Impact of COVID-19

Since the approval of the first request for emergency assistance in April 2022 (RFI-1), the number of new infections has considerably increased. As of July 26, 2020, there are about 7,000 confirmed cases and 49 deaths due to COVID-19, with a strong concentration of cases in Libreville, the capital. Nevertheless, as the epidemiologic situation is improving, the containment measures are being gradually eased. The lockdown has been lifted, the state of emergency terminated, and some travel restrictions relaxed. Preliminary information shows a large impact of the pandemic and containment measures on the economy in the first half of 2020. Exports of commodities fell sharply reflecting lower external demand, and the activity in the non-oil sector declined due to restrictions on movement and gatherings. The fiscal situation worsened due to substantial revenue losses and spending costs to mitigate the economic impact of the pandemic.

Outlook

Looking forward, Gabon’s near-term outlook has worsened. Compliance with the April 2020 OPEC agreement (a 21-percent oil production for Gabon) and the deterioration of the global economic outlook will affect exports and financial inflows and depress fiscal revenues amid higher mitigation costs and tighter global financing conditions. As a result, the authorities project a sharper economic contraction (-2.7 percent against a projection of -0.4 percent in April 2020) and an urgent external financing and fiscal gap of about FCFA 215 billion (after accounting for the RFI-1 purchase). The requested Fund financial support would help to cover part of the additional financing needs. External financing and fiscal needs could arise in the event of a protracted COVID-19 outbreak.

Policy Response to the Pandemic

The authorities are implementing health and economic policies to cope with the pandemic and limit its effects on the economy, as committed in their April 2020 Letter of Intent. The health system’s response capacity has been increased, with notably the set-up of a new testing laboratory. In addition, support to households affected by the pandemic has been provided through a food distribution program, assistance with payments of electricity bills and rentals, and various tax deferrals and other relief measures as well as the setup of a solidarity fund. The authorities have also developed a comprehensive economic recovery plan and put in place an economic recovery fund to support firms affected by the pandemic. The regional central bank (BEAC) and the regional banking supervision body (COBAC) have also enhanced their support to the CEMAC region notably with a relaxation of BEAC refinancing criteria and the adoption of a restrictive policy for dividend distribution.

Preserving the health of the Gabonese people and limit the impact of the pandemic on the businesses and the most vulnerable population remain the main priorities going forward. The Parliament adopted a revised budget law for 2020 reflecting a more accommodative fiscal stance to address those priorities, and the updated macroeconomic framework. The reallocation of resources towards health-related and social spending has reduced fiscal space for capital spending which has been revised downwards. The non-oil fiscal deficit in 2020 will widen to 9 percent from 5.7 percent of non-oil GDP at the time of the RFI-1. A strict fiscal discipline will be pursued, and additional measures will be implemented to ensure fiscal and debt sustainability, should fiscal revenues and financing fall short of expectations.

Transparency in the Use of Emergency Resources

The authorities remain committed to a transparent use of all emergency funds received to respond to the pandemic, including the purchases under the RFI. Transparency will be ensured through a separate reporting mechanism for COVID-19-related expenditures, and the publication of all procurement contracts, their beneficiaries, and the ex post reports of delivery. Audits of all expenditures and procurement tenders linked to the pandemic will be carried out by a reputable firm and the reports will be published in a timely manner. Quarterly budget execution reporting will continue with specific information on pandemic-related expenses.

Medium-term Policies

A new government headed by a woman for the first time in Gabon’s history has been formed on July 16, 2020. It has reiterated the authorities’ commitment to maintaining macroeconomic stability and supporting regional external stability over the medium term. The authorities have continued to implement the structural benchmarks under the Extended Fund Facility (EFF) arrangement and have notably completed the audit of domestic arrears by an external auditor, which resulted in an upward revision of the public debt figure at end-2019 from 58.8 percent to 62.4 percent of GDP. Also, oil and mining contracts have been transmitted to the regional central bank (BEAC), as required under the new foreign exchange regulation.

Once the crisis eases, the authorities intend to unwind temporary emerging measures and implement a growth-friendly fiscal consolidation consistent with their economic recovery plan. The oversight of public enterprises and public debt management will continue to be strengthened to contain fiscal risks and preserve debt sustainability. The authorities will pursue structural reforms to enhance public financial management, improve competitiveness and achieve higher and inclusive growth. They also reiterate their interest in a successor arrangement, following the expiration of the EFF arrangement in June 2020, to support their new medium-term economic and financial program under preparation.

Conclusion

The Gabonese authorities are requesting a second purchase under the RFI to meet increasing external and fiscal financing needs arising from the protracted impact of the pandemic on the country. They remain committed to ensure that the emergency resources are used for their intended purpose. Public debt continues to be sustainable and the capacity to repay the Fund remain adequate. Directors’ approval of the authorities’ request will be appreciated.