Statement by Damian Ondo Mañe, Executive Director for Gabon

The staff report for the Second Review Under the Stand-By Arrangement (SBA) on Gabon focuses on economic developments and policies. The program supported by the 14-month SBA aims at promoting non-oil GDP growth, while sustaining fiscal adjustment and improving public expenditure management. All performance criteria for end-September 2004 were observed, even though there were small slippages in the indicative targets for non-oil revenue and the net reduction of unpaid payments orders at the treasury. The macroeconomic environment has improved since the first review, reflecting slightly higher oil production and considerably higher oil prices.


The staff report for the Second Review Under the Stand-By Arrangement (SBA) on Gabon focuses on economic developments and policies. The program supported by the 14-month SBA aims at promoting non-oil GDP growth, while sustaining fiscal adjustment and improving public expenditure management. All performance criteria for end-September 2004 were observed, even though there were small slippages in the indicative targets for non-oil revenue and the net reduction of unpaid payments orders at the treasury. The macroeconomic environment has improved since the first review, reflecting slightly higher oil production and considerably higher oil prices.

December 22, 2004

On behalf of my authorities, I would like to reiterate my appreciation to Management and staff for their support to Gabon in its efforts to address the many challenges facing the economy, which are the declining oil production, high external debt and weak social indicators. Once again, the discussions held in Libreville between the Gabonese authorities and the staff, have been useful and productive.

The staff report before us today is an accurate reflection of these discussions and describes well the progress achieved in the implementation of the authorities’ program which aims at reducing oil dependence and improving the social conditions of the population.

Recent Economic Developments and Performance under the SBA

Since the last review, macroeconomic performance has continued to improve as a result of strong program implementation which has been helped by the higher revenue from oil. The performance under the SBA has been satisfactory, with all performance criteria for the period under review being observed except for the end-November performance criterion on the SNBG, where the action was taken in December, and for which my authorities are requesting a waiver.

Economic activity has remained buoyant, with positive contributions from the oil and mineral sectors, as well as from the wood processing industry. While overall real GDP is projected to increase by about 2 percent in 2004, non-oil GDP is expected to increase by 2.3 percent, compared to a real growth of 1 percent in 2003. As noted in my previous statement on Gabon, the high level of international oil prices has allowed for larger investment in the sector, the resumption of exploration in marginal fields, and the exploitation in previously abandoned fields. As a result, oil production has been slightly higher than projected. Inflation remains subdued, below the program’s objective of 2 percent.

In the fiscal sector, performance at end-September 2004 was on track. Despite lower-than-projected non-oil revenue due to lower taxable imports and downward changes in the VAT rate for some products, total revenue was higher than the program target, owing to higher oil revenue. The current expenditures as well as investment spending have been kept within the program limits, such that the primary balance has exceeded the objective by CFAF 9 billion. As regards tax administration-enhancing measures, the decree establishing the Large Enterprise Directorate was adopted in September and the director appointed in October. Moreover, since October 1, the higher VAT rate (25 percent) on banking services and telecommunications as well as on certain luxury goods, introduced in August 2004, has been eliminated and replaced with the normal 18 percent rate.

The improvement in the external accounts observed at the time of the first review has been maintained at end-September. It has contributed to the strong growth of net foreign assets (NFA) of the banking system. As regards debt, the external debt-to-GDP ratio is projected to decline from 55.9 percent at end-2003 to 50 percent at end-2004. Following the Paris Club agreement in June 2004, discussions are underway with creditors to conclude bilateral agreements. Negotiations are well advanced with London Club banks and an agreement on a rescheduling is expected soon. With regard to non-Paris Club bilateral creditors, an agreement was concluded with Korea and discussions are ongoing with Saudi Arabia, China and Libya.

In the monetary sector, the strong growth in NFA offset the decline in net credit to the government and credit to the economy. The latter fell by 4.8 percent over the nine months, reflecting government’s clearance of domestic debt obligations. In the financial sector, the banking system remains sound. Nevertheless, the ratio of nonperforming loans rose from 13.8 percent of total gross loans at end-2003 to 17.3 percent at end-September 2004, in view of the stricter classification required by the regional banking commission, COBAC; but banks have substantially increased their loan loss provisions, which, at end-September, covered 72 percent of nonperforming loans.

On the structural side, the restructuration/privatization of public enterprises is progressing well. The memorandum of information for investors in the privatization of Gabon Télécom is being updated. It is expected that bids will be submitted by mid-March 2005 and a successful bidder will be selected by the end of that month. As regards Air Gabon, the financial situation is improving, reflecting the measures taken by the new management team installed since May 2004. However, due to the grounding of the long-carrier aircraft, there has been a reduction of the company’s normal operations, such that the end-2004 structural benchmark of a balanced operating result before depreciation will not be met. In the meantime the government has decided on a partial privatization of the company, and in September an international consulting firm was selected, through a competitive bidding process, to assist the authorities in this operation.

The reforms in the forestry sector are progressing well, and the implementation of the Letter of Development Policy (LDP) for the sector is proceeding, in close collaboration with the World Bank. The aim of the reforms includes increasing transparency in this sector. In this context, and in conformity with the letter, the granting of new forestry permits has been suspended, and a pilot auction project of forestry permits is being developed with the assistance of the World Bank. Moreover, the government has adopted in early December an action plan to streamline SNBG. As part of this action plan, the monopoly of the SNBG in exporting Okoumé and Ozigo woods has been eliminated. There will be a transition period of one year until December 31, 2005, for the restructuration of the enterprise, before it is privatized.

The reinforcement of the finances of social security funds and of local authorities is underway. In particular, the performance contract for the Caisse Nationale de Garantie Sociale (CNGS) has been concluded, and was signed in November. An action plan to strengthen local authorities’ finances is being prepared. In this regard, the reform of real property taxation is progressing well with the property registers being updated in the two main cities, Libreville and Port-Gentil. The issuance of land titles is being accelerated with more resources allocated to the land registry offices of these cities. This effort should also facilitate the provision of housing finance by the banking system.

As regards business environment, the IFC’s FIAS concluded its study on the obstacles to investment in Gabon and a report was given to the government in October. My authorities intend to have an in-depth discussion on the relevant issues at the time of the official presentation of the report by the FIAS in January 2005. In the area of trade liberalization, the import surcharge on eggs was eliminated in August.

At end-September 2004, all quantitative and structural performance criteria and benchmarks were observed with the exception of the benchmark related to the CNGS, which was signed in mid-November. Also, all the structural benchmarks for end-October have been met (Table 2 of the staff report). In view of this performance, my authorities request the completion of the second review of the SBA.

Policies for the Remainder of 2004 and Outlook for 2005

The outlook for the remainder of the year and for 2005 remains positive, helped by the improved performance of the oil sector. My authorities are confident that the pursuit of the current policy stance will help achieve the end-year program objectives. Efforts have focused on accelerating the recovery on tax arrears in the forestry sector and maintaining expenditures within the program limits. Oil revenue projections for 2004 are expected to be exceeded by a further CFAF 22 billion, which will go toward the reduction of statutory advances at the regional central bank while the remainder will be saved in the FFG. The use of any oil surplus in 2005 will be identical to that in 2004.

On the structural side, the reform agenda is well advanced. Except for the benchmarks related to the finalization of taxable base for local real estate taxation and the operational results of Air Gabon, all structural benchmarks for end-December are expected to be met.

My authorities expect an increase in private foreign investment in 2005 following an increased interest in investment in sectors such as mining, wood processing and housing by foreign investors. In addition, already established enterprises - mostly in refining and agribusiness sectors - have indicated that they plan to increase their investment. This augurs well for the non-oil activity in 2005, which is expected to grow by 3.5 percent in real terms. In addition, given the positive prospects in the oil sector over the medium term, oil revenues in 2005 are expected to exceed program projections by 1.6 percent of GDP, which should lessen financing needs.

While my authorities welcome the favorable outlook in the oil sector, they remain committed to their adjustment program and intend to pursue vigorously its implementation in 2005 as indicated in their letter of intent. Policies in 2005 will aim at pursuing the adjustment effort with the strengthening of the public finance management and the promotion of the activity in non-oil sectors through the implementation structural measures.

More specifically, in the fiscal sector, the objective is to reduce the non-oil primary budget deficit by 1.9 percent of GDP through an increase of non-oil revenue and a reduction in primary expenditures. The increase in non-oil revenues should stem mainly from (i) the improvement in tax administration that the new Large Enterprise Directorate should bring with its operationalisation in early 2005, (ii) the implementation of a program to secure forestry revenue, (iii) the improvement in the management of the taxpayers’ roster, and (iv) the stepped-up collection of tax arrears.

Savings in expenditures will come from (i) reduction in the wage bill resulting from the full effect of measures taken in 2004 and the implementation of laws related to the civil service reform, and (ii) reduction in other non wage expenditure. Additional savings are expected from the strict enforcement of the provisions of public procurement code. My authorities are also exploring other areas where savings could be made. In particular, a study on the scholarships system has been completed and, it is expected that, following the review of the study by the World Bank, an action plan to improve the effectiveness of the system will be adopted.

My authorities are determined to improve investment spending and the management and monitoring process of projects. The government will continue the audit of the financial and physical execution of the investment budget begun in 2004 and is in the process of selecting consultants for the audits of the Road Fund and of the investment budget related to the celebration of Independence. These audits should be completed by end-April 2005.

Monetary policy will continue to be conducted at the regional level by the BEAC, consistent with the fixed exchange rate regime that has served the country well. Discussions are ongoing with BEAC at the regional level as regards the feasibility of the investment of the FFG resources in long-term, low-risk financial instruments.

On structural reforms, my authorities will continue to implement their reform agenda that aim at diversifying the economy through the improvement of the business climate and the promotion of the private sector in non-oil activity. To this end, they expect to conclude the privatization of Gabon Telecom in the first semester of 2005 and will pursue the restructuration of the remaining public enterprises, notably Air Gabon and SNBG.

As regards transparency in the oil sector, the templates for the EITI are being filled by the government and the oil companies. A monitoring committee chaired by the Minister of Finance and including representatives of civil society will be established in February 2005, and the duly completed forms will then be forwarded to the Commission.

The preparation of the PRSP is well advanced. Many seminars have been organized in the country with a large participation of the civil society. With the assistance of the World Bank and UNDP in updating data and devising strategies for the priority sectors, the document should be ready by end-June 2005.


My authorities have demonstrated their commitment to and ownership of their adjustment program. So far, performance under the program has been satisfactory and it is my authorities’ intention to pursue their adjustment policies; especially as they are of the view that the recent positive developments in the oil sector are transitory and do not address the fundamental issues the economy is facing. Having in mind the likely reversal in international oil prices, and the possible reemergence of financing gaps over the medium term, my Gabonese authorities would like to maintain the close relationship with the Fund through a successor arrangement that would help to strengthen the actions already taken to diversify the economy and build the foundation for medium- and long-term fiscal sustainability. Such an arrangement will contribute to the efforts to make the economy less dependent on mineral and oil resources and increase the participation of the private sector. In this regard, and given the challenges facing the Gabonese economy, they are of the view that an EFF would be more appropriate. It is their hope that discussions could start soon on such an arrangement.