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.
Publication Date:
23 Dec 2019
ISBN:
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
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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

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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

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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)

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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.