Gabon: Staff Report for the 2005 Article IV Consultation, Third Review Under the Stand-By Arrangement, and Review of Financing Assurances
Author: International Monetary Fund
Publication Date:
04 May 2005
eISBN:
9781451813975
Language:
English
Keywords:
ISCR; CR; micro-finance institution; government; SDR; revenue; implementation of the program; private sector; debt service; exchange rate; oil revenue; public expenditure
Download PDF (755.6 KB)

The staff report for the combined consultation and 2005 Article IV Consultation on Gabon highlights economic developments and policies. Preparing Gabon for the post-oil era requires strengthening the efficiency of the public sector and providing a framework for private sector development to raise the productivity of the Gabonese economy. In the public sector, improving expenditure management, especially of public investment, is essential. Gabon remains keen to seek a multiyear follow-up program after the expiration of the Stand-By Arrangement.

Abstract

The staff report for the combined consultation and 2005 Article IV Consultation on Gabon highlights economic developments and policies. Preparing Gabon for the post-oil era requires strengthening the efficiency of the public sector and providing a framework for private sector development to raise the productivity of the Gabonese economy. In the public sector, improving expenditure management, especially of public investment, is essential. Gabon remains keen to seek a multiyear follow-up program after the expiration of the Stand-By Arrangement.

I. Introduction

1. During the past ten years, Gabon’s economic performance has been uneven. Oil booms and political cycles resulted in a ratcheting up of public expenditure, followed by painful adjustment periods when oil prices fell. Poor public expenditure management led to the repeated accumulation of arrears, both domestic and foreign, and social indicators have remained poor despite Gabon’s rich endowment in natural resources. Oil production has fallen by one third since 1997 as oil fields have matured, although progress in extraction technology and recent high oil prices have boosted investment in existing oil fields and stabilized production temporarily. Although per capita income is high by sub-Saharan African standards (US$5,439 in 2004), available information suggests that income distribution remains highly uneven. Moreover, with oil production stagnant, real per capita income in CFA franc has declined each year since 1999.

2. Against the background of declining prospects for the oil sector, the authorities put in place a far-reaching economic reform program in 2003. Anchored by fiscal consolidation, notably strict control of the wage bill, and ambitious structural reforms aimed at boosting non-oil growth, the authorities’ program received support from the Fund through a staff monitored program during September-December 2003 and a 14-month stand-by arrangement approved in May 2004 in an amount of SDR 69.4 million. Official bilateral creditors agreed to reschedule outstanding arrears and debt falling due during the period covered by the Fund arrangement, providing debt relief totaling US$849 million (Paris Club).

3. Past implementation of Fund policy advice has been mixed. During the past decade, Gabon has had two Fund arrangements prior to the current one, an EFF (1995-98) and a stand-by arrangements (2000-01), both of which went off track (Box 1).

4. Implementation of the government’s current Fund-supported program has been satisfactory. The first two reviews under the 2004-05 stand-by arrangement were completed and Gabon has made three equal purchases, for a total amount of SDR 41.7 million. In the letter of intent for the third review, the authorities describe progress in economic policy implementation so far and specify their policies for the remainder of the 2005 (Appendix I). Summaries of Gabon’s relations with the Fund and World Bank appear in Appendices II and III. Appendices IV, V, and VI contain an assessment of external and public sector debt sustainability, a safeguard assessment for the Bank of Central African States (BEAC), and a summary of statistical issues, respectively.

Policy Implementation Under Fund-Supported Programs—What Changed?

The current stand-by arrangement is the third arrangement supported by Fund resources in Gabon since 1995.

The EFF approved in November 1995 went off-track in the second half of 1997, after two reviews had been completed, primarily as a result of fiscal slippages in 1998 related to the electoral calendar, which amounted to over 16 percent of GDP. No further reviews were completed under the EFF. In October 2000, the authorities requested an 18-month stand-by arrangement. Significant steps were taken to correct the 1998 fiscal slippages, through strengthened expenditure control and monitoring, increased transparency in government financial operations, and changes in the government, including a reorganization of the Ministry of Finance. However, after completing the first and second reviews, with some delay, in July 2001, this program also went off-track as a result of repeated fiscal slippages in the face of a very high debt service burden.

Gabon’s poor track record led to some delay in putting in place the current stand-by arrangement, which was preceded by a four-month staff-monitored program from September-December 2003. Since the approval of the 14-month SBA in May 2004, two reviews have been completed and all quantitative performance criteria through end-December 2004 have been observed. Two key factors may have contributed to the improvement in performance:

  • First, the decline in oil production, which started in 1997, starkly revealed the need for adjustment in Gabon. The current high levels of oil prices are perceived as a welcome, but temporary palliative to ease the adjustment path.

  • Second, ownership of the reform program is strong at both the highest political levels and at the technical level. A particularly strong technical team that includes both the Presidency and the Ministry of Finance, is able to play a valuable coordinating role in implementing the far-reaching reform program and maintaining fiscal discipline despite significant windfall revenue from oil.

II. Recent Economic Developments and Performance under the Stand-By Arrangement

5. GDP growth is estimated to have reached 1½ percent in 2004 (Table 1, Chart 1). Non-oil growth of 2¼ percent benefited from rising output in manganese mining and timber processing, while activity in construction, electricity, and cement production has picked up in the second half of the year, spurred by the acceleration in the execution of public investment. However, despite a broadly unchanged level of oil production, a drop in refinery activity and oil exploration led to a decline of 1 percent in oil GDP. Moreover, prospects for the oil sector are for a resumption of a steady decline in output, although government revenues will continue to be buoyant while the current high prices prevail (Box 2).

Table 1.

Gabon: Selected Economic Indicators, 2000-07

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

6. Inflation declined to ½ percent in 2004, reflecting wage moderation and the monetary discipline imposed by the fixed exchange rate regime. The real exchange rate depreciated slightly in 2004, partly offsetting the sharp appreciation that took place in 2003 when the euro appreciated significantly against the U.S. dollar (Chart 2). However, competitiveness is estimated to have remained relatively strong, not least as a result of wage moderation (Box 3). The external position remained strong, the current account surplus reached 10½ percent of GDP, and Gabon’s contribution to the BEAC’s external assets more than doubled in 2004.

uA01fig01

Real GDP Growth Rates, 1999-2007

(In percent change)

Citation: IMF Staff Country Reports 2005, 149; 10.5089/9781451813975.002.A001

Sources: Gabonese authorities; and staff estimates and projections.

7. Developments in monetary aggregates in 2004 were marked by the strength of the external accounts and a high level of domestic liquidity. Broad money rose by 11 ½ percent in 2004. But despite this increase in liquidity, net domestic assets fell sharply, as a result of the programmed decline in net credit to government and further drop in credit to the private sector. Banks reduced their exposure to the domestic enterprise sector, reflecting both additional prudence by banks and more self-financing by enterprises whose financial positions were boosted by the government’s settlement of domestic arrears.1 Banks were also constrained by the stricter prudential standards imposed by the COBAC, which caused non-performing loans to rise from 13.8 to 15.8 percent of banks’ portfolios, but banks remained adequately provisioned (Table 14).

Table 2.

Gabon: Fiscal Operations of the Central Government, 2003–05

(In billions of CFA francs, unless otherwise indicated)

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

The original program targets for end-September and end-December 2004 have been revised to take into account the planned uses of the oil windfall, and an upward adjustment in current spending (by CFAF 1 billion) for end-December.

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

Including old debt repayments to Socié té 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 Télécom, Gabon Poste, Air Gabon’s suppliers, and CNSS. During the last quarter of 2003, there was deferral of debt obligations amounting to some CFAF 11 billion.

The data excludes CFAF 7.8 billion of securitized commercial agreements bought by a local commerical bank from private nonbank creditors during the first nine months of 2004. It therefore differs from the monetary survey data.

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.

Table 3.

Gabon: Fiscal Operations of the Central Government, 2000–07

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Sources: Gabonese authorities; and Fund 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 2004 budget, 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.

Financing gaps during the program period are 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.

Table 4.

Gabon: Quarterly Monetary Survey, 2003-05

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Sources: BEAC; and staff estimates and projections.

The data for September 2004 differs from the one in the government finance table, which excludes CFAF 7.8 billion of securitized commercial agreements bought by a local commercial bank in 2004.