Abstract
This paper examines Gabon’s request for a Stand-By Arrangement in support of its economic program. The arrangement provides access at 50 percent of quota. Given its strong balance of payments position, it intends to treat the arrangement as precautionary. Gabon is ineligible for support under the Policy Support Instrument, which is limited to Poverty Reduction and Growth Facility-eligible countries. The critical objectives of the government’s program are to prepare the economy for the post-oil era and to make decisive progress in poverty reduction.
On behalf of my Gabonese authorities, I would like to express my appreciation to Management and staff for their continuous advice and support, particularly, in the design of the comprehensive program of economic and structural adjustment. 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.
I. Recent Developments
As Directors would recall, my Gabonese authorities have embarked, since mid-2002, on a fiscal adjustment and reform program, with Fund support. The objectives of this program were to reduce country’s dependence on oil through economic diversification, and improve social indicators. The program also included measures to speed up the privatization process, improve governance, and enhance the investment climate. During this period, the authorities implemented successively and successfully a Staff-monitored program (SMP) and a 14-month Stand-By Arrangement (SBA). In particular, macroeconomic stability has been restored and far-reaching reforms were completed.
It should be acknowledged that the successful implementation of this economic program has been possible thanks to a favorable external environment. In particular, the high level of oil prices and the subsequent windfall revenues contributed to finance and advance critical reforms, eliminate domestic and external debt arrears, and accumulate resources in the fund for future generations. In addition, the high oil prices have boosted oil exploration and development of marginal oil fields, which led to a quasi-stabilization of the oil production over the past years.
Since the expiration of the SBA in July 2005, the country went through a transitory period marked by presidential and parliamentarian elections held in December 2005 and December 2006 respectively. Although fiscal policy relaxed to ease strong social pressures and accommodate election-related spending during this period, my authorities remained committed to its reform agenda as demonstrated by the structural reforms accomplished during the period:
1- The Large Taxpayer Unit (LTU), created in 2004, is now operational.
2- A committee comprising representatives of the Ministries of Finance and Oil has been set up in July 2006 to better monitor oil revenues, and to this end, an oil model will be developed with the assistance of an international firm recently recruited on the basis of an international call for tender. A second EITI report, covering broader types of oil revenues and the mining sector has been published last month.
3- My authorities have launched a national initiative called Gabon – Open Government, which aims to make available to the general public all important documents of public interest; such as finance laws and related documents, EITI reports, and various audits on the use of budgetary resources.
4- Significant progress has also been made in the privatization program. Notably, the privatization of Gabon Telecom came to a conclusion with the divestment of 51 percent of its capital to Maroc Telecom in February 2007. The liquidation of Air Gabon is proceeding normally with a majority of assets already sold and liabilities being repaid. Its finalization is expected for September 2007. Gabon Poste, the postal company, is also being liquidated and has been replaced by a new public enterprise, La Poste, of a smaller size and with a limited budgetary support.
5- A decree to withdraw with tax arrears dating 2002-2003 has been adopted, effective from April 2007 and the process of withdrawing these permits is in force. Furthermore, the examination by the Parliament of the draft law on the National Forestry Fund has been suspended as it comprises provisions contrary to good budgetary practice.
6- Also, through the elections that were internationally testified as free and fair, Gabon has continued to consolidate its democratization and the building of good governance institutions.
II. Program medium-term objectives and policies for 2007
The medium-term economic prospects for Gabon remain dependent on developments in the oil sector and the outcome of significant projects in the non-oil sector. For the time being, they appear favorable as oil international prices are expected to remain high and non-oil economic activity is projected to remain strong. However, my authorities are fully cognizant that the continued decline in oil production in a context of unreliable oil prices, with an expected depletion of oil reserves over the next 30 years, present a daunting challenge; thus explaining their motivation to keep momentum of reforms to restructure the economy.
Accordingly, the objectives of their program that will cover the period 2007-2010 are to prepare the economy for the post-oil era and make decisive progress in reducing poverty, consistent with their GPRSP. A particular emphasis will be put on bringing the non-oil fiscal deficit in a more sustainable path by the end of the program, through notably a strengthening of the public financial management, and an acceleration of structural reforms to foster private sector development. More specifically, it is my authorities’ objective to reduce the non-oil primary deficit to about 6 percent of non-oil GDP by 2011 through a front-loaded fiscal adjustment.
Fiscal policy and reforms
Fiscal policy for 2007 targets a non-oil primary deficit by 6.5 percentage points of non-oil GDP. To this end, my authorities have decided to increase gasoline and diesel petroleum prices by about 25 percent in March 2007. This measure is expected to reduce fuel subsidies by 3 percentage points of the non-oil GDP. It will be complemented with a contraction of 1.5 percentage points of the security and sovereignty spending. The remainder of the adjustment will be achieved through non-oil revenue-enhancing measures and the proceeds of the privatization of Gabon Telecom. The updated tax code, which integrates the changes made in past years, will be presented to Parliament by end-September 2007. In the meantime an inventory of exemptions and tax expenditures is to be carried out by end-June 2007, with the objective to start a thorough reform of these exemptions and tax expenditures in 2008.
My authorities will continue to improve the quality and effectiveness of expenditure management and budgetary processes. To this end, they are preparing a medium-term expenditure framework (MTEF) which is expected to be finalized by end-2007. The aim is to fully integrate the MTEF in the preparation of the 2009 budget. In the meantime, my authorities intend to and include all fiscal-related operations into the budget from 2008 onwards, along with the introduction of the functional classification to better monitor spending in priority sectors.
My authorities are resolved to improve the quality of the investment spending. They will continue to strengthen the functioning of Directorate General of Government Procurement (DGMP). Following the findings of different audits, spending related to the celebrations of Gabon’s accession to independence will now be submitted to the normal budgetary procedures. My authorities will ensure that projects related to the celebrations are in line with the GPRSP and the CMDT.
Structural reforms
Along with the strengthening of budget processes, my authorities will redouble efforts to fight misappropriation of public funds and corruption. In particular, the CNLCEI, whose work so far has been concentrated in educating the public and collecting asset statements by senior officials in the civil service, will make a step forward in enforcing asset disclosure by publishing the names of those civil servants that did not submit their declarations by end-June 2007. The Audit Court, the highest fiscal oversight agency, has enhanced its role. My authorities intend to support the economic diversification through a series of measures aimed at promoting the private sector. In particular, they will further strengthen the financial system, including the microfinance, to increase access to credit. A special emphasis will be put on the improvement of the business climate. Specifically, they will restructure the Private Investment Promotion Agency (APIP) and pursue the work on the harmonization of Gabon law with the provisions of the OHADA to improve enforcement of the acts by the courts. Finally, they will address infrastructure constraints, starting with the port of Owendo, through which 90 percent of Gabon’s non-oil trade passes and which constitutes a major obstacle to the country’s growth.
My authorities will continue to take a proactive role within CEMAC region to advance issues of regional interest such trade liberalization and BEAC operations.
Debt management strategy
As we have said in previous statements, Gabon, though a middle-income country, however, is also still confronted with social improvement challenges of a magnitude similar to that of low-income countries. Despite higher budgetary allocations to social sectors and efforts to improve the quality of government expenditures, however, my authorities would like to point out that Gabon’s debt level is imposing a heavy burden on these efforts to reduce poverty and bring about growth.
My authorities are of the view that a definitive resolution of their debt problem is critical to the success of their development strategy. Since the expiration of the previous arrangement with the Fund in 2005, they have initiated discussions with their external creditors regarding a prepayment deal, with the objective to exiting definitively from vicious circle of debt rescheduling. They are hopeful that an agreement on such a deal is reached soon, in order to create the fiscal space needed to carry on their investment program and make decisive progress towards the MDGs.
Conclusion
Overall, my authorities are determined to pursue sound adjustment policies aimed at restructuring the economy and making it less oil-dependent while further progressing in poverty reduction. To this end, they have developed program featuring a strong fiscal consolidation, a strategy to strengthen public financial management and an agenda for private sector development, covering the 2007 2010 period. Given the ambitiousness of this program, my authorities are requesting Fund assistance in the form of a three-year SBA. As Gabon is currently not faced with a balance of payments needs, my authorities will treat the SBA as precautionary, and I will appreciate Directors’ support to my authorities’ request.