On behalf of my authorities, I would like to thank Management, the Board and Staff for their continued advice and support in the implementation of Gabon’s economic program. The staff report before you describes accurately the achievements to date, the challenges to overcome going forward, and the policies that my authorities intend to implement in this regard.

I. Recent developments

The first half of the year was characterized by robust non-oil activity, notably in the mining, forestry, wood processing and agro-industries sectors. This momentum, which appeared to have been maintained in the second semester, should lead to a non-oil growth of 6.4 percent in real terms in 2007. Overall real GDP growth is expected to be lower at 5.9 percent as oil production is likely to recover slowly and grow by 3.1 percent. Rising prices of petroleum products and foodstuffs resulted in an inflation of 6.4 percent in May 2007 before declining to 4.4 percent in August 2007. Despite the sharp rise in imports, the balance of payments is projected to remain in a healthy surplus, and foreign exchange reserves to rise to cover 5.2 months of imports by year-end.

The fiscal performance at end-September 2006 has been satisfactory. A cautious budget execution during this period resulted in a non-oil primary deficit of 9 percent of non-oil GDP, slightly below the program target. A sustained effort to raise non-oil revenue and strict expenditure management should allow the government to meet the 2007 deficit target of 11.6 percent of non-oil GDP, down from 18 percent in 2006.

Significant progress has been made in strengthening public financial management. In particular, the government has improved coordination between the ministries of finance and planning in preparation of the budget for 2008. Cooperation with spending ministries has also been improved through the use of medium-term expenditure frameworks (MTEF) to reflect the objectives of the PRSP for priority sectors. The public procurement system is more efficient with the share of public contracts awarded on a competitive basis rising to 69 percent in the first half of 2007, well above the 50 percent target set for the year. The revenue administration is being strengthened with the submission of the new general tax code to Parliament a few months ago and the preparation of an oil model with the assistance of an international audit firm.

The fiscal program had to be adjusted to accommodate higher-than-programmed fuel subsidies. Indeed, Directors will recall that before the approval of the current SBA last May, petroleum prices were increased by 25 percent in order to reduce fuel subsidies. The social pressures sparked by this sharp price increase compelled the government to keep fuel prices unchanged, instead of applying the automatic price adjustment formula envisaged in the program. Nevertheless, my authorities have been working on the petroleum price structure to distinguish the price support to the consumers from the production support to the refinery SOGARA. Before end March 2008, the government will reflect the changes in oil product import prices since September 2007 in retail prices, as determined by the price adjustment formula.

On the monetary front, the BEAC intervened to slow growth in the monetary aggregates in Gabon. In March 2007 it increased the reserve requirements for banks in Gabon from 7.75 percent to 10.25 percent on demand deposits, and from 5.75 percent to 8.25 percent on term deposits. The BEAC has also accepted remunerating deposits of commercial banks at 1.95 percent. As a result of these measures, annual growth in the money supply slowed to 12 percent in June 2007. However, due to an acceleration of domestic debt payments, net bank credit to the government was higher than expected at end-September 2008.

Turning to debt management, the Gabonese government reached an agreement in principle with Paris Club creditors in July 2007 on early repayment of the debt at market value, representing a discount of about 15 percent from face value. To finance the repayment, my authorities are in the process of issuing bonds in the international capital markets. The first bond, involving a US$ 1 billion 10-year bullet bond was issued on December 5, 2007, with a coupon rate of 8.2 percent. The rating agencies Standard and Poor’s and Fitch have given Gabon’s sovereign debt a credit rating of BB- and the bond attracted orders in excess of US$2.4 billion, demonstrating foreign investors strong confidence in the country’s economic policy. On December 10, the government issued a second bond -a CFAF 100 billion 6-year bond with a coupon rate of 5.5 percent-on the CEMAC regional market. The remainder of the financing is to be covered by Gabon’s own reserves. My authorities expect that the Executive Board approval of this review will send a signal that would further mobilize investors’ interest in the country’s bond issues. I would like to reassure Directors that my authorities intend to pursue a sound debt management through prudent borrowing policy.

Overall, the program performance has been satisfactory with all performance but two criteria for June and September 2007 observed, and all the structural benchmarks met, though with some delays. As noted above, the performance criteria on the application of the automatic petroleum price-setting mechanism and on net bank credit to the government were not observed, and in light of the corrective measures taken to preserve the fiscal targets for 2007 and 2008, my authorities are requesting waivers for these two criteria. In light of this overall performance, my authorities request the completion of the first review under the SBA.

II. Program for the remainder of 2007 and for 2008

My authorities would like to reiterate their commitment to pursuing the necessary economic policies and reforms to achieve sustainable growth and reduce poverty in Gabon while addressing the challenges associated with the anticipated decline in oil production. They forecast a non-oil GDP real growth of 4.7 percent in 2008, driven primarily by forestry, wood industry, and services. Oil output is expected to rise by 2.4 percent as new fields come on stream. Average annual inflation should decline to 3 percent, which is the CEMAC convergence criterion. The balance of payments is expected to remain comfortably in surplus, thanks to sustained oil, mining, and forestry exports.

The fiscal program in 2008 aims to bring the non-oil primary deficit down to 10 percent of non-oil GDP, as agreed in the medium-term program, through continued improvement in non-oil revenue and strict expenditure management. Oil revenue is expected to rise slightly in nominal terms and my authorities will continue with their policy to save oil revenue surpluses. The budget for 2008 which is consistent with the program has been adopted by the National Assembly last month and by the Senate a few days ago.

My authorities will press ahead with their public financial management reform, which is one of the main objectives of the program. In particular, they will continue to improve budget preparation and execution, strengthen revenue administration and raise the quality of spending of public spending. Directors will have seen that structural conditionality for the second review is mainly related to this reform.

While my authorities welcome the recent dynamism of the non-oil private sector, they are aware that this dynamism will diminish if adequate structural reforms are not undertaken to sustain it. Accordingly, they intend to work with the private sector to discuss a broad framework for implementing and monitoring measures to enhance the productivity and diversification of the economy. A proper competitiveness study to be completed by July 2008 will identify the constraints -particularly the lack of infrastructure- to non-oil sectors that have good potential for exports and job creation. As part of this study, the government will determine how best to encourage competition in some sectors. The government also expects that its reforms in the forestry sector, in particular the easing of restrictions on exports of okoumé logs, will result in more robust activity and exports.

On the restructuring of public enterprises, a foreign company has been granted a 25-year concession to improve operations in Gabon’s two major ports. Regarding already privatized enterprises, the government granted a 15 percent increase in electricity tariffs over the 18 months to relieve the financial difficulties of the electricity and water company, SEEG in 2007. These difficulties stemmed mainly from the inability of the tariff-setting mechanism to accommodate changes in some electricity-generating costs. Both parties agreed to set up an ad hoc commission that will undertake a thorough review of the 10-year old concession.

Following the Constitutional Court’s dismissal of legal actions against the privatization Gabon Telecom and the completion of the audit of its 2006 accounts, the procedure for divesting the government of its majority ownership in Gabon Telecom to the private investor selected early this year will be concluded shortly.

On transparency, my authorities intend to publish by year-end the EITI report for 2006. The report will identify and explain discrepancies between oil payments received by the government and reported to the EITI and oil revenue recorded by the treasury. The government will continue with its policy of publishing relevant documents such as budget law and audits on the website of the Ministry of Economy and Finance.

The government will support the work of the regional banking supervisors to ensure that banks observe prudential ratios. It will also work with other governments in the CEMAC to pursue establishment of a regional treasury bill market. Such a market would offer banks better liquidity management opportunities and would give the BEAC a market-based instrument to manage monetary policy.

III. Conclusion

The satisfactory implementation of the program under the SBA demonstrates my authorities’ continued commitment to their ambitious adjustment program. My authorities would like to reaffirm their determination to implement prudent policies going forward and keep the program on track, as indicated in their letter of intent. They are hopeful that the international community will continue to support their efforts. In this regard, I would like to request the support of Executive Directors for today’s proposed decision.