.7 percent in 2005, indicating the serious and strong fiscal adjustments being undertaken.

Monetary Policy and Financial Sector Issues

Monetary policy pursued at the regional level has been beneficial to the country, and the authorities will continue to adhere to the required fiscal convergence criteria. Thus, they will continue the fiscal consolidation efforts which will allow for a reduction of net credit to government while accommodating bank credit to the private sector.

The banking system remains sound, but weaknesses identified in the FSAP are being addressed gradually, most of them at the regional level. Thus, COBAC, the regional banking commission, has strengthened the regulations relating to surveillance of foreign exchange position, provisioning of bad debts and risk coverage and diversification by credit institutions. Likewise, CEMAC adopted regulations with respect to operating conditions for microfinance institutions in 2002 and anti-money laundering recently.

Structural Reforms

My authorities remain convinced that wide-ranging structural reforms are essential to facilitate diversification of the economy and reduce poverty.

In the forestry sector, measures related to the fiscal and regulatory framework will be implemented in accordance with the letter of development policy, and with the assistance of the World Bank and donors. The letter which was adopted by the government on May 18 contains the main features of the reforms, as noted above.

The privatization process will be pursed. In this context, a successful bidder for 35 percent of shares of GABON TELECOM is expected to be selected by end-September 2004. The restructuring of AIR GABON is continuing in accordance with the operational and financial plan for the 2004-2006 period. An operating surplus before depreciation is expected to be achieved in 2004. In agreement with the AfDB, a consulting firm has been appointed to conduct a study on how to restructure GABON POSTE, the postal company. The study which started in March 2004 is expected to be completed by end-August 2004.

My authorities are hopeful that the forthcoming diagnostic study by the Foreign Investment Advisory Service (FIAS) of the International Finance Corporation (IFC) on the business climate will shed more light on the impediments to private sector development. It is expected that this study will be completed in 2005 and be part of World Bank Private Sector Development/Diversification project in the context of its Country Assistance Strategy. Meanwhile, efforts are being made to improve the road network and other infrastructure, the operation of one-stop shop for investors and the functioning of the judicial system to support the expansion of private sector activity. On governance, a first activity report from the CNLEI is expected at end-2004.

My authorities have reassessed the timetable for the completion of their full PRSP, and a full PRSP is expected in the first semester of 2005. The document will be an essential element in the development of policies and to monitor progress towards achieving the Millennium Development Goals.

Besides the structural measures being implemented, my authorities will also continue to implement policies to improve the competitiveness of the economy through costs cutting and elimination of rigidities. The authorities expect that the policies they are pursuing in the area of education will help to improve the efficiency and productivity of the labor force.

Debt Issues

Gabon’s debt burden remains extremely heavy. The staff baseline debt sustainability analysis (DSA) indicates that the external-debt-to-GDP ratios will increase moderately from 53 percent in 2003 to about 62 percent by 2006, but will decline steadily thereafter, as non-oil GDP growth picks up. As oil revenue declines, the scenarios also indicate that debt-service ratios will increase to almost 32 percent for debt service-to-exports ratio and to about 49 percent for debt service-to-revenue ratio by 2012. Given the high vulnerability of Gabon to external shocks, these ratios could worsen, despite the adjustment efforts of the authorities. In view of the financing gap in 2004 and 2005 resulting from high debt services, my authorities intend to request debt rescheduling from Paris Club creditors.


Overall, my authorities are of the view that the economic performance in the past two years, including under the SMP, is an indication of their strong commitment to the adjustment process. This performance is also an indication of the determination of the authorities to restructure the economy, and to make it less oil-dependent, while addressing the other challenges. However, the adjustment efforts cannot be maintained without the assistance of the international community. With the satisfactory implementation of the SMP, my authorities believe that they have built a sufficient strong track record to benefit from such assistance. To reiterate, my authorities are requesting Fund support under a Stand-by Arrangement for the period April 2004 – June 2005, and I would like to request the support of my colleagues for Gabon’s request. Gabon also intend to request debt restructuring from Paris Club creditors. As additional assistance will be required, my Gabonese authorities would like the Fund, in its catalytic role and as a trusted advisor, to communicate to donors and creditors of the new track record, and the strong commitment to the reform process.

Let me also add that given the heavy external debt burden, and the vulnerability of the country to external shocks, a more flexible approach to the debt problem of Gabon will also be needed. In this regard, it is to be noted that despite being classified as a middle income country, Gabon has all the social characteristics of a low income country, and that it also has the debt profile of many HIPCs. My authorities are hopeful that donors and creditors will take this into consideration.

The success of the authorities’ medium term program should not be measured by the achievement of debt sustainability only. The most important objective should be the achievement of fiscal sustainability, over the medium term, which will allow the country to meet its financial needs, including debt servicing, poverty reduction and economic development. New sources of growth will also need to be identified and a strategy put in place to develop the economy, and enable it to meet the MDGs. My Gabonese authorities expect that the present program will lay the foundation for a more ambitious medium term program that can help to achieve these objectives.