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International Monetary Fund. African Dept.
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Publication Date:
27 Sep 2021
eISBN:
9781513595849
ISBN:
9781513595849
Language:
English
Keywords:
RFI purchase; disbursement of SDR; balance of payments gap; further support to Equatorial Guinea; financing constraint
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IMF Country Report No. 21/219

Abstract

IMF Country Report No. 21/219

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IMF Country Report No. 21/219

REPUBLIC OF EQUATORIAL GUINEA

REQUEST FOR PURCHASE UNDER THE RAPID FINANCING INSTRUMENT—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR

September 2021

In the context of the request for purchase under the rapid financing instrument, the following documents have been released and are included in this package:

  • A Press Release including a statement by the Chair of the Executive Board.

  • The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on September 15, 2021 following discussions that took place during April 19–20, 2021, with officials of Equatorial Guinea on economic developments and policies underpinning the request for purchase under the rapid financing instrument. Based on information available at the time of these discussions, the staff report was completed on September 1, 2021.

  • A Statement by the Executive Director for Equatorial Guinea.

The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.

Copies of this report are available to the public from

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International Monetary Fund

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© 2021 International Monetary Fund

Press Release

PR21/266

IMF Executive Board Approves US$67.38 Million in Emergency Support to Equatorial Guinea to Address the COVID-19 Pandemic and Accidental Explosions

FOR IMMEDIATE RELEASE

  • The IMF Executive Board approved Equatorial Guinea’s request for emergency assistance equivalent to about US$67.38 million under the Rapid Financing Instrument.

  • The pandemic and the Bata explosions have inflicted heavy damage on Equatorial Guinea’s economy, substantially weakened its near-term economic outlook, increased economic and financial stress, and severely affected the livelihood of much of the population.

  • The authorities are committed to taking further steps as part of their ongoing effort to address macro-critical governance and corruption challenges facing Equatorial Guinea.

Washington, DC — September 15, 2021: The Executive Board of the International Monetary Fund (IMF) today approved a disbursement of SDR 47.25 million (about US$67.38 million, 30 percent of quota) to Equatorial Guinea under the Rapid Financing Instrument (RFI). The disbursement will help meet the urgent fiscal and balance of payments needs stemming from the COVID-19 pandemic and March Bata explosions, and catalyze additional external resources as well as bolster the regional reserves of the Economic and Monetary Community of Central Africa (CEMAC).

The COVID-19 pandemic and the Bata explosions have inflicted heavy damage on Equatorial Guinea’s economy and have increased external financing needs in the balance of payments by an additional projected US$625 million (5 percent of GDP) in 2021–22 (relative to the EFF-supported program). The authorities have appropriately boosted critical frontline healthcare spending, including the purchase of a large batch of vaccines, and rolled out social assistance to households severely affected by the pandemic and the Bata explosions.

While tackling these crises, the authorities have taken an important initial step to address macro-critical governance and corruption challenges by adopting an anti-corruption law, which is in line with international good practices. To boost transparency, they have established two escrow accounts at the Bank of Central African States (BEAC) for pandemic and Bata emergency-related spending, and are undertaking audits of such spending.

The IMF stands ready to provide policy advice and further support to Equatorial Guinea as it battles the fallout from the pandemic and the Bata explosions, including as part of the ongoing cooperation under the EFF-supported program.

Following the Executive Board’s discussion on Equatorial Guinea, Mr. Bo Li, Deputy Managing Director and Acting Chair, made the following statement:

“The Bata explosions and still unfolding COVID-19 pandemic have inflicted heavy human and economic damage on Equatorial Guinea. The authorities are taking measures to contain and mitigate the fallout from these shocks on the most vulnerable segments of the population and limit the impact on economic activity. They have ramped up frontline healthcare and social spending and have provided limited and temporary tax relief to the private sector to cushion adverse effects on activity and employment.

“Addressing longstanding macro-critical governance and corruption challenges is critical to secure inclusive growth. The authorities met four prior actions. They adopted an anti-corruption law, in line with their obligations under the United Nations Convention Against Corruption. They have also commissioned audits for the pandemic and Bata emergency-related spending, they have established two escrow accounts at the BEAC for emergency spending, and they have committed to adhering to good public procurement practices. Continued implementation of these measures is essential for effective spending on pandemic-and reconstruction-related needs.

“To safeguard macroeconomic stability, promote inclusive growth and fight corruption, the authorities need to accelerate reforms under the EFF-supported program. The recent progress in advancing some governance reforms is welcome, but this effort must be sustained and reforms under the EFF-supported program need to be fully implemented.

“It is important that the authorities honor their commitment to prepare and publish a list of meaningful public assets for privatization, and approve regulations in line with the anti-corruption law for an asset declarations regime for public officials and the governance of the anti-corruption commission as soon as possible. Measures to strengthen banking sector stability, such as the settlement of domestic arrears and the recapitalization of the largest bank, need to be implemented without further delay. Additional efforts to safeguard social spending and enhance social protection are needed, together with continued reforms on revenue administration and strengthening public financial management framework.”

Equatorial Guinea: Selected Economic and Financial Indicators, 2018–26

article image
Sources: Data provided by the Equatoquiriean authorities; and staff estimates and projections.

Including oil, LNG, LPG, butane, propane, and methanol.

Includes a one-time clearance of outstanding arrears through securitization in 2021.

Excluding oil revenues, and interest earned and paid.

Outstanding public debt includes domestic arrears, which amounted to 12.4 percent of GDP In 2.C2C

The SDR allocation is not included in this figure.

The local price of crude oil is the Brent and includes a quality discount.

Title page

REPUBLIC OF EQUATORIAL GUINEA

REQUEST FOR PURCHASE UNDER THE RAPID FINANCING INSTRUMENT

September 1, 2021

EXECUTIVE SUMMARY

Context. Already battered by a still unfolding COVID-19 pandemic, Equatorial Guinea was struck on March 7 by massive accidental explosions at a military compound in Bata, its largest city, that killed over 100 people and caused widespread damage to surrounding neighborhoods. These s hock s have a dvers ely imp acte d economic activity and weakened considerably the fiscal and external positions, relative to the EFF-s upported progr am approved in December 2019, creating a substantial financing gap. With the EFF-supported program off-track, as gover nance reforms have taken longer than originally envisaged, it is not feasible to effectively respond to the humanitarian crisis within the EFF framework. Bringing the program back on track would take time as the authorities continue to work on outstanding structural measures due to capacity constraints in the pandemic context and need for consensus building. S up po rt provided under the RFI, buttressed by appropriate prior actions on governance and safeguards, would create the fiscal space necessary for the authorities to meet the immediate humanitarian needs, and reinvigorate engagement under the EFF-supported program.

Request for RFI support. To address the large financing gap arising from the Bata explosions and the COVID-19 pandemic, the authorities are requesting financial assistance under the Rapid Financing Instrument (RFI) for 30 percent of quota (SDR 47.25 million). These resources are to be disbursed as direct budget support to address the urgent balance of payments need. If not addressed, the balance of payments gap would result in an immediate and severe economic disruption. The authorities are also seeking additional budget support from the international community and will accelerate the repatriation of available financial assets held abroad. Staff supports the authorities’ request for RFI assistance.

SDR Allocation. A balance of payments gap remains even after a ppr oval of the SDR allocation by the IMF Board of Governors. In August 2021, Equatorial Guinea received a n SDR allocation of $215 million. At this stage, the authorities have not decided the potential specific use of the SDR allocations resources. As in other CEMAC countries and in line with the recently concluded discussions on CEMAC’s regional policies, the possible use of SDR allocations resources will be discussed in the context of the first review under the EFF. These potential uses will need to be consistent with regional policy objectives, including rebuilding regional reserves, while taking into account any possible additional urgent pandemic-related needs and domestic financing constraints.

Policy Discussions. Fiscal policy would accommodate increased spending needs while governance safeguards would be substantially enhanced. The fiscal response to the Bata explosions includes emergency spending on the needs of the victims of the Bata explosions, and support for rehabilitation and reconstruction of housing and public infrastructure. For the COVID-19 pandemic, prevention and mitigation measures have been enhanced, including resources for vaccination, social assistance for the most vulnerable, and limited and temporary tax relief to the private sector . The authorities are committed to resuming fiscal consolidation when the crisis abates to meet the objectives of the EFF-supported program. They also remain committed to implementing their governance and anti-corruption agenda, including parliamentary approval and publication of an anti-corruption law (prior action). Fiscal safeguards are also being strengthened with the hiring of an international, independent company to promptly start the audit of the pandemic-related expenditures (prior action), and also conduct an audit of the Bata emergency and rehabilitation-related expenditures (prior action). Finally, the authorities have opened two escrow accounts at the BEAC (prior action)—one for COVID and one for Bata emergency spending—to be replenished by the existing BEAC IMF account where the RFI purchase will be made, with drawings from these three accounts subject to the BEAC’s rules, including on transparency and anti-money laundering.

Approved By

Vitaliy Kramarenko (AFR) and Andrea Schaechter (SPR)

Discussions took place via videoconference on April 19–20, 2021. The staff team comprised Mariana Colacelli (head), Ruth C. Akor, Federico Amui, Garth P. Nicholls, Brooks Evans (FAD), Jean Portier (MCM), Christian Henn (Resident Representative), and Cornelio Miko Nzang (Economist at IMF Malabo Office). Eustaquiano Ondo Bile (OED) participated in the discussions. The IMF team met with Minister of Finance, Economy and Planning Valentin Ela Maye, Bank of Central African States (BEAC) National Director Genoveva Andeme Obiang , Treasury Secretary Milagrosa Obono Angue, and other senior government officials. Jermaine Ogaja and Felicite Adjahouinou assisted in the preparation of this report.

Contents

  • BACKGROUND

  • IMPACT OF SHOCKS, OUTLOOK AND RISKS

  • POLICY DISCUSSIONS

  • ACCESS AND CAPACITY TO REPAY

  • STAFF APPRAISAL

  • TABLES

  • 1. Selected Economic and Financial Indicators, 2018–26

  • 2a. Balance of Payments, 2018–26 (Billions of CFA francs)

  • 2b. Balance of Payments, 2018–26 (Percent of GDP)

  • 3a. Summary of Central Government Financial Operations, 2018–26 (Billions of CFA francs)

  • 3b. Summary of Central Government Financial Operations, 2018–26 (Percent of GDP)

  • 4. Monetary Survey, 2018–26 (Billions of CFA francs)

  • 5. Fiscal Financing Requirements, 2019–22 (Billions of CFA francs)

  • 6. External Financing Requirements, 2019–22 (Millions of U.S. dollars)

  • 7. Indicators of Capacity to Repay the Fund, 2021–33

  • 8. Schedule of Purchases and Timing of Reviews Under the Extended Arrangement, 2019–22

  • ANNEXES

  • I. Methodology for Quantifying the Economic Impact of the Bata Explosions

  • II. Debt Sustainability Analysis

  • APPENDIX

  • Appendix. Letter of Intent

  • Collapse
  • Expand
Cover IMF Staff Country Reports
Republic of Equatorial Guinea: Request for Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2021: Issue 219
Publisher:
International Monetary Fund
ISBN:
9781513595849
ISSN:
1934-7685
Pages:
56
DOI:
https://doi.org/10.5089/9781513595849.002