Republic of Equatorial Guinea: 2022 Article IV Consultation—Press Release; Staff Report; And Statement By The Executive Director for Republic of Equatorial Guinea
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International Monetary Fund
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Publication Date:
03 Aug 2022
eISBN:
9798400216718
ISBN:
9798400216718
Language:
English
Keywords:
asset declaration regime; anti-corruption framework; government website; government deposit; government plan; Arrears; Energy subsidies
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1. Equatorial Guinea’s oil-dependent economy is slowly emerging from the ravages of the COVID-19 pandemic and Bata explosions, buoyed by higher oil prices, but substantial challenges remain:

Abstract

1. Equatorial Guinea’s oil-dependent economy is slowly emerging from the ravages of the COVID-19 pandemic and Bata explosions, buoyed by higher oil prices, but substantial challenges remain:

Context

1. Equatorial Guinea’s oil-dependent economy is slowly emerging from the ravages of the COVID-19 pandemic and Bata explosions, buoyed by higher oil prices, but substantial challenges remain:

  • The pandemic has been brought under control by an aggressive containment effort and an early and still-ongoing national vaccination program.1 Domestic fiscal measures, along with regional measures, contained the economic fallout2 The recent relaxation of containment measures is helping boost economic activity and non-oil revenues, and higher international oil prices are boosting government revenues and export earnings.3

  • Despite this respite, the hydrocarbon sector is in decline (Text Figure 1) and substantial macroeconomic challenges remain—in fact, fiscal and external sustainability are presently predicated on the high oil prices (rather than the acceleration of reforms) creating significant vulnerabilities in the face of a continued decline in real GDP, weakening of the reserve position, and falling living standards.

2. Implementation of the three-year Fund-supported program, approved by the Board in December 2019, has fallen below expectations. No reviews have been completed yet as not enough progress has been made in implementing structural measures. That said, the authorities have continued to implement some key macro-critical governance reforms with mixed results. There has also been some progress on implementing policy advice provided at the time of the 2016 Article IV Consultation (Annex I).

3. Presidential elections are scheduled to take place in 2023, when Mr. Obiang could stand as a candidate one last time.4 Parliamentary and municipal elections are scheduled to take place in 2022. An electoral quota—of at least 35 percent of female candidates—was introduced by the governing party for the first time.

Recent Developments, Outlook, and Risks

4. Despite the recent surge in oil prices, real GDP continued to decline through 2021, and a sharp rise in food prices has compounded an already challenging macroeconomic and social situation.

  • GDP is estimated to have declined by 3.2 percent in 2021—the seventh consecutive year of decline—reflecting mainly a continued decline in hydrocarbon output.

  • Non-hydrocarbon GDP is estimated to have increased by 1.6 percent in 2021, as the authorities gradually eased pandemic containment measures in line with a deceleration of COVID cases.

  • Hydrocarbon production declined by 7.3 percent in 2021, as an incident in a key gas export terminal shut down the facility for six weeks from September 2021.

  • Inflation rose to 3.9 percent (year-on-year) in March 2022, up from 2.9 percent in December 2021 (Text Figure 2). All subgroups in the CPI basket registered price increases, led by food (5.8 percent) and transport (5.2 percent).

  • The non-hydrocarbon primary fiscal balance (NHPB) is estimated to have improved by 2.4 percentage points of GDP in 2021 relative to 2020, led by a decline in capital spending and purchases of goods and services (Text Figure 3).

  • Equatorial Guinea’s net foreign assets (NFA) at BEAC increased but remained negative through end-December 2021—the twenty-fifth consecutive month of negative NFA—even when the government accumulated deposits at BEAC in the wake of higher hydrocarbon export earnings. Reserve accumulation was supported by the 2021 RFI and SDR allocation resources. NFA at BEAC turned positive in January 2022 for the first time since September 2019.

  • Urban poverty increased during the pandemic by about 8 percentage points (to an estimated 44 percent of the population) in H2 2020.

Text Figure 1.
Text Figure 1.

Hydrocarbon Production Has Been Steadily Declining Since the Late 2000s

(Barrels per day)

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Sources: Equatoguinean authorities and IMF staff calculations.
Text Figure 2.
Text Figure 2.

Inflation is Picking Up Again, With Significant Spikes in Food Inflation (Including Bread) Since February

(Percent, year-on-year)

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Sources: Equatoguinean authorities and IMF staff calculations.
Text Figure 3a.
Text Figure 3a.

Capital Spending Decreased Substantially to 2 Percent of GDP in 2021, Accounting for 17 Percent of Fiscal Spending

(Fiscal spending by sector, share in total spending, percent)

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

CE – CompensServicesemployees; GS – Goods and Services; ST – Subsidies and Transfers
Text Figure 3b.
Text Figure 3b.

Capital Spending Decreased Substantially to 2 Percent of GDP in 2021, Accounting for 17 Percent of Fiscal Spending Spending, 2016–21

(Percent of total)

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Sources: Equatoguinean authorities and IMF staff calculations.

5. The current account deficit is estimated to have narrowed modestly in 2021 to 3.4 percent of GDP, mainly due to a rise in hydrocarbon export earnings. An improved surplus on the goods trade balance more than offset higher net outflows on the income balance. The financial account recorded net inflows of 4.9 percent of GDP in 2021 (after recording net outflows of 3.2 percent in 2020) supported by the SDR allocation and short-term capital inflows, while net foreign direct investment inflows remained stable. The 2021 external position is assessed as substantially weaker than medium-term fundamentals and desirable policies (Annex II).

Text Table 1.

The Banking Sector Remains Weak

(Financial Soundness Indicators, 2017–21, Percent)

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Source: IMF Financial Soundness Indicators; Banking Commission of Central Africa (COBAC).

The reduction in the regulatory capital in 2019 results from the implementation of Basel II norms at end-2019.

6. The banking sector has been weighed down by high non-performing loans (NPLs), undercapitalization, and low liquidity at some banks. High NPLs and low coverage ratio are mainly driven by government arrears with construction firms (for which a provisioning is not compulsory). Much of the NPLs are concentrated in the largest bank, in which the government acquired a majority stake in 2020. Following COBAC’s alignment of capital definitions with the Basel II framework at end-2019, the banking sector is deeply undercapitalized (Text Table 1). The aggregate short-term liquidity ratio remains above the prudential minimum, although deposits continue to decrease.

7. Despite the legacy of the pandemic, near-term growth has improved considerably. In 2022, GDP is projected to grow by about 5.8 percent due to base effects from the lower-than-expected gas production in 2021, and the start of Bata reconstruction (following the March 2021 accidental explosions). Inflation is projected to rise to 6 percent in 2022, driven by the pass-through from higher international oil and food prices, owing to global recovery from the pandemic and supply shocks caused by Russia’s invasion of Ukraine. Increased fiscal spending for the Bata reconstruction, support to the banking system, and higher other spending from the oil price increase would lower the 2022 NHPB by 4.6 percentage points of non-hydrocarbon GDP relative to 2021. That said, owing to higher hydrocarbon revenues, the overall fiscal balance is projected to record a surplus of 3.7 percent of GDP (1.1 percentage point higher than in 2021). Higher hydrocarbon export earnings are also expected to further increase the goods trade balance and reduce the current account deficit in 2022 (to 1.6 percent of GDP), while higher imports (from pent-up demand) and higher net outflows on the income balance (due to profit transfers abroad) provide a partial offset. Relative to end-2021, NFA at BEAC at end-2022 is projected to increase but remain negative.

8. Real GDP is projected to decline over the next five years on falling hydrocarbon output and a stalled structural reform agenda.

  • Hydrocarbon output is expected to fall as major fields mature, and investments in new field exploration and development slow—partly due to a shift in global sentiment against hydrocarbons.

  • Against authorities’ development plan, a continued slow pace of policy implementation and reforms will stymie growth and diversification—including due to subdued business confidence, weak governance, and a weak banking sector. Non-hydrocarbon growth would remain sluggish and living standards would fall.

  • In light of reduced access to external sources of financing and tight domestic liquidity conditions, deficit financing would be limited to the use of available government deposits, further limiting room for capital spending. A forced fiscal consolidation (due to reduced financing) would delay much needed investment, including for maintenance, and likely adversely impact priority spending (including water and sanitation).

  • The projected drawdown of government deposits at BEAC would reduce the country’s contribution to the NFA and Equatorial Guinea’s access to the reserve pool over the medium term.

9. The balance of risks to the outlook is titled to the downside (Annex III). On the upside, a further sustained increase in hydrocarbon prices would further boost export earnings, improve fiscal balances, and the NFA; while stronger reform efforts would help reverse the medium-term decline in real GDP. On the negative side, a further sustained surge in international food and fertilizer prices would increase domestic inflation more, negatively impacting food security of already vulnerable segments of the population, while raising the prospects of social tension. A resurgence of the pandemic could have a substantial adverse impact on non-hydrocarbon growth and fiscal revenue. Lower oil prices would weaken fiscal and external stability. A spike in marine piracy incidents in the Gulf of Guinea, and any failure to attract private investment for new gas fields, would result in a faster decline in hydrocarbon output (Annex IV). A continued worsening of banking sector stability indicators would hinder investment sentiment and growth. Further delays in addressing governance and corruption vulnerabilities, coupled with capacity constraints, would delay fiscal and structural reforms, and may result in the squandering of hydrocarbon revenues.

10. Authorities’ Views. The authorities broadly agreed with staff’s assessment of the outlook and risks. They envision a recovery in near-term growth, but appreciated the need to move ahead with structural reforms to diversify the economy and raise non-hydrocarbon growth over the medium term. They view higher inflation—driven mainly by imported food prices—as a key risk threatening food security, and they have also focused efforts to protect the Gulf of Guinea and hydrocarbon production from marine piracy risks.

Policy Discussions

Policies need to balance short-term urgencies—including to support food security and the banking system—with long-lasting overarching reforms to ensure macroeconomic stability, improved social outcomes, and strengthened governance and transparency, delivering sustainable and inclusive economic growth.

A. Fiscal Policy to Maintain Sustainability while Supporting Inclusive Growth

Short Term

11. The 2022 budget appropriately centers on stabilizing the economy—with continued support for the banking system, vulnerable population, repayment of domestic arrears, and Bata rehabilitation. The NHPB is projected to deteriorate to about -19.5 percent of non-hydrocarbon GDP in 2022—despite improved non-hydrocarbon revenues and tax administration. A fuel subsidy reform was implemented in March (Box 1) generating savings of 0.1 percent of GDP in 2022—representing a step in the right direction after fixed retail fuel prices for the past fifteen years. The authorities plan to provide support to the banking system (see paragraphs 21, 22), as well as continue the rehabilitation of critical Bata infrastructure. Absent these two one-off measures and the impact on spending of higher oil prices, the NHPB (which includes higher resources to enhance the social safety net) would remain stable in 2022 relative to 2021, amounting to a neutral fiscal stance. The authorities have initiated their plan for settling audited domestic arrears, financed by 90 percent of the 2021 SDR allocation and by government bonds. They also plan to start repaying BEAC statutory advances in 2022.

12. Measures are needed to rebuild macroeconomic buffers and provide temporary relief from higher food prices. Part of the revenue windfall from higher oil prices should be used to rebuild sufficient buffers by accumulating deposits at BEAC (which will support foreign reserve accumulation), and/or repaying domestic arrears. On the spending side, capital expenditures should prioritize water and sanitation for the poor, and the reconstruction of Bata infrastructure. To protect food security for the most vulnerable population, temporary tax, or temporary spending measures—such as the subsidization of basic food items—should be considered.

13. Authorities’ Views. The authorities consider that oil prices may not remain high for long and therefore plan to use part of the hydrocarbon revenue windfall to rebuild macroeconomic buffers and protect the economy from future adverse shocks. In addition, in the short term, they are taking steps to protect the most vulnerable population from the increase in food prices, to support the banking system—including via the repayment of domestic arrears—and to rebuild critical Bata infrastructure after the explosions from March 2021. The authorities consider that the main short-term priority is to mitigate the food price increase, given the social implications for food security and malnutrition. They highlighted ongoing discussions with food distributors and supermarkets to help lower food costs that disproportionally affect low-income households (e.g., wheat, eggs, etc.) while protecting small vendors. Meanwhile, the authorities indicated that they are advancing work on related medium-term goals including boosting domestic food production and an expanded social safety net.

Medium Term

14. Over the medium term, fiscal policy should focus on maintaining sustainability, while promoting inclusive growth. Hydrocarbon production is in secular decline. As a result, policy adjustments are needed to maintain fiscal sustainability whilst stimulating the non-hydrocarbon sector and pursuing inclusive growth (Annex V). The authorities should strengthen adherence to their fiscal policy framework that targets a reduction in the non-hydrocarbon primary balance. Raising non-hydrocarbon revenues and efficiency in spending are key (Annex VI, VII, and Text Figure 4). Specific measures include:

  • Spending priorities: Strengthening PFM to improve public expenditure monitoring and tracking to improve accountability; implementing a more comprehensive reform for fuel subsidies, ultimately moving to an automatic pricing mechanism with price smoothing rules, while protecting low-income households with targeted programs (Box 1); tackling underperformance of SOEs and reducing transfers to the gas company and other public entities; increasing spending efficiency prioritizing health and education to boost human capital; and strengthening the public procurement framework, including by regularly publishing beneficial ownership information.

  • Revenue priorities: Improve revenue collection, including from hydrocarbon, income tax (particularly from corporates), customs, and excise taxes; ensure a strong and rapid implementation of the new electronic system to collect VAT; implement measures to fully roll out the customs IT reform to posts across the country and ensure that the posts have adequate power and connectivity infrastructure to adopt the new system; revamp the organizational and functional structures of tax and customs offices; strengthen core functions and governance arrangement and create a basic IT system in the tax administration to reinforce collection efforts; and compile and publish an inventory of tax exemptions and prepare a plan for phasing them out.

Text Figure 4.
Text Figure 4.

Public Education Infrastructure is Below Comparators, and Access to Basic Drinking Water Lags Sub-Saharan Africa

(Access to infrastructure, 2019)

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Sources: IMF staff calculations; FAD Template for Investment and Efficiency (TIE); data from IMF, World Bank, and others.Note: LHS chart shows indices based on the following specific series: Public education infrastructure index is based on secondary teachers per 1,000 persons; Electricity production per capita index is based on thousands of kWh per person, per year; and public health infrastructure index is based on hospital beds per 1,000 persons. RHS chart shows the percentage of people with access to basic drinking water services or better.

15. Authorities’ Views. The authorities agreed with staff recommendations on the medium-term fiscal strategy. The authorities consider that hydrocarbon production is in secular decline and emphasized the need to diversify fiscal revenue sources. They noted that non-hydrocarbon revenue has not performed in line with expectations in recent years, partly due to the impact of the pandemic, and are adopting measures to increase revenue collection from VAT, customs, and other sources. The authorities stressed their commitment to maintaining fiscal sustainability by reducing the non-hydrocarbon primary deficit. They acknowledged that, even after the reform, fuel subsidies remain high (crowding out priority spending) and that it would be useful to have a strengthened social safety net and reduce untargeted fuel subsidies. They noted that they have a system in place to better track capital expenditures and are working to improve monitoring of current expenditure. They agree with the need to improve the efficiency of public spending and strengthening public procurement and to this end they noted that they recently created a procurement committee under the office of the presidency.

16. Public debt management needs strengthening. Equatorial Guinea’s public debt is assessed to be sustainable over the medium term, but subject to substantial risks—namely the volatility of international oil prices and the authorities’ commitment to reforms (Annex V). Meanwhile, the authorities are in the process of settling audited domestic arrears with construction companies (about CFAF 650 billion or 7 percent of GDP) in a two-part operation starting in April 2022. On external arrears, the authorities are in good-faith discussions with Belgium regarding a payment schedule, and they are advancing talks with Spain, with no reports of arrears with other external creditors. The authorities should press ahead with settling arrears and strengthening debt management, with the following priorities:

  • Conclude the first part of the domestic arrears clearance at the earliest, to help strengthen the banking sector and support non-hydrocarbon sector recovery, and establish a timeline to execute the second part of this clearance. For any new domestic arrears that could have accumulated since the last audit, before settlements are made, launch a robust external independent audit (by end-2022), and verify them.

  • Settle external arrears in line with agreements.

  • Advance the implementation of a multi-annual expenditure tracking and control system, and a new debt management and financial analysis system, to prevent the emergence of new arrears and for monitoring the current stock.

17. Authorities’ Views. The authorities remain committed to maintaining fiscal discipline over the medium term to preserve debt sustainability. They noted that progress with the clearance of domestic arrears has been slow over 2020–21, partly due to the pandemic and Bata emergency, but highlighted recent progress towards clearing a portion of arrears with cash payments and the ongoing hiring process of a broker to securitize the remaining amount. They indicated that the new debt management system—expected to be adopted by end-2022—will allow them to keep track of arrears on a continuous basis.

B. Improving Social Outcomes and Protecting Food Security

18. The authorities reacted swiftly to mitigate the social and health impact from the pandemic and Bata explosions, and are working on enhancing food security. To mitigate the impact from the pandemic, the authorities delivered targeted assistance to a limited share of the vulnerable population in the form of basic nutrients, water, and hygiene supplies. The authorities also distributed cash and other assistance to families affected by the Bata explosions, as well as some mobile payments. Pandemic- and Bata-related spending amounted to 0.4 percent of GDP in 2021. During the pandemic the authorities increased spending on the healthcare system (e.g., equipment and facilities). The Ministry of Health developed the “Distritos Sanitarios” health program, seeking to partner closely with local communities to increase access to care. Despite these measures, social welfare decreased during the pandemic. To mitigate the recent hike in the local price of bread and other basic food stuff, the authorities suspended some customs fees and plan to restructure the operations of the port to reduce costs, while considering targeted subsidies.

19. Social expenditure requires a significant overhaul. There is a crucial need to invest in basic healthcare, education, and sanitation to strengthen human capital and improve social outcomes. Addressing food security and social protection are also key. The authorities would benefit from prioritizing the following:

  • While a Social Protection Law has been drafted, there is a need for a social protection strategy with clear objectives, measures, timelines, and financing, within a streamlined administrative structure. The strategy would include the development of a single beneficiary registry with evidence-based criteria for social assistance—based on social welfare. In the meantime, initiatives led by international institutions in coordination with the government and NGOs, such as the Bata mobile cash transfer initiative, should be supported (Annex VIII).

  • To provide better access to healthcare across the country, replicating the Baney “Distrito Sanitario” model could be considered.

  • To address immediate food security needs, the provision of targeted support benefiting vulnerable households for a limited time should be considered—including temporary subsidization of basic food items or temporary reduction or suspension of their import taxes—in line with international good practice (Annex IX). Domestic food production over the medium term should be supported.

  • Importantly, to support good governance, efforts must be made to improve the transparency of spending plans, their execution, and outcomes, by improving the collection and reporting of social spending data that could be easily traced in the fiscal outturn.

20. Authorities’ Views. The authorities highlighted their ongoing work to improve social outcomes and protect food security. Regarding their strategy, they noted that social ministries have improved coordination among themselves, including by sharing information on social spending and their medium-term plans. They highlighted ongoing work on results-based budgeting for health, sustainable financing, and more efficient spending. The authorities noted their plans to expand the social beneficiary registry with ongoing support from UNICEF, and assistance from international financial institutions to improve progressive spending and taxation. They highlighted recent measures to protect food security, including containing food costs that disproportionally affect low-income households and ongoing work to boost domestic food production.

C. Strengthening the Banking Sector and Financial Inclusion

21. The banking system remains weak and prompt measures are needed to strengthen its soundness. Longstanding vulnerabilities in the banking sector were further aggravated by the pandemic. A key pillar of the government plan for enhancing banking sector soundness is the clearance of audited government domestic arrears, as it is expected that most banks’ liquidity and capital ratios would fulfill regulatory limits once it is completed. In addition, COBAC is working with the banking sector to resolve a host of deficiencies, but progress is slow.

22. A well-coordinated set of measures would help reduce NPLs, strengthen banking sector stability, and promote financial inclusion.

  • The authorities’ immediate priority is to advance the hiring of a broker to assist with the timely completion of the clearance of audited domestic arrears. To strengthen NPL resolution, the authorities should enhance judiciary capacity and implement new mechanisms to resolve commercial and credit disputes, drawing on the experience of other countries in the region working to set up specialized commercial courts.

  • Ongoing work to strengthen the financial situation of state-owned systemic banks should be swiftly completed—while minimizing the fiscal cost and maintaining financial stability. Work with COBAC should be advanced so that any institution with capital shortfalls submits a credible recapitalization and/or restructuring plan to the supervisor. To strengthen the governance and transparency of state-owned banks, legislation should be adopted (consistent with regional regulation) to ensure that procedures are in line with international good practice. A shareholding management framework for state-owned banks should be pursued, to help ensure that state-owned banks operate on commercial terms and a sound balance is found between management independence and accountability. The financial sector unit of the Ministry of Finance could be strengthened to enhance the monitoring of the financial sector in close cooperation with the supervisor, including on issues of regulatory compliance and quality of financial sector indicators.

  • Following the adoption of the regional financial inclusion strategy, the authorities have started developing the national financial inclusion strategy with World Bank TA. To enhance financial access and inclusion, work should be advanced, including with BEAC, to develop and promote mobile payments, accompanied by adequate oversight.

23. Authorities’ Views. To help strengthen the banking system, the authorities agree with the importance of completing the clearance of audited domestic arrears in the coming months. To enhance the positive boost from this operation to the financial sector and the economy, they highlighted their commitment to regularly update the public, banks, and firms on transaction progress. They stressed their determination to restore financial sector soundness and regulatory compliance in cooperation with regional authorities. In this regard, the authorities noted their commitment to swiftly implement a strategic plan to deal with weak banks and nonperforming loans while minimizing any immediate or future fiscal costs. To minimize such costs, the authorities highlighted their support for all legal actions required to maximize recoveries on nonperforming loans. To strengthen the governance of state-owned banks, they plan to establish a shareholding management framework over the next twelve months, with Fund technical assistance. As a first step towards establishing a specialized commercial court, they noted their plan to pass relevant legislation by end-2022. They highlighted their plans to incentivize the adoption of mobile payments to make it a central and affordable instrument of payments.

D. Improving Governance and Transparency and Fighting Corruption

24. Given continuing severe governance and corruption vulnerabilities, the authorities need to step up the pace of macro-critical governance reforms (Annex X). In 2019, the authorities published a Governance Diagnostic Report prepared by Fund staff, and an Action Plan for addressing governance weaknesses, increasing transparency, and fighting corruption.5 The 2019 Governance Diagnostic Report identified several governance, transparency and potential corruption challenges, comprising: (i) governance weaknesses in the area of public finance management, on investment spending; financial oversight; public procurement and transparency; (ii) significant challenges on the rule of law, notably regarding implementation, transparency, and enforcement of laws; (iii) weak overall effectiveness of the existing legal and institutional pillars of the anti-money laundering (AML) and anti-corruption systems; and (iv) governance challenges affecting market regulation and the business climate. Some of the proposed reform measures were included as structural reforms under the 2019 EFF, with no reviews completed. In 2021, as part of the RFI request, the authorities made additional/recalibrated commitments to implement several macro-critical governance reforms. They have started implementing the anti-corruption framework and enhanced revenue administration (Table 1), but these efforts need to be accelerated to secure gains.

25. Enhanced governance, transparency and anti-corruption frameworks need to be prioritized as they help maximize gains from all macroeconomic reforms. In this context, the authorities should:

  • Issue regulations, and asset and interest declaration forms consistent with the anti-corruption law of 2021, and international good practices on asset declaration regimes.6 The asset declarations of senior public officials should be published on a government website. In accordance with the anti-corruption law, all by-laws needed to implement the law should be published.

  • Press ahead with pandemic and Bata spending governance measures. The audits for COVID-19 pandemic and Bata rehabilitation and recovery spending, should be completed and published. In addition, all COVID-19 and Bata rehabilitation public procurement contracts (awarded after the issuance of the beneficial ownership information regulation from December 2021), and the beneficial owners of the entities that have been awarded the contracts, should be published.

  • Publish periodic reports with implementation progress of the 2019 Good Governance and Anti-Corruption Action Plan. Continuing to pursue EITI membership would bring important benefits to transparency in the extractive industry. The authorities should also seek to improve the timely publication of economic data essential for surveillance. The audits of the state-owned oil and gas companies should be completed and published.

26. Authorities’ Views. The authorities emphasized their continued commitment to improving governance, enhancing transparency, and fighting corruption as outlined in their Action Plan published in 2019. They noted that, starting in September 2022, they plan to commence publication of semi-annual reports on implementation progress of the Good Governance and Anti-Corruption Action Plan. They highlighted the recently adopted anti-corruption law, and the anticorruption commission and asset declaration regime (being implemented), as key strong efforts at fighting corruption. They noted additional efforts on transparency, good governance and fighting corruption demonstrated by the ongoing audits of COVID and Bata spending, and GEPetrol and SONAGAS companies, for all of which there are now preliminary draft reports. They noted their ongoing work on updating the EITI membership application, including with comments from the EITI secretariat, having voluntarily withdrawn their previous submission. Noting challenges due to capacity and lack of public knowledge of the issue, they highlighted further efforts to improve transparency in the area of public procurement by publishing beneficial ownership information (with new regulation published in December 2021), and ongoing work to publish more than twenty public contracts (for COVID and Bata) awarded since end-2021.

E. Boosting Non-Hydrocarbon Growth

27. Economic diversification away from hydrocarbons is key to sustained inclusive economic growth. The authorities revised and updated their Development Plan 2035, contemplating private sector-led economic diversification and environmental sustainability (Annex XI). Key initiatives implemented thus far include the establishment of a one-stop shop for investment to help improve the business environment, and the removal of the domestic partner requirement for foreign investors. Helping reduce costs for businesses, telecommunication prices were recently decreased, and a new commission to improve port operations and reduce tariffs is in place. In April 2022, the authorities published a list of state assets for privatization through outright sale or through management contracts. They have also identified the development of tourism, through improving visa accessibility and leveraging existing hotel and road networks, to contribute to inclusive growth. The authorities ratified the United Nations Framework Convention on Climate Change in 2018, and recently launched the REDD+ program (or Reducing Emissions from Deforestation and forest Degradation program, with roles for conservation, sustainable management of forests, and enhancement of forest carbon stocks). The key goal of REDD+ is to limit deforestation and forest degradation, and the first step is developing a Land Use Plan with FAO (Annex XII).

Table 1.

Overview on the Mixed Progress in the Implementation of Macro-Critical Governance Reforms and Next Steps1

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This table summarizes past IMF staff advice on governance-related reforms in the macro-critical areas of (i) anti-corruption, (ii) fiscal governance and data dissemination/transparency, (iii) regulatory framework, (iv) rule of law, and (v) AML/CFT. The recommendations are sorted by the time they were recommended. Annex X complements this table by focusing and deepening the analysis on IMF staff advice on (i) anti-corruption, (ii) rule of law, and (v) AML/CFT by presenting the implementation status by topic.

28. Boost credible efforts to ignite non-hydrocarbon growth. Full implementation of structural reforms can yield substantial growth (Annex XIII). However, to achieve maximum economic benefits, it is key that announced policy plans are perceived as credible by consumers and investors. In this regard, it would be important for the authorities to prepare an asset-sales plan based on open and transparent international tenders, to accompany the recently published list of assets for privatization—while enhancing safeguards to promote their good governance. At the same time, efforts to identify high-value liquid assets that could help fulfill financing needs should be redoubled. Further to ensure the newly privatized enterprises function efficiently, the authorities should consider strengthening market regulations. To benefit from the AfCFTA agreement signed in 2018, efforts should be scaled up to improve the business environment, including by establishing an investment promotion agency, and improving external competitiveness by strengthening governance, the rule of law, and skills of the local workforce. In the tourism sector, identified as one of the priority sectors for diversification, a strategy should be established to kick start the industry.

29. Press ahead to build a climate-resilient economy, while carefully planning the transition away from hydrocarbons. Measures to promote investment in the hydrocarbon sector need to be assessed carefully, to focus primarily on encouraging further exploration while avoiding incentives for early shutdowns of declining wells. A transparent and credible framework is required to govern expected economic rents from preserving biodiversity and protecting local forests.

30. Authorities’ Views. The authorities broadly agreed with staff’s recommendations. They noted that supporting a dynamic private sector and the privatization strategy are key elements of the government’s strategy to leverage existing assets to develop the non-hydrocarbon sector. They emphasized ongoing efforts to improve the business environment, including the establishment of the one-stop-shop for investment, and recent initiatives to lower charges at the port and telecommunication rates. They agreed with the priority of enhancing skills of the local workforce, including through health and education. They highlighted that a strategy to promote tourism is being developed, after a pause during the pandemic, including measures to streamline visitor visa requirements. They concurred with the need for a structured and transparent framework for the sale of public assets. The authorities emphasized their plans to carefully manage the transition away from hydrocarbons, and noted their intention to secure a financial return from the environmental services provided by their protected forest and its biodiversity.

Other Issues

31. Important efforts to enhance capacity development, governance, and improve statistics are ongoing and should be stepped up. The Fund’s technical assistance (TA) is focused on supporting the authorities in enhancing governance and reducing corruption vulnerabilities. TAs to enhance financial sector soundness and strengthen macroeconomic statistics are ongoing (Annex XIV).

  • On statistics: Although the authorities are taking some steps to improve quality, coverage, and timeliness, data provision has serious shortcomings that significantly hamper surveillance. Progress has been made in the compilation and dissemination of some macro data, including CPI, fiscal, and national accounts (including a quarterly index). However, key gaps remain due to continuing capacity weaknesses. In November 2021, the authorities approved a 2022–25 national development strategy for statistics. This strategy is now being implemented, and the statistics action plan for 2022 and the different Ministries are aligned with the strategy. In this regard, several activities are currently being undertaken, including elaboration of the national framework for quality assurance, implementing statistical services in all sectoral departments, introducing other economic indicators, and phasing in a mechanism for the routine collection of statistics on public security, and vital statistics. Going forward, it would be critical to tackle the remaining gaps in the provision of economic statistics, including on the external sector and the net international investment position.

32. Authorities’ Views. The authorities expressed appreciation for Fund TA, including on the anti-corruption law and the financial sector. They requested additional TA in the areas of taxation of the hydrocarbon sector, tax policy (general tax code), PFM (annual and multi-annual spending control and monitoring and a Fiscal Safeguard Review), revenue administration (review of draft Code of Tax Procedures and support for ASYCUDA), and social protection (e.g., mobile transfers). They noted that they are reviewing their needs for debt management TA. The national strategy for the development of statistics, which is currently being implemented, is expected to guide future TA needs on statistics capacity building. They noted that implementation of TA recommendations in some areas had been slower than envisaged, mainly due to the exigencies of the pandemic and the Bata emergencies, and highlighted that this should improve going forward as conditions normalize.

33. Safeguards Assessment. The 2022 update safeguards assessment found that BEAC maintained strong governance arrangements following legal reforms in 2017. BEAC also completed its multi-year initiative in 2019 to transition to International Financial Reporting Standards, strengthening its financial reporting practices. The external audit arrangements continue to be robust. Nonetheless, the internal audit mechanism faces capacity constraints and is not yet fully aligned to international practices. BEAC also needs to strengthen its risk management and cyber resilience, and develop business continuity and disaster recovery plans.

Staff Appraisal

34. Equatorial Guinea’s economy is slowly emerging from the ravages of the COVID-19 pandemic and Bata explosions, buoyed by higher oil prices, but substantial challenges remain. The relaxation of pandemic containment measures and higher international oil prices are helping boost economic activity, government revenues, and export earnings. But hydrocarbon output remains in secular decline, and combined with a stalled structural reform agenda, governance and corruption concerns, and a weak business environment, will drive a fall in output and living standards. In the near term, surging food prices have increased the risk of food insecurity for a substantial proportion of the population. The risks to the outlook are titled to the downside, and include a further sustained surge in international food prices, a resurgence of pandemic variants, a spike in marine piracy incidents, lower oil prices, further delays in addressing governance and corruption vulnerabilities, and a worsening of banking sector stability indicators. The external position is assessed as substantially weaker than the level implied by medium-term fundamentals and desirable policies.

35. Measures to protect food security, and rebuild macroeconomic buffers are near-term priorities. The authorities’ suspension of some fees at the customs and proposed reorganization of port operations, to reduce costs, in the wake of the recent surge in prices of basic imported food items are steps in the right direction. However, more targeted temporary support is needed, such as subsidization of basic food items that the poor consume, in the absence of support from a national social safety net. Attention should also be given to increasing domestic food production. At the same time, the authorities should use the important opportunity from the ongoing surge in international oil prices to rebuild sufficient macroeconomic buffers, including via the accumulation of foreign reserves.

36. Fiscal policy should focus on maintaining sustainability, while promoting inclusive growth over the medium term. Volatile hydrocarbon prices and a secular decline in production make it important to adopt measures to boost non-hydrocarbon revenues and enhance public spending efficiency to protect fiscal sustainability. Resource reallocation and efficiency gains should address the crucial need to invest in basic healthcare, education, and sanitation to strengthen human capital and improve social outcomes. In addition, a well-functioning social protection system with clear objectives is needed, supported by a single beneficiary registry with evidence-based criteria for social assistance. To ensure good governance in these initiatives, efforts must be made to improve the transparency of spending plans, their execution, and outcomes, by taking concrete measures to enhance the collection and reporting of social spending data.

37. Longstanding vulnerabilities in the banking sector, further aggravated by the pandemic, need to be promptly addressed. The authorities need to accelerate their plan to clear domestic arrears, and work with COBAC including to have any institution with capital shortfalls submit a credible recapitalization and/or restructuring plan. Additionally, measures are needed to maximize recoveries on nonperforming loans such as new mechanisms to resolve commercial and credit disputes. Beyond this, legislation to strengthen the governance and transparency of state-owned banks should be adopted to promote good practices. Development of mobile payments, which could enhance financial access and inclusion, should be promoted, and accompanied by adequate oversight.

38. A concerted effort is needed to tackle continuing and severe governance and corruption vulnerabilities to secure national development gains. The authorities need to press ahead with measures to improve governance, enhance transparency and fight corruption as detailed in their Action Plan. The promptness, success, and quality of the aforementioned macro-critical governance reforms would determine the dividends from the rest of the structural reforms, including improvement in the business environment, and reduction of NPLs in the banking system. The commissioning of audits for COVID-19 pandemic and Bata rehabilitation and recovery spending, and the audits of the state-owned oil and gas companies, are steps in the right direction—and prompt completion and publication of the audits is needed to deliver full gains. The authorities should commence publication of periodic implementation progress reports of the 2019 Good Governance and Anti-Corruption Action Plan. The COVID-19 and Bata rehabilitation public procurement contracts, and the beneficial owners of the entities that have been awarded the contracts, should be published in line with the related regulation from December 2021. In addition, the authorities should improve the timely publication of economic data essential for surveillance. Efforts to put in place the asset declaration regime for senior public officials are welcome, and should be credibly implemented—including the publication of the declarations—to further advance the government’s anti-corruption framework.

39. Advancing structural reforms is key for economic diversification and sustainable inclusive growth. The identification of public assets for privatization and ongoing measures to strengthen governance of state enterprises are welcome, and a swift preparation of an asset-sales plan is needed—based on open and transparent international tenders. To facilitate diversification, ongoing work on leveraging existing public infrastructure to stimulate new economic activities, such as making the Bata port a trans-shipment hub for Central African countries, should be stepped up. The authorities should take concrete actions to stimulate the tourism industry by addressing existing hurdles, including access to visitor visas. Staff welcomes the authorities’ commitment to building a climate resilient economy. Stepped up structural reforms in the coming years would increase productivity and export competitiveness, including from investment in human capital and improved social outcomes. In addition to supporting diversification, fulfilling social needs, and rebuilding macroeconomic buffers, these priorities will reduce external imbalances.

40. It is proposed that the next Article IV consultation with Equatorial Guinea take place in accordance with the Executive Board decision on consultation cycles for members with Fund Arrangements.

Equatorial Guinea: 2022 Fuel Subsidy Reform1

Equatorial Guinea’s annual fiscal cost in fuel subsidies has reached up to 1 percent of GDP since 2009, due to relatively low regulated domestic retail fuel prices. The 2022 fuel subsidy reform is a step in the right direction and is expected to generate small savings of about 0.1 percent of GDP in 2022. The reform is designed to safeguard the most vulnerable population by leaving kerosene prices unchanged. Going forward, further measures can be considered, starting with building a robust social safety net that would help more efficiently mitigate the impact of higher fuel prices on the most vulnerable. In a context of higher-than-previously-anticipated oil prices, the authorities could develop a more comprehensive reform plan, ultimately moving to an automatic pricing mechanism with price smoothing rules. Clearly communicating the benefits of a fuel subsidy reform to the public would help build public support.

Government spending on fuel subsidies has ranged from 0.2 to 1.0 percent of GDP since 2009. The regulated retail fuel prices have been fixed since early 2007. Over the past decade, the government faced a significant subsidy bill as market prices remained above regulated prices, reaching a peak of 1 percent of GDP in 2011–12 when the Brent crude oil averaged $110 per barrel (Figure 1). Following the decline in crude prices, subsidies fell through 2016 but rebounded starting in 2017. In 2021, fuel subsidies amounted to 0.5 percent of GDP, bouncing back from 2020, with further increases expected in 2022.

Figure 1.
Figure 1.

EG Fuel Subsidy and Oil Prices

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Sources: Equatoguinean authorities, IMF, Global Petrol Prices and EIA

Retail fuel prices in Equatorial Guinea are generally lower than in other countries in the region (Figure 2). At half the price than the average in the rest of CEMAC, kerosene shows the largest gap, but the differences are also relevant for gasoline and diesel oil. Against this backdrop, EG has faced considerably larger subsidy bills than other CEMAC countries for these fuels. For example, in 2019, the subsidy bill in EG amounted to 0.5 percent of GDP compared to less than 0.05 percent for other countries in CEMAC that had subsidies for these three fuels. Importantly, the price difference has reportedly led to cross-border fuel smuggling, an issue that would be largely resolved by the reform as it prohibits gas stations to deliver to fuel containers (only to vehicle gas tanks). Moreover, under the relatively high projected 2022 oil price of $108, the increase in regulated retail fuel prices is expected to generate small savings (of 0.1 percent of GDP in 2022) and contain the projected increase in the subsidy bill to 0.7 percent of GDP in 2022.2

Figure 2.
Figure 2.

Fuel Prices in CEMAC

(U.S. dollar per liter)

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Sources: Equatoguinean authorities, IMF, Global Petrol Prices and EIA

The anticipated effect of regulated price increases on inflation is small. Given the small weight of fuels in the consumption basket, the price hikes are expected to have a first-round effect on consumer inflation of about 0.3 percentage points. Since businesses do not have access to subsidized fuels and face market prices, second-round effects from the reform are expected to be limited.

The reform is a step in the right direction, and additional measures to strengthen the reform design and implementation are desirable. In line with good practices and international experiences, as highlighted by the literature on fuel subsidy reforms3, additional features to consider include:

  • A clear communication strategy helps the population better understand the need for the reform and builds public support. The communication campaign should highlight the magnitude of subsidies, how these generally benefit high-income groups, and how fuel subsidies crowd out other priority spending that better serves the most vulnerable population and productive investment.

  • Although keeping kerosene prices unchanged and adjusting gasoline prices only slightly aim to limit the impact on low-income households, more price flexibility together with social assistance programs specifically targeted to the poor, would serve the same goal and eliminate the need for large fuel subsidies and its negative externalities (e.g., cross-border smuggling, climate change).

  • Phasing out ad-hoc pricing and moving to a system of automatic pricing with smoothing mechanisms would also help stabilize tax revenues from fuels by moderating the pass-through from international market fluctuations. This would help improve macro-fiscal planning as well as that of firms and households.

  • A more comprehensive reform could also consider the environmental aspects to incentivize firms and households to switch to more efficient and clean energy sources.

  • Maintaining transparency in the disclosure of information regarding government spending in fuel subsidies is beneficial for policymaking4.

  • Reconsideration of the limit set on the amount of subsidized fuel that individuals can purchase. The reform sets a relatively high limit (of 150 liters per vehicle per day) on the volume of fuels that individuals can purchase in gas stations at the subsidized price, creating inefficient arbitrage opportunities for individuals from reselling fuel to businesses. Moreover, international experience shows that these limits are very difficult to enforce in practice.

1 Prepared by Federico Amui (AFR). 2 The net subsidy bill is projected at 0.5 percent of GDP in 2022—with net subsidy representing the difference between the fuel subsidy spending and the tax revenue from fuels. The $108 oil price is in line with IMF WEO March assumptions. 3 D. Coady, I. W. H. Parry, and B. Shang. Energy Price Reform: Lessons for Policymakers. Review of Environmental Economics and Policy, volume 12, issue 2, Summer 2018, pp. 197–219; J. Rentschler, and M. Bazilian. Principles for Designing Effective Fossil Fuel Subsidy Reforms. Review of Environmental Economics and Policy, volume 11, issue 1, Winter 2017, pp. 138–155. 4 In the new fuel price structure, the subsidy is named “stabilization rate” and included as a component of taxes and levies. The “stabilization rate” captures the difference between the market price and the regulated retail price for each fuel.
Table 2.

Equatorial Guinea: Selected Economic and Financial Indicators, 2020–27

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Sources: Data provided by the Equatoguinean 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 2022.

Excluding oil revenues, and interest earned and paid.

Outstanding public debt includes domestic arrears, which amounted to 9.2 percent of GDP in 2021.

The SDR allocation is not included in this figure.

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

Table 3a.

Equatorial Guinea: Balance of Payments, 2020–271

(Billions of CFA francs, unless otherwise specified)

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Sources: Equatoguinean authorities; and staff estimates and projections.

The BOP data in this table are not compiled in accordance with the IMF’s Balance of Payments Manual,, fifth edition. The historic data have not been derived from customs’ and bank records’ data, but from estimates of BEAC. Fund staff have made ad hoc adjustments to the data.

Including private sector consumption and non-hydrocarbon sector investment imports.

Including investment income of oil companies, which includes reinvested earnings (with an offsetting entry in foreign direct investment).

The SDR allocation is reflected via a neutral double entry of higher reserves and higher long-term liabilities.

Since 2000, entries represent changes in government deposits in commercial banks abroad.

Consists only of items on the balance sheet of the BEAC (i.e., excluding government bank deposits abroad).

Table 3b.

Equatorial Guinea: Balance of Payments, 2020–271

(Percent of GDP, unless otherwise specified)

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Sources: Equatoguinean authorities; and staff estimates and projections.

The BOP data in this table are not compiled in accordance with the IMF’s Balance of Payments Manual, fifth edition. The historic data have not been derived from customs’ and bank records’ data, but from estimates of BEAC. Fund staff have made ad hoc adjustments to the data.

Including private sector consumption and non-hydrocarbon sector investment imports.

Including investment income of oil companies, which includes reinvested earnings (with an offsetting entry in foreign direct investment).

The SDR allocation is reflected via a neutral double entry of higher reserves and higher long-term liabilities

Since 2000, entries represent changes in government deposits in commercial banks abroad.

Consists only of items on the balance sheet of the BEAC (i.e., excluding government bank deposits abroad).

Table 4a.

Equatorial Guinea: Summary of Central Government Financial Operations, 2020–27

(Billions of CFA francs, unless otherwise specified)

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Sources: Data provided by the Equatoguinean authorities; and staff estimates and projections.

Includes social benefits and other transfers.

Includes a one-time clearance of outstanding arrears through securitization in 2022.

2021–2023 refers to repatriation of financial assets.

Statutory advances are assumed to be repayed in 10 years, starting in 2022. Includes payment of arrears.

Equal to the overall balance minus interest and hydrocarbon revenues.

Outstanding public debt includes domestic arrears.

The SDR allocation is reflected via an increase in government deposits with BEAC.

Table 4b.

Equatorial Guinea: Summary of Central Government Financial Operations, 2020–27

(Percent of GDP, unless otherwise specified)

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Sources: Data provided by the Equatoguinean authorities; and staff estimates and projections.

Includes social benefits and other transfers.

Includes a one-time clearance of outstanding arrears through securitization in 2022.

2021–2023 refers to repatriation of financial assets.

Statutory advances are assumed to be repayed in 10 years, starting in 2022. Includes payment of arrears.

Equal to the overall balance minus interest and hydrocarbon revenues.

The SDR allocation is reflected via an increase in government deposits with BEAC.

Table 5.

Equatorial Guinea: Monetary Survey, 2020–27

(Billions of CFA francs, unless otherwise specified; end of period)

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Source: Equatorial Guinea authorities and IMF staff estimates.

The SDR allocation is reflected via a neutral double entry of higher reserves and higher long-term liabilities, which has zero impact on reported net foreign assets.

Table 6.

Equatorial Guinea: Fiscal Financing Requirements, 2020–23

(Billion CFA francs, unless otherwise indicated)

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Source: Fund staff estimates and projections.
Table 7.

Equatorial Guinea: External Financing Requirements, 2020–23

(Millions of U.S. dollars, unless otherwise indicated)

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Source: IMF staff estimates 1 Includes the SDR allocation

Annex I. Implementation of Past IMF Advice (Article IV 2016)

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Annex II. External Sector Assessment

Overall Assessment: The external position of Equatorial Guinea in 2021 is assessed as substantially weaker than the level implied by medium-term fundamentals and desirable policies. Although the COVID crisis and Bata explosions slowed down key structural reforms and reserve accumulation targets that were planned as part of the EFF-supported program, the current assessment marks an improvement, albeit small, when compared with the last assessment in 2019 that accompanied the EFF request.

Potential Policy Responses: Structural and fiscal reforms are needed to address the external sector weakness through policies to boost non-hydrocarbon sector’s output and productivity—including reforms to the business environment, governance, financial sector, and human capital, as well as more efficient allocation of government expenditures.

A. Foreign Assets and Liabilities: Position and Trajectory

1. Background. In 2021, the net foreign assets of Equatorial Guinea at BEAC increased to an estimated -2.7 percent of GDP, improving from – 4.6 percent of GDP in 2020. Gross foreign asset stood at 0.4 percent of GDP in December 2021, despite a purchase under the 2021 RFI request, and SDR allocation (both of which increased liabilities by an equivalent amount).1 At its peak in 2012, gross reserves represented as much as 19 percent of GDP, but lower oil prices, a secular decline in hydrocarbon production and a steady draw down of government deposits at the BEAC in subsequent years have contributed to reducing gross reserves. Gross foreign liabilities with BEAC amounted to 3.1 percent of GDP, of which public debt with the IMF was 0.9 percent of GDP from RFI and EFF disbursements, and 1.8 percent of GDP from SDRs usage. More broadly, the growing dependence on foreign financing (external debt reached 30 percent of total debt in 2021) could raise the economy’s vulnerability to external shocks, especially oil price volatility, and rollover risks. On the upside, most of the existing foreign debt is owed to bilateral creditors and is secured by foreign deposits.

uA001fig01

Net Foreign Assets

(million USD)

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

2. Over the last four years, Equatorial Guinea’s BEAC net foreign liability position has increased by 2.3 percentage points of GDP, which can be attributed to a continued decline in hydrocarbon revenues, and a drawdown of government deposits at BEAC to fund spending. Staff estimates that Equatorial Guinea’s reserves need to reach EUR 655 million by 2027 to cover 3 months of prospective imports of goods and services. However, current baseline medium-term gross asset projection (at EUR 341 million) fall short of the target, despite its short-term increase—BEAC estimates the reserve position of Equatorial Guinea to have reached EUR 310 million in April 2022, following the increase in hydrocarbon revenues.

3. Assessment. Equatorial Guinea’s weak NFA performance has contributed to BEAC’s missed NFA policy assurance for end-June 2021.2 Staff assesses that the continued negative NFA position at BEAC of Equatorial Guinea exposes the economy to large short-term debt liabilities that could raise the risk to external sustainability. To contribute to regional and domestic external sustainability, and resilience, the country needs to rebuild its macroeconomic buffers.

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B. Current Account

4. Background. The current account balance (CA), which is dominated by the hydrocarbon sector, reached -3.4 of GDP in 2021 up from -4.2 percent in 2020 but still a larger deficit than -0.9 percent in 2019. The improvement, relative to 2020, was mainly driven by the rebound in hydrocarbon exports, which more than offset a surge of outflows on the income and services accounts. The COVID-19 pandemic and Bata explosions marked a break for what otherwise was a positive CA trend over 2015–19 driven by recovering hydrocarbon exports. Importantly, the non-hydrocarbon CA continued its improvement from over -26 percent of GDP in 2015 to an estimated -13 percent in 2021, driven primarily by slower nominal growth in imports in line with continuing fiscal consolidation.

uA001fig02

Current Account Decomposition

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

5. Both the ratio to GDP and level of the non-hydrocarbon CA are projected to continue to improve in the medium term, reaching -8 percent of GDP in 2027, apart from the projected deterioration in non-hydrocarbon trade balance and CA in 2022 due to Russia’s invasion of Ukraine (and higher food prices). Hydrocarbon nominal exports are projected to resume its decline in the medium term, and the total CA to be close to -7 percent of GDP by 2027.

6. Assessment. Staff assess that the external position of Equatorial Guinea in 2021 was substantially weaker than the level implied by fundamentals and desirable policies, with an EBA-Lite estimated CA gap of -5.7 percent of GDP.3

Equatorial Guinea: EBA-lite Model Estimates for 2021

(Percent of GDP)

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Additional cyclical adjustment to account for the temporary impact of the pandemic on oil trade balances and on tourism.

Cyclically adjusted, including multilateral consistency adjustments.

C. Real Exchange Rate

7. Background. Given the dominant role of hydrocarbon exports in Equatorial Guinea’s CA, its REER is tightly linked to developments in the oil price. Estimates show a steady appreciation since the decline in oil prices in 2015. Despite improving terms of trade and trade deficit towards the end of 2021, staff estimates suggest that the average REER depreciated by -4.5 percent in 2021 compared to 2020. NEER on the other hand appreciated by 1.5 percent due to the higher relative (imported) inflation.

uA001fig03

Exchange Rates and Oil price

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

8. Assessment. The real effective exchange rate is assessed as overvalued in 2021 relative to medium-term fundamentals and desirable policies—deriving this result from the EBA-Lite CA gap estimate (and an elasticity of -0.28) that suggests a REER gap (overvaluation) of 21 percent. Notably, the estimated 2021 REER gap of 21 percent is lower than the 54 percent recorded at the time of the last assessment in December 2019.

D. Capital and Financial Accounts: Flows and Policy Measures

9. Background. Along with sovereign foreign borrowing, FDIs towards hydrocarbon projects dominate Equatorial Guinea’s financial flows. FDI flows, however, are expected to decrease over the next decade as hydrocarbon resources are depleted, indicating a growing need for foreign borrowing going forward if structural reforms are not carried out to reduce the current account deficit in the medium term. Starting October 2022, companies operating in the CEMAC region (notably oil and gas firms) are obligated to (i) repatriate 35 percent of their foreign sales to a BEAC account,4 and (ii) pay foreign subcontracting firms and vendors in local currency. These measures are being implemented at the regional (CEMAC) level to support BEAC reserve accumulation target, though some firms have indicated that it may come at the cost of discouraging foreign investment.

10. Assessment. BoP financing needs are expected to remain elevated, requiring a strong commitment to structural and fiscal reforms.

Annex III. Risk Assessment Matrix1

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Annex IV. Piracy Risk in Equatorial Guinea1

1. Piracy remains an important security and economic challenge in the Gulf of Guinea (GoG) which encompasses seventeen African countries, including Equatorial Guinea (EG).2 Covering an area of 2.35 million square kilometers and linking Africa with Europe and Asia, the GoG is the most important offshore oil field in Africa accounting for two-thirds of hydrocarbon production in the region, 25 percent of Africa’s maritime traffic, and 35 percent of global petroleum reserves. GoG consists of four main islands (Sao Tome, Principe, Bioko, and Annobon) and other smaller islands. Bioko Island, the largest of the four islands, belongs to EG as well as the islands of Annobon, Corisco, Elobey Grande, and Elobey Chico. Piracy activities in GoG have evolved over the years from cargo hijacking to kidnapping for ransom. In 2020, over 95 percent of kidnapping at sea incidents globally occurred at GoG, making it the most dangerous maritime area in the world.

2. Among GoG countries, EG ranks third, after Nigeria and Cameroon, with worst conditions on the issue of piracy and armed robbery at sea (Chart 1).3 Actual and attempted piracy attacks in EG and GoG have increased over the last two decades (Chart 2). For example, in 2020, crew members kidnapped from EG-owned vessels were held hostage for up to 150 days with about $200,000 paid in ransom in one of the kidnapping incidents.4

3. Exacerbated by regional poverty, underdevelopment, and weak governance and corruption, piracy poses direct and indirect costs to Equatorial Guinea. The direct costs include financial cost of lost and stolen cargoes, ransom payments, increased insurance costs and naval and other security expenses. According to UNODC and Stable Seas, direct costs of piracy to GoG nations are estimated between $1 million and $4 million yearly, however the economic impact is estimated at $800 million. Indirect costs include discouragement of foreign investment, decrease in trade along piracy-affected shipping routes, supply chains disruptions, human costs to seafarers and foregone resources spent on counterpiracy efforts. Counterpiracy activities costs GoG governments approximately $524 million a year.5 Studies by the World Bank and UNCTAD show that piracy also causes economic losses equivalent to about 1 percent ad valorem increase in trade costs6, fosters rerouting of ships to alternative shipping routes leading to a loss in foreign investment, affects oil production and investment, and decreases resources available for economic development stemming from revenue losses7.

4. National and international economic and security coordination efforts can help contain piracy risks. Ongoing regional efforts to address maritime security in GoG countries include the Deep Blue Project in Nigeria and the Joint Force of Cameroon, EG, and Sao Tome and Principe established in 2009. In addition, regional economic development and prosperity that increase opportunities for lower income groups would help disincentivize crime in general, and piracy in particular.

uA001fig04

Piracy Incidence in the Gulf of Guinea

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Sources: International Maritime Bureau, Stable Seas, International Maritime Organization, UNODC.

Annex V. Debt Sustainability Analysis

Staff assesses Equatorial Guinea’s public debt to be sustainable over the medium term. Having peaked in 2020 at 48 percent of GDP, it is expected to follow a downward path to reach 21 percent of GDP in 2027. This projected improvement relies largely on the recovery in oil prices. Volatility of hydrocarbon prices constitutes the primary risk to the baseline, further intensified by the country’s narrow domestic creditor base and uncertainty about long-term depletion of hydrocarbon resources.1 Rebuilding buffers with the windfall from oil revenues and steadfast implementation of reform measures—including non-hydrocarbon revenue mobilization—remain essential to reduce the primary deficit and keep the public debt ratio on a firm downward trajectory and gross financing needs manageable.

A. Debt Profile

1. Public debt coverage in the DSA includes general government debt,2 70 percent of which is in local currency and held by domestic financial institutions within the CEMAC region. About thirty percent of total debt is held by multilateral and bilateral foreign creditors. On the other hand, 90 percent of the debt carried a medium to long-term maturity.

Text Table. Equatorial Guinea Public Debt

(Billions of CFA francs)

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Sources: Equatoguinean Authorities, and IMF staff estimates.

B. Recent Developments

2. Public debt and gross financing needs ratios dropped in 2021 below their pre-COVID levels. With the 2021 increase in oil prices that increased nominal GDP, both debt and GFNs ratios fell by 6 and 5 percentage points of GDP, respectively. The main reason for the decline in the debt-to-GDP ratio was the increase in nominal GDP, followed by a significant improvement in the primary balance (from -0.5 percent in 2020 to 3.5 percent in 2021).

3. The RFI purchase of CFAF 37 billion (SDR 47.25 million, 30 percent of quota) approved by the IMF Executive Board in September 2021 provided support for meeting the urgent needs stemming from the COVID-19 pandemic and Bata explosions. Staff’s estimate of the economic impact of the Bata explosions (in part using authorities’ data) suggests that direct damages and losses amount to about 2.5 percent of 2020 GDP (CFAF 145 billion), with a likely broader economic impact. In addition, public sector revenues declined in 2020 by 34 percent (CFAF 420 billion) due to COVID-related lockdown restrictions and the decline in global demand. The authorities have indicated they have, so far, used their own funds and donations to finance COVID and Bata related spending, while holding the RFI funds in designated escrow accounts at BEAC, supporting foreign reserves.

4. The recent SDR allocation is being used to settle domestic arrears. Equatorial Guinea was allocated SDR 151 million, amounting to 1.7 percent of 2021 GDP. In December 2021, the authorities drew down the proceeds of the SDR allocation and are using most of it to settle a part of their domestic arrears. The government plans to use about 90 percent of the total 2021 allocation to settle domestic arrears, with a small fraction used for reserves. The withdrawal of SDRs, made available by the BEAC with no amortization schedule, carries a low fixed interest rate of 0.5 percent.

C. Outlook

5. Equatorial Guinea expects large short-term windfalls from the rise in oil prices. The rise in 2022 oil prices (to over $100 a barrel after Russia’s invasion of Ukraine) translated into a projected increase in hydrocarbon revenues of [56 percent] relative to 2021. The impact on the fiscal balance is expected to be limited by the 38 percent increase in fiscal expenditures mainly from the reconstruction of Bata, continued support to the banking sector and the vulnerable population, and higher fuels subsidies. Staff projects the primary balance to be 3.7 percent of GDP in 2022, relative to 2.6 percent of GDP in 2021.

6. Pressure on foreign reserves in the CEMAC region is elevated due to heightened imports prices, especially food. Staff projects that the improvement in the primary balance will contribute to Equatorial Guinea’s efforts to meet its commitments to the BEAC reserve accumulation target. BEAC reserves reached EUR 2.2 billion at end-December 2021 (at 2.7 months of prospective imports of goods and services, down from 3.2 in December 2020).

7. Staff expect Equatorial Guinea’s public debt ratio to tilt towards a downward path over the medium term, in line with projected financing constraints. This baseline scenario assumes relatively strong oil prices and improved fiscal path, as spending is contained, over the medium term. After six consecutive years of negative growth averaging -6 percent during 2015 to 2021, average growth is projected to become less negative for the next five years, averaging -3 percent between 2022 to 2027.

8. The authorities plan to clear around CFAF 650 billion of domestic government arrears in 2022 through a mix of cash payment and securitization. Since the approval of the EFF program in 2019, the amount of domestic arrears has declined from CFAF 1535 billion to about CFAF 650 billion in 2022. The decline is due to an external audit that brought down the total figure to CFAF 1135 billion, of which the authorities (i) did a securitization for CFAF 290 billion and (ii) paid a portion of the remaining arrears in H2 2019, 2020, and 2021. The authorities continue to work on the arrears’ settlement transaction steps. On external arrears, the authorities report they are advancing talks with Spain and to be in good faith discussions with Belgium to agree on a schedule of payments.

9. Financing assumptions over the projection horizon do not assume new financing sources. Domestic medium-term financing (excluding arrears securitization) is carried out through domestic bond issuance, and external financing needs are projected to continue to be covered mainly through the same bilateral and multilateral lending institutions.

D. Risks to the Baseline—Stress Tests

10. The main risks to the baseline arise from the volatility of hydrocarbon prices. Despite the projected path of high oil prices, GFNs are expected to fluctuate at a level close to 6 percent of GDP over the medium term—exposing the country to significant vulnerabilities to rollover risks, and a low debt stabilization probability if oil prices drop. Results from the stress test suggests that the debt-to-GDP and GFN ratios would reach over 40 percent and close to 15 percent, respectively, if a persistent 10 percent decline in oil prices materializes relative to the baseline. The large width of the historical fan chart reflects the high historical volatility, and the macro-fiscal stress scenario indicates an increasing trend for GFN. Given the high marginal interest rate on new domestic bond issuances (reaching over 7 percent), GFN could grow at a significantly faster pace if commodity price risks materialize. This risk could be partly mitigated by the full implementation of fiscal reforms, including measures to mitigate liquidity risks by following through with the plan to privatize state assets in a structured approach over the medium term.3

11. The share of foreign currency denominated debt is projected to rise, adding to the country’s vulnerability to liquidity risks. Although total debt as a share of GDP is projected to fall over the medium term, the share of foreign currency denominated debt is projected to rise to 33 percent of total debt in 2022 and 46 percent by 2027, reflecting the country’s vulnerability to external shocks, especially from oil price fluctuations. This pattern is an outcome of the government’s stable reliance on borrowing from foreign bilateral institutions, and projected diminishing domestic borrowing given the narrower CEMAC domestic creditor base. It is also important to note that given the high share of the hydrocarbon sector in real activity in the region, a stress scenario of low oil prices would be damaging to the domestic creditor base of Equatorial Guinea and would further accelerate the rise of foreign borrowing stock. Achieving progress over the reform agenda is therefore essential to maintain a liquid foreign financing channel and expand the domestic and regional investor base. Substitution towards domestic debt and improved liquidity support to the domestic financial sector should be part of the country’s debt management strategy.

12. The high level of NPLs in the banking sector is a potential contingent liability that can increase GFN and debt over the medium term. The NPL ratio stood at about 50 percent of total bank loans, due to the large size of domestic arrears owed to the construction sector. Importantly, the planned arrears settlement is expected to inject liquidity into the banking sector and resolve a large share of outstanding NPLs. The baseline already incorporates the clearance of arrears and support for the banking system. Overall, banking sector assets stood at 17 percent of GDP in 2021, posing limited risks given the low public debt level.

13. Strong reform efforts remain necessary to mitigate fiscal slippage. In line with the expected continued projected decline in hydrocarbon revenues over the medium term, Equatorial Guinea’s GFN are expected to remain substantial, making its finances highly dependent on domestic and external creditors. Further delays in implementing the structural reform agenda could reduce the authorities’ access to financing channels on favorable terms.

Figure 1.
Figure 1.

Public DSA–Baseline Scenario

(Percent of GDP, unless otherwise indicated)

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Source: IMF staff1/ Public sector is defined as general government2/ Based on available data3/ Bond Spread over U.S. Bonds.4/ Defined as interest payments divided by debt stock at the end of previous year5/ Derived as [(r – p(1+g) – g + ae(1+ r)]/(1+g+ p+gp)) times previous period debt ratio, with r = interest rate; p = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation6/ The real interest rate contribution is derived from the denominator in footnote 6 as r – π (1 +g) and the real growth contribution as -g7/ The exchange rate contribution is derived from the numerator in footnote 6/ as ae(1+ r).8/ Includes changes in the stock of guarantees, asset changes, and interest revenues (if any). 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 2.
Figure 2.

Composition of Public Debt and Alternative Scenarios

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Source: IMF staff
Figure 3.
Figure 3.

Risk Assessment

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.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 relevant2/ 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 relevant3/ 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.Lower and upper risk-assessment benchmarks are: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 denominated debt4/ Bond Spread over U.S. Bonds, an average over the last 3 months, 14-Feb-22 through 15-May-22.5/ 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 4.
Figure 4.

Realism of Baseline Assumptions

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Source: IMF staff.1/ Plotted distribution includes program countries, percentile rank refers to all countries2/ Data cover annual obervations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 percent of GDP. Percent of sample on vertical axis.
Figure 5.
Figure 5.

Stress Tests

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Source: IMF staff\1 The lower growth scenario depicts a permanent negative shock of -2 percent to the baseline projection for growth and non-interest revenues to GDP. By contrast the other shock are temporary shocks.\2 Oil price shock assumes a persistent 10% decline in the price of oil, which impacts growth, GDP deflator, primary balance and exchange rate.

Annex VI. Long-Term Hydrocarbon Resources and Debt Sustainability in Equatorial Guinea1

1. Hydrocarbon revenues in Equatorial Guinea have passed their peak, pointing at the country’s imminent need to move towards more sustainable sources of growth. Equatorial Guinea held 1.1 billion of proven liquid hydrocarbon reserves2 and 0.26 billion barrels of oil equivalent of proven gas reserves in 2020. In the same year, hydrocarbon exports included $1.9 billion of oil and $0.8 billion of natural gas. Over the medium term, crude oil production is projected to significantly decline, allowing natural gas exports to dominate total hydrocarbon exports. Using 2021 prices ($70 barrel of crude oil and $110 barrel of oil equivalent of natural gas), the total hydrocarbon wealth of Equatorial Guinea is estimated at $105.6 billion or CFAF 60.8 trillion.

2. Incorporating information on the commercial viability of proven resources, only 75 percent would be commercially viable for production at projected medium-term prices of $70.3 Oil and gas supply curves show the effect of changes in prices on commercially available resources for production.4 Between 2015 and 2019, Equatorial Guinea achieved strong advances in lowering the cost of production, making the hydrocarbon sector more resilient to a low-price environment, and allowing a higher level of extraction to be profitable at lower prices; however, this advancement has been associated with a decline in the total size of available resources as more expensive prospects appear to have been abandoned.5

3. Comparing the shape and dynamics of supply curves across countries signals a declining risk appetite in the hydrocarbon industry, limiting prospects of long-term growth in the sector. Similar patterns to Equatorial Guinea’s experience are observed in neighboring oil-producing countries such as Gabon, Angola, and Cameroon; however, more developed oil-producing countries (such as Norway, Mexico, and Brazil) on the other hand experienced a downward shift in the supply curve that lowered the cost of production but also raised the projected magnitude of hydrocarbon reserves. This last observation suggests that, at least until early 2022, resources in the global hydrocarbon sector may be undergoing a reallocation to fewer and more developed producers; this move is likely motivated by a desire to limit risks amid global uncertainty about the future of the hydrocarbon industry.

4. Absent fiscal and structural reforms, the anticipated decline in hydrocarbon revenues carries significant negative implications for long-term debt sustainability in Equatorial Guinea. Thanks to hydrocarbon revenues, the debt level has remained relatively stable (at about 43 percent of GDP in 2021). However, under a scenario where the non-hydrocarbon revenues do not increase, as hydrocarbon reserves continue to be depleted, debt would rise to over 100 percent of GDP by 2036,6 with the GFN-to-GDP ratio reaching above 25 percent of GDP.7 The severity of the described “no-reforms scenario” suggests that, in order to maintain long-term debt sustainability, reforms to government finances would be essential over the next 15 years.

5. Accelerating growth in the non-hydrocarbon sector and raising non-hydrocarbon revenues in the medium term can reduce the risk of a costly sovereign stress event in the long term. Non-commodity revenues in Equatorial Guinea are low, averaging around 6 percent of non-hydrocarbon GDP between 2018 and 2021. On the other hand, expenditures as a percent of non-hydrocarbon GDP are relatively high at 28 percent on average between 2018 and 2021. Maintaining these values would deliver the extreme “no-reforms scenario” mentioned before. An alternative scenario (a “reform scenario”) where non-hydrocarbon revenues are increased by 5 percentage points to 11 percent of non-hydrocarbon GDP and expenditures are reduced by 5 percentage points to 23 percent of non-hydrocarbon GDP would be sufficient to maintain a similar level of debt-to-GDP ratio observed today (at 42 percent of GDP). Under this “reform scenario,” long-term GFN level would be around 6 percent of GDP.

Figure 1.
Figure 1.

Debt and GFN to GDP Ratios over Different Long-term Fiscal Adjustments

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Source: IMF staff calculations.
Figure 2.
Figure 2.
Figure 2.

Estimated Hydrocarbon Supply Curves, 2015 and 2019

(Horizontal axis in thousand barrels per day)

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Note: Shown supply curves are constructed by summing up asset level reports (i.e., fields and wells) of the size of remaining reserves that report break-even prices lower or equal to every price point. The blue solid lines represent data reported in the 2019 vintage, while the red dashed line represents the 2015 vintage. Both vintages use remaining reserves data starting year 2019 (for the 2015 vintage, the reports of 2019 remaining reserves are forecasts). Countries shown include hydrocarbon producers in the region, as well as others with similar technological needs for production (i.e., offshore fields).Source: IMF staff calculations.

Annex VII. Public Investment Program, 2008–171

During 2008–17, a strong investment push to address largely critical public infrastructure needs, resulted in an extremely large capital stock, spending inefficiencies, and possibly a considerable misallocation of resources. The authorities are now contemplating reforms to enhance productive uses of the installed capital stock, and increase the allocation of public spending to health, education, and other social sectors to improve future sustainable and equitable economic growth and outcomes.

A. A Surge in Public Investment and Capital Stock

1. During 2008–17, the government of Equatorial Guinea spent about $41 billion ($32 billion budgeted) on the acquisition of non-financial assets. This has allowed Equatorial Guinea to accumulate the highest public capital stock (relative to GDP, and also in per capita terms) among CEMAC countries, with capital spending above all AFR countries (Text Figures 1, 2 and 3).

Text Figure 1.
Text Figure 1.

Equatorial Guinea: Public Investment and Capital Stock

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Note: “Nominal” public and PPP capital stock throughout the Annex refers to the capital at “current cost” and not at historical cost, while “real” capital refers to capital stock in 2011 constant local currency prices. Finally, “2011 PPP$-adjusted” capital refers to capital stock in 2011 constant international dollars.Source: IMF staff calculations.
Text Figure 2.
Text Figure 2.

Public Capital Stock per Capita, 2019

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Note: The perpetual inventory method is used to construct capital stocks series for 170 countries. Specifically, several sources of data are used to compile a comprehensive series for public, private, and PPP investments. The investment flow data are then transformed into “real cost” (constant 2017 U.S. dollars) using purchasing power parities from the International Comparison Program (ICP). After making assumptions on depreciation rates and on the initial capital stock, based on the academic literature, the net “real cost” stocks (constant 2017 U.S. dollars) is estimated. The depreciation rates are time varying and depend on each country’s income grouping, while the initial capital stock is derived using a synthetic time series approach. The main advantage of our approach is that it relies on a unified and standardized framework making our estimates comparable across countries, while the drawback is that the estimates do not take into account detailed asset-level investment information.Source: IMF staff calculations.
Text Figure 3.
Text Figure 3.

Capital Spending 2014–19 and Current Spending 2019

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Source: IMF staff calculations.

B. Sectoral Allocation of Capital

2. Over 40 percent of total acquisition of non-financial assets was spent on infrastructure (Text Table 1). Substantial investments were made in roads (2,530 km paved, and 1,441 km graveled), electricity generation (installed 847,969 MW), social housing (10,477 build, with 7,842 awarded), public administrative buildings (90 percent of ministerial and 40 percent of autonomous entity buildings were modernized), ports (6 newly built, 3 rehabilitated) and airports (5 newly built), telecommunications infrastructure (national fiber optic network installed), promenades in Bata (15 km), Malabo (3 km) and Kogo (970 m), sports stadiums in Bata (35,700 capacity) and Malabo (15,250 capacity), the Malabo national park (87 hectares), monuments and other basic public infrastructure. The government also began construction of the Ciudad de la Paz in the administrative province of Djibloho, which in 2014 accounted for about 78 percent of the budgeted public capital spending.

Text Table 1.

Equatorial Guinea: Summary of Public Investment Program, 2008–17

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Sources: Staff Report for the Equatorial Guinea 2016 Article IV consultation, IMF Country Report No. 16/341, and the Equatoguinean authorities.

C. Efficiency of Capital Allocation

3. Despite having a public capital stock triple the size of that for SSA, its efficiency is low. Equatorial Guinea is far from the physical infrastructure frontier with inputs translating poorly into outputs as measured by the efficiency scores that lags most comparators (Text Figure 4). Meanwhile, public education infrastructure access is below all comparators, while access to basic drinking water lags SSA (Text Figure 5). To address some of these realizations in the social sector outcomes and other indicators, the authorities are now contemplating reforms to refocus future investments on health and other social sectors, and to increase spending on education and training, which should boost human capital and growth.

Text Figure 4.
Text Figure 4.

Physical Infrastructure Frontier and Efficiency Score

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Source: Making Public Investment More Efficient. International Monetary Fund, 2015.Note: Physical Infrastructure: “A physical indicator, which combines data on the volume of economic infrastructure (length of road network, electricity production, and access to water) and social infrastructure (number of secondary teachers and hospital beds). While this indicator provides a sense of the coverage of infrastructure networks and physical output of public investments, it does not fully measure the quality of the infrastructure.”
Text Figure 5.
Text Figure 5.

Measures of Infrastructure Access, 2019

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Source: IMF staff calculations.Note: LHS chart shows indices based on the following specific series: Public education infrastructure index is based on secondary teachers per 1,000 persons; Electricity production per capita index is based on thousands of kWh per person, per year; and Public health infrastructure index is based on hospital beds per 1,000 persons. RHS chart shows the percentage of people with access to basic drinking water services or better.

Annex VIII. Mobile Cash Transfers in Equatorial Guinea to Improve Social Welfare1

Following the Bata explosion of March 7, 2021, the 300 most impacted families received within months financial aid using mobile payments. This local initiative, led by UNICEF and the government in coordination with non-governmental organizations (NGOs), was highly successful but resource intensive. To replicate this at the national level, the authorities should (i) promote mobile payments and (ii) together with NGOs, provide support to international institutions that would conduct transparent and progressive transfers, possibly using innovative technologies, until an effective single register of beneficiaries is developed to better target initiatives. With the support of mobile transfers, the government shall be able to conduct initiatives to protect people in need, especially in emergency situations.

1. Financial support using mobile payments have been widely used during the pandemic. Global mobile penetration increased significantly during the pandemic. In Africa, countries scoring high on personal identification and consumption information, digital inclusion, and availability of regulated mobile payment services, such as Kenya or Uganda, were able to react fast and deliver targeted large-scale support to the poor during the pandemic. In Kenya, the Inua Jamii program reached over 1 million people since April 2020 with weekly transfers using the mobile money platform M-Pesa. In Uganda, the social assistance grant for empowerment (SAGE) initiative was activated in March 2020, targeting primarily elderly. Also, in Togo, the “Novissi” program combined satellite imaging, voting registers, and mobile phone data to target support for 57 thousand poor people out of the 100 poorest cantons. These initiatives were highly effective, since they were safe—direct, traceable, and mostly cashless—and not conditional to holding a bank account. These two features proved to be of superior importance to implement large scale initiatives in countries featuring weak public sector governance and low financial inclusion.

2. Targeted initiatives were also conducted in Equatorial Guinea, though it could be difficult to scale them up. In 2020, the Ministry of Health held a measles vaccination and COVID information campaign with the support of UNICEF; during this campaign, social workers—both banked and unbanked—as well as volunteers, were paid via Muni Dinero, a mobile payment operator with a large cashpoint network. In summer 2021, a MINASIG/UNICEF initiative financed by UNICEF USA and USAID, targeted 300 families impacted by the Bata explosions. It consisted of 3 phases (i) identification of beneficiaries, (ii) coordination with NGOs and authorities, and (iii) phone distribution and payment. In phase I, local authorities in coordination with MINASIG and NGOs collected recipient data onsite, that was confirmed and completed during further visits and phone calls. The collected data are now part of the Single Social Registry (RUS), an open database maintained by UNICEF. In phase II, MINASIG approved the project and NGOs joined and took responsibility for facilitating the process of data collection and verification in the affected area. In phase III, UNICEF, in coordination with MINASIG and support from NGOs, distributed phones and access codes to recipients that subsequently received texts and collected payments at cashpoints. The 2021 Bata initiative was successful and promising because (i) funds came safely and timely to address the emergency, and (ii) low financial inclusion but also low digital inclusion were addressed. However, phase I (recipients’ identification) was quite resource intensive, may not have targeted the most vulnerable, and could prove a major challenge if this initiative would be rolled out nationally.

3. To conduct large-scale social protection payments in the medium term, Equatorial Guinea should actively promote the conditions for safe and effective mobile-based payments. To that aim, authorities should facilitate (i) bank-telecom partnerships, and mobile payment offerings; (ii) the rapid development of a payment acceptance network, including for the payment of tax and utility bills to the government, (iii) strengthen and streamline public finance management to allow for the roll-out of safe and fast initiatives in future emergency situations, and (iv) development of adequate oversight for mobile payments, especially to protect consumers.

Figure 1.
Figure 1.

Mobile Payments in CEMAC, 2020

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Source: BEAC, FinTalk.

4. Once a basic but comprehensive Single Registry of Beneficiaries (RUB) is completed, the government will have a critical instrument of social protection. Progressive initiatives, conducted in cooperation with international institutions and NGOs, will deliver a RUB. In the circumstances of an abrupt shock that increases poverty across the country such as a pandemic, innovative approaches similar to the “Novissi” in Togo, AidTech in Lebanon, or PhilSys in the Philippines could be envisaged to better target assistance. However, if technical challenges continue to prevent those solutions, regularly replicating an improved version of the Bata initiative should be preferred—that is: identify and register beneficiaries, pay on e-wallets cashable at cashpoints and give phones to those who need one, using broad communication in advance and simple targeting criteria (e.g. exclusion of (i) formal sector employees, (ii) high phone consumption, (iii) home and car owners). Such actions would strengthen the mobile payment culture and digital inclusion, but would also give a central importance to the RUS. By setting a registration to RUB, a sub-module of the RUS centered on economic criteria, as a precondition to obtaining benefits, the beneficiaries themselves would help build the RUB and the RUS. By the same token, the government would benefit from an opportunity (i) to increase formality and the tax base, by requesting to have or get an ID and collect beneficiary information as part of the registration process, and (ii) to better target social protection over time as the RUB, and thus the RUS, become more exhaustive.

Annex IX. Considerations for Mitigating Surging Food Prices1, 2

International food and energy prices have recently risen to their highest levels in the last twenty years. Equatorial Guinea will benefit from the rise in oil prices, but it will face difficulties due to rising food prices—especially given the high proportion of imported food. The risk of food insecurity has increased, particularly for vulnerable households. This annex presents considerations for short-term revenue and expenditure policies—with limited duration—that will help mitigate rising food prices, while designing medium-term solutions.

1. The sharp rise in food prices is anticipated to rapidly increase food insecurity. Equatorial Guinea largely relies on food imports, as in many African countries. The consumer price index (based on the 2006 basket) is projected to increase to 6.0 percent in 2022 (with over half of the increase caused by rising food prices). Given that poor people (estimated at over 40 percent of the urban population) spend a much larger proportion of their income on food (food and nonalcoholic beverages already account for 48 percent of the overall 2006 CPI basket), the population is highly vulnerable to shocks. The resulting lack of food security due to difficulties in acquiring basic foods increases the risks of malnutrition and raises the prospects of social tension.

uA001fig05

Inflation is picking up again since February, with significant spikes in food (including bread) inflation

(percentage, year-on-year)

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Sources: Equatoguinean authorities and IMF staff calculations.

2. Given the weak social safety net (SSN) in Equatorial Guinea, to mitigate the impact of rising food prices in the short term, measures could include time-limited expenditure and revenue policies as recently adopted in other countries. Ideally, countries should have strong SSNs to mitigate economic impacts and protect those at the bottom of the income distribution—this requires broad national coverage of the SSN and adequate benefits for beneficiaries. However, Equatorial Guinea has a weak SSN (with minimal coverage and adequacy), there are no food subsidies, and 80 percent of food is imported (largely from Europe and Central Asia) including relatively important items for low-income households, such as wheat products, rice, meat, fish, and eggs. New IMF research based on recent information from 134 countries provides timely data on measures taken across the world to mitigate rising food prices—with highlights on good practices that Equatorial Guinea could consider, as summarized below:

  • System of vouchers, distributed to consumers who can use them to buy food in supermarkets and shops. Under this measure, supermarkets/shops are compensated by the government for the value of the vouchers. The government could estimate the fiscal cost of this measure by assuming full food price pass-through and a 50–75 percent population uptake.

  • Temporary subsides to food distributors in the country with clear sunset clauses, applied to staple foods (i.e. those consumed mainly by the poor) suffering from rising prices (such as wheat products, eggs, and meat). This measure is accompanied by the commitment of food distributors to set retail prices for these products in accordance with the government’s subsidy for the period when they have the subsidy.

  • Reduction or suspension of import taxes and customs service charges on critical food imports.

  • Temporary reduction in consumption taxes (VAT and excise duties), with clear sunset clauses, may also be implemented.

  • In addition, food imports could be coordinated together with other countries in the region, to reduce costs.

uA001fig06

Food Imports by Region, 2017–20

Citation: IMF Staff Country Reports 2022, 267; 10.5089/9798400216718.002.A001

Sources: Equatoguinean authorities and IMF staff calculations..

3. Other measures—while only bearing fruit over the medium term—should also be considered, including:

  • Enhance incentives to increase domestic production of food (and possibly fertilizer).

  • Efforts to increase the number of food importers in the country to strengthen competition in the market.

  • Strengthen the SSN system to improve the ability to promptly reach the most vulnerable. A reform strategy for SSN should address the inefficiencies of the SSN system, including the creation of a nation-wide register of beneficiaries and mainstreaming the ability to perform mobile transfers.

Annex X. Governance–Update on Anti-Corruption, Rule of Law, and AML/CFT Frameworks 1, 2

1. Improving governance and fighting corruption are a major challenge for the country’s development. Corruption, perceived as affecting most government functions, may undermine the development agenda outlined in the government’s National Strategy for Sustainable Development 2035. During the period 2010–20, the Worldwide Governance Indicators (WGI) for rule of law3 and control of corruption4 stagnated at a very low percentile: at approximately 7/100 and 0.7/100 respectively.5 Equatorial Guinea significantly underperformed the regional average for Sub-Saharan Africa (SSA) for both indicators for the past 10 years (at approximately 29/100 for rule of law and 30/100 for control of corruption). Similarly, the Ibrahim Index of African Governance shows that the member underperformed the SSA regional average over the past 10 years for Overall Governance.6

2. The 2019 IMF Governance Diagnostic Report identified key corruption and governance weaknesses in Equatorial Guinea. During 2018–19, the authorities worked with IMF staff to prepare a governance diagnostic report, to form the basis of a government strategy to improve governance and transparency and fight corruption (the 2019 Good Governance and Anti-Corruption Action Plan).7 This annex provides an update on the progress the authorities have made in implementing their action plan regarding anti-corruption, rule of law, and AML/CFT frameworks, and identify remaining reforms in the period ahead.

3. Since the 2019 Governance Diagnostic Report, some actions have been implemented in the areas of rule of law, AML/CFT and anti-corruption framework, but much more needs to be done. The government’s 2019 Good Governance and Anti-Corruption Action Plan was to be implemented during the 2019–22 extended arrangement. With no reviews completed, largely due to a slower than originally envisioned pace of governance reforms,8 few measures were put in place, and some were recalibrated for purposes of the 2021 RFI. During 2019–22, the authorities prioritized implementation of governance measures that formed part of the initial set of structural benchmarks under the EFF-supported reform program.

Table 1.

Commitments Under the Extended Arrangement of the 2019 Extended Fund Facility (EFF): Anti-Corruption and Rule of Law

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4. The existing anti-corruption institutions are assessed to be highly vulnerable to political interference, have limited resources and some have not been established as prescribed in the law. The Anti-Corruption Commission has not been established yet, even though the statutory deadline under the Anti-Corruption law for establishing it has passed multiple times.5 Other anti-corruption and governance institutions such as the Anti-Corruption Prosecutor, the ANIF and the courts remain severely underfunded, have capacity constraints to perform their functions and are not perceived as independent.

  • Enforcement against corruption cases is assessed to be weak. Since the entry into effect of the Anti-Corruption law in May 2021, the Anti-Corruption Prosecutor has investigated 18 cases of corruption, out of which 7 were directed at senior public officials.6 These public officials include directors of SOEs and military personnel; they do not include government officials, who are treated as de facto immune from prosecution. The Anti-Corruption Prosecutor does not have a sufficiently clear legal mandate arising from a law or regulation, which prevents it from managing its own resources and making operational decisions. The Special Office for the administration of confiscated goods, which is stipulated in the Anti-Corruption Law to strengthen the capacity of the Anti-Corruption Prosecutor, has not yet been established. Additionally, there continue to be some delays in the adjudication of cases in the judicial system and no publication of judicial decisions.

  • The implementation of the asset declaration regime of senior public officials is still pending. Progress is being made as detailed in the table above. The Anti-Corruption Law of May of 2021 established that all regulations should have been issued within the following six months of the publication of the law; however, over a year has lapsed. The slow progress on the regulations limits the implementation of the Anti-Corruption Law and, most importantly, the capacity of the country to fight corruption.

  • The government’s National Strategy for Sustainable Development 2035 includes some objectives on reforming the judicial sector, such as: restructure, modernize and strengthen the judicial administrative system, consolidate the independence of the judicial system, improve the qualification of the human resources, including of judges. The objectives are far reaching, but more concrete actions need to be defined on how to reach these objectives, and aggressive implementation will be needed if meaningful change is to be obtained. Measures should be defined on how to reach the stated objective of the National Strategy of preventing corruption.

5. Rule of Law weaknesses continue to generate vulnerabilities in all sectors of the economy. Some of these weaknesses are specific to each economic sector (e.g. the hydrocarbon sector, the construction sector). However, two cross-cutting rule of law weaknesses, continuing to affect all sectors, are: (i) an implementation deficit and allegations of a lack of even-handedness and fairness in the application of the law; (ii) a transparency deficit (a comprehensive absence of transparency and public data reporting). These weaknesses are further magnified by capacity constraints and the fact that there is no professional career for judges, prosecutors, or notaries, nor clear term limits or destitution for cause. The authorities mentioned that the reform of the Organic Law of the Judiciary, which was also referenced in the 2019 Diagnostic Report and which foresees the creation of a professional track for judges, is expected to come into force by the end of this year.

6. Efforts to strengthen the AML/CFT framework should be stepped up to ensure its effectiveness to combat proceeds of corruption and other financial crimes. While there are significant delays in the implementation of the AML/CFT items under Equatorial Guinea’s 2019 Good Governance and Anti-Corruption Action Plan, the authorities reported updating the decree regulating the financial intelligence unit (ANIF) to support the country’s application to the Egmont Group.7 These efforts also included updating the internal regulations of ANIF, the issuance of an ethics code for its staff, and the implementation of security measures in ANIF’s offices to safeguard its information. The authorities also noted that a money laundering and terrorist financing national risk assessment is underway, and that they created a National Committee for AML/CFT policy and coordination. The ANIF is also improving the manner of reporting of suspicious transactions through an enhancement of the customer due diligence procedures in financial institutions and more focus on the origin of funds. ANIF’s publication of an annual report including budget, activities, resources, and milestones, as well as AML/CFT typologies based on corruption activities is still pending.

7. The upcoming GABAC evaluation, expected for September 2023, will provide important recommendations for enhancing the AML/CFT framework effectiveness. In 2016, GABAC assessed the AML/CFT framework, focusing on the legislative and institutional framework highlighting significant deficiencies,8 many of which have yet to be addressed. In the upcoming evaluation, the effectiveness of the framework will also be assessed, and specific recommendations will be provided.

A. Prioritized Recommendations

Anti-Corruption Regime

8. Improving the authorities’ capability to fight corruption offenses will be key to enhancing transparency and accountability. The anti-corruption legal and institutional framework needs to be upgraded and implementation should be significantly enhanced.

  • An updated anti-corruption strategy could usefully guide anti-corruption efforts, building on the 2019 Action Plan, and with a basis in the National Strategy for Sustainable Development 2035. This should include developing a strategy to address the risks notably in the prevention, investigation, prosecution of corruption, improving national and international cooperation and enhancing mechanisms for public sector and civil sector partnership.

  • As a first step, the Anti-Corruption law needs to be implemented, with a well-funded and independent Anti-Corruption Commission established, with the capacity to design and apply the Anti-Corruption Commission Regulations and the Asset Declaration Regulations. The Anti-Corruption Commission Regulations should be drafted with a view to limit any potential jurisdictional overlap with the Anti-Corruption Prosecutor.

  • Public officials must start declaring their assets, in line with the AC law and AD regulations. The asset declaration regime of senior public officials needs to be strictly enforced to enhance the capability of detecting and prosecuting corruption cases. As a first step, the adoption of regulations and an asset declaration form, as established in the Anti-Corruption Law and following international good practices should be prioritized. This should be promptly followed by the submission of declarations by high-level public officials and the publication of such declarations in a government website.

  • Finally, enhancing the independence, governance and capacity of the Anti-Corruption Prosecutor and the Ministry of Justice to effectively detect, investigate and prosecute corruption cases require increased financial and human resources, and stepping-up efforts to enhance education and expertise amongst investigators, prosecutors, and judges. The Anti-Corruption Prosecutor should also have a sufficiently clear legal mandate arising from a law or regulation, with independence and resources enshrined in its legal mandate, and the Special Office for the administration of confiscated goods, stipulated in the Anti-Corruption law, should be established. Any regulation designed for the Anti-Corruption Prosecutor should distinguish its functions from those of the Anti-Corruption Commission to limit any jurisdictional overlap.

Rule of Law

9. The Rule of law must be strengthened through (i) ensuring the independence of the judiciary and of the prosecutors, such as professional exams, clear term limits, termination only with cause which has been duly published and disseminated to the public;(ii) an effective implementation of existing laws, and (iii) enhancing public data access to laws, orders, and judicial decisions, as well as on the administration and efficiency of the courts. Notaries should also be subject to a professional career track, that would be accessible to any Equatoguinean person, and not just to public servants. We furthermore reiterate our recommendations from the 2019 Governance Diagnostic Report (included in paragraph 71, table 3).

AML Tools to Tackle Corruption

10. An effective AML/CFT framework can support efforts to fight corruption. Strengthening the legal framework and effective implementation of requirements related to politically exposed persons and beneficial ownership to ensure they are in line with international standards should be prioritized. It is also important to ensure that banks and other financial institutions effectively apply AML/CFT preventive measures proportionate with corruption risks, including its coordination at the regional level with COBAC. At the domestic level, AML/CFT regulation and supervision of designated non-financial businesses and professions (e.g., lawyers, accountants, and real estate agents) should also be a priority. In addition, relevant authorities, such as ANIF and the Anti-Corruption Prosecutor, should have adequate staff, resources, and independence to ensure proper detection, investigation and prosecution of corruption and financial crimes. Efforts should also include measures to: ensure the transparency, accuracy, and accessibility of beneficial ownership information; enhance the use of financial intelligence related to corruption and money laundering for financial investigations; improve the detection and capabilities against ML, corruption, and other financial crimes; and enhancing the scope of AML/CFT risk-based supervision and the cooperation between the ANIF and COBAC.

Annex XI. National Strategy for Sustainable Development “Equatorial Guinea Agenda 2035”1

1. In April 2021, through presidential decree, the government officially adopted the Equatorial Guinea’s National Development Strategy for 2021–35 (PLAN-35), as the framework to transform the country over the next fifteen years. This long-term development strategy was built on a set of national aspirations emanating from the Third National Economic Conference held in 2019 and is aligned with the Sustainable Development Goals of the United Nations and with the Agenda 2063 of the African Union.

2. The PLAN-35 intends to achieve a structural transformation of Equatorial Guinea by making fundamental changes in economic and social structures to promote inclusive development, while preserving the environment for future generations. Specifically, the strategy aims to:

  • Eradicate poverty: Sustainably improve the living conditions of the population, with active intervention of the population in the process of development.

  • Promote social inclusion and sustainable peace: Turn Equatorial Guinea into a modern, efficient, and socio-strategic State, with a central role in promoting development and strengthening civil society and national private initiative.

  • Promote productivity and industrialization: Promote macroeconomic stability, economic and social development, and a balanced distribution of equitable development through the fair and effective allocation of public resources.

  • Promote environmental sustainability and territorial development: Ensure the existence and maintain the quality of nature’s resources, ensuring their healthy use for present and future generations through an appropriate legal and institutional framework and adequate management.

3. The achievement of these objectives is based on four guiding principles: (i) promoting equitable human development and the well-being of Equatorial Guineans, eradicating hunger and poverty and promoting the educational and health development of the population; (ii) guaranteeing national unity and cohesion, promoting peace and national identity, building a democratic, inclusive, and participatory society, guaranteeing fundamental freedoms and rights and the development of civil society; (iii) guaranteeing a high rate of economic development, with macroeconomic stability, structural diversity, and a fair distribution of national income, as well as the competitive insertion of Equatorial Guinea in the world and continental economy, guaranteeing a position of reference in the CEMAC and the region of the Gulf of Guinea; and (iv) promoting sustainable development that guarantees an effective use of natural resources and a harmonious occupation of the national territory, stimulating the competitiveness of the territories and promoting the development of the most disadvantaged regions.

4. The authorities consider that fundamental reforms are required in several areas to facilitate the implementation of the development strategy. Required reforms apply to different institutional levels: State, public administration, and judicial system. At the social level, reforms are envisioned in the health system, security, and social protection. In the area of macroeconomic planning and management, reforms are envisioned for macroeconomic planning and management, public finances, and national statistical system. Reforms are also proposed to support production and the development of private activity, including agrarian restructuring and land reorganization, the financial system, competition, and markets. Finally, reforms also affect the organization of the territory.

5. Implementation of the development strategy is to be monitored and evaluated at different levels of the government. At the highest level is the National Council for Sustainable Development, chaired by the President. The second level consists of a National Planning Council. This organ is responsible for planning, and is chaired by the Prime Minister. The third level of implementation monitoring is the Equatorial Guinea 2035 Observatory. This level facilitates the participation of other political and social actors in the strategy and their inputs are to be integrated in the National Planning Council. Finally, level four is the National Development Agency of Equatorial Guinea, a technical entity led by a General Director.

6. The authorities plan to implement the new development strategy in three phases, each lasting five years. The first phase (launch) includes the period 2021–25; the second phase (of development) would be implemented in the five-year period 2026–30; while the last phase (consolidation) would be implemented during the last five years of the established time horizon.

7. The economic diversification pillar of the PLAN-35 focuses on six broad priority production areas. This pillar is to be led by the private sector and is planned to be implemented during 2021–25. The focus of the economic diversification strategy is import substitution and promotion of exports. Six broad priority production areas have been identified as key for the economic diversification push under the support for economic diversification program (PRODECO).

  • Priority areas are: (i) Agribusiness and fishing; (2) mineral resources and hydrocarbons; (3) industry and energy; (4) hospitality and tourism; (5) logistics, transportation, telecommunications, and technology; and (6) financial services, consulting, and auditing.

Beyond these sectors, the authorities plan to set up special economic zones to promote the development of industry, establish an innovation hub, establish an international logistics and transportation center, promote energy diversification, improve banking and insurance services, and create areas (sectors) of excellence.

8. The strategy identifies four instruments to support economic diversification: creation of a coordination mechanism in the office of the head of government; re-creation of the sovereign fund of Equatorial Guinea, inter alia, to preserve wealth for future generations; privatization and restructuring of state assets; and creation of a council for economic diplomacy and a public agency for the promotion of foreign trade and foreign investment.

Annex XII. Climate Change Risks—Impact and Government Plans1

While the impact of climate change on Equatorial Guinea has been modest so far, the authorities have embedded environmental sustainability in the revised Development Plan. A National Land Use Plan is currently being developed as an initial step to improving the management of its forest and leveraging its potential economic returns.

1. Climate change in Equatorial Guinea, while notable, has had a relatively low impact so far and is expected to remain contained.2 Projections suggest that rainfall levels could increase somewhat in the future. If rainfall indeed becomes more concentrated3, it could exacerbate pluvial flooding risks—the main climate-related risk to which EG is already exposed—given the large quantity of rainfall it receives. This risk is more prevalent in urban areas, in which about half of the population resides.

2. Climate change is likely to exacerbate existing risks in EG, especially with regards to flooding. For the Central African region, the IPCC and other researchers4 project increases in heavy precipitation events, which could result in more pluvial and river flooding. However, the risks for EG are less than those for the region. Drought intensity is projected to increase in Central Africa (IPCC, 2021, p. 8–78; Ukkola et al., 2020), but mainly in the Sahel region, while EG’s likelihood of experiencing drought is projected to increase only marginally.5

3. The country’s rural population is anticipated to be affected by climate change due to its reliance on subsistence agriculture and, to a lesser extent, fisheries. EG’s agriculture and fishery sectors remain almost exclusively based on subsistence activity, and they provide considerable employment to rural population. Agricultural productivity declines are typically projected to be highest for countries reliant on rain-fed agriculture, like EG. Declines in agricultural value added per degree of temperature increase could be between 1–1.5 percentage points for a median low-income country, to which EG’s agricultural sector is quite comparable.6 Maximum catch potential off EG’s coasts could decrease between 25 and 50 percent by 2050 under the UN’s most extreme warming scenario.7

4. The largest risk posed by climate change on EG is indirect: A global low-carbon transition could further accelerate the decline of its hydrocarbon sector. In the absence of significant economic diversification, the country remains highly reliant on the sector, which still accounts for almost all exports, almost 80 percent of government revenues, and more than 40 percent of GDP. A global low-carbon transition is expected to (i) further depress global investment in the sector and (ii) reduce global prices for hydrocarbons, although there is considerable uncertainty about the latter, especially during the transition years. However, stranded assets are not a real concern in the hydrocarbon sector, because most of EG’s fields are aging quickly.

A. Government Plans

5. EG ratified the United Nations Framework Convention on Climate Change (UNFCCC) in 2018, setting out its ambitions for reducing emissions by 20 percent by 2030 (relative to 2010 levels) and by 50 percent by 2050. Cost of adaptation commitments is estimated to be moderate (a cumulative 2½ -4 percent of 2020 GDP until 2030). In contrast, cost of mitigation is expected to be high at $3.7 billion (37 percent of 2020 GDP) until 2030 and $6.0 billion (60 percent of 2020 GDP) during the 20 years thereafter through 2050. The authorities’ mitigation efforts would focus on five sectors: Energy, Transport, Forestry, Industrial and Waste Management.

6. One of the four pillars of the new Development Plan is environmental sustainability. In 2021, the government adopted the National Strategy for Sustainable Development “Horizon 2035” that aims to incorporate the SDGs in its implementation, whose fourth pillar is Environmental Sustainability. The implementation of this new Development Plan, in the coming years, is expected to help the country achieve sustainable development. Specifically, the government intends to implement environmental actions such as:

  • Organize and carry out the mapping of natural resources.

  • Guarantee the integrated management of hydrographic basins.

  • Develop, within the framework of the National Science, Technology and Innovation System, a subsystem on the Environment and Natural Resources.

  • Organize and manage a network of reserves and natural parks.

  • Build an information system on the environment and natural resources.

  • Develop a national documentation network on the environment and natural resources.

7. With regards to projects related to the environment, the UN Reducing Emissions from Deforestation and forest Degradation program (REDD+) has progressed the furthest so far. REDD+ aims to reduce deforestation and forest degradation, which is considered high in EG by the UN’s Food and Agriculture Organization (FAO). A key initial step, which will guide this program, is the development of a National Land Use plan. Work on this plan has kicked off in mid-2021 with technical assistance from FAO. In addition, the government has started this year other projects to improve capacity in the forestry sector and foster the blue and green economies.

8. The authorities are also advancing with a reform of their fuel price subsidy system. A new price structure was approved in 2021 and implemented in early 2022, increasing domestic energy prices and therefore incentivizing the use of more efficient and clean energy sources.

Annex XIII. Potential Macroeconomic Impact of Structural Reforms1

Delays in implementing reforms could stymie Equatorial Guinea’s efforts to reverse the expected GDP decline and improve external competitiveness. Estimations reveal that reforms which boost productivity—such as improved governance and NPL reduction—could yield the largest gains. Achieving these dividends, however, critically depends on reform implementation and their initial credibility.

1. In 2019, the Equatoguinean authorities adopted a structural reform package, within the context of an IMF-supported economic reform program, but reforms have not been fully implemented. The policy package included: (i) fiscal adjustment and rebalancing to achieve an overall fiscal adjustment of about 2 percent of GDP after three years; (ii) improved public administration, including improving the organization and operation of customs, and controlling and tracking public spending; (iii) measures to improve human capital formation by improved targeting of social spending, in a fiscally-neutral manner, including adopting a floor for social spending that benefits the poor, and creating a specific social safety net for the very poor segment of the population; (iv) measures to reduce banking system NPLs with the aim of improving bank profitability and their lending capacity to the private sector, and; (v) measures to improve the business environment, including by streamlining procedures for the establishment of business enterprises, and fighting corruption and perceptions thereof. Beyond the EFF-supported program, the authorities have also signed on to the African Continental Free Trade Agreement (AfCFTA), which aims to liberalize intra-African trade.

uA001fig07
Source: GIMF Simulation.Notes: Horizontal axis = years. As lines are stacked, the black line measures the total impact. SS = steady state.

2. Simulation results from a GIMF model calibrated to Equatorial Guinea indicate that full implementation of the reform package can potentially increase output by about 16 percent above baseline and delivers a notable REER depreciation (Text Figure 1–2).2 Although declining in the short term, after six years, real GDP is about 7 percent higher than the baseline. About two-thirds of the output gains are driven by a reduction in non-performing loans3 (to under 10 percent over 13 years increases real GDP by 7.8 percent), transmitted through higher productivity in both the traded and non-traded intermediate sectors; and an improvement in Equatorial Guinea governance, as measured by the worldwide governance indicators (WGI) to the world’s average, which also increases total factor productivity.4 Upfront implementation of these reforms, along with those on targeted transfers and trade, helps offset output losses associated with the fiscal consolidation package. By itself, fiscal consolidation results in lower real GDP that, at its peak, is about 1 percent below baseline on impact. However, taken together with upfront implementation of other reforms, including bank balance sheet cleanup, these costs are offset. Just under half of the competitiveness gains over the medium term (captured in the REER depreciation) stem from reforms to governance, targeted transfers, and trade. This is consistent with the work of Abrego, et al, 2019, on the gains of the AfCFTA for African countries. The other half comes from productivity-enhancing cleanup of bank balance sheets, as higher productivity in the tradeable intermediate sector, reduces marginal production costs and tradable intermediate goods prices.

uA001fig08
Source: GIMF Simulation.Notes: Horizontal axis = years, SS= steady state.

3. Macroeconomic gains are directly related to the credibility of the reform efforts. With stepwise credibility, agents (investors and consumers) do not perceive the benefits of future reforms, slowing the adjustment process, so gains are lower in the short term (Text Figures 3 and 4). As a result, as shown in Text Figure 5, the level of GDP under the credible reform scenario is initially higher than the stepwise credibility scenario—precisely because the reform measures in the latter are delayed for three years. The gains in GDP eventually converge, after 8 years.

4. The sequencing of reforms has also been shown to be key to maximizing gains. According to the IMF’s WEO (2019, October), reforms yield the largest gains in countries with higher-quality governance. Conversely, in countries with weaker governance, gains are considerably less. Therefore, upfront reforms to governance can, by acting as a complementary input, amplify the gains from other reforms. For example, upfront governance reforms that ensure the consistent application of the rules can magnify the gains from the AfCFTA. Additionally, given the role that bank credit plays in financing the domestic private sector, improving availability and access to credit through cleanup of bank balances, alongside strengthened banking sector supervision, could amplify the investment and output effects of other reforms. In sum, early governance reforms will help deliver larger gains from all other reforms.

Table 1.

Equatorial Guinea: GIMF Simulation Strategy

article image
Source: IMF staff calculations

Annex XIV. Technical Assistance Priorities, 2022–24

A broad technical assistance strategy supports the government’s macroeconomic policy priorities. As pandemic disruptions subside, pending TA that had been difficult to conduct remotely is moving ahead. Table 1 summarizes priority programs and key objectives for 2022–24, following the authorities’ reform program.

Table 1.

Equatorial Guinea: Top Technical Assistance Priorities

article image
1

Thus far 23 percent of the adult population has received two vaccine doses (with a total of 476,752 doses administered).

2

Regional measures are being phased out, and have included monetary easing by BEAC, bank forbearance on loan classification and provisioning, and absorption of pandemic-related losses by capital buffers.

3

Macroeconomic forecasts are based on an oil price assumption of $108 per barrel for 2022, compared with $54 in the EFF-supported program. During 2022–27, the projected average oil price is $85, compared with $54 under the program.

4

Mr. Obiang has led Equatorial Guinea since 1979, and he was last reelected in 2016 with 94 percent of the vote.

6

The asset declaration forms published in March 2022 and initially distributed to public officials deviated in part from the 2021 anti-corruption law. The authorities are amending the form to align it with the law and good practices.

1

The authorities are planning to withdraw most of the SDR allocation in 2022 to regularize domestic arrears.

2

BEAC reserves reached EUR 2.2 bn at end-December 2021 (at 2.7 months of prospective imports of goods and services, down from 3.2 in December 2020).

3

Given the limited number of commodity exporters in the EBA-Lite sample, and the idiosyncratic composition of such economies compared to the average economy in the sample, the model may overestimate the CA norm. Two factors stand out: (i) L.Own per capita GDP/US/JP/DM per capita GDP (PPP): given that the hydrocarbon sector is 40 percent of total GDP, but it only employs around 2 percent of the population (taking the Norway number which would be an upper bound), a factor of 0.6/0.98 (staff estimates) would need to be applied to the estimated CA norm model value, reducing it by 1.1 percent. (ii) Expected growth: estimated in the EBA-Lite model based on an average of medium-term growth projections, which are negative in Equatorial Guinea given the expected decline in hydro production; however, only in commodity exporting economies do growth values vary this widely following the lifecycle of producing wells, making the average coefficient estimated over the sample less accurate about the relation between growth, investment needs and the CA. Moreover, hydrocarbon production can be a poor proxy for investment needs in the sector over the medium term given the long horizon between investment (especially with respect to exploration) and when actual production begins. Abstracting from the hydro sector, staff projects an average value for non-hydro growth of 2.4 percent over the 2022–27 period. Using this growth value instead and scaling it by 0.6 (size of the non-hydro sector) would reduce the norm by 2.3 percent.

4

This element of the policy is not significantly biting since international firms have to retain a share of their foreign revenues to pay local corporate income tax, which ranges between 25 and 35 percent, as well as wages and other expenses.

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 of risks listed 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. We focus on risks that could materialize within 1 year to 3 years.

1

Prepared by Ruth Akor (AFR).

2

Data from World Atlas, Geopolitical Intelligence Services (GIS).

3

The Maritime Security Index ranks countries’ performance on nine maritime security issues: international cooperation, rule of law, maritime enforcement, coastal welfare, blue economy, fisheries, piracy and armed robbery at sea, illicit trades, and maritime mixed migration.

4

Stable Seas 2021–Pirates of the Gulf of Guinea: A cost-analysis for coastal states.

5

Stable Seas 2021–Pirates of the Gulf of Guinea: A cost-analysis for coastal states.

6

World Bank–The Pirates of Somalia: Ending the Threat, Rebuilding a Nation.

7

UNCTAD–Maritime Piracy (Part 1): An overview of trends, costs, and trade-related implications.

1

Relative to the approved EFF in 2019, the projected medium-term debt in 2027 is 5 percentage points of GDP lower, while cumulative gross financing needs over the 2022–2027 horizon declined by 2.5 percentage points of GDP.

2

The authorities stated that SOEs are financed via the central government budget and do not issue their own debt.

3

In this respect, the authorities have prepared and published a list of state assets to be privatized and a list of entities that will be restructured or placed under a concession regime with the private sector.

1

Prepared by Khalid Elfayoumi (SPR).

2

Includes crude oil, condensate, and LNG according to BP energy statistical review and OPEC using data up to 2020.

3

Jan 2022 WEO projects oil price of $66 and $73 for natural gas in 2026.

4

Supply curves are constructed by summing up asset level reports (i.e. fields and wells) of the size of proven reserves that report a break-even prices lower or equal to every price point.

5

All vintages used in the analysis use information on the level of reserves as of 2019. For the 2015 vintage, the level of 2019 reserves are projected, while later vintages reflect actual figures.

6

This debt level is more of a lower bound value since it does not incorporate the impact of depleting hydrocarbon resources across the region on reserve accumulation.

7

Assuming financing needs are met with domestic currency bond issuance at a maturity of 7 years and a 7.8 percent interest rate.

1

Prepared by Brooks Evans (FAD) and Garth Nicholls (AFR).

1

Prepared by Jean Portier (MCM) and Brooks Evans (FAD).

1

Prepared by Brooks Evans (FAD).

2

References for the annex: IMF Fiscal Monitor, 2022, “Fiscal Policy from Pandemic to War” (Link); IMF Note, 2022, “Fiscal Policy for Mitigating the Social Impact of High Energy and Food Prices” (Link); IMF Policy Paper, 2008, “Fuel and Food Price Subsidies—Issues and Reform Options” (Link); IMF Policy Paper, 2008, “Food and Fuel Prices—Recent Developments, Macroeconomic Impact, and Policy Responses” (Link); Impact of High Food and Fuel Prices on Developing Countries—Frequently Asked Questions (Link); Various FAD Covid-19 notes, including tax and expenditure policies (Link).

1

Prepared by Ioana Luca (LEG).

2

This Annex complements Text Table 2 and has a narrower focus on (i) anti-corruption, (ii) rule of law, and (iii) AML/CFT in which it deepens the analysis.

3

This indicator captures perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence. The accuracy of the indicator can be biased by experts’ views (instead of facts).

4

This indicator captures perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as “capture” of the state by elites and private interests. The accuracy of the indicator can be biased by experts’ views (instead of facts).

6

Equatorial Guinea | Ibrahim Index of African Governance (IIAG) Data Portal | Mo Ibrahim Foundation. The IIAG governance framework comprises four categories: Security & Rule of Law, Participation, Rights & Inclusion, Foundations for Economic Opportunity and Human Development. The accuracy of the indicator can be biased by experts’ views (instead of facts).

7

The Governance Diagnostic as well as the Action Plan were published on the website of the Ministry of Economy and Planning in 2019: Estrategia de gobernanza – Ministerio de Hacienda y Planificacion (minhacienda-gob.com)

8

The exigencies of the COVID-19 pandemic, the Bata explosions, and capacity constraints played some role in the delays but challenges in garnering domestic consensus has held back traction.

5

The President and Vice-President of the Commission were to be named within 60 days of the entry into effect of the decree and then again, within 60 days of the entry into effect of the Anti-Corruption Law (the decree entered into effect in July 2020, and the law in May 2021). The President and Vice-President for the Commission were named on June 2, 2022. In accordance with the Anti-Corruption Law, the regulations for the Anti-Corruption Commission and for the Asset Declaration regime should be issued within 60 days from the naming of the President and Vice-President of the Commission.

6

One of these cases has reached final judgment in court, with the defendant being acquitted.

1

Prepared by Cornelio Nze Miko Nzang (Local Economist).

1

Prepared by Christian Henn (WHD) and Cornelio Nze Miko Nzang (Local Economist). This annex is part of a larger study of climate change in Equatorial Guinea.

2

IPCC, 2021.

3

IMF, 2020.

4

Fotso-Nguemo et al. (2018, 2019) and Sonkoué et al. (2019).

5

Finally, in line with global trends under the IPCC’s warming scenarios, Central Africa would experience rises in the sea level, ocean acidity, atmospheric carbon dioxide and coastal erosion (IPCC, 2021, p. 12–39). However, sea level rises pose a lesser risk to EG than pluvial flooding events.

6

IMF, 2017. “The Effects of Weather Shocks on Economic Activity: How can Low-Income Countries cope?”, World Economic Outlook, October 2017, Chapter 3.

7

UNCTAD, 2021. Trade and Environment Review 2021: Trade-climate readiness for developing countries, New York: United Nations Conference on Trade and Development.

1

Prepared by Garth Nicholls (AFR).

2

The Global Integrated Monetary and Fiscal (GIMF) model is a multi-country structural dynamic general equilibrium model developed by the IMF. It links the behavior of households, firms, and government sector within and among countries in a consistent framework, including stock-flow budget constraints for all sectors—see Kumhof, M., Laxton, D., Muir, D. and S. Mursula, 2010, “The Global Integrated Monetary and Fiscal Model (GIMF)–Theoretical Structure,” IMF Working Paper No. 10/34 (Washington: IMF).

3

Recovering value from existing NPLs that permit banks to increase lending.

4

Table 1 provides a mapping of the policy experiments and GIMF mappings.

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Cover IMF Staff Country Reports
Republic of Equatorial Guinea: 2022 Article IV Consultation—Press Release; Staff Report; And Statement By The Executive Director for Republic of Equatorial Guinea
Author:
International Monetary Fund
Volume/Issue:
Volume 2022: Issue 267
Publisher:
International Monetary Fund
ISBN:
9798400216718
ISSN:
1934-7685
Pages:
102
DOI:
https://doi.org/10.5089/9798400216718.002
  • <sup><xref ref-type="fig" rid="RA001fig01">Text Figure 1.</xref></sup>
    View in gallery
    Text Figure 1.

    Hydrocarbon Production Has Been Steadily Declining Since the Late 2000s

    (Barrels per day)

  • <sup><xref ref-type="fig" rid="RA001fig02">Text Figure 2.</xref></sup>
    View in gallery
    Text Figure 2.

    Inflation is Picking Up Again, With Significant Spikes in Food Inflation (Including Bread) Since February

    (Percent, year-on-year)

  • <sup><xref ref-type="fig" rid="RA001fig03">Text Figure 3a.</xref></sup>
    View in gallery
    Text Figure 3a.

    Capital Spending Decreased Substantially to 2 Percent of GDP in 2021, Accounting for 17 Percent of Fiscal Spending

    (Fiscal spending by sector, share in total spending, percent)

  • <sup><xref ref-type="fig" rid="RA001fig04">Text Figure 3b.</xref></sup>
    View in gallery
    Text Figure 3b.

    Capital Spending Decreased Substantially to 2 Percent of GDP in 2021, Accounting for 17 Percent of Fiscal Spending Spending, 2016–21

    (Percent of total)

  • <sup>Text Figure 4.</sup>
    View in gallery
    Text Figure 4.

    Public Education Infrastructure is Below Comparators, and Access to Basic Drinking Water Lags Sub-Saharan Africa

    (Access to infrastructure, 2019)

  • <sup><xref rid="RA001bx01fig01" ref-type="fig">Figure 1.</xref></sup>
    View in gallery
    Figure 1.

    EG Fuel Subsidy and Oil Prices

  • <sup><xref rid="RA001bx01fig02" ref-type="fig">Figure 2.</xref></sup>
    View in gallery
    Figure 2.

    Fuel Prices in CEMAC

    (U.S. dollar per liter)

  • View in gallery

    Net Foreign Assets

    (million USD)

  • View in gallery

    Current Account Decomposition

  • View in gallery

    Exchange Rates and Oil price

  • View in gallery

    Piracy Incidence in the Gulf of Guinea

  • <sup>Figure 1.</sup>
    View in gallery
    Figure 1.

    Public DSA–Baseline Scenario

    (Percent of GDP, unless otherwise indicated)

  • <sup>Figure 2.</sup>
    View in gallery
    Figure 2.

    Composition of Public Debt and Alternative Scenarios

  • <sup>Figure 3.</sup>
    View in gallery
    Figure 3.

    Risk Assessment

  • <sup>Figure 4.</sup>
    View in gallery
    Figure 4.

    Realism of Baseline Assumptions

  • <sup>Figure 5.</sup>
    View in gallery
    Figure 5.

    Stress Tests

  • <sup>Figure 1.</sup>
    View in gallery
    Figure 1.

    Debt and GFN to GDP Ratios over Different Long-term Fiscal Adjustments

  • <sup>Figure 2.</sup> <sup>Figure 2.</sup>
    View in gallery
    Figure 2.

    Estimated Hydrocarbon Supply Curves, 2015 and 2019

    (Horizontal axis in thousand barrels per day)

  • <sup><xref ref-type="fig" rid="RA001fig13">Text Figure 1.</xref></sup>
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    Text Figure 1.

    Equatorial Guinea: Public Investment and Capital Stock

  • <sup><xref ref-type="fig" rid="RA001fig14">Text Figure 2.</xref></sup>
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    Text Figure 2.

    Public Capital Stock per Capita, 2019

  • <sup><xref ref-type="fig" rid="RA001fig15">Text Figure 3.</xref></sup>
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    Text Figure 3.

    Capital Spending 2014–19 and Current Spending 2019

  • <sup><xref ref-type="fig" rid="RA001fig16">Text Figure 4.</xref></sup>
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    Text Figure 4.

    Physical Infrastructure Frontier and Efficiency Score

  • <sup><xref ref-type="fig" rid="RA001fig17">Text Figure 5.</xref></sup>
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    Text Figure 5.

    Measures of Infrastructure Access, 2019

  • <sup>Figure 1.</sup>
    View in gallery
    Figure 1.

    Mobile Payments in CEMAC, 2020

  • View in gallery

    Inflation is picking up again since February, with significant spikes in food (including bread) inflation

    (percentage, year-on-year)

  • View in gallery

    Food Imports by Region, 2017–20

  • View in gallery
  • View in gallery
Text Figure 1.

Hydrocarbon Production Has Been Steadily Declining Since the Late 2000s

(Barrels per day)
Text Figure 2.

Inflation is Picking Up Again, With Significant Spikes in Food Inflation (Including Bread) Since February

(Percent, year-on-year)
Text Figure 3a.

Capital Spending Decreased Substantially to 2 Percent of GDP in 2021, Accounting for 17 Percent of Fiscal Spending

(Fiscal spending by sector, share in total spending, percent)
Text Figure 3b.

Capital Spending Decreased Substantially to 2 Percent of GDP in 2021, Accounting for 17 Percent of Fiscal Spending Spending, 2016–21

(Percent of total)
Text Figure 4.

Public Education Infrastructure is Below Comparators, and Access to Basic Drinking Water Lags Sub-Saharan Africa

(Access to infrastructure, 2019)
Figure 1.

EG Fuel Subsidy and Oil Prices
Figure 2.

Fuel Prices in CEMAC

(U.S. dollar per liter)

Net Foreign Assets

(million USD)

Current Account Decomposition

Exchange Rates and Oil price

Piracy Incidence in the Gulf of Guinea
Figure 1.

Public DSA–Baseline Scenario

(Percent of GDP, unless otherwise indicated)
Figure 2.

Composition of Public Debt and Alternative Scenarios
Figure 3.

Risk Assessment
Figure 4.

Realism of Baseline Assumptions
Figure 5.

Stress Tests
Figure 1.

Debt and GFN to GDP Ratios over Different Long-term Fiscal Adjustments
Figure 2.

Estimated Hydrocarbon Supply Curves, 2015 and 2019

(Horizontal axis in thousand barrels per day)
Figure 2.

Estimated Hydrocarbon Supply Curves, 2015 and 2019

(Horizontal axis in thousand barrels per day)
Text Figure 1.

Equatorial Guinea: Public Investment and Capital Stock
Text Figure 2.

Public Capital Stock per Capita, 2019
Text Figure 3.

Capital Spending 2014–19 and Current Spending 2019
Text Figure 4.

Physical Infrastructure Frontier and Efficiency Score
Text Figure 5.

Measures of Infrastructure Access, 2019
Figure 1.

Mobile Payments in CEMAC, 2020

Inflation is picking up again since February, with significant spikes in food (including bread) inflation

(percentage, year-on-year)

Food Imports by Region, 2017–20