Gabon: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Gabon
Author:
International Monetary Fund. African Dept.
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Publication Date:
31 May 2024
eISBN:
9798400277801
Language:
English
Keywords:
government arrears; government operation; government holding; resource management system; government conference center; Oil prices; Global
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1. In August 2023, Gabon underwent a major political transition after a coup d’etat had overthrown a decades-long regime. Despite multiple reform attempts, years of poorly managed oil wealth, weak inclusion, and stagnant incomes fragilized the political and socioeconomic environment and created conditions propitious for a coup.1 Although the oil wealth that Gabon has enjoyed over the past 60 years has helped the country of 2.3 million people achieve upper middle-income status, it has not made a commensurate dent in development and poverty reduction. Infrastructure remains underdeveloped, a third of the population is poor, and income per capita is now barely above its level in the early 1960s (when oil production began in earnest) and about a quarter below its level in the 1970s, as oil resources are depleting (Figure 1). While health outcomes and educational attainment improved over time, they lag middle income peers, and Gabon’s Human Capital Index is close to the average in sub-Saharan Africa (SSA) despite being among the richest countries in the region (Figure 2). Unemployment stands at 36 percent but is higher among younger workers, at around 40 percent. As a result, economic and social grievances have accumulated over many years.

Context

1. In August 2023, Gabon underwent a major political transition after a coup d’etat had overthrown a decades-long regime. Despite multiple reform attempts, years of poorly managed oil wealth, weak inclusion, and stagnant incomes fragilized the political and socioeconomic environment and created conditions propitious for a coup.1 Although the oil wealth that Gabon has enjoyed over the past 60 years has helped the country of 2.3 million people achieve upper middle-income status, it has not made a commensurate dent in development and poverty reduction. Infrastructure remains underdeveloped, a third of the population is poor, and income per capita is now barely above its level in the early 1960s (when oil production began in earnest) and about a quarter below its level in the 1970s, as oil resources are depleting (Figure 1). While health outcomes and educational attainment improved over time, they lag middle income peers, and Gabon’s Human Capital Index is close to the average in sub-Saharan Africa (SSA) despite being among the richest countries in the region (Figure 2). Unemployment stands at 36 percent but is higher among younger workers, at around 40 percent. As a result, economic and social grievances have accumulated over many years.

2. The transition government—set to be in place until August 2025—faces significant economic and social challenges. While social expectations are high that the regime change would allow for a rapid catchup in missed developmental and social opportunities, the fiscal space is both very limited and narrowing, as oil revenues are dwindling. The authorities have focused on the pressing issues while initiating long-term policy groundwork. In the first few months of the transition, they started the repayment of external and domestic arrears, corrected the fiscal accounts for 2021-22, and adopted the 2024 budget reflecting previously unrecorded revenues and spending. In the meantime, they also adopted the National Development Plan of the Transition (2024-26) and initiated a political dialogue with all stakeholders for an upcoming reform of the political, economic, and social institutions. The Development Plan rests on five pillars: political and institutional reforms, development of strategic infrastructure, intensification of economic diversification, development of human capital and social inclusion, and environmental sustainability and climate change resilience.

3. The Fund-supported program veered off-track soon after the completion of the first two reviews in 2022 and will expire soon. The collapse in oil prices with the 2020 pandemic forced the authorities to seek Fund support through a three-year Extended Fund Facility (EFF), approved in July 2021. Ultimately, only two reviews were completed by June 2022 as both the fiscal performance and structural reforms weakened in the runup to the August 2023 elections (Annex I). The program is set to expire in June 2024, and can no longer be brought on track through a short-term extension.

Recent Developments, Outlook, and Risks

4. Gabon's post-pandemic recovery held up well in the face of recent shocks. The economy grew around its potential rate of 3 percent in 2022 and slowed to 2⅓ percent in 2023 as activity was affected by a number of domestic shocks. These included disruptions in railway activity due to multiple landslides and capacity constraints that affected manganese and wood exports, political uncertainty surrounding the election, energy supply interruptions, and elevated fuel charges for businesses that cross-subsidized household fuel consumption. On the upside, growth was powered by strong investment activity, including from higher preelectoral fiscal spending. Economic activity is expected to bounce back to its potential growth rate in 2024 as shocks recede and railway-dependent sectors gradually recover, although wood exports will see some drag from slowing demand prospects in Asia. Over the medium term, growth in services, construction activity and harvests from maturing palm oil and rubber plants should compensate for the secular decline in oil production. The expected medium-term growth rate of 2% percent is broadly in line with projected population growth, leaving income per capita stagnant for the foreseeable future.

5. Inflation has returned below the central bank ceiling of 3 percent. Having peaked at 6 percent year-on-year in 2022 due to elevated costs of food and housing, inflation fell to 2⅓ percent in December 2023, as receding global food prices, along with the real effective exchange rate appreciation, reduced domestic price pressures. Over the medium term, inflation should remain below the regional ceiling of 3 percent, as falling oil prices, low imported inflation, and gradually closing output gaps keep inflation contained.

6. The external position benefitted moderately from the high oil prices in 2022-23, but pressures are expected to mount in the medium term. Foreign currency reserves—indicatively attributed to Gabon from the currency union pool— increased moderately over the past two years in response to higher oil inflows, reaching 2.7 months of imports (left chart).2 The improvement reflected stronger oil exports but was held back by buoyant imports (likely associated with expansionary fiscal policies) and by capital outflows (potentially related to the accumulation of oil receipts abroad; right chart). The current account surplus is estimated by staff at 7.5 percent of GDP on average in 2022-23.3 Going forward, staff estimates a weakening of the current account balance—to near balance by the end of the projection horizon—on the back of a decline in oil prices and lower oil production. Combined with a more tempered outlook for the financial account—due to large Eurobond amortizations during 2025-30, tighter global markets, and negligible budget support under unchanged fiscal policies—this could weaken the external position for Gabon and the currency union, both assessed to be moderately weaker than implied by fundamentals and desirable policies (Annex II).

Text Figure 1.
Text Figure 1.

Gabon: External Sector

Citation: IMF Staff Country Reports 2024, 144; 10.5089/9798400277801.002.A001

Sources: BEAC, Gabonese authorities, Haver Analytics, IMF Direction of Trade Statistics Database, IMF International Financial Statistics, and IMF staff estimates.

7. The fiscal position weakened significantly ahead of the 2023 elections, causing liquidity and sustainability pressures. The nonoil primary deficit widened from a reported 7 percent of nonoil GDP in 2021 to some 14 percent in 2022-23, about 11 pp wider than the endprogram target for end-2023 (Text Figure 2). The higher deficits reflected spending overruns and lack of adjustment efforts ahead of the August 2023 elections, but also a drive by the transition government to increase transparency of the fiscal accounts by bringing onboard hitherto unrecorded extrabudgetary spending.4 The deficits were increasingly financed by arrears, whose stock reached an estimated 12.6 percent of GDP by end-2023 on newly disclosed data. Overall public debt also breached the 70 percent of GDP CEMAC ceiling at end-2023 once all debts and overdue obligations are taken into account.5

Text Figure 2.
Text Figure 2.

Gabon: Fiscal Outcomes

Citation: IMF Staff Country Reports 2024, 144; 10.5089/9798400277801.002.A001

Sources: Gabonese authorities and IMF staff estimates.

8. Financial conditions remain accommodative despite monetary tightening. Higher oil-related inflows and stricter central bank control over export profit repatriation led to a surge in deposits and excess bank reserves (Figure 5). These—along with a more expansionary fiscal policy—supported private demand and stoked a rapid and broad-based growth of private sector credit throughout 2022-23. Monetary conditions have therefore remained accommodative during these past two years despite the cumulative tightening of the monetary policy rate by 175 bps to 5 percent since November 2021. Credit to government also grew rapidly to finance the fiscal expansion, with bank exposure to the public sector increasing to 26 percent of total assets, above the 17 percent average for emerging economies. External conditions, on the other hand, provided some drag in 2023, as the real effective exchange rate appreciated and Gabon's spreads crossed over to distressed territory (900-950bps), although they have receded to 500-550bps by early April 2024 (Figure 4).

9. Bank prudential indicators remain largely above norms, but vulnerabilities remain. System-wide capital adequacy eased to 14.7 percent of risk-weighted assets, still above regulatory requirements. With the rapid expansion in credit, asset quality deteriorated during 2023 and remains below rated peers, and the provisioning rate decreased during the same period, the latter two recovering by end-2023 (Text Figure 3, Table 6). At the same time, large exposure to the sovereign (a third of assets) and a favorable oil cycle have contributed to strong liquidity and earnings in recent years. However, the same factors carry inbuilt risks: a potential downturn in oil prices risks reversing the strong credit cycle, bringing to bear additional pressures on credit quality and solvency, while higher sovereign credit risk in the region and large fiscal domestic arrears in Gabon could adversely affect bank profitability and asset quality. The wind-down of three defunct public banks is progressing, with two of them already under judicial liquidation. These and other challenges in the banking sector have been discussed in the context of the CEMAC consultations with the regional supervisory authorities.

Text Figure 3.
Text Figure 3.

Gabon: Bank Stability Indicators

Citation: IMF Staff Country Reports 2024, 144; 10.5089/9798400277801.002.A001

Note: Red dashed lines indicate regulatory floors. Grey dashed lines are median indicators for equally rated peers based on FITCH September 2023 data.Sources: IMF Financial Soundness Indicators and staff estimates.

10. The 2023 FATF assessment of Gabon’s anti-money laundering and combating the financing of terrorism (AML/CFT) measures shows weak compliance with the FATF standards and a low level of effectiveness in all areas. The identified deficiencies create significant vulnerabilities to money laundering, notably with relation to the proceeds of corruption and environmental crimes, including in the extractive sector. The assessment also rates the terrorism financing risks as high, due to Gabon's proximity to countries facing significant terrorist threats, the prevalence of cash and informal payment systems, the porous borders, and the risk of exploitation of non-profit organizations for terrorism financing purposes.

11. Downside risks to the outlook dominate (Annex III). On the upside, the prospects for higher nonoil growth could stem from faster than expected rollout of iron production and a stronger recovery of business confidence and activity, although infrastructure bottlenecks may place an effective limit on this upside. In the near term, growth could also get a stronger impetus from fiscal policies if these are looser than projected in the baseline, with the attendant downside risks materializing over the medium term. On the downside, failure to see through needed transparency and structural reforms and address fiscal imbalances (see below) could delay the resumption of investment inflows, lead to persistently tighter financial conditions, and further social and macroeconomic instability. Looser fiscal conditions also pose risks for a resurgence in inflation. Finally, high volatility of oil prices presents a double-sided risk: a potential downswing in oil prices carries risks for the external position, growth, the banking system's health, and the fiscal position, with the inverse for an increase in oil prices.

Text Table 1.

Gabon: Key Economic Indicators, 2020-29

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

Authorities' Views

12. The authorities broadly shared the baseline outlook on growth and inflation but are somewhat more optimistic on the outlook for the external sector. They highlighted upside risks from accelerated iron production once the necessary transport infrastructure is in place, and renewed investment in the oil sector should planned negotiations with some operators be successful, which could help stabilize production levels. The authorities' outlook for the external sector is more favorable, with a stronger outlook for the current account and FDI inflows based on diversification progress supporting a faster reserve accumulation over the medium term.

Policy Challenges and Priorities

Gabon faces three fundamental challenges: poor governance, a significant deterioration In fiscal sustainability, and low per capita growth. Policy discussions with the authorities focused on these challenges, as well as on the need to improve data quality.

A. Pressing Need for Transparency and Good Governance

13. Pursuing good governance and transparency is a prerequisite for the remaining priorities: fiscal sustainability and a stronger growth. Perceived systemic corruption under the previous ruling regime—corroborated by investigations and prosecutions abroad, as well as by consistently low scores in the World Governance Indicators—permeated political, economic, judicial, and social outcomes over the past decades. Challenges are most prominent in the management of oil resources, where lack of transparency about contracts, production, and revenue sharing obscures the full extent of funds available for public spending needs. Elsewhere, underreporting of spending items (e.g., the presidency, the wage bill), lack of data on SOEs, and undisclosed bank accounts outside of—and inaccessible to—the Treasury make it equally difficult to assess the true fiscal position, liquidity pressures, and to make informed policy decisions. Staff also found that poor governance is one of the main contributors to Gabon's high and volatile borrowing costs (selected issues paper “Determinants of Sovereign Spreads in Emerging Markets: Implications for Gabon") and one of the main impediments to doing business.

14. The transitional authorities made initial inroads into improving transparency and budget management, but efforts will need to be sustained. As mentioned, previously unrecorded extrabudgetary expenditures have been included in the fiscal accounts for 2022-23 and in the 2024 budget, even if revealing a much weaker fiscal position. The authorities have also taken measures to better trace and manage public resources in the Treasury Single Account (TSA), with the new TSA platform likely to be fully operationalized in the first half of 2024. The digitalization of many processes relating to the management of public finances, including the payment of taxes has also started. The main risks to faster progress on transparency and governance, however, are decades of entrenched practices in public administration that may slow or stop the reform impetus.

15. Given critical information gaps inherited by the transition government, initial efforts should focus on taking full stock of fiscal flow and balance sheet items. This includes identifying all sources of government revenues, taking stock and setting up a registry of public assets (in Gabon and abroad) and liabilities, if needed through a forensic audit by a reputable international firm:

  • To shed light on the resources available to the government in the mining sector, all mining contracts, including oil, should be published in line with the existing legislation. The authorities indicated that they are working on the practical arrangements for publishing the oil contracts, subject to confidentiality clauses in past contracts. An audit by a specialized reputable international firm could also help assess the oil extraction costs—declared by operating firms—that determine revenues shared with the government and clarify mutual financial obligations between stakeholders in the oil sector. Strengthened reporting under the Extractive Industries Transparency Initiative (EITI)—to which Gabon was readmitted in 2021— should also be pursued. Finally, it is critical to shed more light in the gold sector through efforts to formalize activities and assess potential revenues from gold mining with a view to bringing them into the budget.

  • On the liability side, centralizing the accounting, reporting, and responsibility for all government liabilities within the debt office will help ensure the integrity and management of public debt. The government has already initiated an audit of its domestic arrears, and these efforts should continue with the full identification and publication of the stock of arrears as part of government liabilities, along with the adoption of the strategy for their repayment.

  • After making transparent the fiscal data for 2022 and 2023, these efforts should be extended to pre-2022 data, starting with the most recent years.

  • All fiscal transactions carried out by the executive offices, including that of the presidency— such as revenue inflows, spending, and sales and purchases of assets if any—should be folded into the budget for approval, monitoring, and transparent reporting to the public, along with the rest of the fiscal data, following best public financial management practice.

  • Finally, the annual reports on government accounts by the Supreme Audit Institution (Cour des Comptes), including for previous years, should also be published in line with the requirements of the existing legislation.

16. The transparency effort should then carry forward to all public transactions. First, the government should publish quarterly/yearly analytical fiscal accounts and debt data on a timely basis, including the income and balance sheet statements of oil and mining-related funds (e.g., PID/PIH, training funds, rehabilitation funds) that support budget execution. Outside the central government, where little information is available, the certified financial statements of all SOEs and other parastatals should be required to be reported and published.6 The government set up in early 2024 a new department of state assets under the Ministry of Economy that is expected to strengthen the management and monitoring of SOEs and state owned assets. To systematically identify transparency gaps, the government could undertake a Fiscal Transparency Evaluation and a governance diagnostic assessment, both with assistance from the IMF.

17. Good governance should also be supported in other areas, including public financial management (PFM), the overall anti-corruption framework, and anti-money laundering and combating the financing of terrorism (AML/CFT).

  • Transparency and good management of public resources will depend heavily on strengthening PFM practices; these are discussed below.

  • The anti-corruption framework must be strengthened and put into effect. Though Gabon's legal framework criminalizes corruption, the framework needs to be properly enacted, especially in addressing high-level corruption cases, strengthening the functioning and the independence of the anti-corruption institutions and the judiciary, and enhancing the rule of law, especially in contract enforcement and property rights protection.

  • In the AML/CFT area, priority actions identified by the recent FATF assessment that remain to be addressed include (a) strengthening the reporting and analysis of suspicious activities; (b) reinforcing the investigation and prosecution of ML/FT; (c) identifying and monitoring high-risk non-profit organizations; (d) designating AML/CFT supervisory authorities for high-risk non-financial businesses and professions, including dealers in precious metals and stones; and (e) ensuring greater transparency of beneficial ownership of legal persons. The authorities have recently completed a national risk assessment and submitted a two-year action plan to address the above-listed deficiencies to the assessor body (the Groupe d'Action contre le Blanchiment d'Argent en Afrique Centrale). A new regional regulation applicable to financial institutions will enter into force in July 2024. Other planned reforms, including the designation of AML/CFT supervisors for dealers in precious metals and stones and real estate agents, as well as measures to improve transparency of beneficiary ownership of legal persons, should be accelerated.

Authorities' Views

18. The authorities highlighted the criticality of improving transparency and governance as a policy priority. They consider transparency as a strong promise of the military regime to the Gabonese population. They noted that tangible progress may take time given decades of poor governance but are committed to carrying through the initiated reforms, such as enhancing transparency of the fiscal data. They noted in particular the need to shed more light onto the oil sector. They underscored that the recent acquisition of Assala and Addax (two oil companies) will give them more visibility of the flows of the sector and reaffirmed their decision to publish the oil contracts once the confidentiality and legal constraints related to past contracts have been resolved. They also reiterated their commitment to identifying and recording public assets, including those obtained illicitly by individuals or related companies.

B. Ensuring Fiscal Sustainability

Ensuring a sustainable fiscal position will require a fiscal adjustment in the near term, a framework that anchors and guides fiscal policy decisions in the longer term, and improved PFM practices to support policy implementation.

Returning to a Healthier Fiscal Position

19. In the absence of an adjustment, the fiscal position would become unsustainable and difficult to finance. With limited tightening measures planned for 2024 or beyond, nonoil deficits are expected to remain at their 2022-23 levels over the projection horizon (Box 1, Text Figure 4). The resulting large financing needs (19 percent of GDP in 2024-25)—combined with tight financing conditions amid scarce official financing, high global interest rates and regional markets already overexposed to sovereigns—could leave notable financing gaps and result in further domestic arrear accumulation or excessive bank exposure to the sovereign.7 Even if financed, such deficits would keep public debt on an upward path with a high probability (depending on oil price realizations), aided by declining oil production and unfavorable dynamics generated by low growth and high interest rates. Debt sustainability analysis qualifies debt as at high risk of distress if current policies continue without correction (Annex IV). Risk of debt distress can be lowered, and more financeable deficit levels can be restored under the recommended fiscal adjustment.

Text Figure 4.
Text Figure 4.

Gabon: Fiscal Sustainability Indicators—Baseline

Citation: IMF Staff Country Reports 2024, 144; 10.5089/9798400277801.002.A001

Sources: Gabonese authorities, IMF World Economic Outlook, and IMF staff estimates.

20. Risks to this baseline outlook are still high. Authorities' ambitions to pursue large-scale

projects with unclear returns add considerable downside risks to the above baseline scenario. In addition, the fragmentation of fiscal policy—not only across ministries but also the presidency— risks further weakening the fiscal policy function. Finally, the practice of extra-budgetary spending, if not discontinued, could further hamper a clear understanding of the fiscal position and fiscal risks.

21. Ensuring a sustainable fiscal position will require a significant fiscal adjustment in the near term. Staff estimate that reducing the nonoil primary deficit of 14 percent of nonoil GDP under unchanged policies to around 2 percent by 2027-28 (an adjustment currently equivalent to some 6-7 percent of GDP), would help stabilize and then reverse the debt dynamics and would reduce the financing needs to more manageable levels (Text Figure 5). While this adjustment is large, it is in line with many fiscal consolidations and Gabon's own experience.8 In addition, there is significant uncertainty around the fiscal effort needed to correct the debt dynamics, both because stronger-than-projected outcomes in the oil sector could reduce the needed consolidation and because there could still be scope for potentially untapped sources of savings, which would reduce the required fiscal effort. Overall, the adjustment is feasible provided political will exists, and the DSA indicates that debt would be sustainable under such an adjustment scenario (Annex IV).

Text Figure 5.
Text Figure 5.

Gabon: Fiscal Sustainability Indicators

Baseline vs Adjustment Scenarios1

Citation: IMF Staff Country Reports 2024, 144; 10.5089/9798400277801.002.A001

1 The scenarios are based on WEO oil prices. Debt and financing outcomes may change under different oil prices (see selected issues paper “A Fiscal Framework for Gabon").

22. Given the size of the adjustment effort, both revenue mobilization and spending cuts will be needed. Adjustment efforts could focus on reducing tax exemptions (including discretionary exemptions), closing loopholes in direct taxation, phasing out fuel subsidies and support to loss-making SOEs, and rationalizing the wage bill and the state functions (see Annex VI for a detailed discussion of possible revenue and spending measures). Finalizing the digitalization of revenue declarations, payments, and spending, and operationalizing the interconnectivity of their IT systems along the budget execution chain would also support the adjustment effort. At the same time, the adjustment would need to be growth-friendly, protect the most vulnerable and preserve space for capital spending on basic infrastructure and social needs.9

Fiscal Policies in 2024

The 2024 budget was approved soon after the coup d'etat and aimed at reducing the nonoil primary deficit from 14 percent of nonoil GDP in 2023 to 6 percent (Table 2). Although understandably transitory, the budget is significant in its departure from underreporting of revenues and spending of previous years. It is, however, unlikely to deliver on the fiscal targets given limited adjustment measure and new spending initiatives. On the revenue side, the budget included few tax policy measures (revisions to mineral and timber products export duties, rationalization for some tax incentives) and tax administration measures (such as digitization of tax filing and payment, and electronic invoicing for VAT) but these may not yield the planned increase in revenues from 16 percent of nonoil revenues in 2023 to 17.5 percent in 2024. On the spending side, the following expenditure measures were adopted in the budget or announced subsequently, which staff estimates may increase spending relative to 2023 and to the budget:

  • The government regularized many positions that were de facto filled, especially in the health and education sectors, and announced large recruitments in 2024, increasing the wage bill by 1 percent of nonoil GDP.

  • The government announced a new list of tax exemptions on food, transportation, and construction materials, at an annual cost of about 0.6 percent of GDP.

  • Post-budget, the government has announced new initiatives, such as the purchase of two oil companies (Assala, the second largest in Gabon, and Addax), the setup of a national airline (Fly Gabon) based on the acquisition of a majority share in the regional airline, the setup of a new development bank, the construction of a government conference center (at Cite de la Democratie) and of an administrative center, the building of a second airport and the purchase of majority holdings in the telecommunication company, among other—with potentially very large fiscal implications. All but the last two initiatives are already underway, but their costing is not yet known nor incorporated in staff projections.

A revised 2024 budget is expected by mid-2024, but it remains unclear whether it will initiate a correction of the current fiscal stance or expand it given the impact of the initiatives discussed above or the potential impact of decisions stemming from the national dialogue of April 2024.

23. Beyond the immediate adjustment focus, fiscal policy decisions will need to be anchored in a framework that guides policies to sustainability. While the CEMAC rules play a useful role in setting the upper bounds of debt and deficits, an operational fiscal framework is needed to guide policies on an annual basis towards sustainability. Given the transitional nature of the government, policies in the near term would need to be guided by the fiscal consolidation discussed above. Once data and institutions have been sufficiently strengthened, and there is political will, a fiscal framework could be adopted—as part of fiscal responsibility or similar legislation—to include a debt anchor and an operational deficit rule to achieve the debt anchor (see selected issues paper “A Fiscal Framework for Gabon"). 10 In addition to the rule—which can be chosen closer to the time of the adoption of the framework—the fiscal responsibility legislation would also introduce transparency requirements for the public sector, as well as principles for good governance, PFM, and responsibility for monitoring SOEs and other entities outside the budget perimeter.

Authorities' Views

24. The authorities noted that they inherited a difficult policy tradeoff between addressing high social demands and strengthening the fiscal position. They underscored that the regime change was welcomed by the people on expectations of seeing concrete improvements in their living standards. Therefore, making tangible progress in providing decent infrastructure, reducing costs of living, and creating jobs is the highest priority to contain current social tensions. Nonetheless, the authorities agreed that corrective action will be needed, but noted that the pace of the adjustment would need to be more gradual to allow room for spending to meet high social and investment demands. They also noted that revenue mobilization efforts could surprise on the upside, reducing the adjustment effort needed. They also noted that they agree with the overall long-term policy objectives proposed by staff in terms of debt anchors and economic policy direction needed to achieve them. Finally, the authorities highlighted that further work is needed to assemble the full picture on fiscal flows and stocks given weak records, after which they will be in a stronger position to decide on the extent of needed and feasible near-term corrective action.

Supporting the Fiscal Effort with Good PFM Practices

25. The transition government has inherited weak public financial management practices:

  • Fragmented management of fiscal resources makes policy implementation difficult and generates liquidity pressures. A significant share of fiscal resources bypassed the Treasury Single Account (TSA) for spending that may not have been budgeted or recorded.

This prevented an efficient liquidity management and carried an inherent risk of arrears or unrecorded liabilities. Compounding this problem was a weak digitalization of revenue collections and the expenditure process, with poor communication between them, lack of spending commitment planning and controls, and frequent use of emergency spending procedures. Coordination problems also arise, as responsibility for revenue collection and expenditure execution lies with two different ministries, as does responsibility for debt management.

  • Weak wage bill management is putting undue pressures on the budget. Key weaknesses include lack of a recruitment strategy; a wage bill IT system that is not updated, which creates a high risk of ghost workers, salary arrears and abuse; payroll payments that are not fully digitalized; and salaries in some sovereign entities that were significantly out of line with civil service pay policies.

  • Resources allocated to public Investment have limited returns due to lack of planning and controls. In many cases, projects that are budgeted lack feasibility studies and a clear selection process. Public procurement processes are not transparent. Payments are made without control of delivery.

  • There is also no framework to manage contingent liabilities, and many have already materialized. There is no record of government guarantees. Not all public-private partnerships are monitored centrally. In the SOE sector, there is neither a governance framework nor a centralized function to monitor and manage the associated contingent liabilities, with many SOEs likely a large drain on public resources. The three social security funds are also facing financial challenges, which could generate sizeable fiscal costs if unaddressed (Annex V).

26. The transition government launched important structural reforms to improve public finance management. It initiated steps to (i) integrate all revenues and payments into the Treasury Single Account with a view to making it fully operational by June 2024, which will facilitate the management of the fiscal resources; (ii) integrate the government's resource management systems (revenues, Treasury, budget); and (iii) digitalize government services, including tax payments. Finally, the authorities set up a unit to monitor government holdings and state-owned enterprises, and indicated their intention to finalize reforms that strengthen the investment processes.

27. The most critical area for action is ensuring immediate compliance with existing PFM rules across all levels of the public sector. This means putting an end to executing spending, issuing debt or purchasing and selling assets without budget authorization, bypassing appropriate and transparent procedures or with funds that bypass the Treasury, if these remain.

28. Reforms should address the legal, regulatory or management gaps that allow the fragmented execution of fiscal functions. While policy formulation and execution are divided between two ministries, a centralized function to comprehensively analyze the fiscal position and communicate risks could be instituted. The regulatory framework for debt authorization, management and monitoring should be strengthened to avoid its fragmentation and ensure clear authority for debt issuance within a coherent fiscal sustainability framework. As efforts to integrate resources into the TSA progress, it is important to ensure that (i) the oil revenues set aside for social purposes (PID/PIH), currently kept in the accounts of the oil companies, are paid into the TSA and managed within the framework of the budget; and that (ii) any loopholes that allow the management of general government resources outside the TSA be identified and eliminated.

29. Digitalization reforms will increase efficiency and governance of PFM processes. Efforts to integrate the PFM information systems should be brought to fruition, including by operationalizing the expenditure commitment module, adequately integrating all stages of payments, and ensuring the interface between budgetary, accounting and revenue management systems. The record of all state assets and liabilities should be digitalized, including by centralizing available information on state holdings and publishing information on the balances of bank accounts held outside the central bank.

30. Strengthening expenditure controls and execution, including for wages and investment, could support the adjustment effort. In the case of wages, the authorities should consider designing and implementing a centralized recruitment policy and wage bill management, while removing ghost workers and addressing impediments to the enforcement of the pay scale for all government units. On public investment management, adopting the draft decree on Public Investment Management introducing the methodology for the examination, selection, budgeting and monitoring of projects, would help address the gaps discussed above. Finally, strengthening expenditure execution procedures, including by limiting the use of emergency procedures, preventing payments without service provision and installing the expenditure control software in decentralized administrations would strengthen spending controls.

31. The analysis, management and control of contingent liabilities will be key to ensuring more resilient public finances. On the SOE side, a single supervisory body for public enterprises should be established under the aegis of the Ministry of the Economy and framework legislation for public enterprises that would define their governance rules and transparency obligations should be adopted. The legal and regulatory framework for PPPs and their monitoring should also be established. To address contingent liabilities in the social security funds, the authorities should initiate an audit to assess their financial viability, adopt a restructuring plan as needed, clear arrears to the funds, and for the public social security fund adopt a parametric reform of the system and clear arrears to retirees (Annex V). Overall, a framework for managing various contingent risks in the public sector could be developed more comprehensively under fiscal responsibility or similar legislation.

Authorities' Views

32. The authorities noted that ensuring a significant and lasting change in PFM practices is a key priority of the government. Strengthening cash management through pooling of all resources in the TSA could provide early gains, and the recent completion of a new platform by the regional central bank will allow the full operationalization of the TSA. Digitalization is also proving an important governance tool as recent experience with digitalization of customs clearance at ports is already yielding results. On wage bill management, the authorities agree with the need to centralize recruitments, but also pointed that a multi-year freeze in recruitments—in the context of IMF program arrangements—in critical sectors, especially education and healthcare, created significant pressures and required an increase in hiring. The authorities would like to end the ad hoc approach to public investment which caused low returns. On improving the sustainability and efficiency of the social security funds, the authorities have already initiated the repayment of the pension arrears, indexed pension in line with the wage scale and are planning reforms of the public pension funds to preserve their sustainability.

C. In Search of Growth

33. Reviving per capita growth is the main challenge. Gabon lost about 20 percent of its real per capita income over the last forty years and the outlook for per capita growth is muted by continued loss in oil resources. The country saw relative success in developing its timber and mineral sectors (mainly manganese, where Gabon is the second largest producer in the world). The diversification strategy relies largely on tax incentives, regulatory measures, such as an export ban for logs to encourage higher value added in the wood sector, and business facilitation through the creation of a one-stop shop for investors in the special economic zones. Nevertheless, progress in diversifying away from oil has not been sufficient to generate adequate or sustained growth, and while exports of processed wood and manganese increased, the overall export basket remains of relatively low value added and complexity.

34. Growth has been constrained by weak governance and policy environment, but also by the inability to translate resource wealth into higher human and physical capital (Figure 2, Selected Issues Paper “Gabon's Diversification Journey: What is Missing?”). Physical infrastructure is poor, which leads to frequent disruptions in domestic supply chains, and access to electricity is limited in rural areas where the mining and wood industries are located. Poor health and education outcomes limit human capital, with low labor skills coexisting with high youth unemployment. Gabon's financial sector also remains shallow and largely focused on lending to the government. Staff's survey of 37 firms and meetings with the private sector during the consultations indeed suggested that weak governance is the main factor stymieing the business environment, followed by lack of a predictable fiscal environment and importantly lack of basic infrastructure (transport, electricity) (chart).

35. The authorities’ ability to accelerate the diversification of the economy will rest on progress in governance reforms and in gearing fiscal policy towards stability and support of growth. The transition government intends to accelerate the diversification of the economy. Its strategy is based on the development of infrastructure to address existing gaps—especially in transport, energy and water—in order to sustain economic diversification centered on the mining, wood, agriculture and tourism sectors, while continuing the development of the hydrocarbon sector. This will require:

  • Addressing constraints to the business environment to support higher private investment in non-extractive sectors, including through improved transparency and governance (section A), the identification and removal of excessive regulation, and a lighter footprint of the state in the economy.

  • Reducing costs imposed by the public sector on private activity, including by repaying arrears to suppliers that weigh on bank asset quality and credit generation; finalizing the liquidation of public banks; and strengthening the fiscal position to reduce sovereign spreads, the cost of private credit and risks to banks from an inflated bank-sovereign nexus.

  • Ensuring that the fiscal adjustment needed to preserve macroeconomic stability is growthfriendly. In the case of spending, this means safeguarding fiscal space for higher investment to remove critical growth obstacles such as infrastructure and human capital (education and healthcare).

Authorities' Views

36. The authorities agree with staff on the urgent need to boost economic diversification to increase per capita growth and reduce unemployment. They noted that diversification is one of the objectives of their 2024-26 development plan. As a steppingstone, the authorities intend to harness the full potential of the oil, gas and mining sectors, with the resulting resources supporting the development of the nonoil sector. In this regard, additional value added could be captured in these sectors by exploring options for processing more gas, taking strategic positions through the acquisition of oil companies, and increasing local processing of mining products. Overall, they will focus efforts on boosting infrastructure to support the development of nonhydrocarbon sectors, especially iron ore and timber, for which transporting output from the production sites to ports is a key challenge. The authorities also plan to reform the tourism and fishing sectors to increase their contribution to job creation. Similarly, they plan to improve resource allocation in agriculture for a better development of rural areas, an increase in famers' income, and the reduction of Gabon's food import dependency.

D. Data Issues and Safeguards

37. Data provision and quality require significant improvement. In the real sector, the latest national accounts were released in 2010 and subsequent data rely on estimates by the Ministry of the Economy. The national accounts that continue to be compiled by the Statistics Office are not published and could potentially carry large discrepancies from what is currently used for surveillance. Estimates of demand-side GDP components and short-term indicators are also not published by the Statistics Office. Data on labor markets, including unemployment, are not compiled. In the external sector, the balance of payments for 2016-21 was finalized only in late 2023, while continued revisions and inconsistencies for 2022-23 data hinder their effective utilization for assessing external sector developments. One of the primary reasons behind these challenges are inadequate IT infrastructure and human resource availability, and the authorities are working with the multilateral partners to address them. On the fiscal side, data suffer from inadequate recording practices and coverage issues as discussed in section A, which complicate the assessment of the fiscal position. Staff advised on the urgent need to address the data gaps to ensure an adequate basis for analysis and policy decisions.

38. Safeguards assessment. The 2022 safeguards assessment found that BEAC maintained strong governance and external audit arrangements while internal audit and risk management practices needed strengthening. A safeguards monitoring mission took place at end-2023 to follow up on the outstanding 2022 safeguards recommendations, an external quality assessment of internal audit, and the current implementation of the governance framework. The mission's preliminary recommendations include onboarding for new members of senior management and the Board and an enhanced delegation framework for executive decision-making.

Authorities' Views

39. The authorities are keenly aware of existing data deficiencies and are committed to addressing them. They noted the criticality of having adequate data for the national accounts, which are central to any economic analysis, and of starting their publication by the Statistics Office, potentially with prior technical assistance to ensure their quality. The authorities will continue to work closely with the central bank and the IMF's statistics department to improve the quality of balance of payments and monetary data, including addressing the significant level of errors and omissions and some above-the-line items that also reflect errors and omissions. On the fiscal side, the authorities are continuing efforts to piece together comprehensive data on the fiscal position and debt, including on supplier arrears, guarantees and PPP-related debt, in order to have a good assessment of the fiscal position.

Staff Appraisal

40. Gabon finds itself faced with a historic opportunity to pivot towards a more transparent and inclusive model of governance. The transition authorities signaled a high-level commitment to such governance as a new foundation for sustained development. However, the inherited economic challenges and decades of entrenched institutional practice will be difficult to overcome unless serious reform efforts are sustained to achieve a point of no return. These efforts include profound transparency and accountability in the management of public resources, as well as difficult choices in putting the fiscal position on a sustainable footing while addressing decades of unmet social and developmental needs.

41. The reform efforts should benefit from a relatively propitious macroeconomic environment. The economy has recovered well from the series of shocks that plagued the global economy since the pandemic, helped by strong oil prices. While it faltered somewhat in 2023 due to supply disruptions and coup-related political uncertainty, it is already rebounding to potential as disruptions recede and demand remains strong, supported by expansionary fiscal policies. Inflationary pressures have also abated. The external position is buoyed by favorable terms of trade and reserves continued to accumulate, although a stronger contribution to the regional reserves was likely held back by fiscal deficits.

42. Transparency and accountability in managing public resources is a prerequisite for any credible and sustainable economic takeoff for Gabon. The authorities took encouraging steps, in a break from past practices, to shed light on the fiscal accounts and integrate them comprehensively within the national budget. It is critical that these efforts be sustained and extended to public assets and liabilities, sectors outside the central government (especially state-owned enterprises), fiscal accounts before 2022 and, importantly, to the extractive sectors. This should include the regular publication of fiscal data, the publication of the oil and mining contracts and of the past audits of government accounts.

43. Without a return to a sustainable fiscal position the authorities will not be able to achieve sustained and inclusive growth. The fiscal position has become precarious and the unsustainable expansion that started in 2022 looks set to continue as post-coup social demands replaced election-related spending. While delivering quick results on infrastructure and social needs may be important in securing support for subsequent reforms, this should be done without excessive risks to sustainability. Potentially large financing gaps against the background of quickly rising debt could destabilize the macroeconomic environment, undermining chances of reforms. Instead, a comprehensive fiscal adjustment should be initiated immediately by removing unproductive spending and tax exemptions, while focusing investment on basic infrastructure and social needs. Additional high-risk projects should not be undertaken before these needs are met or before putting the fiscal position on a sustainable footing. Addressing Gabon’s fiscal challenges will also be critical for ensuring CEMAC external stability, as it is the second largest country in the currency union.

44. The commitment to strong public financial management practices should be firm and not sacrificed for expediency. The transition authorities should ensure that the collection of revenues, execution of public spending—including large national projects—and financing are carried out through responsible entities and consistently with PFM rules. This will ensure that the public institutions are not further weakened, that public resources are used transparently and efficiently, and that past practices of extra-budgetary spending are firmly ended. Initial efforts to centralize the management of government resources through the Treasury Single Account have been impressive and should continue, while plans to strengthen the monitoring of state-owned enterprises and of investment processes should be carried to fruition. The authorities should also focus on strengthening the management of the wage bill and of the civil service, as slippages will be difficult to correct.

45. Transitioning to higher, more durable and more inclusive growth will hinge on a successful economic diversification. As oil production continues to decline, finding new sources of growth outside the oil sector is imperative. To that end, preserving macroeconomic stability through a sustainable fiscal position and strengthened governance will be essential for investor confidence, a favorable business environment and lower private financing costs. This will require the repayment of government arrears, reduced risks from the bank-sovereign nexus, a predictable legal environment and upgraded public infrastructure, particularly in logistics and energy.

46. Efforts to improve data quality should be stepped up. High quality data is critical for policymaking, for assessing economic developments and performance, and taking informed decisions. The publication of quality data will also instill confidence and support a more open business environment.

47. Staff recommends that the next Article IV consultation for Gabon be held on the standard 12-month cycle.

Figure 1.
Figure 1.

Gabon: Oil Dependency

Citation: IMF Staff Country Reports 2024, 144; 10.5089/9798400277801.002.A001

Note: To estimate the depletion of oil reserves (using the broader measure of proven and probable reserves, i.e., 2P reserves), data from Rystad is used from 1980 to 2008. From 2009 to 2022, OPEC crude oil reserves data is used. We assume no new oil discoveries and calculate remaining oil reserves as the difference between reserves and production.Sources: Bloomberg, BP Statistical Review of World Energy, World Bank World Development Indicators, World Economic Outlook, Rystad, Gabonese authorities and IMF staff estimates.
Figure 2.
Figure 2.

Gabon: Income and Social Indicators

(Dots are upper-middle income countries)

Citation: IMF Staff Country Reports 2024, 144; 10.5089/9798400277801.002.A001

Note: The expected years of learning-adjusted schooling is a combined measure of the quantity and quality of education from the World Bank. This measure combines years of schooling that a child is expected to attain by age 18 and the harmonized test scores from interenational testing programs. 2022 GDP per capita is displayed in all graphs. Z-scores rescale each indicator by subtracting its mean value and dviding by its standard devation.Sources: International Labor Organizaiton; United National Development Programme; and the World Bank.
Figure 3.
Figure 3.

Gabon: Real Sector Developments

Citation: IMF Staff Country Reports 2024, 144; 10.5089/9798400277801.002.A001

Sources: Gabonese authorities; Haver Analytics, World Economic Outlook; and IMF staff estimates and projections.1/ Sub-Saharan African oil producers displayed include Angola, Cameroon, Chad, Congo (Democractic Republic), Congo (Republic), Cote d'Ivoire, Equatorial Guinea, Ghana, Niger, and Nigeria.
Figure 4.
Figure 4.

Gabon: Fiscal Sector Developments

Citation: IMF Staff Country Reports 2024, 144; 10.5089/9798400277801.002.A001

Sources: Gabonese authorities; JP Morgan Markets DataQuery, World Bank International Debt Statistics; and IMF staff estimates and projections.
Figure 5.
Figure 5.

Gabon: Monetary Sector Developments

Citation: IMF Staff Country Reports 2024, 144; 10.5089/9798400277801.002.A001

Note: Financial conditions index reflects changes in monetary aggregates, excess reserves, credit to the private sector, BEAC policy rates, Gabon's sovereign bond spreads, real effective exchange rates, oil prices and EMBIG returns.Sources: BEAC; BIS; Gabonese authorities; IMF Financial Soundness Indicators; and IMF staff estimates and projections.
Figure 6.
Figure 6.

Gabon: External Sector Developments

Citation: IMF Staff Country Reports 2024, 144; 10.5089/9798400277801.002.A001

Sources: Bank for International Settlements, Gabonese authorities, IMF Direction of Trade Statistics Database, IMF International Financial Statistics Database, and IMF staff estimates and projections.
Table 1.

Gabon: Selected Economic Indicators, 2020-29

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Sources: Gabonese authorities, World Economic Outlook, World Bank World Development Indicators, and IMF staff estimates and projections 1/ Staff report for First and Second Reviews of the Extended Arrangement under the Extended Fund Facility (July 8, 2022; EBS/22/53). 2/ Projections are based on unchanged policies. 3/ Data for 2023 correspond to year-year annual growth calculated for November 2023.
Table 2.

Gabon Central Government Accounts, 2020-29

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Sources: Gabonese authorities and IMF staff estimates and projections. 1/ Staff report for First and Second Reviews of the Extended Arrangement under the Extended Fund Facility (July 8, 2022; EBS/22/53).
Table 3.

Gabon: Financing of the Fiscal Deficit, 2020-29

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Sources: Gabonese authorities; and Fund staff estimates and projections. 1/ Staff report for First and Second Reviews of the Extended Arrangement under the Extended Fund Facility (July 8, 2022; EBS/22/53). 2/ Includes statutory advances from the BEAC. 3/ Negative figures indicate an accumulation of arrears. 4/ Includes expected below-the-line operations, such as repayments of legal debt following judiciary decision. 5/ Includes multilateral, bilateral, commercial (excluding project financing and Eurobonds)
Table 4.

Gabon: Balance of Payments, 2020-291

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Sources: Gabonese authorities and IMF staff estimates and projections. 1/ The Balance of Payments, reflecting Gabon's transactions with non-residents, reflects flows that are both in foreign exchange and in the CFAF (with the remaining members of the CEMAC currency union). The only exception are the change in reserves up to 2023, which are reportedly calculated to reflect true FX changes. 2/ Staff report for First and Second Reviews of the Extended Arrangement under the Extended Fund Facility (July 8, 2022; EBS/22/53).