Gabon: 2019 Article IV Consultation, Fourth and Fifth Reviews Under the Extended Arrangement Under the Extended Fund Facility, and Request for Waiver of Nonobservance of Performance Criteria, and Rephasing of the Remaining Purchases—Press Release; Staff Report; and Statement by the Executive Director
Author:
International Monetary Fund. African Dept.
Search for other papers by International Monetary Fund. African Dept. in
Current site
Google Scholar Close
Publication Date:
23 Dec 2019
eISBN:
9781513524467
Language:
English
Keywords:
ISCR; CR; Executive Board discussion; authority; reform program; IMF Executive Board's decision; reform; oil GDP; Directorate general; oil revenue; stabilization fund; interest arrears; Public investment spending; Fiscal stance
Download PDF (3 MB)

2019 Article IV Consultation, Fourth and Fifth Reviews under the Extended Arrangement under the Extended Fund Facility, and Request for Waiver of Nonobservance of Performance Criteria, and Rephasing of the Remaining Purchases; Press Release; Staff Report; and Statement by the Executive Director

Abstract

2019 Article IV Consultation, Fourth and Fifth Reviews under the Extended Arrangement under the Extended Fund Facility, and Request for Waiver of Nonobservance of Performance Criteria, and Rephasing of the Remaining Purchases; Press Release; Staff Report; and Statement by the Executive Director

Context

1. Macroeconomic conditions are improving, and growth is slowly picking up. The economy was nearly in recession following the 2014 oil price shock. Economic activity slowed, the fiscal and current account deficits widened, and public debt almost doubled between 2014 and 2017. The policy response, supported by the three-year Extended Arrangement (approved in June 2017), has helped stabilize the economy and strengthened the fiscal and external positions. This has contributed to the rebuilding of regional international reserves. Public debt has started to decline, and the authorities have cleared all external arrears, including commercial arrears. Traction of policy advice provided at the time of the 2015 Article IV Consultation has been broadly satisfactory, even though several recommendations are still ongoing (Annex I).

Text Table 1.

Gabon: Key Macroeconomic Indicators, 2014–18

article image
Sources: Gabonese authorities; and IMF staff estimates.

2. Nevertheless, Gabon still confronts significant challenges. Buffers are still insufficient and long standing and deep institutional and structural weaknesses continue to constrain private investment, growth and poverty reduction. Key impediments include a narrow economic base, weak governance, underdeveloped financial markets, and unattractive business environment. Almost one-third of the population still lives below the poverty line, and Gabon ranks 110 out of 189 countries according to the 2019 UNDP Human Development Index.

Text Figure 1.
Text Figure 1.

Gabon: Poverty Headcount at National Poverty Line, 2005 and 2017

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Source: Gabonese authorities.

3. Looking ahead, bold and ambitious reforms are needed to generate higher, more inclusive, and resilient growth. Measures to improve governance and curb corruption are critically needed to boost domestic revenue, enhance the quality of spending, promote competition and facilitate private sector activity. The results of a dynamic stochastic general equilibrium model for Gabon (Selected Issues Paper I) suggest that macro-fiscal gains from governance reforms could be substantial, with potential additional growth ranging from 0.8 to 1.5 percentage points of GDP per year over the next 10 years.

Recent Developments: Recovery Gaining Pace

4. The recovery is gaining pace. While economic growth in 2018 remained sluggish at 0.8 percent, preliminary information suggests that it strengthened in the first eight months of 2019 on the back of a sharp increase in oil production (17.7 percent, y-o-y) and an expansion in the mining and agribusiness sectors. Meanwhile, inflation decelerated to 0.9 percent at end-September 2019 mainly due to decline in food prices. Private sector credit growth, at end-September 2019, remained modest (4.0 percent, y-o-y).

5. The authorities have made significant progress in fiscal consolidation. In 2018, the non-oil fiscal balance improved by 2 pp to -7.6 percent of non-oil GDP (NOGDP). This is, however, 1.2 percent below the program target, as significant efforts to reduce the wage bill were undermined by tax revenue shortfalls and expenditure overruns, including in special accounts and transfer to SOEs. Budget execution improved in the first nine months of 2019, with continued efforts to increase non-oil revenue and restrain non-priority spending (Text Table 2). Non-oil revenues were broadly in line with program targets, and expenditures were 0.7 percent of NOGDP short of the indicative target (IT) in September. However, the non-oil primary fiscal deficit was only slightly lower than the program target (0.1 pp of NOGDP), reflecting mainly higher-than-projected net lending (0.4 pp of NOGDP). The overall fiscal surplus was higher than anticipated, thanks to robust oil revenue.

Text Table 2.

Gabon: Fiscal Developments

(Percent of Non-oil GDP)

article image
Sources: Gabonese authorities; and IMF staff estimates.

6. The current account has improved, but vulnerabilities remain. The current account balance narrowed from -6.9 percent of GDP in 2017 to -3.2 percent of GDP in 2018, driven by increases in both oil and non-oil exports (particularly manganese). Imports declined by about 2 percent in 2018, owing to lower public consumption as a result of fiscal consolidation. Gabon’s imputed net foreign assets at the BEAC increased for the first time since 2013, contributing to the build-up of regional reserves, which stood at 3.3 months of imports at end-June 2019. Nonetheless, Gabon’s external position is assessed to be substantially weaker than implied by fundamentals and desirable policy settings (Annex II).

7. The financial sector is broadly stable, but progress in implementing reforms has been slow. The sector’s solvency and liquidity as reported by banks slightly improved in 2018 (Text Figure 2). Progress in liquidating the three public banks has been slow, despite the establishment of liquidation support groups in April 2019, and repayments to insured depositors have been delayed. The authorities have adopted a strategy and action plan to reduce overdue loans by end-March 2019, but its implementation has been weak, in part, due to delays in the finalization of the audit of domestic arrears. Progress in strengthening the legal and institutional framework is ongoing. In early 2019, a new law creating commercial courts was adopted and a first training for 10 judges and 5 bailiffs in banking and credit disputes was conducted. The government received the COBAC approval for the temporary holding of a bank’s shares in March 2019 but has not yet completed the acquisition.

Text Figure 2.
Text Figure 2.

Gabon: Selected Financial Indicators

(Percent)

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Source: COBAC.

Outlook: Promising but Challenging

8. Macroeconomic conditions are projected to improve gradually. Non-oil growth is expected to increase steadily above 5 percent over the medium term (Text Table 3) as agri-business,2 wood processing, and mining projects reach maturity. Increasing investment in the oil sector should help stabilize oil production, supporting a gradual rise in overall growth to 4–5 percent in 2022–24. Absent major supply shocks, inflation is projected to remain below 3 percent. Continued fiscal consolidation is expected to help improve the non-oil primary balance in the medium term, reducing the public debt-to-GDP ratio below 45 percent. The current account would turn positive in 2022 and then gradually increase to about 3 percent of GDP by 2024 as ongoing investments (including in the Special Economic Zone) begin to boost non-oil exports, particularly in the wood and agri-business sectors.

Text Table 3.

Gabon: Key Economic Indicators, 2019–24

article image
Sources: Gabonese authorities: and IMF staff estimates and projections.

9. The outlook remains subject to a range of risks (Risk Assessment Matrix, Annex III). The most immediate risk is a slowdown in the reform momentum. A decline in international oil prices will worsen fiscal and external positions and undermine growth. Other downside risks include lower global growth, and incomplete adjustment by CEMAC members. On the upside, medium-term growth could be higher if all FDI-financed investment projects were to materialize, including those related to recent offshore oil discoveries. Given the uncertainty surrounding the scale and timing of these projects, staff’s baseline incorporates only part of the expected FDI inflows and economic activity related to existing projects.

10. There was broad agreement on the outlook and risks. The authorities broadly agreed with the downside risks and the need for additional buffers and further diversification of the economy. However, they believed that risks are tilted to the upside. In their view, ongoing FDI in mining, agribusiness, forestry and the special economic zone (SEZ) could help achieve higher non-oil growth. They also noted that, new oil discoveries, coupled with a new hydrocarbon code that creates a more competitive environment for oil and gas investment, could support a strong expansion in oil production in the medium term.

Policy Challenges for Achieving Higher and more Inclusive and Resilient Growth

There was a broad consensus that deeper policy reforms are needed to promote private investment and achieve higher and more inclusive and resilient growth. Discussions focused on policy priorities to further (i) boost domestic revenue, reorient expenditures toward growth-enhancing spending while ensuring gains in spending efficiency and building cushions against future shocks; (ii) strengthen banking sector soundness and financial inclusion; and (iii) improve the business environment to facilitate private sector activity. Addressing vulnerabilities in governance and corruption will be essential to achieve these objectives.

A. Fiscal Policy

Near-term challenges

11. The authorities recommitted to achieving the Fund-supported program’s non-oil primary deficit of CFAF 308 billion (4.6 percent of NOGDP) in 2019, 3 pp lower than the 2018 deficit (Text Table 4). Both non-oil revenue and expenditure are expected to be in line with initial program targets, but, the composition of public spending will change. Capital spending will be lower by 0.7 pp of NOGDP, mainly reflecting absorptive capacity constraints. Meanwhile, net lending to public enterprises (mostly the national refinery) and special accounts are expected to be higher than initially envisaged, reflecting the government’s inability to fully control public entities’ spending. The overall balance (commitment basis) will turn positive for the first time since the oil price shock in 2014 and will be 0.7 percent of NOGDP higher than initially projected.

Text Table 4.

Gabon: Fiscal Developments

(Percent of non-oil GDP)

article image
Sources: Gabonese authorities; and IMF staff estimates.

12. The authorities and staff concurred that achieving end-December 2019 targets will be important. In this context, the authorities agreed to continue to strengthen (i) revenue administration, including by providing needed resources to intensify control, recover tax arrears, and better monitor tax exemptions; and (ii) budget execution and treasury management with the recently-adopted expenditure regulation mechanism,3 which has helped control spending and prevent new external arrears.

13. The 2020 draft budget targets a non-oil primary deficit of 4.2 percent of NOGDP, 0.4 pp below the 2019 deficit (Text Table 5). The draft budget envisages an increase in tax revenues (1 pp of NOGDP), driven by continuous efforts to strengthen revenue administrations and limit tax exemptions (MEFP, ¶12). The upgrade of the internal revenue’s and customs’ IT systems (E-tax and ASYCUDA World, respectively) will facilitate revenue collection and reduce fraud; likewise, the strengthening of the Tax and Customs Advantages Commission will help streamline and better control special regimes. However, owing to declining nontax revenues, overall revenue will increase only by 0.2 pp of NOGDP. The draft budget also assumes a significant cut in non-interest current spending (-1.3 pp of NOGDP), reflecting mainly ongoing efforts to streamline the wage bill (MEFP, ¶14). Given the large increase in domestically-financed capital expenditure (1.1 pp of NOGDP) and existing absorptive capacity constraints highlighted in the 2019 PIMA mission report, staff believes that some under execution should be expected. Staff advised that any overperformance, particularly in oil revenues, and savings in domestically financed capital spending should help further rebuild buffers and guard against downside risks.

Text Table 5.

Gabon: Summary of Central Government Operations, 2019–20

(Percent of non-oil GDP)

article image
Sources: Gabonese authorities; and IMF staff estimates.

Medium-term Challenges

14. The authorities concurred with staff that a more revenue-based and growth friendly fiscal consolidation is needed in the medium term to achieve higher and more inclusive growth. However, they stressed the need for additional spending to close the infrastructure gap and promote private investment. Staff acknowledged the need for development spending but underscored the importance of creating fiscal space through efforts to increase domestic revenue, restrain non-priority spending, and enhance public investment management and fiscal governance (Text Table 6).

Text Table 6.

Gabon: Key Fiscal Reform Recommendations

article image

Increasing Non-Oil Revenue Mobilization

15. The authorities agreed that more revenue-based fiscal consolidation is needed. Despite the recent uptrend, non-oil domestic revenue is still low, compared with other upper middle-income countries (Text Figure 3). Key weaknesses identified by recent IMF TA include weak tax and customs administration, poor tax policy prioritization and large tax exemptions. Regarding the latter, Gabon has been relying largely on granting exemptions, including in the Special economic Zone, to attract FDI and diversify the economy (SIP II). As a result, rapidly growing activities, while creating jobs and increasing exports, have little impact on domestic revenues. The latest available information suggests that in 2017, tax and customs exemptions were higher than 7 percent of NOGDP.

Text Figure 3.
Text Figure 3.

Gabon: Non-Oil Tax Revenue, 2018 or Latest

(Percent of non-oil GDP)

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Source: World Bank, World Development Indicators.1/ Includes: Algeria, Azerbaijan, Equitorial Guinea, Iraq, Kazakhstan.

16. The authorities concurred that there is scope to mobilize additional non-oil revenues through efficiency gains and better governance. A recent IMF tax frontier study (IMF, 2018)4 placed Gabon on the high end of SSA tax gaps at 5.8 percentage points of GDP. The authorities are aware of the situation and have attached a list of tax and customs exemptions, including an assessment of their impact, to the FY 2020 budget law that was submitted to parliament. Staff welcomed ongoing efforts and encouraged the authorities to expand the scope of this list in line with the recommendations of the July 2019 IMF TA report (New proposed structural benchmark). Staff urged the authorities to implement additional measures as recommended in recent Fund key TA reports, including (i) further strengthening tax and customs administration capacities and providing appropriate resources to perform their functions and modernize their information systems; (ii) enhancing the control and monitoring of tax and customs exemptions and removing those which are not in compliance with legal texts; and (iii) revamping the process for granting new exemptions and conducting systematic and rigorous cost-benefits analysis (MEFP, 112). Over the medium term, staff also recommended improving tax policy, focusing on the implementation of a property tax,5 the simplification of the personal income tax regime, and conducting analytical studies to pave the way for reforming existing tax and customs regimes in the future (MEFP, 113).

Rationalizing Non-priority Spending and Containing SOEs Fiscal Risks

17. The authorities recognized that strong resolve is needed to further streamline non-priority expenditures. Despite recent progress, Gabon’s wage bill remains above the level of its peers (Text Figure 4). Also, subsidies and transfers to SOEs and autonomous public agencies continue to represent a significant burden and fiscal risk. Measures are needed to:

  • Further contain the wage bill (MEFP, 17) by completing the biometric census of all civil servants, with a view to streamline the payroll, and implementing (i) the new hiring control mechanism in connection with the BOP reform; (ii) the new performance management system to promote staff based on performance; and (iii) the new budget classification standards.

  • Enhance the monitoring of public entities by (i) reviewing the financial situation of key public enterprises with the view to close and/or develop restructuring plans for key loss-making enterprises (e.g., the national oil refinery); (ii) accelerating the elimination and merger of existing multiple autonomous public agencies; (iii) strengthening the monitoring, control, and reporting on special accounts (MEFP, 116); and (iv) enhancing oversight and enforcing a stronger accountability framework for all public enterprises and agencies (MEFP, 129).

Text Figure 4.
Text Figure 4.

Gabon: Wage Bill Comparison, 2018 or Latest

(Percent of GDP)

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Sources: Gabonese authorities; and IMF staff estimates.

Improving Spending Efficiency to Enhance Infrastructure and Human Capital

18. The authorities agreed with staff on the importance of enhancing the efficiency of public investment and public procurement to foster growth. The authorities, as shown in the 2020 budget, intend to embark on a series of mega projects to overhaul Gabon’s infrastructure. Staff acknowledged the need to close the country’s infrastructure gap but stressed the importance of urgently addressing the weaknesses highlighted in the recent Public Investment Management Assessment (PIMA) (Box 1 and Text Figure 5). The authorities recognized the importance of:

  • Renewing the public investment management framework and reorganizing the monitoring process, and revising the legal framework for public procurement, particularly by strengthening the role of the Public Procurement Regulatory Agency (MEFP, ¶15). In this context, staff urged the authorities to prepare a comprehensive Public Investment Program (PIP) including all public investment projects (New proposed structural benchmark). The authorities will also consider careful prioritization of investment projects.

  • Revising the 2017 PPP legal framework to guarantee sustainability and limit exemptions.

  • Revising the legal framework for public procurement, particularly by strengthening the role and independence of the Public Procurement Regulatory Agency (ARMP) and expand its oversight to PPPs to help manage fiscal costs and risks.

Text Figure 5.
Text Figure 5.

Gabon: Public Investment Efficiency

(Quality of Infrastructure)

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Source: IMF staff estimates.

19. Increasing the level and efficiency of social spending should be a priority. Gabon is not only spending less on education and health than its income comparators, but the efficiency of such spending is far below its peers (SIP III). In addition, the social protection system, remains fragmented and inefficient and often fails to reach its intended beneficiaries. Looking ahead, the priorities should be bringing gradually social expenditures in line with peers, developing and expanding social programs that better target most vulnerable groups, and implementing the recommendations of the World Bank’s Public Expenditure Review (PER), including greater use of performance targets in budgetary resource allocation decision-making (SIP III).

Improving Fiscal Governance

20. Addressing domestic arrears is urgent. The large stock of domestic arrears is weighing on private investment and the banking system. It is urgent to clear the stock of existing arrears and enhance budget execution to eliminate payments delays and accumulation of new arrears (Box 2).

21. Stronger PFM and better fiscal transparency will improve macro-fiscal performance and reduce vulnerabilities to corruption. Despite efforts to implement the revised PFM framework, following the 2015 adoption of a new organic budget law under CEMAC directive,6 budget credibility remains weak,7 with substantial discrepancies between the approved and executed budgets and PFM institutions are not fully able to play their role in preventing corruption. There is a need to (i) improve the quality of fiscal data and reduce extra-budgetary spending; (ii) enhance fiscal transparency through the publication of fiscal and budget data (e.g., quarterly reports on arrears and budget) and the disclosure of additional information (e.g., contingent liabilities, public investment program quarterly statistics on awarded contracts and procedures); and (iii) fully operationalize the TSA and forbid any outside cash transactions, including by adopting and implementing a Treasury Committee decree that repeals and replaces the 2018 decision, in line with IMF TA recommendations (New proposed structural benchmark) (MEFP, ¶25 and ¶26).

Public Investment Management Assessment

Diagnostic. A FAD TA mission was conducted in Libreville in July 2019 to assess Gabon’s existing public investment management (PIM) institutions using the 2018 PIMA methodology, in collaboration with the World Bank. The mission found that PIM processes in Gabon are inefficient and hampered by structural weaknesses, starting with the planning phase, including: (i) lack of coordination of multiple stakeholders, projects, and funding sources; (ii) absence of or ineffective planning tools with no consolidated and shared list of projects; (iii) lack of consolidated oversight of the different types of funding, including PPPs. These weaknesses at an early stage have a direct impact on the budget allocation and execution phases, such as poor budget coverage, weak project selection and unavailability of funds when needed. Single tender process is the common procurement rule, and the absence of a central control for projects implementation leads to payments without verification of physical execution. The mission examined a specific project on the full PIM cycle and found that weak PIM processes resulted in more than 15 percent of cost overruns.

Recommendations. The mission developed a sequenced action plan which focuses on eight recommendations: (1) strengthening the PIM legal framework; (2) streamlining PIM organization to centralize information and decision processes; (3) strengthening planning functions and capacities; (4) improving budget documentation, including information related to PPPs; (5) strengthening the annual budget formulation to secure projects implementation; (6) enhancing transparency for both project selection and public procurement; (7) ensuring efficient funding mobilization and cash management; and (8) guaranteeing infrastructure maintenance and renewal.

Immediate priority actions (short run): (i) the preparation of a comprehensive Public Investment Program (PIP); (ii) the preparation, approval, and publication of a decree reorganizing the PIM processes and responsibilities; and (ii) the establishment of a Committee in charge of project selection.

Addressing External and Domestic Arrears

Arrears have been longstanding issue in Gabon, weighing on program performance and private sector development, and posing risks to the country’s creditworthiness.

Gabon has made important progress toward reducing arrears. The total stock of arrears has been reduced from 9.7 percent of GDP at end-2016 to 3.3 percent of GDP as of end-September 2019. A large part of this reduction was external arrears, which were entirely cleared as of March 2019. While the completion of the domestic audit of arrears1 will likely increase the stock, it represents an important first step toward establishing a clearance plan and further tackling the issue of domestic arrears (MEFP, ¶23).

uA01fig01

Gabon: Stock of Domestic and External Arrears

(Percent of GDP)

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Source: Gabonese authorities.

The authorities have taken welcome steps to avoid arrears accumulation and started to establish a track record of remaining current on debt service. This includes addressing coordination issues that led to arrears in the past by merging of the economic and budget ministries and implementing recommendations from recent IMF technical assistance (TA) on cash management, including holding weekly meetings between Treasury and Debt Units to discuss cashflow. The implementation of the Treasury Single Account (TSA) has strengthened visibility over the availability of funds for debt payment. The expenditure regulation mechanism has helped control spending, which might otherwise constrain available liquidity for debt payment. Improvements in information systems have strengthened the monitoring of payment deadlines to ensure timely transfer of funds for payment to the central bank. As a result, the PC on new external arrears has not been breached since March 2019.2

Additional measures are planned to further prevent new external and domestic arrears accumulation and fully address outstanding domestic arrears. For that, the authorities intend to implement additional IMF TA recommendations, including (i) strengthening internal control and audit frameworks; (ii) modernizing the IT system. including systematizing the use of the IT system for all expenditure (including agencies) and improving interconnections; (iii) revamping and operationalizing the Treasury committee and the budget execution monitoring mechanisms; and (iv) making the TSA fully operational, as well as the revamping of the VAT escrow account. With the completion of the domestic audit of arrears for 2015–17, the authorities plan to design and launch a growth-friendly clearance plan, starting with the SMEs (MEFP, ¶23).

1 PwC’s audit results indicate that the stock of domestic arrears for 2015–17 not yet recorded by Gabon’s Directorate General of Debt amounted to about 3 percent of GDP. The authorities are still in the process of confirming the results, including via physical audits. Thus, they are not yet included in the baseline. 2 External arrears (totaling FCFA 25 billion or about 0.3 percent of GDP) were accumulated from January to March 2019 for brief periods (<90 days) before these measures had fully taken effect.

Strengthening Debt Management.

22. The authorities recognized that better public debt management will help reduce fiscal and debt vulnerabilities. While the public debt remains sustainable (Annex IV), debt service as a share of revenue is expected to remain high. The government’s plan to issue a new Eurobond to reduce refinancing risks related to large Eurobond payments over 2022–25 is welcome. While the authorities indicated they will use proceeds mainly for debt smoothing operations, they also want the option to retain a small amount of the proceeds in deposits, should potential investment opportunities arise. Given large refinancing needs, staff view using all proceeds for Eurobond repayment as the preferred option. Further, any issuance should not undermine the existing fiscal consolidation path. The authorities agreed that the use of the Eurobond’s proceeds for any other purpose besides debt smoothing would only be considered after a rigorous cost benefit analysis and remain consistent with planned fiscal adjustment (MEFP, ¶32). More broadly, staff stressed the need to further improve the medium-term debt management strategy in line with February 2019 IMF TA recommendations, including (i) managing interest rate and refinancing risks; (ii) enhancing the institutional framework for managing debt; and (iii) strengthening cash management and the coordination between the debt unit and the treasury to build a track record of remaining current on debt service; (iv) strengthening their presence on the domestic financing markets; and (v) putting in place a communication strategy with Eurobond investors to prepare for refinancing. Staff also encouraged the authorities to improve monitoring of public debt by including contingent liabilities, which may arise mainly from SOEs and PPPs.

B. Financial Sector Soundness and Financial Inclusion

23. The financial sector remains fragile. After declining to about 8 percent at end-2016, the banking system’s capital adequacy ratio increased to 15.1 percent at end-March 2019, well above the CEMAC regulatory requirement of 10.5 percent. Banks remained relatively liquid and profitable. However, the significant decline in oil revenues and the associated cash constraints, and weak PFM practices have contributed to a rapid increase in domestic arrears and subsequently in NPLs (Text Figure 6). In addition, financial intermediation remained weak due to subdued lending activity (Text Figures 7 and 8), undermining banks’ potential contribution to economic growth.

Text Figure 6.
Text Figure 6.

Gabon: Non-Performing Loans to Total Loans

(Percent)

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Source: COBAC.1/ 2017 refers to November 2017.
Text Figure 7.
Text Figure 7.

Gabon: Financial Institutions Accounts

(% age 15+)

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Source: World Bank.
Text Figure 8.
Text Figure 8.

Gabon: Borrowed from a Financial Institution

(% age 15+)

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Source: World Bank.

24. Staff supports the authorities’ efforts to strengthen the financial sector. Staff encouraged the authorities to (i) timely implement the strategy and action plan to reduce overdue loans and the agreed clearance plan of domestic arrears under the Club de Libreville, (ii) support the swift liquidation of the three distressed banks by the liquidators, including through the elimination of technical impediments to asset sales, and the timely repayment of insured depositors; and (iii) initiate the investor search now and to complete the sale of the bank, right after its acquisition by the government is finalized (MEFP, ¶36).

25. The authorities share staff’s views on the importance of developing a financial inclusion strategy. While improving, financial inclusion remains weak with only 34 percent of the population having an account at a financial institution, far below Gabon’s income comparators. The authorities are committed to developing a national financial inclusion strategy in line with the regional one and strengthening the financing of small and medium-size enterprises (MEFP, ¶38).

C. Facilitating Private Sector Activity

26. Structural constraints to private sector growth remain. Key impediments include a narrow economic base, weak governance, and unattractive business environment The World Bank Doing Business ranks Gabon at 169 out of 190 countries. Enforcing contracts, registering property, and trading across borders are particularly problematic Annex II). The 2018 Global Competitiveness Index (GCI) ranks Gabon 108 out of 137 countries. Moreover, Gabon underperforms Sub-Saharan Africa and Emerging Market Economies in most worldwide governance indicators. Weaknesses consistently identified relate to corruption, rule of law, including contract enforcement and property rights, and government effectiveness (SIP I).

27. There was a shared view that significant efforts are needed to promote private sector activity and achieve a higher and more inclusive growth. Key actions include:

  • Strengthening anti-corruption institutions and increasing transparency by (i) enhancing the capacity of governance institutions, and particularly the Commission to Combat Illicit Enrichment (CNCLEI), to perform their mandate effectively and enhance their independence from political interference; (ii) enforcing asset disclosures and enhancing their quality; (iii) bringing Gabon’s AML/CFT regime into line with the current Financial Action Task Force (FATF) standard; and (iv) effectively engaging stakeholders, including through easy and timely access to information, such as court decisions and reports by the CNCLEI. Gabon’s next AML/CFT mutual evaluation is coming up in 2021.

  • Improving transparency in the oil sector, including through ongoing efforts to join the Extractive Industry Transparency Initiative. Furthermore, staff encouraged the authorities to provide, as committed to at the regional level, contracts and licenses to the BEAC (New proposed structural benchmark).

  • Implementing a comprehensive business facilitation reform by (i) reducing the regulatory burden, including by lowering the costs and procedures for licenses and permits, tax statements, and customs, and providing administrative services to businesses electronically (e-government); and (ii) enhancing coordination of actors across multiple jurisdictions to reduce excessive and overlapping demands on businesses. A favorable business environment, and not costly tax incentive, should be the primary tool to promote private investment, including FDI inflows (SIP II).

28. Staff welcomes the authorities’ efforts to address climate change and promote sustainable development. Gabon’s sustainable development strategy has started to bear fruits in terms of emissions and nature preservation, turning the country into a leader among SSA and other developing economies in international climate action and preservation negotiations (Box 3).

Leading Climate Action Among Developing Economies

Gabon has been at the forefront of SSA’s strategy on nature preservation, carbon-sequestering, and global climate change prevention. Occupying 85 percent of its territory, the country currently hosts 60 percent of the remaining tropical forest of the Congo Basin: the second largest of the planet after the Amazon forest and with a capacity to store more than 70 gigatons of carbon.

Such efforts have led the country to become African Union’s representative and leading negotiator at the United Nations Climate Change conferences (UNCC). Yet, they are no “free lunch.” Climate action and nature preservation have represented billions of U.S. dollars in investments, and foregone activity and revenues in recent years. Those costs should also be considered when assessing Gabon’s attempt to set its economy on a more sustainable path, while being a key contributor to the biomass and climate action in SSA and the world.

Through its sustainable strategy the Gabonese government is committed to a national reduction of at least 50 percent in greenhouse-gas (GHG) emissions by 2025. The sustainable (reform) scenario illustrated below incorporates all public policies committed after 2000, such as: (i) the Forest code; (ii) the national parks creation in ten percent of Gabon’s natural habitats; (iii) the National Flaring Reduction Plan; (iv) the national development strategy (PSGE) with its low carbon industrial development through the sustainable growth of the timber industry and agricultural sector; (v) the Climate plan; (vi) the implementation of a market mechanism induced by the Law on the Orientation of Sustainable Development in Gabon; and (vii) the adoption of a National Plan of Land Allocation. Transparency and law enforcement in natural resource management would be further improved via the World Bank funded Forest, Fisheries, Biodiversity and Environment Sector Program (FESP).

Gabon’s recent agreement with the Norwegian government already indicates that its strategy is bearing fruit. The ten-year deal (around USD 150 million) means that the Norway will pay Gabon a floor price of USD 10 per certified ton of reduced GHG emissions caused by stopping deforestation and degradation and through the absorption of carbon-dioxide (CO2) by natural forests.

uA01fig02

CO2 Emissions Evolution in Gabon Under Two Scenarios

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Source: Gabonese Ministry of Environment, Forests, Sea, and Waters, in charge of the Climate and Land Allocation Plan.

Program Issues

Program Performance

29. While program performance through end-December 2018 was weak, it has improved in 2019.

  • Four out of the five end-December 2018 quantitative performance criteria (PCs) and the continuous zero ceiling on external arrears were missed (Text Figure 9, and MEFP, Table 1). The two indicative targets were also missed. Political uncertainty may have weighed on the policymaking process and economic management and slowed down reform implementation.

  • Out of the five end-June 2019 PCs, three were met and two were missed (Text Figure 8; and MEFP, Table 2). The two PCs on central bank and banking system net credit to the government were missed owing to lower-than-projected issuance of government securities,8 and budget support9 The continuous PC on accumulation of external arrears was also breached early in the year, but the authorities have taken measures to avoid accumulation and no further breaches have occurred since March 2019. Regarding social spending, the execution trend shows noticeable improvement even though the indicative target at end-June was missed, mainly due to under execution of capital spending.

  • Most end-September ITs were met. In particular, ITs on non-oil tax revenue, contracting or guaranteeing external debt, and net claims on the banking sector were met. The non-oil fiscal balance is below the projected deficit but above the adjusted target, reflecting largely a faster-than-anticipated execution of the domestically-financed capital budget in the third quarter, which is expected to be offset in the last months of the year. As indicated earlier, no further breaches of the accumulation of external arrears PC have occurred since March 2019.10 The targets on central bank net credit to the government was missed but the issuance of debt on the regional securities market in early October should help meet the end-year target.

Text Figure 9.
Text Figure 9.

Gabon: Summary of Program Performance

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

1/ The PCs for the primary non-oil fiscal deficit and net claims on the central bank were estimated not met at the time of the second EFF review (July 24. 2018.2/ The indicative target on Non-oil tax revenue became a performance criterion since end-December 2018.
Table 1.

Gabon: Selected Economic Indicators, 2016–24

article image
Sources: Gabonese authorities and IMF staff estimates and projections.

Staff report for the Third Review of the Extended Arrangement Under the Extended Fund Facility (December 7, 2018).

Excludes foreign financed capital expenditures.

Starting in 2016, data series include the stock of domestic arrears.

Current account excluding net trade changes related to large direct investment in the agri-industry sector.

Table 2.

Gabon: Balance of Payments, 2016–24

article image
Sources: Gabonese authorities and IMF staff estimates and proje

Staff report for the Third Review of the Extended Arrangement Under the Extended Fund Facility (December 7, 2018).

Current account excluding net trade changes due to a large direct investment in the agri-industry sector.

Overall balance line here reflects incorporation of budget support financing from Bilateral and Multilateral in their respective above the line items.

Nationally imputed reserves are not foreign exchange reserves, since they do not meet the standard set out in the IMF's Balance of Payments Manual, which requires foreign reserves to be readily available to and controlled by monetary authorities for meeting balance of payments financing needs. However, under the statutes of the BEAC, if a country's imputed reserves fall below zero, the CEMAC Council of Ministers can call for adjustment measures. Private sector access to foreign exchange is not affected by the level of nationally imputed reserves, but only its access to CFAF and the availability of foreign reserves at the level of the union.

30. There has been noteworthy progress on program-related structural reforms (MEFP, Table 4). As result of recent efforts: (i) quarterly reports on budget execution are now available online, as well as quarterly reports on arrears; (ii) closing of accounts at the Caisse des Depots et Consignations and in commercial banks has been completed, albeit the TSA not being fully operational; and (iii) the unit in charge of supervising autonomous agencies and SOEs is now operational. Financial sector reforms are advancing, although with delays. Overall, eight out of the nine structural benchmarks (SBs) through end-October were implemented, albeit with delays. The SB related to the EITI application is yet to be implemented. After several months of consultations, the civil society selected its representatives for the EITI committee in September 2019. However, the government expressed concerns about some of these representatives and is yet to select its own representatives for the EITI committee. Given the remaining steps and the need to ensure an effective and fruitful dialogue with the civil society, it is proposed that the SB be reset to end-March 2020. Meanwhile, the authorities are committed to transmitting the contracts signed with mining and oil companies to the BEAC (New proposed structural benchmark) and continue publishing a bi-annual report on total production and revenues from the oil and mining sectors.

Table 3a.

Gabon: Central Government Accounts, 2016–24

(Billions of CFA francs)

article image
Sources: Gabonese authorities and IMF staff estimates and projections.

Staff report for the Third Review of the Extended Arrangement Under the Extended Fund Facility (December 7, 2018).

Includes net trasfers to special funds financed by earmarked revenues.

Records cash expenditure on payment orders issued the previous year minus payment orders settled the next year.

Includes bonds held by the non-bank sector, repayment of VAT reimbursement arrears, and securitization of previous extra-budgetary spending.

The clearance of the exceptional float and interest arrears are classified as part of the adjustment to cash basis above the line, while all other clearance of arrears are recorded below the line.

After 2017, exceptional float becomes zero and regular float cannot exceed 10 percent of the sum of current spending (excluding wages and interest) plus domestically-financed investment.

Table 3b.

Gabon: Central Government Accounts, 2016–24

(Percent of GDP; Billions of CFA francs)

article image
Sources: Gabonese authorities and IMF staff estimates and projections.

Staff report for the Third Review of the Extended Arrangement Under the Extended Fund Facility (December 7, 2018)

Includes net trasfers to special funds financed by earmarked revenues.

Records cash expenditure on payment orders issued the previous year minus payment orders settled the next year.

Includes bonds held by the non-bank sector, repayment of VAT reimbursement arrears, and securitization of previous extra-budgetary spending.

The clearance of the exceptional float and interest arrears are classified as part of the adjustment to cash basis above the line, while all other clearance of arrears are recorded below the line.

After 2017, exceptional float becomes zero and regular float cannot exceed 10 percent of the sum of current spending (excluding wages and interest) plus domestically-financed investment.

Table 3c.

Gabon: Central Government Accounts; 2016–24

(Percent of non-oil GDP; billions of CFA francs)

article image
Sources: Gabonese authorities and IMF staff estimates and projections.

Staff report for the Third Review of the Extended Arrangement Under the Extended Fund Facility (December 7, 2018.

Includes net trasfers to special funds financed by earmarked revenues.

Records cash expenditure on payment orders issued the previous year minus payment orders settled the next year.

Includes bonds held by the non-bank sector, repayment of VAT reimbursement arrears, and securitization of previous extra-budgetary spending.

The clearance of the exceptional float and interest arrears are classified as part of the adjustment to cash basis above the line, while all other clearance of arrears are recorded below the line.

After 2017, exceptional float becomes zero and regular float cannot exceed 10 percent of the sum of current spending (excluding wages and interest) plus domestically-financed investment.

Table 4a.

Gabon: Financing of the Fiscal Deficit, 2017–20

(Billions of CFA francs)

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

Staff report for the Third Review of the Extended Arrangement Under the Extended Fund Facility (December 7, 2018).

31. Preliminary September data show that end-year targets remain within reach and risks are manageable. Although the data show overruns on special accounts and net lending, this is unlikely to undermine the end-year program targets:

  • With regards to the special accounts, the end-September imbalance (0.8 percent of NOGDP) is higher than the expected end-December target (0.6 percent of NOGDP). While there is a risk of overrun, the end-year target remains achievable provided that the projected revenues for special accounts materialize in the fourth quarter. In addition, the authorities have started to eliminate noncompliant earmarked revenues, which will help in this regard.

  • Regarding net lending, the September outturn (0.7 percent of NOGDP) higher than projected (0.6 percent of NOGDP), suggesting a higher end-December outcome. However, the authorities’ ongoing efforts to improve the financial supervision of public entities will help stabilize the overrun (MEFP ¶29).

32. The authorities have taken remedial measures to meet the end-year program targets.

  • Regarding the fiscal deficit, they continue to apply the expenditure regulation mechanism set up in May 2019 with support from the IMF, which contributed to meeting end-June targets. This mechanism combined with the authorities’ contingency measures (“reserve”)11 on both capital and current spending (MEFP ¶5 should help to closely monitor spending to offset any additional overrun in net lending and special accounts expenditure.

  • They are also convinced that the issuance of debt on the regional securities market (FCFA 167.8 billion) in early October 2019 will help meet the end-year targets on net government claims to the central bank. Finally, the authorities are committed to make sure that future budget executions allow them to meet the end-December IT on social spending (MEFP ¶17). They indicated that the over execution of domestically-financed capital spending in the third quarter reflects their commitment to reach the IT on social spending because several projects are in the education and health sectors. Based on these corrective measures, the authorities are requesting waivers for non-observance of the two performance criteria for June 2019 that were not observed as well as the continuous performance criteria on the non-accumulation of new external arrears (Appendix I).

Program Modalities

33. This report proposes new program conditionality. New PCs for December 2019, ITs for December 2019 and March 2020 are proposed (MEFP, Tables 2 and 3). Ahead of the Board meeting, the authorities have implemented the two following prior actions: (i) submission to the Parliament of the law establishing harmonized statutes for public administrative institutions and repealing earlier provisions; and (iii) submission to the Parliament of a draft 2020 budget in line with the macroeconomic framework. The new proposed SBs, based notably on IMF TA on tax expenditure, cash management, and PIM, consist of (i) establishing the list of all existing tax and custom exemptions and assessing their fiscal impact, with a view to boosting revenues (end-December 2019); (ii) transmitting the contracts signed with mining and oil companies to the BEAC aimed at enforcing the new foreign exchange repatriation regulations (end-December 2019); (iii) preparing a comprehensive Public Investment Program (PIP) with all public investment projects (End-April 2020) to strengthen public investment management; and (iv) adopting and implementing a Treasury Committee decree that repeals and replaces the 2018 decision and in line with IMF TA recommendations, to help avoid accumulation of arrears (end-January 2020).

34. The program remains fully financed with firm assurances in place for the rest of 2019 and 2020. Financing needs for this period will be met by a combination of external borrowing, budget support and Fund financing (Text Table 7). The remaining purchases from the IMF are rephased (LOI, Attachment III), due to delays in completing the fourth review and a revised macroeconomic framework.

Text Table 7.

Gabon: Financing of the Fiscal Deficit, 2019–20

(Percent of GDP)

article image
Sources: Gabonese authorities; and IMF staff estimates and projections.

35. Gabon’s capacity to repay the Fund remains adequate. Capacity to repay the Fund indicators are in line with recent Extended Arrangements (Table 7). IMF credit outstanding peaks at 3.7 percent of GDP in 2020. Repurchases under the Extended Arrangement will peak at 1.2 percent of exports in 2024. Nevertheless, vulnerabilities remain, given elevated gross financing needs and significant debt-profile risks (see Annex IV). A Eurobond issuance for debt smoothing operations and strengthened debt management could help mitigate these risks.

Table 4b.

Gabon: Financing of the Fiscal Deficit, 2017–20

(Percent of GDP)

article image
Sources: Gabonese authorities; and IMF staff estimates and projections.

Staff report for the Third Review of the Extended Arrangement under the Extended Fund Facility (December 7, 2018)

Table 5.

Gabon: Monetary Survey, 2016–20

article image
Sources: Gabonese authorities and IMF staff estimates and projections.

Staff report for the Third Review of the Extended Arrangement Under the Extended Fund Facility (December 7, 2018).

Table 6.

Gabon: Financial Soundness Indicators for the Banking System, 2010–19

(Percent)

article image
Source: Banking Commission of Central Africa (COBAC).

Current year profits are excluded from the definition of regulatory capital, following the Basel I capital accord guidelines. General provisions are included in Tier 2 capital up to an amount equal to 1.25% of risk-weighted assets. Regulatory capital is the sum of Tier 1 capital and Tier 2 capital.

The risk-weighted assets are estimated using the following risk weights: 0% – cash reserves in domestic and foreign currency and claims on the central bank; 100% – all other assets.

The ratio of after-tax profits to the average of beginning and end-period total assets.

Table 7.

Gabon: Indicators of Capacity to Repay the Fund, 2019–31

article image
Source: IMF staff estimates and projections.

Total debt service includes IMF repayments.

36. The BEAC has provided an updated policy assurance on end-December 2019 and end-June 2020 NFAs in support of CEMAC countries’ Fund-supported programs. In its updated letter of policy support, the BEAC presented a revised NFA projections, reflecting in part the strong performance through mid-2019. BEAC also reiterated its commitment to implement an adequately tight monetary policy, together with member states implementing fiscal adjustment agreed in the context of IMF-supported programs, to achieve the NFA projections. The regional assurances on regional NFA are critical for the success of Gabon’s program and will help bolster the region’s external sustainability. The BEAC also continues to implement the remaining recommendations of the 2017 safeguards assessment.

Other Issues

37. Exchange regime. Gabon maintains a 1.5 percent tax on wire transfers abroad that is not consistent with Gabon’s obligations under Article VIII, Section 2(a) of the Articles of Agreement. The proceeds of this tax are used to fund Gabon’s health insurance scheme. Staff urged the authorities to remove this restriction. The authorities note that they have exempted a number of transactions (including all interbank transactions) from this tax, but do not propose eliminating the tax.

38. Safeguards assessment. The BEAC continues to implement the remaining recommendations of the 2017 safeguards assessment, including full transition to IFRS for FY 2019 and revisions to the secondary legal instruments for alignment with the BEAC Charter.

39. Statistics. Data provision is broadly adequate. On October 11, 2019, Gabon launched a National Summary Data Page (NSDP) in implementing the recommendations of the IMF’s enhanced General Data Dissemination System (e-GDDS). In the period ahead, the authorities are committed to conducting surveys and improving economic statistics, including rebasing of GDP (MEFP, ¶40). Staff also encourages the authorities to develop the capacity to report IIP data to the Fund on a regular basis as required under Article VIII, Section 5.

40. Capacity development and technical assistance. Helping the authorities strengthen macroeconomic policies and institutional frameworks are essential elements of Fund’s engagement with Gabon. In this context, staff agreed with the authorities on a capacity development strategy for the next three years. The strategy defines a set of milestones and outcomes related to the TA program, including actions by the authorities to achieve the agreed goals (Annex V). Fund TA will continue to focus on tax policy and revenue administration; PFM, notably cash management, budget execution, public investment management, budget credibility and reporting, and financial information system; debt management; banking sector; and government statistics.

Staff Appraisal

41. The economy is gradually recovering, supported by prudent domestic macroeconomic policies. Economic activity has rebounded, the fiscal and external positions have improved, and Gabon has contributed to the build-up of regional international reserves. Public debt has started to decline, and the authorities cleared all external arrears. Challenges remain, though, as buffers remain insufficient and deep institutional and structural weaknesses continue to constrain private investment, growth, and poverty reduction.

42. A more revenue-based and growth-friendly fiscal consolidation is needed. Pursuing fiscal consolidation while rebalancing further budget spending toward infrastructure and social spending should be secured through increasing revenue, restraining non-priority spending, and improving the efficiency of public spending. Revenue efforts should focus on increasing compliance and broadening the tax base, including by strictly limiting tax exemptions. Further improvements in payroll monitoring and control and a closer monitoring of public entities will also be essential. In particular, loss-making enterprises such as the national refinery need to be restructured to stop the hemorrhage of public finances.

43. Improving the efficiency of public investment is critical for growth prospects, particularly given the ambition of the authorities’ spending plans in the medium term. To this end, staff urges the authorities to work closely with development partners, including the IMF, to implement the recommendations of the PIMA. This will help strengthen project design and preparation, execution, reporting and control, and improving procurement practices. In the meantime, a measured approach to scaling up investment is warranted.

44. Addressing shortcomings in fiscal governance will help improve macro-fiscal performance and reduce vulnerabilities to corruption. Core priorities should be strengthening cash management, budget execution credibility and transparency. Clearing the existing stock of domestic arrears and eliminating payment delays would significantly boost business confidence and strengthen financial stability.

45. The authorities should accelerate implementation of structural reforms aimed at achieving higher, more resilient, and inclusive growth. Efforts to improve infrastructure and human capital, deepen financial development, and enhance governance and anti-corruption measures will contribute to improving the business climate and promoting private investment.

46. The authorities have taken decisive actions to improve program implementation. Several end-June 2019 quantitative program targets were met, and corrective actions have been taken regarding the PCs that were missed. There has also been progress on program-related structural reforms.

47. Gabon is the second largest economy in the CEMAC region and continues to implement strong policies that support the regional stability. Strong implementation of agreed fiscal consolidation path by all four countries already with Fund-supported programs and possible approval of new IMF-supported programs with Equatorial Guinea and CAR would support a further recovery in BEAC net foreign asset position.

48. Staff supports the completion of the fourth and fifth reviews under the EFF-supported program, in light of the adequate implementation of the regional policy assurances by the BEAC, progress achieved so far in program implementation, and the authorities’ strong commitment to the reform agenda. Staff also supports the authorities’ request for waiver of non-observance of the end- June 2019 PCs on net government claims on the banking system and net government claims on the central bank, and the continuous PC on new external payment arrears on the grounds of corrective actions taken by the authorities, and a rephasing of access. Staff also proposes that completion of the sixth review of the Extended Arrangement be conditional on the implementation of critical policy measures at the union level, as established in the December 2019 union-wide background paper.

49. Staff recommends that the next Article IV consultation for Gabon be held on the 24-month cycle.

Figure 1.
Figure 1.

Gabon: Selected Economic Indicators and Outlook

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Sources: Gabonese authorities and IMF staff estimates and projections.
Figure 2.
Figure 2.

Gabon: Fiscal Indicators and Outlook

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Source: Gabonese authorities and IMF staff estimates and projections.
Table 8.

Gabon: Schedule of Purchases and Timing of Reviews Under the Extended Arrangement, 2019–20

article image
Source: IMF staff projections.

Gabon’s quota is SDR 216.0 million.

Annex I. Implementation of Past IMF Advice (Article IV 2015)

article image
article image

Annex II. External Sector Assessment

Gabon’s external position for 2019 is substantially weaker than implied by medium-term fundamentals and desirable polices. The current account deficit narrowed in 2018, supported by stronger oil and manganese exports as well as ongoing fiscal consolidation under the program. Nevertheless, continued fiscal reforms and improvements to structural competitiveness, are needed to strengthen the external position.

1. In 2018, the terms of trade continued to improve and the real effective exchange rate (REER) appreciated. The terms of trade improved by 27 percent, supported mainly by higher oil prices, which rose 32 percent (Figure A1). Despite the depreciation of the Euro (to which the CFA franc is pegged) relative to the US dollar, the REER appreciated by 5 percent, owing to higher domestic prices.

Figure A1.
Figure A1.

Gabon: External Sector Developments, 2013–18

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Sources: Gabonese authorities and IMF staff estimates and projections.

2. The current account (CA) deficit continued to narrow driven by growth in both oil and non-oil exports. The CA was estimated at -3.2 percent of GDP in 2018, compared with -6.9 percent of GDP in 2017. Exports increased by 14.0 percent (y-o-y) in 2018, with oil and non-oil exports increasing 18 .4 and 7.0 percent year-over-year, respectively, while imports as a share of GDP declined slightly (-2.0 percent). From the savings and investment perspective, fiscal consolidation appears to have played a role in narrowing the CA deficit as public sector saving-investment gap moved into surplus. In 2019, the current account deficit is expected to narrow to -1.1 percent of GDP and strengthen in the medium term as non-oil exports increase, particularly in the manganese and agri-business sectors.

3. Foreign direct investment continued to drive external financing inflows. FDI was estimated at 8.2 percent of GDP in 2018, the majority of which was related to the non-oil sector. Disbursements of external debt for project and external financing (excluding the IMF) slowed to 4 percent of GDP, compared with 6 percent in 2017 owing to lower external budget support. Gabon’s imputed net foreign assets at the BEAC increased for the first time since 2013.

4. This analysis relies heavily on staff estimations due to data limitations. Provision of official balance of payments statistics is subject to delays, with the latest official series from 2016. This data is also subject to gaps, including the exclusion activities in the Special Economic Zone. TA lack of available data for the net international investment position and related series also precludes the use of the External Sustainability approach in the exchange rate assessment. The authorities are working to address these issues with the support of IMF technical assistance.

5. Estimates using the revised EBA-Lite1 methodology’s regression-based approaches suggest the 2018 exchange rate is overvalued by 6 to 17 percent (Table A.1). The approach estimates CA and REER norms using cross-country regressions and desirable policy settings. The “gaps” or deviations of cyclically-adjusted actual values from these norms are used to inform the exchange rate assessment. The CA approach estimates a cyclically-adjusted CA norm of -0.2 percent of GDP, compared with the actual cyclically-adjusted CA at -4.9 percent of GDP. This produces a CA-gap of -4.7 percent of GDP, including a 0.6 percent policy gap between actual 2018 levels and desirable policy settings, particularly fiscal policy and the change in reserves.2 The REER approach estimates a norm REER of 4.57 based fundamentals and desirable policy settings, compared with its actual level of 4.63 (expressed in logs).

Table A1.

Gabon: 2018 Revised EBA-Lite CA and REER Regression Results

article image
Source: IMF Staff Estimates

Based of the revised EBA-Lite methodology (2018)

CA regression uses the 2018 cyclically-adjusted CA value. REER regressions uses the 2018 REER value.

For CA regression multilaterally consistent CA norm.

Elasticity of CA to REER gap is -0.3.

6. Gabon’s reliance on oil exports warrants consideration of more tailored exchange rate assessments. The regression-based approaches do not consider factors specific to oil exporters, particularly the exhaustibility of natural resources which may require building extra-reserves for intergenerational consumption smoothing. This analysis considers two additional model-based approaches to account for these characteristics: a consumption-based model3, which estimates a current account norm based on the net present value (NPV) of future oil wealth and the related consumption and savings consistent with intergenerational equity; and an investment-based model4 which takes a similar approach but also accounts for the possibility of allocating part of the resource wealth to finance productive investment.

7. The consumption-based model suggests a significantly higher CA norm.5 Based on a constant real per capita annuity of oil and financial wealth, which corresponds to inter-generational equity, the medium-term CA norm would be 13 percent, compared with an underlying CA projection of 3 percent, implying an exchange rate overvaluation of 35 percent (Figure A2). The model suggests a medium-term fiscal norm of 4 percent of GDP consistent with a constant real per capita equity, compared with a projected value of 1 percent. These estimates are subject to uncertainties given the reliance on long-run assumptions, including the potential for new oil discoveries or demographic changes that might slow population growth, which would reduce the CA norm and the degree of overvaluation.

Figure A2.
Figure A2.

Gabon: Consumption-Based Model Projected and Estimated CA and Fiscal

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Sources: Gabonese authorities and IMF staff estimates.

8. The investment-based model indicates a lower CA norm. An important parameter for this model is the efficiency public and private investment, with larger inefficiencies reducing the optimal level of investment, leading to higher current account norms. Based on recent PIMA (2019) findings, the analysis considers an efficiency value of 0.5 (i.e. only half the amount of investment turns into productive capital), which projects a medium-term CA norm of 4 percent of GDP, below baseline projections (Figure A.3).

Figure A3.
Figure A3.

Gabon: Investment Based-Model Estimated CA and Projected CA

(Percent of GDP)

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Source: IMF staff calculations.

9. The bottom-line assessment is that the external position is substantially weaker than implied by medium-term fundamentals and the exchange rate is overvalued. This is drawn from consideration of the range of regression-based CA and REER approaches, which exhibit relatively low residuals and account for desirable policies not only to support external stability but also meet regional commitments that support the CFA peg. The consumption and investment model-based approaches provide a useful illustration of how Gabon’s declining resource base calls for continued strengthening of external position, which may be offset by productive investment in the non-oil sector to diversify the export base. The overall assessment estimates overvaluation of 6 to 17 percent based on the range of REER and CA results, respectively, compared with an overall assessment of a 9 to 16 percent overvaluation in 2018. The substantially weaker assessment is based on the CA gap estimate being below -4.0 percent of GDP and -4.7 percent of GDP. Preliminary data suggest that this assessment could improve in 2019 given the anticipated strengthening of the current account. The assessment based on 2019 projections suggests a CA gap of -2.6 percent, which is consistent with a “weaker than fundamentals assessment.” Further, stronger returns from recent FDI, including through higher than anticipated oil production, represent an important medium-term upside risk which could also improve the external position.

10. Continued policy adjustment and measures to strengthen structural competitiveness would further improve the external position. This includes measures under the program including fiscal consolidation and efforts to improve the efficiency of public investment, as well as measures to enhance governance and improve the business environment. In addition to ranking low on the World Bank’s Doing Business Ranking (169 out of 190 countries in 2019), Gabon continues to rank low across several trade-related structural indicators, including the World Economic Forum’s Enabling Trade Index and the World Bank’s Logistics Performance Index (Figure A4).

Figure A4.
Figure A4.

Gabon: Structural Competitiveness Indicators

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Source: World Bank, World Economic Forum.

Annex III. Risk Assessment Matrix1

article image

Annex IV. Debt Sustainability Analysis (DSA)

Gabon’s public debt-to-GDP remains sustainable in the medium term. Under the baseline scenario, public debt is forecast to decline to about 43 percent of GDP by 2024, supported by ongoing fiscal adjustment and a prudent borrowing strategy. Stress tests indicate that public debt levels also remain sustainable against standard shock scenarios. Nevertheless, liquidity pressures are considerable with debt-service representing a significant share of revenues. While external arrears have recently been addressed, sizeable domestic arrears remain. Looking ahead, liquidity pressures have the potential to intensify with Eurobonds maturing over 2022–25. There are also significant debt-profile risks, including the large share of debt held by non-residents and foreign currency debt. Building a track record of remaining current on debt service payments, proactive measures to mitigate Eurobond refinancing risks, and a credible medium-term debt management strategy will be essential to addressing challenges related to elevated financing needs.

1. Public Debt Level and Composition:

  • Debt definitions and coverage. Gabon’s debt coverage remains narrow, limited to central government and direct government guarantees.1 Local and SOE debt are not captured. External debt is defined on a currency basis.

  • Debt structure. At FCFA 5,676 billion (about US$9.9 billion) as at end-2018, public debt stood at 61 percent of GDP (from 63 percent in 2017). The 2018 stock included FCFA 293 billion in domestic arrears and FCFA 37 billion in external arrears to commercial creditors, the latter of which has since been cleared. Gabon’s public debt is mostly medium to long term and external (66 percent of the overall stock). Financial market debt related to Gabon’s Eurobonds represented the largest share of overall debt at 22 percent of the total stock. Exposure to interest rate risk has increased in recent years, with 40 percent of external debt carrying variable interest rates, mostly related to the Eurobond.

Table 1.

Gabon: Public Debt Stock by Components, 2016–18

(Billions of CFA francs)

article image
Source: Gabonese authorities.

2. Baseline and Realism of Projections:

  • Economic growth projections are conservative, anticipating a modest increase in 2019. Macroeconomic conditions are projected to improve gradually with growth reaching 3.4percent in 2019 and averaging 4 percent over 2020–24 driven by a steady increase in non-oil growth as key FDI projects reach maturity and investment in the oil sector helps production stabilize. Historical projections show a relatively large median-error in growth forecast, owing to volatility in oil production and external financing disbursements (Figure 2). As a result, these projections have taken a conservative approach, incorporating part of expected FDI inflows and economic activity related to existing projects.

  • Fiscal adjustment is expected to continue. In the baseline projection, the non-oil primary balance improves throughout the projection period (2019–24) thanks to continued fiscal consolidation. On the revenue side, the consolidation effort is driven by higher non-oil revenues that follow from the effects of the ongoing tax policy and administration reforms. Spending is anticipated to increase modestly over the period from 17 percent of GDP in 2019 to 18 percent of GDP in 2024 as capital spending is expected to rise while current expenditure will remain broadly contained. While the MAC-DSA realism module characterizes the cumulative fiscal adjustment as somewhat optimistic on a cumulative basis, it partly reflects the impact of reforms that have already been put in place.

  • The authorities are expected to continue to pursue a prudent borrowing strategy. They remain committed to reducing debt below the regional target of 45 percent of GDP. The baseline also assumes that the authorities will issue a Eurobond next year and use at least 75 percent to rollover Eurobonds maturing starting in 2022, reducing payments in 2022–24 (see below).

Figure 1.
Figure 1.

Gabon: Public DSA Risk Assessment

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Source: IMF staff.1/ The cell is highlighted in green if debt burden benchmark of 70% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.2/ The cell is highlighted in green if gross financing needs benchmark of 15% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.3/ The cell is highlighted in green if country value is less than the lower risk-assessment benchmark, red if country value exceeds the upper risk-assessment benchmark, yellow if country value is between the lower and upper risk-assessment benchmarks. If data are unavailable or indicator is not relevant, cell is white. 200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term debt; 15 and 45 percent for the public debt held by non-residents; and 20 and 60 percent for the share of foreign-currency denominated4/ Spread defined as an average over the last 3 months.5/ External financing requirement is defined as the sum of current account deficit, amortization of medium and long-term total external debt, and short-term total external debt at the end of previous period.
Figure 2.
Figure 2.

Gabon: Public DSA—Realism of Baseline Assumptions

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Source :IMF Staff.1/ The non-oil primary balance is used as a proxy for the cydically-edjusted fiscal balance.2/ Plotted distribution includes all countries. percentile rank refers to all countries.3/ Projections made in the spring WEO vintage of the preceding year.4/ Not applicable for Gabon, as it meets neither the positive output gap criterion nor the private credit growth criterion5/ Data cover annual obervations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 potent of GDP. Percent of sample on vertical axis.

3. Gabon’s public debt is declining under baseline projections. As a result of the planned fiscal consolidation and a prudent borrowing strategy, gross debt levels are projected to decline from a peak of 61 percent of GDP in 2018 to about 43 percent of GDP by 2024. The completion of the audit of 2015–17 domestic expenditure arrears, which are currently not included in the baseline pending confirmation from the authorities, could add up to 3 percent of GDP to the debt stock, pending confirmation from the authorities.

4. Total debt service remains high. Gabon recently refinanced the commercial bridge loan due in 2019 easing its debt service burden.2 Nevertheless, debt service is projected at 55 percent of total fiscal revenues in 2019 and projected to average 48 percent of revenues over 2020–24, reflecting the maturing of external debt built up in recent years. This is further reflected in gross financing needs, which are projected at 6 percent of GDP in 2019 and will average 7 percent of GDP over the projection period (2020–24).

5. Gabon has made some progress toward addressing the longstanding issue of arrears. As of March 2019, Gabon cleared the entire stock of external arrears, which stood at 1 percent of GDP at the 2018 DSA and have not accumulated new arrears since then.3 The authorities have taken several steps to prevent arrears accumulation, including addressing coordination between Treasury and Debt Units issues that led to arrears in the past, improvements in cash management and systems monitor debt payments, and the implementation of the Treasury Single Account. Regarding domestic arrears, the authorities have begun to clear VAT arrears at a faster rate. Once the audit of domestic arrears is complete, the authorities also plan to design and launch a growth-friendly clearance plan.

6. Maturing Eurobonds represent an important refinancing risk Gabon currently has US$2 billion in Eurobonds (approximately 11 percent of GDP) coming due during 2022–24. The authorities understand the importance of swiftly implementing a refinancing strategy, and have budgeted for a US$1 billion Eurobond issuance next year to lock in current market conditions on terms in line with the most recent rollover in 2017 (assumed in the DSA baseline).4 Key risks to this baseline include new accumulation of external arrears and failure to maintain fiscal performance, which could adversely affect market sentiment, as well as a rise in risk premia. The baseline assumes partial pre-payment with using 75 percent 2020 Eurobond for repayment debt service due in 2022–24.5 However, the remaining amount Eurobond-related principal due would still be significant averaging 1.2 percent of GDP per year or 6 percent of fiscal revenues (Table 2). Using all of any potential proceeds for a Eurobond rollover would help address large refinancing need. Further, it will be important to ensure that the use of such proceeds remains consistent with planned fiscal adjustment.

Table 2.

Gabon: Eurobond Amortization Pre-payment Scenarios

(Percent of GDP)

article image

Assumes 75 percent of US$1 billion Eurobond issued used for pre-payment.

Assumes 100 percent of US$1 billion Eurobond issued used for pre-payment.

7. Stress tests show that debt remains sustainable under most shock scenarios:

  • Primary balance shock. A deterioration of 2.4 percentage points of GDP in the primary balance in 2020 increases public debt to 46 percent of GDP by the end of the projection period 2024. The gross financing needs also increase slightly.

  • Growth shock. Real output growth rates are lowered by one standard deviation for 2 consecutive years starting in 2020. The decline in growth leads to a deterioration of the nominal primary balance, compared with the baseline, reaching 2.1 percent of GDP by 2021. Accordingly, the debt-to-GDP ratio increases to about 59 percent during the growth shock, and to 49 percent by 2024 Gross financing needs increase to 11 percent of GDP by 2024.

  • Interest rate shock. Real interest rates are assumed to increase by 200 basis points starting in 2019. The government’s interest bill increases gradually, reaching an implicit average interest rate of almost 18 percent by 2024, almost 12 percentage points higher than in the baseline. Similarly, the debt-to-GDP ratio and gross financing needs increase, reaching 59 and 19 percent of GDP, respectively, by 2024

  • Real exchange rate shock. Based on the upper bound of the overvaluation estimate in the External Sector Assessment (see Annex II), a permanent real exchange rate depreciation of 17 percent increases debt by about 5 percentage points of GDP by 2024 Gross financing needs increase by about 1.5 percentage points of GDP by 2024, compared with the baseline.

  • Combined shock. A combined shock incorporates the largest effect of individual shocks on all relevant variables (real GDP growth, inflation, primary balance, exchange rate and interest rate). In this case, debt would increase to around 84 percent of GDP. Gross financing needs increase to about 28 percent of GDP in 2024

  • Additional liabilities. To capture potential additional liabilities from the audit of domestic arrears and SOE debt not currently captured in debt coverage, a 5 percent shock is added to the second year of projections.6 In addition to raising the debt stock from 57 percent of GDP to 61 percent in 2020, gross financing needs would reach 12 percent of GDP in 2024.

8. There are significant vulnerabilities related to Gabon’s debt profile as indicated in the heat map (Figure 1). It shows that the levels of debt held by non-residents and foreign currency debt breach upper risk-assessment benchmarks, and the market perception, short-term debt, and external financing indicators fall between the upper and lower risk assessment benchmarks. Gross financing needs are elevated, while they do not breach the 15 percent benchmark in the baseline, they would breach in the case of the interest rate shock scenarios.

9. Building a track record of remaining current on debt service and a credible medium-term debt management strategy will be essential to managing the challenges associated with elevated financing needs. Avoiding accumulation of external arrears and addressing domestic arrears should remain a priority. In this regard, the mission will discuss measures to improve coordination and cash management, including those identified at the third review (developing weekly cash flow forecast and organizing monthly transfer of data related to debt service from the Debt Department to the Treasury). Given the importance of addressing maturing Eurobonds, the authorities should use the majority of the proceeds from any near-term issuance for rollover. More broadly, the authorities should strengthen their MTDS in line with recent IMF TA recommendations, including mitigating interest rate and refinancing risks, strengthening the institutional framework for managing debt, strengthening their presence on the domestic financing markets and putting in place a communication strategy with Eurobond investors to prepare for refinancing. Given the potential risks from contingent liabilities, the authorities should work to broaden debt coverage. An important first step would be to establish a list of all SOEs with a view to gathering information on their financial status.

Figure 3.
Figure 3.

Gabon: Public Sector DSA — Baseline Scenario

(Percent of GDP unless otherwise indicated)

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Source: IMF staff.1/ Public sector is defined as central government and includes public guarantees.2/ Based on available data.3/ EMBIG.4/ Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.5/ Derived as [(r – π(1+g) – g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).6/ The real interest rate contribution is derived from the numerator in footnote 5 as r – π (1+g) and the real growth contribution as -g.7/ The exchange rate contribution is derived from the numerator in footnote 5 as ae(1+r).8/ Includes changes in the stock of guarantees, asset changes, and recognition of arrears. For projections, includes exchange rate changes during the projection period.9/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.
Figure 4.
Figure 4.

Gabon: Public DSA – Composition of Public Debt and Alternative Scenarios

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Source: IMF staff.
Figure 5.
Figure 5.

Gabon: Public DSA – Stress Tests

Citation: IMF Staff Country Reports 2019, 389; 10.5089/9781513524467.002.A001

Source: IMF staff.

Annex V. Capacity Building and Technical Assistance Framework

This note presents the understanding reached between the Gabon country team and the Gabonese authorities on the capacity development strategy and expected objectives in support of the macroeconomic policy priorities for the period ahead. The note defines a set of milestones and outcomes related to the technical assistance (TA) program including actions to be undertaken by the authorities to achieve the agreed goals.

A. Policy Priorities

1. Despite notable progress, there are still weaknesses in administrative and institutional capacity. Within this context, the overarching policy priorities for Gabon remain: (i) conducting prudent macroeconomic policies and maintaining fiscal discipline so as to preserve debt sustainability and avoid accumulation of payments arrears; (ii) increasing domestic revenue by expanding the tax base to meet growing demand for public goods and services, accommodate growing social needs, and over time substitute for uncertain donor support; (iii) increasing the efficiency of public spending; and (iv) addressing weaknesses in the banking sector to reduce risks to financial stability. Gabon also needs to strengthen its statistics to better inform policy decisions and the private sector. Finally, there is a need to continue efforts to implement public finance reforms under the Organic Law of 2014 to strengthen the credibility of the budget, allow transparent budget execution and strengthen reporting and controls.

B. Past Technical Assistance and Capacity Building

2. Gabon has been a high recipient of technical assistance from the Fund in recent years. In most cases, TA tackled structural weaknesses and recommendations are being implemented with mixed results thus far. Over the past two years Gabon has received support either from the fund (HQ or AFRITAC) or other donors (e.g., World Bank) on a wide range of critical topics: (i) tax administration and policy; (ii) public financial management, including cash management, and public investment; (iii) fiscal accounting and reporting; (v) management of natural resources; (vi) macroeconomic statistics; (vii) debt management; (viii) financial markets; and (ix) public procurement. Although the legal and regulatory framework for public finance has improved after the adoption of the organic law on budget, derived from the CEMAC directives,1 weaknesses in their effective implementation has often hampered progress in PFM. Budget credibility remains weak, leading to substantial changes at the execution phase and difficulties to prepare reliable fiscal reports.

C. TA Priorities Going Forward

3. In support of the authorities’ policy priorities, TA will continue to focus on developing capacities in the above-mentioned areas to ensure continuity and support authorities efforts in macroeconomic management, especially in revenue (tax and customs) administration and PFM. This TA will aim at strengthening budget credibility and enhancing transparency and governance. The strategy will also leverage IT improvement and other low hanging fruits with immediate positive impact. TA will also aim at enhancing the authorities’ capacity to address weaknesses in the financial sector. Support to improve real and external sector statistics will also be expanded. Donors are not providing TA in these various areas that the Fund plans to cover.

article image
article image
article image

D. Risks and Mitigation Measures

The implementation of the technical assistance program is subject to various risks. The table below summarizes these risks and lays out the measures to monitor and mitigate their impact during the TA implementation. This will be a live TA management tool that will be updated periodically as the TA program evolves. The authorities have committed to do their part in terms of supplying the necessary human and budgetary resources to absorb future TA and follow up on TA recommendations.

article image

E. Authorities’ Commitments

The Gabonese authorities are determined to continue to build capacity for a successful implementation of the Extended Arrangement. They have reached understandings with the Fund on a comprehensive capacity building strategy in the context of the Fund Capacity Building Framework project (CBF). They are committed to successfully implement this CBF and complementary TA from other donors by securing the necessary political support, staffing, and other resources. In doing so, they plan to provide adequate financial and human resources to sectors identified as priority sectors in the capacity building program, as well as budget resources to implement TA recommendations with financial implications. The authorities will strengthen the units tasked with monitoring the implementation of reforms by providing these units the resources to manage the overall capacity building program. They also intend to make greater efforts to ensure that sectoral capacity building plans are duly discussed with individuals and units responsible for the implementation of the recommendations.

Appendix I. Letter of Intent

November 28, 2019

Ms. Kristalina Georgieva

Managing Director

International Monetary Fund

Washington, DC

USA

Subject: Letter of Intent on Economic and Financial Policies

Dear Madam Managing Director:

The attached Memorandum of Economic and Financial Policies (MEFP) describes the progress made in recent months toward the objectives laid out in our program supported by the three-year arrangement under the Extended Fund Facility (EFF). The memorandum also updates the previous MEFP and highlights the policy steps to be taken in the period ahead.

We have made important progress in implementing the program, although performance during the last three months of 2018 was mixed.

Since then, however, we have taken all the measures necessary to enable the satisfactory implementation of the program. Accordingly, we have met our end-June 2019 objectives with regard to tax revenue and the non-oil primary deficit. Unfortunately, we were unable to achieve our objectives on the central bank and banking system net credit to the government, due mainly to difficulties encountered early in the year in the issuance of securities on the regional market. During the year, we have been able to mobilize the necessary resources on the regional market, which should allow us to meet our objectives for end-December 2019.

In addition, we accumulated external arrears in early 2019. Yet in view of the measures taken by the government, we have been current in our external debt service payments since April 2019 (apart from some technical arrears which were promptly resolved). Moreover, we have fully cleared the existing arrears on external debt. Finally, notwithstanding our efforts, we have not achieved our objectives in regard to social spending and payment of domestic arrears. We remain determined to take—and are currently taking—corrective measures necessary to achieve our objectives for end-December 2019.

We have also implemented all the structural benchmarks, except the one for EITI membership, which we have asked to defer until end-March 2020, in order to allow effective participation and collaboration among all stakeholders, including civil society.

Economic activity has rebounded, with growth expected to reach 3.4 percent this year, compared with 0.8 percent in 2018, mainly due to good performance in the oil, mining, public construction, and timber sectors. The recovery is projected to strengthen in 2020, and the medium-term outlook remains favorable, with non-oil growth expected to exceed 5 percent by 2022. Fiscal performance at end-June 2019 was better than anticipated, as a result of cuts in expenditure. The non-oil budget deficit is expected to decline gradually from 4.6 percent of GDP this year to 4.2 percent of GDP in 2020, and to nearly 3 percent in the medium term. The external current account position has improved, and public debt has declined by almost 2 percentage points of GDP.

This performance is encouraging. However, growth remains low and major efforts are still needed regarding the social sector. We have decided to redouble our efforts to consolidate the stabilization of the economy and generate stronger, sustainable and more inclusive growth. Accordingly, in the context of the program, we will continue to implement a series of far-reaching macroeconomic and structural reform measures, particularly in the areas of economic governance and public financial management, in order to enhance domestic revenue mobilization, improve fiscal efficiency and management, and promote a business environment that is more attractive and conducive to private investment.

The program will continue to be monitored through quantitative performance criteria, structural benchmarks, and indicative targets as described in the Technical Memorandum of Understanding (Attachment II). Based on the corrective measures already implemented, those in progress, and the policies described in the MEFP, we are seeking a waiver for non-observance of the two performance criteria for June 2019 that were not observed as well as the continuous performance criteria on the non-accumulation of new external arrears, and requesting completion of the fourth and fifth reviews under the Extended Arrangement and rephasing of the remaining purchases (Attachment III).

We remain confident that the policies described in the current and previous MEFPs are adequate to achieve the program objectives. We stand ready to take additional measures should they be needed to meet the objectives of the economic program, and we will consult with the IMF in advance of any necessary revisions to the policies contained in this letter and attached memorandum, in line with Fund policies on such matters. We will provide Fund staff with all the data and information needed to assess our policies, particularly those mentioned in the Technical Memorandum of Understanding.

The government authorizes the Fund to publish this Letter of Intent, the Memorandum of Economic and Financial Policies for 2019–20, the Technical Memorandum of Understanding, and the forthcoming IMF Staff Report for the fourth and fifth reviews of the Extended Arrangement. Sincerely yours,

/s/

Roger Owono Mba

Minister of Economy

Attachments (3):

1. Memorandum of Economic and Financial Policies

2. Technical Memorandum of Understanding

3. Schedule of Purchases and Timing of Reviews Under the Extended Arrangement, 2019–20

Attachment I. Memorandum of Economic and Financial Policies November 28, 2019

This memorandum describes recent economic developments, presents the Government’s policy priorities as part of its program supported by three-year arrangement under the IMF’s Extended Fund Facility (EFF), and specifies economic and structural policy objectives.

A. Recent Developments and Economic Outlook

1. Macroeconomic performance continues to improve. Economic activity has picked up, with a growth rate expected to reach 3.4 percent this year compared to 0.8 percent in 2018, mainly due to strong performance in the oil, mining, and timber sectors. Growth in oil production could be around 15 percent in 2019, compared with around 5 percent initially forecasted, thanks to the performance of new oil fields and the absence of operational malfunctions during the year. In the non-oil sector, growth is projected at 2.5 percent compared to 1.8 percent in 2018. The non-oil budget deficit declined from 9.6 percent in 2017 to 7.6 percent in 2018, reflecting both improved domestic revenue collection and better control of current spending. During the same period, the external current account improved by more than 3.5 percentage points of GDP and public debt declined from 62.6 to 60.6 percent of GDP. The government has cleared the entire stock of external debt arrears and has not accumulated new external arrears for the last eight months apart from some technical arrears which were promptly resolved.

2. The economic and financial outlook is encouraging. The continued good performance in the mining sector and the beginning of the production phase of OLAM’s agricultural activities should lead to a gradual increase in non-oil growth to 4 percent in 2020 and to above 5 percent in the medium term. Investments in the oil sector, encouraged by the new oil code and recent discoveries of new offshore reserves, will help to slow the decline in oil production due to the obsolescence of mature wells. Under these conditions, overall growth is expected to gradually increase to more than 4.5 percent in the medium term.

3. The economic outlook is subject to upside and downside risks. Downside risks include a slowdown in fiscal consolidation in Gabon or other CEMAC member countries and a lower global growth. However, there are also upside risks, particularly related to the high volume of foreign direct investment in the oil and non-oil sector. The renewed investment effort in infrastructure and agricultural and forestry projects, which are largely rural and labor-intensive, could also generate positive spillovers. However, this potential will depend largely on reforms aimed at improving the business climate. The same applies to expected developments in the industrial fishing sector.

B. Fiscal Policy

4. Fiscal performance as of end-June was generally satisfactory. Revenues were slightly higher than projected due to both strong oil and non-oil revenues. Expenditure was lower than expected thanks to efforts to streamline the wage bill and to control transfers and subsidies. There was also under-execution in terms of capital expenditure. Finally, special accounts-related spending was higher than anticipated due to the delays in reforming public agencies and entities.

5. We are committed to take all necessary measures to limit the end-2019 non-oil primary deficit to 4.6 percent of non-oil GDP, in line with the program. To achieve this, we will continue to mobilize domestic revenues, particularly through addressing exemptions and earmarked revenues, as well as continue to control spending on special accounts and net lending. In view of the frontloading in domestically-financed capital expenditure and the overrun in net lending, we remain committed to applying the reserve mechanism adopted in the context of the 2019 budget (which makes unavailable about one quarter of the budget appropriation) and the budgetary regulation mechanism put in place since April 2019 with the IMF support, in order to meet the floor of the non-oil primary deficit agreed in the program.

6. The level of non-oil revenues is expected to remain relatively unchanged at 17.1 percent of non-oil GDP. To achieve this objective, we have initiated several reforms, including (i) clearing expired custom suspensive procedures; (ii) updating the list of products included in the cost-of-living scheme by removing several items; (iii) enforcing existing measures on manganese taxation and excise duties; (iv) identifying tax arrears to be recovered and their effective collection; (v) rationalization of the advantages using special custom procedures such as deferred payment bond of (e.g., credit d’enlevement). These efforts will continue, particularly with the implementation of Sydonia World; improvements in the quality and frequency of corporate tax audits; and the strengthening of internal and external audits, including through the conduct of internal audits by the Inspectorate-General of Services and further digitalization of procedures. In addition, by end-2019 the government will draw up a list of the current exemptions (new proposed benchmark at end-December 2019), specifying their legal basis and fiscal impact.

7. Efforts to reduce current spending will continue. Current spending is projected at 15.7 percent of non-oil GDP in 2019.

  • The wage bill will be maintained at around 10 percent of non-oil GDP. We will continue (i) the physical monitoring of civil servants as well as enforcing retirement for those who have reached the legal age, (ii) the freezing of recruitment with the exception of the education, health and security sectors, and (iv) the clean-up of the payroll records.

  • Expenditures on goods and services will be maintained at 2.4 percent of non-oil GDP thanks to continued streamlining efforts, including: (i) the strict supervision of government officials’ foreign missions; (ii) the streamlining of administrative lease related expenditure; and (iii) the close monitoring of departments expenditure related to utilities.

  • Regarding transfer and subsidies expenditures, efforts will continue to focus on (i) revising the criteria for granting scholarships; (ii) establishing a unit responsible for the financial supervision of public institutions and agencies; (iii) continuing the merging and elimination of public entities (fourteen structures eliminated in 2019); and (iv) monitoring government transfers to agencies through the establishment of performance contracts. Finally, a draft law on harmonizing the status of public institutions will be submitted to Parliament (prior action).

8. Capital expenditure is revised downwards to 4.7 percent of non-oil GDP (compared to 5.4 percent in the program) in 2019. This reflects the relatively low execution rate observed during the first six months of the year. The June 2019 PIMA identified the main shortcomings of the public investment management system. The Government agrees with the conclusions of this assessment and is committed to implementing its recommendations.

9. We continue to experience difficulties in controlling expenditures on special accounts and net lending. Contrary to our expectations, the balance of the special accounts will still be in deficit this year, reaching CFAF 40 billion, or about 0.6 percent of non-oil GDP. Net lending, particularly to the SOGARA refinery, will increase to CFAF 40 billion, compared with an initial target of CFAF 28 billion.

10. At 1.7 percent of GDP, the overall fiscal surplus will be slightly higher than expected. Oil revenues are expected to be higher, mainly due to increased oil production and the appreciation of the U.S. dollar. With the continuation of our previously-validated Domestic Arrears Clearance Strategy, the financing requirement of CFAF 780 billion will be mostly financed by security issuance (CFAF 168 billion) and budget support from partners including the World Bank (CFAF 115.1 billion), the AfDB (CFAF 131.2 billion), and the French Development Agency (CFAF 49.2 billion).

2020 Budget

11. Fiscal adjustment will continue in 2020, by deepening reforms initiated in 2019 and introducing new measures. The objective is to reduce the non-oil primary deficit to 4.2 percent of non-oil GDP, an adjustment of 0.4 percentage points compared to 2019.

12. Increase revenue collection. Oil revenues are expected to decline due to the contraction in oil production and prices. Tax revenues will increase by 1 percentage point of non-oil GDP. However, due to the decline in non-tax revenues, overall non-oil revenues are expected to increase by only 0.2 percentage points of non-oil GDP. To achieve this objective, revenue mobilization efforts will focus on tax and customs exemptions. Actions will be taken to reduce inefficient and unjustified special regimes and exemptions and to optimize other measures. In this regard, the Government commits to:

  • Setting up a tax policy unit (TPU) within the Ministry of Economy and Finance responsible for strategic thinking on all types of revenues. The TPU will be responsible for the annual production and updating of the list of exemptions and assessing their relevance and effectiveness. Based on their findings, the TPU will provide the Minister of Finance recommendations to optimize and develop the tax system in Gabon;

  • Amending the law establishing the “Tax and Customs Advantages Commission”1 in order to extend its jurisdiction to cover any requests for a derogation or exemption on all types of public contracts and tenders (e.g., PPPs) regardless of the method of award (e.g., direct tender) and ensure the enforcement of its decisions. The Government will therefore circulate a notice in the press for the attention of the public and contracting companies.

13. In addition to these reforms, additional measures will be implemented in 2020 to strengthen mobilization of non-oil revenues. This includes:

  • Continued efforts to clear suspensive regimes (temporary admission regimes, fictitious warehouses);

  • Continued modernization and roll-out of e@Tax and ASYCUDA World;

  • Strengthening the capacity of tax and customs administrations to facilitate and systematize controls, particularly on products benefiting from exemptions;

  • The effective general roll-out of the special hydrocarbon warehouse;

  • The gradual elimination of the deferred payment bond (crédit d’enlèvement) (the target to fully eliminate it is 2021);

  • The launching of several studies that could pave the way for reforms of the tax and customs system. These include: (i) the assessment of the impact of the reduced corporate tax rate (25 percent instead of 30 percent) on the housing and tourism sectors and the need to change its collection system (to be conducted by the Directorate General for the Economy and Tax Policy); (ii) the harmonization of the different VAT rates currently applied in Gabon; (iii) the clarification between ad valorem taxation and specific taxation according to the type of products; and (iv) the implementation of the alternative property tax (contribution foncière unique) as recommended by the IMF’s June 2019 technical assistance (TA) mission.

14. Continue to streamline current spending. Current spending is expected to decrease by about 1.1 percentage points of non-oil GDP mainly due to the decline in the wage bill (0.8 percentage points of non-oil GDP). Ongoing measures to reduce the wage bill will continue, in particular the cleaning-up of the civil servants’ payroll following the biometric census, and the intensification of monitoring and streamlining of public agencies through the roll-out of the dedicated monitoring unit. Expenditure on goods and services will decrease by 0.2 percentage points of non-oil GDP and transfers and subsidies by 0.4 percentage points of non-oil GDP.

15. In line with our objectives, we plan to increase capital expenditure by almost FCFA 200 billion (more than two percentage points of non-oil GDP). This will be done in parallel with the improvement in the quality of the projects selected in the 2020 budget law. To achieve this, we are committed to implementing the recommendations of the IMF PIMA mission to strengthen public investment management. A Public Investment Program (PIP) will be prepared presenting (i) a comprehensive overview of investment projects (including in the form of public-private partnerships), (ii) their related financing (domestic or FINEX), and (iii) their implementation status and programming over the coming years (new proposed structural benchmark for end-April 2020). Efforts will also be made to renew the Public Investment Management (PIM) framework and the legal framework for public procurement. Lastly, we will continue to systematically prepare cost-benefit analyses for all investment projects budgeted at over FCFA 20 billion.

16. Exhaustive identification of earmarked revenues not yet included in the State budget will continue with AFRITAC Central’s support. This includes better management of special accounts and the elimination of earmarked revenues that do not comply with legal provisions (structural benchmark as of end-October 2019) in accordance with the provisions of Law 20/2014 (LOLFEB). The above-mentioned identified earmarked revenues will be fully transferred to and recorded in the general State budget as revenue, as already set out in the 2020 draft budget law for the next fiscal year. In addition, the elimination and/or merging of several specialized public agencies should help increase transparency of earmarked revenues and reduce their scope. Finally, the Government will work with IMF staff to improve the recording and monitoring of the special accounts revenues and expenditures as well as that of earmarked revenues in the TOFE.

17. The expenditure adjustment mechanism introduced in 2019 will be maintained in the 2020 draft budget law. A reserve will be implemented on appropriated expenditure by the budget law according to the following rates: 20 percent for expenditures on goods and services, 15 percent for transfer expenditures, 16 percent for capital expenditures, and 10 percent for other expenditures. These funds shall be made unavailable until they are released. The Government will exempt social expenditures identified under the IMF program of this mechanism.

18. Efforts to mobilize funding sources will be strengthened in 2020. Efforts to recover outstanding tax arrears will intensify. Additionally, the planned issuances on the regional financial market included in the draft budget law (amounting to CFAF 150 billion) and the asset sales (amounting to CFAF 50 billion) may be mobilized on a contingent basis to meet financing needs.

19. A 2020 draft budget law in line with the Government’s commitments under the program will be submitted to the Parliament before the conclusion of the Fifth Review (prior action). It will incorporate all the budgetary targets and measures set by the program.

20. Returning to a near fiscal balance and then to a surplus remains our medium-term objective. The cash-based fiscal balance is expected to turn positive as early as 2019 and stabilize at around 1.4 percent of GDP over the medium term. This gradual improvement in the budgetary position will make it possible to reduce the public debt level to below 45 percent of GDP in the medium term.

C. Arrears Management

21. The clearance strategy for existing arrears is maintained. We have fully cleared the stock of external arrears related to non-guaranteed commercial foreign debt since the end of the first quarter of 2019. VAT domestic arrears will be cleared regularly until 2021. The remaining exceptional Treasury budgetary float will be paid as planned in 2019, and the accumulation of new budgetary float in 2019 will remain limited to 15 percent of total expenditures on goods and services, transfers, and domestically-financed investment. Payment to the “Libreville Club” creditors will continue in accordance with the agreed arrears clearance plan: the arrears were consolidated to FCFA 285.7 billion, repayable over 62 months, and the Government agreed to pay FCFA 5 billion to the “Libreville Club” each month. Eight payments totaling FCFA 40 billion have been made so far in 2019.

22. The monitoring of arrears continues to improve. Since June, payment terms have been closely monitored thanks to the activation of dedicated modules and alert procedures in VECTIS and e-BOP. The report on the changes and composition of the stock of unpaid arrears for the second quarter of 2019 was published in October.

23. The government will develop a new clearance strategy for the remainder domestic arrears that is conducive to economic growth. The clearance plan will be based on the independent (PriceWaterhouse Coopers) audit report on State and public institutions’ arrears incurred in 2015, 2016, and 2017. The plan will seek to maximize the impact of arrears clearance on growth and poverty. The Government will, if necessary, seek the assistance of the IMF in preparing the clearance plan. Special attention will be paid to small and medium-sized enterprises (SMEs). In this regard, efforts will be made to clear debts below FCFA 100 million, totaling an estimated FCFA 8 billion by mid-December 2019. Based on the findings of the final report and assessments made by the government, some larger claims will be subject to on-site service checks, accounting adjustments, hearings, and legal protocol formalization. These steps will start in November 2019. Overall, the clearance strategy will focus on the following criteria: the degree of labor intensity (agriculture, public works, etc.); the potential of the sector (McKinsey study); the existence or not of bank indebtedness; position vis-à-vis the tax and social administration.

24. The development of the cash flow plan and its coordination with debt management will be strengthened. The government has received IMF TA to improve cash management in relation to debt management. The government is committed to implementing the recommendations made, in particular to ensure regular updating of the monthly cash flow plan and to mobilize the most appropriate instruments to cover deficits in a proactive manner. This includes strengthening the expenditure adjustment mechanism, in place since April 2019.

D. Cash Management

25. The implementation of the treasury single account (TSA) remains a priority for 2020, in order to enhance the transparency and efficiency of cash management. The government commits to continue closing public accounts outside the TSA, particularly those that could not be identified previously, and to not open new ones. The closure of these accounts and the transfer of their balances should be effective by the end-February 2020. A regular review will be carried out on the repayments due by CDC to the public treasury and consideration will be given to optimizing the operation of the TSA (e.g., VAT escrow account, creation of an escrow account for the CNAMGS etc.).

26. It is necessary to optimize the government’s cash management mechanisms through the establishment of an official and operational Treasury Committee. The government thus commits to issue a decree to renew the way the Treasury Committee operates (new proposed structural benchmark for end-January 2020) in line with the recommendations of the IMF’s TA mission of November 2018 and to implement its provisions: weekly meetings for the for the technical committee and monthly for the steering committee. This body will ensure coordination between the Debt (DGD) and the Treasury (DGCPT) Departments. A weekly meeting between the Budget and Treasury departments will be set up in parallel (or within the Treasury Committee) in order to regulate the pace of commitments execution in relation to the available cash.

E. Other Structural Public Financial Management Reforms

27. Efforts to strengthen controls in budget implementation will be further developed at central, local, and public entities levels. The work carried out since the beginning of the program with the Fund has made it possible to systematically issue purchase orders when expenses are incurred, both at the central (via VECTIS) and provincial (via E-BOP) levels. This important step ensures tighter control over the implementation of expenditure to reduce the use of exemption procedures and thus reduce the creation of arrears. The next step is to implement the same type of controls in public entities and institutions, particularly to better control the special accounts expenditures. The Government reiterates its commitment to effectively implement these enhanced controls in the relevant structures by end-2019. Finally, efforts to document budgetary and accounting procedures will continue through the updating of existing procedure manuals (in terms of revenue and expenditure) and the preparation of new manuals.

28. The Government reiterates its commitment to improve the transparency of public finances. We are committed to further improving the transparency of the management of oil and mining revenues. In this regard, the government will intensify its efforts to submit the country’s application to the Extractive Industries Transparency Initiative (EITI) (structural benchmark for end-September 2019 proposed to be reset to end-March 2020). However, this submission will take time given the need to ensure an effective and fruitful dialogue with civil society. In the meantime, the Ministry of Finance will transmit to the BEAC all the contracts signed with the mining and oil companies (new proposed structural benchmark for end-December 2019). We will ensure that these contracts/conventions are compatible with the regional foreign exchange regulations. The government prepared a report on the situation of oil and mining assets in September 2019, which presents an estimate of the volume and value of the main natural resource assets as well as an estimate of the volume and value of their sales and budget revenues for the previous year (structural benchmark as at end-June 2019). We will continue publishing a bi-annual report on total production and revenues from the oil and mining sectors.

29. Improvements in the financial supervision of public companies and state operators will be consolidated and sustained. Thanks to the new monitoring unit for public entities, regular audits will be carried out and the budgetary and financial information of public entities will be consolidated. The unit will produce a report after these audits, which will be published. Finally, the unit will be responsible for drafting the annex relating to public institutions and entities in the budget law. Additionally, a dashboard presenting all the government’s holdings will be prepared and published.

30. The government intends to continue its efforts to modernize and improve the functioning of the financial reporting information system. These efforts aimed at (1) mainstreaming the use of the VECTIS information system (including for public agencies), ensuring that all expenditures are tracked, and all necessary checks are performed; (2) continuing the roll-out of revenue reporting information systems (e.g. e@Tax); and (3) ensuring automatic interfacing between the different systems. For this purpose, a ministerial IT master plan will be prepared. The government will carry out an assessment of existing systems in order to identify current weaknesses and areas for improvement, and to develop an action plan to strengthen the system.

31. The government is committed to continuing its efforts to improve accountability and reflect a fair picture of the financial situation of the public sector as a whole. The government thus pledges to implement the recommendations of the AFRITAC mission of September 2019 on the clearance of suspense and temporary accounts, to extend this work to remaining years, and to put in place mechanisms to ensure that accounts are cleared on time. It is also committed to produce and transmit annual fiscal reports for the previous year within the deadlines prescribed by the LOLFEB.

32. The government will strengthen the medium-term debt reduction strategy to help address debt servicing and refinancing risks. The government will aim to improve the institutional framework for public debt management, including by relaunching the project to create a National Public Debt Committee (CNDP) to coordinate debt activities and put in place a medium-term debt strategy. To mitigate interest rate risks, preference will be given to fixed interest rates for new commitments and the variable rate debt portfolio will be reviewed with a view to move from a variable rate to a fixed rate when the loan agreement permits. Next year’s planned Eurobond issuance will mainly be used for debt smoothing operations to reduce refinancing risks. The use of additional amounts will only be considered after a rigorous cost-benefit analysis and confirmation that it remains consistent with planned fiscal adjustment.

F. Social Sector Policies

33. The government is committed to enhancing its efforts to improve the predictability and quality of social expenditure. The rate of social expenditure execution highlights a number of weaknesses that are mainly explained by the constraints in initiating the bidding process in connection with the school construction program, the regulation during the budget execution phase, and the reserve mechanism which made unavailable about one quarter of the social spending appropriated budget as a buffer during execution phase. Moreover, a significant portion of the scholarships are only due to the students during the last quarter of the fiscal year. As a result, as of end-June 2019, the implementation rate for social expenditure stood at 37 percent of the appropriated 2019 budget. Despite a difficult budgetary context, the government remains committed to strengthening the programming and monitoring of this type of expenditure. The government has thus proceeded with a more exhaustive definition of the scope of social spending. The following are now taken into account: (i) social benefits and pensions for public officials, (ii) subsidies on domestic butane gas for cooking and lighting; (iii) costs of the electrification program and water installations for rural areas without access to the public water and electricity grid, (iv) burial and hospital charges for the poor; (v) support for transportation costs.

34. Additionally, the government will improve the targeting of poor and vulnerable populations and the monitoring of social spending. To this end, the government will rely on Law No. 001/2018 of September 18, which provides for a better definition of its social protection program (Gabonais Economiquements Faibles, or GEF) and the new poverty profile derived from the 2017 Gabonese Poverty Assessment Survey (EGEP). In this regard, the government hopes to simplify the system of current social safety nets, optimize the use of resources allocated to social policies, and provide a systemic and tailored response to the different facets of poverty and vulnerability. The government is committed to formalizing the creation of a GEF commission dedicated to formulating legislation to reduce inclusion errors and, above all, a clear roadmap indicating steps, timelines, necessary resources and responsibilities. Finally, in order to improve the monitoring of social expenditure in the future, the government will implement the functional classification according to the classification of the functions of government (COFOG) standards.

G. Financial Sector

35. We are committed to clearing nonperforming loans and urgently conducting the needed reforms to facilitate access to credit. The strategy and action plan to reduce overdue loans were finalized on March 31, 2019 (structural benchmark for end-March 2019). However, the implementation of this plan has been delayed, both in terms of clearing government arrears and, hence, reducing NPLs, and advancing reforms to improve the judiciary system and lending environment. The Government will (i) immediately appoint a coordinator for the action plan to reduce overdue loans and as well as a contact for the “Libreville Club” and for the domestic arrears repayment strategy, (ii) clear the “Libreville Club” arrears, (iii) establish the strategy for the repayment of domestic arrears with the assistance of the IMF (by February 2020), and (iv) make the Commercial Court of Libreville effective (rehabilitation, equipment, training); and (v) give priority to promote the training of judges and clerks specialized in bank disputes.

36. We are determined to ensure that the liquidation of public banks and the BICIG transaction be carried out at the lowest possible cost to Gabonese taxpayers. By order of the Prime Minister dated March 4, 2019, the authorities created a committee to support liquidators (structural benchmark as at end-January 2019). The committee has started meeting to the satisfaction of the liquidators and the FOGADAC Deposit Guarantee Fund has already initiated a procedure for the repayment of depositors for one of the three banks. However, the sale of assets is progressing slowly. In order to minimize the fiscal cost of the liquidations, the three liquidators of the public banks are invited to pursue tirelessly the loan collection with the debtors of these entities for the recovery of the debts and this, by all the means at their disposal, including the legal proceedings and the publication of the exhaustive list of uncooperative debtors. The government reiterates its support to the independent liquidators in the pursuit of their mission. In order to guarantee the success of the sale of the temporary holding of a non-strategic participation in BICIG, as authorized by COBAC, and to avoid weighing on budget resources, the authorities hired an international consultant to identify a buyer and will conclude the acquisition of bank shares as soon as their sale has been secured.

H. Promotion of the Private Sector

37. The government renews its commitment to implementing structural and institutional reforms to promote private-sector-led growth.

  • In this context, the Government has recently drafted a law on the organization of justice. This law creates the commerce courts, and their staffing and special training. The same is true of the law on the organization of the Gabon’s court of justice and a new penal code. The latter, which was adopted in 2019, takes into account all new forms of crime, particularly in the areas of finance, terrorism and the environment. It should also be noted that the Trade Register (RCCM) is being reinvigorated and modernized.

  • Further actions focus on the regulatory and structural framework on the one hand, and the institutions on the other. These various reforms pursue the following objectives: (i) Optimization of commercial justice in order to better secure investors and investments; (ii) Reinforcement of investor support; (iii) Improvement of the investment framework (iv) Reform of the national vocational training and employment framework (v) Optimization and streamlining of the tax and parafiscal framework; (vi) Strengthening the sectoral competitiveness.

    • With regard to regulatory and structural reforms, the current system will be completed by 2020 with an investment code and a national investment promotion strategy.

    • Institutional reforms consist of continuing the operationalization and strengthening of the performance of the National Agency for Investment Promotion (ANPI), the support unit for public-private partnerships, as well as the special economic zone of NKOK (SEZ).

    • There also plans to operationalize the Chamber of Arbitration, train specialized judges from the start of the academic year, and commercial courts. Efforts will continue to promote the OHADA Uniform Act on Arbitration and Mediation.

38. We will develop a national financial inclusion strategy and an SME financing strategy. Three principles will guide our actions: (a) consolidating all public financing instruments for SMEs, with a view to improving their impact, coordination, and visibility; (b) allowing only indirect public financing through commercial banks based on the CDC’s experience; (c) supporting SMEs through greater formalization and improved access to financial services. In this context, the government will submit a proposal to consolidate these instruments and adopt the new indirect financing strategy for indirect financing via commercial banks by end-March 2020. Also, by end-March 2020, it will submit the terms of reference for the development of a national strategy for the formalization and inclusion of SMEs. The Government is committed to developing a national financial inclusion strategy in line with the regional financial inclusion initiative, to the extent feasible.

I. Statistics

39. Following the declaration of Law No. 0015/2014 on the establishment and organization of the National Statistical System (SSN), the Government has pursued an ambitious program of reorganization of economic statistics in Gabon. This ambition materialized in 2019 with the finalization of the portal on the enhanced General Data Dissemination System (e-GDDS), which is now available to users. Similarly, the work will be finalized by the end of 2019 to provide a new, harmonized national consumer price index (HICP) for a better measure of inflation. The results of the 2018 poverty survey were published in 2019 and will help better assess the definition of economically vulnerable Gabonese. Similarly, the findings of the recent survey on educational provision will be released by the end of this year.

40. For 2020, the following activities are envisaged:

  • Finalization of preliminary work for the organization of the General Census of Agriculture (GAM) and the Demographic and Health Survey of Gabon (EDSG III);

  • Changing the base of national accounts to 2010;

  • Updating and maintaining of the National Data Summary Page established in October 2019;

  • Completion of the AIG enumeration phase and the EDSG III survey;

  • The launch of the General Census of Enterprises and the start of the preliminary work on the second Statistics Development Strategy (SNDS II) in the first quarter of 2020.

  • Ongoing achievements: Data transmissions to international agencies including, budget statistics in line with the IMF’s MFSP 2014.

41. Regarding public finance statistics, it is important to underscore Gabon’s efforts in transposing and transmitting TOFE budget statistics for fiscal years 2012 to 2016 according to the 2014 classification of the Government Finance Statistics Manual (GFSM) and transmitting them to the IMF’s statistical databases; Gabon was the first to do so in the CEMAC region. This effort continued during 2019 with the transposition and transmission of the 2017 TOFE to the IMF. It is also worth noting the significant progress made in preparing the public finance statistics reports according to the GFSM 2014 and its transposition according to the 2014 GFSM methodology in accordance with the 2011 Directive no. 05/11-UEAC-190-CM-22 of the CEMAC on TOFE. In particular, the exploitation of data sources from general accounts is progressing, thus ensuring the gradual introduction of what is a prerequisite for the recording on accruals basis, as accounting reforms are adopted. Furthermore, the Government will continue the ongoing work to adapt the TOFE to the format recommended by the 2001/2014 IMF Public Financial Statistics Handbook (GFSM 2001/2014). As such, the Government will request an IMF Fiscal Transparency Evaluation (FTE), prior to the entry into force of the new format, to ensure data quality.

J. TA and Capacity Building

42. TA and national capacity building remain essential to further strengthen our technical and institutional capacities. We would therefore like to see a better alignment of TA with our priorities as part of our economic reforms. Gabon has received substantial TA from the IMF in recent years, and the overall assessment of the implementation of this TA is positive. It has made a significant contribution to capacity building in the country and has facilitated the implementation of our economic programs. In addition, TA will be needed in the coming years to support our economic policy priorities. At this point, we would like TA from the IMF to help us during the period 2020–22 to: (i) pursue prudent macroeconomic policies and maintain fiscal discipline to preserve debt sustainability and avoid the accumulation of arrears; (ii) increase domestic revenues by broadening the tax base to meet the growing demand for public goods and services, meet growing social needs and, over time, replace uncertain donor support; (iii) increase the efficiency of public spending; and (iv) address weaknesses in the banking sector to reduce risks to financial stability. Gabon also needs to strengthen its statistics to better inform policy decisions and the private sector. Donors do not provide TA in the specific areas that would be covered by the IMF’s TA. We have reached understanding with IMF staff on a TA and capacity building strategy for the next three years. We remain committed to further improving our technical and institutional capacities and making the best use of the TA that will be provided by the IMF and other development partners to avoid overlaps. We also commit to ensuring the availability of adequate human and financial resources, and to ensure good collaboration between national institutions involved in the various areas of TA.

K. Program Monitoring

43. Program implementation will be monitored through prior actions, semi-annual reviews, quantitative performance criteria and indicative targets, continuous performance criteria, and structural benchmarks. The sixth and final review is scheduled for June 2020, based on the quantitative performance criteria for end-December 2019, continuous performance criteria, and relevant structural benchmarks. For all the reviews, the quantitative performance criteria will include: a floor on the primary fiscal balance, excluding oil revenue (payment order basis); a ceiling on the stock of net banking system claims on the central government; a ceiling on the stock of central bank claims on the central government, excluding the use of IMF credit; a ceiling on borrowing or guaranteeing external debt (program and project); a floor on government tax revenue, excluding oil revenue; and a ceiling on the accumulation of new external arrears by the central government. The prior actions and structural benchmarks are shown in Tables 3 and 4. The quantitative targets for the target dates up to end-December 2019, as well as a continuous quantitative performance criterion, are shown in Tables 1 and 2.

Table 1.

Gabon: Quantitative Program Targets, 20181,2

(Billions of CFA francs, unless otherwise indicated)

article image
Sources: Gabonese authorities and IMF staff estimates.

Targets as defined in the attached Technical Memorandum of Understanding.

Cumulative amount from January 1, 2018 for 2018 targets, and cumulative amount from January 1, 2019 for 2019 targets. Targets are set for the end of the respective month, unless otherwise stated.

Staff report on the Second Review Under the Extended Arrangement Under the Extended Fund Facility (July 24, 2018).

The performance criterion will be adjusted upward or downward for any lower or higher external program disbursements, to a maximum of CFAF 80 billion.

The performance criterion will be adjusted for any over/underperformance in programmed oil revenue due to changes in international oil prices. It will also be adjusted upward (downward) for any lower (higher) external disbursements relative to baseline projections, to a maximum of CFAF 80 billion. Finally, the performance criterion will be adjusted upward for any increase in commercial bank credit to the government reflecting new purchases by commercial banks of existing government domestic debt owed to nonbanks (rachat des creances).

The performance criterion will be adjusted upward (downward) in case where early (late) disbursements of specifically agreed and identified financing flows take place. This PC is monitored with respect to the contracting of debt on a disbursement basis.

Reports the current stock of new arrears that have been accumulated since the latest review.

Includes spending on health (i.e. primary and preventive care), education (pre-primary, primary, and secondary education), and social safety net programs.

Table 2.

Gabon: Quantitative Program Targets, 20191, 2

(Billions of CFA francs, unless otherwise indicated)

article image
Sources: Gabonese authorities and IMF staff estimates.

Targets as defined in the attached Technical Memorandum of Understanding.

Cumulative amount from January 1, 2018 for 2018 targets, and cumulative amount from January 1, 2019 for 2019 targets. Targets are set for the end of the respective month, unless otherwise stated.

Staff report for the Third Review of the Extended Arrangement Under the Extended Fund Facility (December 7, 2018)

The performance criterion will be adjusted upward or downward for any lower or higher external program disbursements, to a maximum of CFAF 80 billion.

The performance criterion will be adjusted for any over/underperformance in programmed oil revenue due to changes in international oil prices. It will also be adjusted upward (downward) for any lower (higher) external disbursements relative to baseline projections, to a maximum of CFAF 80 billion. Finally, the performance criterion will be adjusted upward for any increase in commercial bank credit to the government reflecting new purchases by commercial banks of existing government domestic debt owed to nonbanks (rachat des creances).

The performance criterion will be adjusted upward (downward) in case where early (late) disbursements of specifically agreed and identified financing flows take place. This PC is monitored with respect to the contracting of debt on a disbursement basis.

The performance criterion will be adjusted upward (downward) in case where early (late) disbursements of specifically agreed and identified financing flows take place. The estimates for June 2019 include CFAF 79 billion related the refinancing of the AFREEXIM bridge loan disbursed in 2018. The authorities requested the PC on external debt be modified from a contracting to disbursing basis to better reflect the monitoring of this PC.

Reports new arrears that have been accumulated since the latest review. All external arrears were cleared in March 2019 and no new external arrears have been accumulated since then.

Includes spending on health (i.e. primary and preventive care), education (pre-primary, primary, and secondary education), and social safety net programs.

Table 3.

Gabon: Quantitative Program Targets, 20201, 2

(Billions of CFA francs, unless otherwise indicated)

article image
Sources: Gabonese authorities and IMF staff estimates.

Targets as defined in the attached Technical Memorandum of Understanding.

Cumulative amount from January 1, 2020 for 2020 targets. Targets are set for the end of the respective month, unless otherwise stated.

The performance criterion will be adjusted upward or downward for any lower or higher external program disbursements, to a maximum of CFAF 80 billion.

The performance criterion will be adjusted for any over/underperformance in programmed oil revenue due to changes in international oil prices. It will also be adjusted upward (downward) for any lower (higher) external disbursements relative to baseline projections, to a maximum of CFAF 80 billion. Finally, the performance criterion will be adjusted upward for any increase in commercial bank credit to the government reflecting new purchases by commercial banks of existing government domestic debt owed to nonbanks (rachat des creances).

The performance criterion will be adjusted upward (downward) in case where early (late) disbursements of specifically agreed and identified financing flows take place. The authorities requested the PC on external debt be modified from a contracting to disbursing basis to better reflect the monitoring of this PC.

Reports the current stock of new arrears that have been accumulated since the latest review.

Includes spending on health (i.e. primary and preventive care), education (pre-primary, primary, and secondary education), and social safety net programs.

Table 4.

Gabon: Structural Conditionality for 2018–19

article image
Table 5.

Gabon: New Proposed Structural Benchmarks

article image

Attachment II. Technical Memorandum of Understanding

1. This Technical Memorandum of Understanding (TMU) sets out the understandings between the Gabonese authorities and the International Monetary Fund (IMF) regarding the definition of quantitative performance criteria (QPC) and indicative targets (IT). It also set out the QPC and IT adjusters, and data reporting requirements for the duration of the Extended Arrangement under the Extended Financing Facility, as described in the authorities’ Letter of Intent (LOI) dated November 28, 2019, and the attached Memorandum of Economic and Financial Policies (MEFP). As is standard under all Fund arrangements, we will consult with the Fund before modifying measures contained in the LOI/MEFP or adopting new measures that would deviate from the goals of the program and provide the Fund with the necessary information for program monitoring.

2. The QPCs and IT are shown in Table 1 of the MEFP. Prior actions and structural benchmarks are listed in Table 2 of the MEFP. For program monitoring purposes, quantitative performance criteria (PCs) and indicative targets (ITs) are set for December 31, 2019; the same variables are an indicative target for March 30, 2020.

3. For program purposes, all foreign currency-related assets, liabilities, and flows will be evaluated at “program accounting exchange rates” as defined below, except for items affecting government fiscal balances, which will be measured at current exchange rates. Unless otherwise indicated, U.S. dollar denominated components of the balance sheet of the Bank of Central African States (BEAC) will be valued at the official exchange rate of the CFAF to the U.S. dollar of 584.05 as of June 1, 2019. Amounts denominated in other currencies will be converted for program purposes into U.S. dollar amounts using the following cross-rates: the Euro valued at 1.1185 U.S. dollars, Pound Sterling valued at 1.2647 U.S. dollars, the Chinese Yuan valued at 6.9062 U.S. dollars, the Special Drawing Right (SDR) valued at 1.38050 U.S. dollars.

I. Quantitative Performance Criteria: Definition of Variables

4. Definitions: The central government (CG), for the purposes of the program, consists of all institutions, government units, and special funds (including the Road Fund) currently covered under the state budget. It does not include any local government authorities, the Bank of Central African States (BEAC), or any government-owned entity with separate legal status. The authorities will inform the Fund staff of any new funds, or other special budgetary and extra-budgetary programs that may be created during the program period to carry out operations of a fiscal nature and will ensure that these will be incorporated within the definition of central government.

5. The fiscal year is the calendar year, starting on January 1 and ending on December 31.

A. Cumulative Floor on the Non-Oil Primary Fiscal Balance on a Payment Order Basis

6. Definition: The non-oil primary fiscal balance of the CG on a payment order basis is measured as the difference between:

  • i. total central government revenue on a cash basis (excluding oil revenue), and;

  • ii. total central government expenditure on a payment order basis excluding interest payments.

7. The QPC for the fiscal balance is calculated based on the projected exchange rate. Reporting and adjustment, as defined below, will be made using current exchange rates.

8. Definition: Total CG revenue (excluding oil revenue) is measured on a cash basis and includes offsetting revenue and expenditure operations, including private sector tax obligations offset against central government obligations to the private sector. Tax receipts are specified in the Table of central government financial operations (Tableau des opérations financières de l’Etat–TOFE), including all earmarked revenues (Road Fund and special funds). Oil revenue includes payments received in cash and in crude. Revenue received by the treasury will be registered after encashment, which will be at most 7 days after the date of receipt; oil revenue received in kind will be recorded at transaction value on the day of sale.

9. Definition: Total CG expenditure includes spending on a payment order basis (ordonnancements), and treasury advances (avances à régulariser), and outlays on special funds and from earmarked revenues. The TOFE presentation will also recognize the following government expenditures (in addition to existing expenditure categories): (i) capital transfers arising from assumption of obligations of public enterprises undergoing privatization or liquidation; (ii) capital transfers arising from assumption of obligations of private enterprises; (iii) capital grants arising from assumption of obligations of other general government units; and (iv) current transfers at the end of the fiscal year used for financing of the deficits on accounts at the Treasury, accounts of Treasury correspondents (Correspondant du Tresor) and local governments (Collectivités locales).

10. Definition: The financial operations specified in the TOFE relating to treasury correspondents (correspondants du Trésor), local governments (collectivités locales), and other treasury operations (autres opérations de trésorerie) correspond to the change from period to period in the balance of these accounts. In the case of financial operations on accounts at the Treasury of treasury correspondents (correspondants du Trésor) and local governments (collectivités locales), a debit (i.e., negative) entry for the whole fiscal year, representing a reduction in the balance of such accounts, cannot exceed the balance of the account at the start of the fiscal year. If for a given account, a debit entry for the whole fiscal year exceeds the balance on this account at the start of the fiscal year, the central government financing of the deficit ran by the treasury correspondent or local government will be recorded in the TOFE as non-bank financing (a credit (i.e., positive) entry under “Assumption of end-fiscal year deficits on accounts at the Treasury of Treasury correspondents and local governments”) and as a corresponding increase of the same magnitude of current transfers.

11. Reporting: Data will be provided to the Fund with a lag of no more than six weeks after the end of the month.

12. Adjusters: The floor on the cumulative primary non-oil fiscal balance of the CG on a payment order basis will be adjusted downward (upward) to the extent that external financing is more (less) than external projected disbursements given in Text Table 1, to a maximum of CFAF 80 billion.

Text Table 1.

Gabon: External Program Disbursements (Baseline Projection)

article image
Sources: Gabonese authorities; and IMF staff projections.

B. Ceiling on the Net Claims of the Banking System on the Central Government

13. Definition: Net claims of the banking system on the CG is measured in accordance with the accounting practice at the BEAC, and is defined as the sum of:

  • i. Central bank net claims on CG, including deposits, loans, advances, accounts receivable, and any other government claim or liability as defined in the monetary survey.

  • ii. Other depository corporation net claims on CG, including securities of the CG, loans to central government, other advances to CG, and deposits of the central government with depository corporations.

14. Thus defined, the net claims of the banking system on the central government amounted to CFAF 894.9 billion as of June 30, 2019 (Text Table 2).

15. This ceiling does not apply to new agreements for the restructuring of domestic debt or the securitization of domestic arrears.

Text Table 2.

Gabon: Net Claims on Central Government

(Billions of CFA francs, stock)

article image
Source: BEAC

16. Reporting: Data will be provided to the IMF with a lag of no more than six weeks after the end of the month.

17. Adjusters: The adjusters for the performance criterion on the net claims of the banking system on the central government:

  • i. The program ceiling will be adjusted downward (upward) by the full amount of the cumulative excess (shortfall) in external program disbursements relative to the baseline projections in Text Table 1, up to a maximum of CFAF 80 billion.

  • ii. With the objective of shielding fiscal objectives from uncertainties regarding oil prices, the ceiling on net claims of the banking system will be:

    • a. If Brent oil price projections as reported by IMF-WEO decline by up to 25 percent relative to the program baseline (US$71.900 per barrel), the ceiling will be adjusted upward to accommodate the shortfall in oil revenue in a given quarter.

    • b. If Brent oil price projections as reported by IMF-WEO decline by more than 25 percent relative to the baseline program projection, then a consultation between the government and the IMF is required.

    • c. If Brent oil price projections as reported by IMF-WEO rise relative to the baseline program projection for 2018–19, the entirety of oil revenues additional to the baseline program projection should be deposited in Gabon’s Fund for Future Generations at the BEAC.

  • iii. The program ceiling will be adjusted upward to reflect any purchase by commercial banks of outstanding contractual government credit (rachat de créances) and government bonds issued on the CEMAC market held by non-bank private sector creditors as of end-2017.

C. Ceiling on Net Claims of the BEAC to the Central Government, Excluding the Use of IMF Credit

18. Definition: The ceiling on net claims of the BEAC to the central government, excluding IMF credit is calculated as the gross claims of the BEAC on the central government, including BEAC statutory advances to the CG and other BEAC claims on the CG (excluding BEAC claims on the CG created by the on-lending of IMF credit), less the gross liabilities of the BEAC to the CG, including treasury vault cash, deposits of the Future Generation Fund, deposits of the Sovereign Wealth Fund, and other central government deposits held at the central bank.

19. Reporting: Data will be provided to the IMF with a lag of no more than six weeks from the end of the month.

20. Adjusters: The adjusters for the performance criterion on the net claims of the banking system on the central government:

  • i. With the objective of shielding fiscal objectives from uncertainties regarding oil prices, the ceiling on net claims of the banking system will be:

    • a. If Brent oil price projections as reported by IMF-WEO decline by up to 25 percent relative to the program baseline (US$71.900 per barrel), the ceiling will be adjusted upward to accommodate the shortfall in oil revenue in a given quarter.

    • b. If Brent oil price projections as reported by IMF-WEO decline by more than 25 percent relative to the baseline program projection, then a consultation between the government and the IMF is required.

    • c. If Brent oil price projections as reported by IMF-WEO rise relative to the baseline program projection for 2018–19, the entirety of oil revenues additional to the baseline program projection should be deposited in Gabon’s Fund for Future Generations at the BEAC.

D. Ceiling on Disbursing or Guaranteeing of External Debt by the Central Government

21. Definition: For program purposes, the definition of debt is set out in paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements attached to IMF Executive Board Decision No. 15688-(14/107), adopted on December 5, 2014.

  • I. For the purpose of these guidelines, the term “debt” will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms; the primary ones being as follows:

    • i. loans, i.e., advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements);

    • ii. suppliers’ credits, i.e., contracts where the supplier permits the obligor to defer payments until sometime after the date on which the goods are delivered or services are provided; and

    • iii. leases, i.e., arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of these guidelines, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair, or maintenance of the property.

  • II. Under the definition of debt set out in this paragraph, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

22. Definition: For the purposes of the ceiling on disbursing or guaranteeing external debt by the CG, external debt is defined as debt contracted or serviced in a currency other than the franc of the Financial Community of Africa (CFAF). The ceiling applies to all external debt whether or not concessional. Guaranteeing external debt triggers the nonobservance of the performance criterion regardless of whether or not a disbursement has been made. The performance criterion will be assessed on a cumulative basis during the fiscal year. The performance criterion does not apply to:

  • i. Normal import-related commercial debt having a maturity of less than one year;

  • ii. Rescheduling agreements;

In the case of the issuance of euro bond, the amount deemed disbursed is the amount subscribed/purchased at the end of the subscription/purchase period as specified in the final documentation.

23. Adjusters:

  • i. The program ceiling applicable to new external debt is adjusted upward up to a maximum of 5 percent of the ceiling on new external debt in cases in which differences vis-à-vis the PC on new debt are caused by a variation in financing conditions (interest, maturity, grace period, payment schedule, front-end fees, management fees) of the debt or debts. The adjustor may not be applied when the differences are the result of an increase in the face value of the total debt contracted or guaranteed.

  • ii. The program ceiling will be adjusted upward (downward) in cases where early (late) disbursements of specifically agreed and identified financing flows take place.

24. Reporting: The authorities will inform IMF staff within 2 weeks of any planned contracting or guaranteeing of external debt and the related conditions before the debt is either contracted or guaranteed by the CG. Once there is agreement with IMF staff of the planned disbursement or guaranteeing of external debt and the debt is either contracted or guaranteed by the CG, their disbursement will become part of the monitored disbursements of existing debts.

E. Ceiling on the Accumulation of New External Arrears by the Central Government

25. Definition: The accumulation of external payments arrears by the CG will be a continuous performance criterion with a zero limit throughout the program period. External payment arrears are defined as contractual external debt service obligations (interest and/or principal, including moratorium and later/penalty interest, where applicable) of the CG that have not been paid within 30 days after falling due. It shall not apply to external payments arrears arising from external debt being renegotiated with external creditors, including Paris Club creditors; and more specifically, to external payments arrears in respect of which a creditor has agreed that no payment needs to be made pending negotiations.

26. Reporting: This performance criterion will be monitored on an ongoing basis. The Ministry of Economy will provide the final data on the stock of external arrears of the CG to the IMF, including any occurrence of new arrears accumulation, with a lag of not more than three weeks from the end of the month.

F. Cumulative Floor on Central Government Tax Revenue, Excluding Oil Revenue

27. Definition: The program will have a floor on CG non-oil revenue. Non-oil revenue refers to revenue from tax and non-tax collection and exclude all revenue from asset sales, grants, and oil revenue. The floor on government tax revenue, excluding oil revenue is a performance criterion beginning with the end-December 2018 quantitative program target.

28. Reporting: Data will be provided to the IMF with a lag of no more than six weeks from the end of the month.

II. Quantitative Indicative Targets: Definition of Variables

A. Cumulative Floor on the Net Reduction of the Stock of Domestic Arrears of the Central Government

29. Definition: The stock of domestic payment arrears of the CG is defined as the sum of all contractual obligations that remained unpaid 90 days after the payment order date. This stock includes, but is not limited to, payment obligations from procurement contracts for goods and services and other contracts providing for payment in domestic currency, as well as statutory obligations for payment (e.g., civil service wages, VAT reimbursements, and other entitlements). The cumulative floor on the net reduction of the stock of domestic arrears of the CG is measured as the stock of outstanding domestic arrears on the test date minus the stock of outstanding domestic arrears as of January 1, 2018.

30. Reporting: Data on repayment and new accumulation of domestic payment arrears and the remaining previous-year stock of domestic payment arrears will be provided to the IMF with a lag of no more than six weeks from the end of the month.

B. Cumulative Floor on Central Government Social Spending

31. Definition: The program will have a floor on non-wage social spending as defined in the CG budget for a particular fiscal year. These programs are funded by government resources. The floor includes: (i) spending on primary, secondary, and vocational education, including basic goods and services, and school infrastructure and rehabilitation; (ii) spending on health programs, including basic goods and services, and transfers for primary health care facilities; and (iii) spending on social protection including health insurance and targeted safety nets. Also taken into account are: (a) subsidies on domestic gas butane for cooking and lighting; (b) the costs of the electrification program and hydraulic installations for rural areas that do not have access to the public water and electricity network, (c) the cost of burial, hospitalization for the indigent; and (d) support for transportation costs. Costs related to the statistical monitoring reform of economically weak Gabonese (GEF) are also included in the floor. Performance relative the program target on social spending is assessed on the basis of commitments versus initial budget appropriations for the above-mentioned social spending components. Monitoring is carried out on the basis of quarterly targets determined in agreement with the Gabonese authorities.

32. Reporting: Data will be provided to the IMF with a lag of no more than six weeks from the end of the month.

III. Program Monitoring

A. Reporting Requirements

33. To facilitate monitoring of program implementation, the government of Gabon will prepare and send to the IMF by e-mail data and monthly reports within six weeks following the end of the preceding month. Such data will include (but are not limited to) the following:

  • the comprehensive monetary survey, the central bank balance sheet, and the consolidated balance sheet of the commercial banks (electronic file);

  • the central government financial operations (opérations financières de l’Etat) on a payment order basis (ordonnancements), identifying any discrepancy between the fiscal deficit and changes in domestic and external arrears and in the treasury float, on the one hand, and total net domestic bank/nonbank and net external financing, on the other (electronic file);

  • the detailed breakdown of oil revenue by type of revenue (royalties, profit tax, dividends, bonuses and other) and by company/type of contract, as well as the detailed breakdown of non-oil tax revenue (by type of tax) and nontax revenue (electronic file);

  • the detailed breakdown of total central government expenditure, on an adjusted commitment basis, adjusted payment order basis, and cash basis as presented in the Tableau Intégré (electronic file);

  • the details for domestic and external debt-service obligations, on a contractual and actual payments basis, respectively, with a breakdown into interest and principal and by creditor, as well as any possible accumulation of domestic or external arrears (electronic file);

  • the details on the stock of external and domestic debt at the end of each quarter prepared by the Generate Directorate of Debt. The external debt stock is to be evaluated at end-of-quarter exchange rates (electronic file);

  • the details for the outstanding stock of the treasury float (month to month) and the cumulative flows from January 1, 2018; the net accumulation of new float during 2018, defined in paragraph 6 as the difference between payment orders (ordonnancements) and payments made (cash basis), as well as the repayment of pre-2018 float, with both items to be broken down by wages and salaries, goods and services, transfers and subsidies, interest, capital expenditure, and net lending; any stock-flow adjustment not consistent with flows should be explained (electronic file);

  • information on the balance of the accounts relating to treasury correspondents (correspondents du Trésor), local governments (collectivités locales), and other treasury financial operations specified in the TOFE;

  • the amount of new external debt contracted or guaranteed by the central government, with the detailed information on the original terms and conditions (currency of denomination, interest rate, grace period, and maturity) and the envisaged path of disbursement;

  • actual disbursements on external debt, including on newly contracted loans, by creditors and by projects/programs and the amounts of debt relief, if any, granted to Gabon by external creditors (electronic file);

  • monthly information on the oil sector: export prices, effective exchange rate, production per oil field, volume of exports and volumes provided to SOGARA based on data from the Direction Générale des Hydrocarbures (electronic file);

  • quarterly report on numbers and value of procurement contracts treated by the Direction Générale des Marchés Publics (DMP) by type of contracting;

  • indicators and other statistical data on recent economic developments, such as the household consumer price index, merchandise imports and exports (in value and volume terms) by major categories on the basis of customs data, timber production and exports by categories (in value and volume terms), as well as the quarterly reports on economic activity prepared by the General Directorate of the Economy (DGE) and six-monthly report of the balance of payments by the BEAC; and

  • a status report on the implementation of the structural reforms specified in Table 2 attached to the letter of November 28, 2019.

The Technical Committee in charge of monitoring the Fund-supported program will provide the African Department of the IMF with any other information that the latter may deem necessary or that may be requested by the staff of the IMF for the effective monitoring of the program.

Attachment III. Gabon: Schedule of Purchases and Timing of Reviews Under the Extended Arrangement, 2019–20

article image
Source: IMF staff projections.

Gabon’s quota is SDR 216.0 million.
2

Several projects of a large multinational company, including in the agri-business (palm oil, rubber), are expected to enter into the production phase in 2020. Production of palm oil, Manganese, rubber, and wood industries are projected to increase between 2018 and 2022 by 836 percent, 33 percent, 185 percent, and 16 percent, respectively.

3

This mechanism was set up in May 2019 with support from IMF staff. It supports the implementation of the existing automatic adjustment mechanism included in the 2019 budget.

4

IMF, 2018. “Domestic Revenue Mobilization in Sub-Saharan Africa: what are the Possibilities?” Regional Economic Outlook: Sub-Saharan Africa, Washington, DC., April.

5

May 2019 FAD TA report suggested that this could generate up to 1 percent of GDP in the medium to long term.

6

Directive 01/11-UEAC-190-CM-22 on budget laws.

7

Budget credibility is measured by the difference between initial budget and actual. A difference of more than 5 percent is considered as a sign of low credibility (source PEFA methodology).

8

This is due notably to the implementation of the necessary non-zero risk weights by the regional supervisor (COBAC) which reduced bank’s appetite for government securities and to the high level of domestic debt and arrears.

9

The World bank decided to postpone its second development policy operation to 2020 as part of a regional portfolio review.

10

While new technical external arrears were briefly reported in November, they were cleared within the 30-day grace period allowed under the TMU and therefore did not breach the continuous PC on new external arrears.

11

The reserve is implemented on budget appropriations according to the following rates: 20 percent for expenditures on goods and services, 15 percent for transfer expenditures, 16 percent for capital expenditures, and 10 percent for other expenditures.

1

See IMF Working Paper 13/272 for the previous EBA methodology. The key revisions to the EBA-Lite CA regression model focus on clarifying the role of remittances and aid in the external balance; incorporating shocks (natural disasters and armed militarized conflicts) to better capture the determinants of the external balance in EBA-Lite countries; and, expanding the policy determinants by introducing social insurance policies and revising the financial policy variables.

2

These are calibrated to include: (i) a cyclically-adjusted fiscal balance (1.1 percent of GDP) and an annual change in reserves (2.8 percent of GDP) consistent the medium term projections and meeting CEMAC convergence criteria; (ii) private credit growth set in line with medium-term nominal GDP (4 percent); (iii) a desired public health expenditure of 2.7 percent of GDP based a benchmark level given Gabon’s capacity to spend; (iv) the capital control benchmark is based on the latest cross-country average level of the control index (0.15); and (v.) the real interest rate set to the actual rate for 2018, which implies monetary policy is consistent with output and inflation objectives.

3

See Bems, R., and I. de Carvalho Filho, 2009, “Exchange Rate Assessments: Methodologies for Oil Exporting Countries,” IMF Working Paper 09/281.

4

Araujo, J.D., B.G. Li, M. Poplawski-Ribeiro, and L.-F. Zanna, 2016, “Current Account Norms in Natural Resource Rich and Capital Scarce Economies,” Journal of Development Economics, Vol. 120, pp. 144–156.

5

The analysis uses the following key assumptions: (i) total oil reserves of 2.0 billion barrels based on the end-2018 estimate for proven reserves; (ii) population growth of 1.3 percent per annum based on UN population statistics; (iii) 1 percent long-run oil production growth owing to declining supply; and (iv) trade balance elasticity of 0.3 based on findings from other oil exporters (Hakura and Billmeier (2008)).

1/

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. “Short term (ST)” and “medium term (MT)” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.

1

These are small representing 1 percent of the total stock and represent legacy claims from a commercial and multilateral creditor.

2

The CFA 158 billion loan was originally scheduled to be fully repaid in 2019. Repayment is now equally split over 2019–20 (CFA 79 billion each year).

3

While new technical external arrears were briefly reported in November, they were cleared within the 30-day grace period allowed under the TMU and therefore did not breach the continuous PC on new external arrears.

4

Terms include approximately a 7 percent interest rate and a 10-year maturity.

5

The remaining 25 percent is held in deposits.

6

This reflects the upper estimate from the audit of domestic expenditure arrears (3 percent) and the median SOE liabilities based on a cross-country survey (2 percent)

1

Organic law 02/2014 on budget law and budget execution; Directive 01/11-UEAC-190-CM-22 on budget laws.

1

Order No. 14–38 of September 8, 2008.

Same Series

Other IMF Content

Other Publishers

  • Collapse
  • Expand
Cover IMF Staff Country Reports
Gabon: 2019 Article IV Consultation, Fourth and Fifth Reviews under the Extended Arrangement under the Extended Fund Facility, and Request for Waiver of Nonobservance of Performance Criteria, and Rephasing of the Remaining Purchases; Press Release; Staff Report; and Statement by the Executive Director
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2019: Issue 389
Publisher:
International Monetary Fund
ISBN:
9781513524467
ISSN:
1934-7685
Pages:
123
DOI:
https://doi.org/10.5089/9781513524467.002
Text Figure 1.

Gabon: Poverty Headcount at National Poverty Line, 2005 and 2017
Text Figure 2.

Gabon: Selected Financial Indicators

(Percent)
Text Figure 3.

Gabon: Non-Oil Tax Revenue, 2018 or Latest

(Percent of non-oil GDP)
Text Figure 4.

Gabon: Wage Bill Comparison, 2018 or Latest

(Percent of GDP)
Text Figure 5.

Gabon: Public Investment Efficiency

(Quality of Infrastructure)

Gabon: Stock of Domestic and External Arrears

(Percent of GDP)
Text Figure 6.

Gabon: Non-Performing Loans to Total Loans

(Percent)
Text Figure 7.

Gabon: Financial Institutions Accounts

(% age 15+)
Text Figure 8.

Gabon: Borrowed from a Financial Institution

(% age 15+)

CO2 Emissions Evolution in Gabon Under Two Scenarios
Text Figure 9.

Gabon: Summary of Program Performance
Figure 1.

Gabon: Selected Economic Indicators and Outlook
Figure 2.

Gabon: Fiscal Indicators and Outlook
Figure A1.

Gabon: External Sector Developments, 2013–18
Figure A2.

Gabon: Consumption-Based Model Projected and Estimated CA and Fiscal
Figure A3.

Gabon: Investment Based-Model Estimated CA and Projected CA

(Percent of GDP)
Figure A4.

Gabon: Structural Competitiveness Indicators
Figure 1.

Gabon: Public DSA Risk Assessment
Figure 2.

Gabon: Public DSA—Realism of Baseline Assumptions
Figure 3.

Gabon: Public Sector DSA — Baseline Scenario

(Percent of GDP unless otherwise indicated)
Figure 4.

Gabon: Public DSA – Composition of Public Debt and Alternative Scenarios
Figure 5.

Gabon: Public DSA – Stress Tests