OREANDA-NEWS. A mission from the International Monetary Fund (IMF) led by Montfort Mlachila visited Libreville from November 30 to December 10, 2015 to conduct the 2015 Article IV consultation discussions with the authorities.

At the conclusion of the mission, Mr. Mlachila made the following statement:1

“The recent collapse in oil prices is a major test to Gabon’s macroeconomic resilience. With oil production accounting for roughly one-third of GDP, contributing to 45 percent of government revenues, and about 85 percent of exports in 2014, the 40 percent decline in international oil prices since 2014 (in CFA franc terms) is a serious shock to the Gabonese economy.

“Gabon’s economic growth in 2015 is now expected to decline to 4.0 percent, below the nearly 6 percent level realized over 2010–14. Growth this year has been buoyed by oil production, which is expected to grow by 8 percent thanks to new wells and mature field productivity improvements. However, falling oil prices and revenue have prompted the public sector to rein in spending faster than previously anticipated, and oil companies are sharply curtailing exploration and operating expenditure. As a result, activity in construction, transport, commerce, and services has slowed, and the non-oil economy is forecast to decelerate to 4.0 percent in 2015. Inflation has come down sharply over the past year and expected to be about zero percent this year.

“The new outlook highlights the need for the country to diversify its economy, including through the Plan Strat?gique Gabon Emergent (PSGE), but it also imposes tighter financing constraints. Despite a significant fiscal adjustment since the second half of 2014, the fall in oil prices and its impact on government revenue and on nominal GDP have spurred public debt to rise above the government’s self-imposed ceiling of a debt-to-GDP ratio of 35 percent, and resulted in a decline in government deposits and foreign reserves. The external current account balance turned from a surplus of about 8 percent of GDP to a deficit of 2 percent of GDP.

“The mission welcomed the recent draft 2016 budget and MTFF. The envisaged additional fiscal adjustment will prove challenging, as it targets only moderate increases of current spending and cuts to investment spending. To safeguard the level of PSGE-related public investment, the authorities should widen the tax base by reducing tax exemptions and tax expenditures, contain the very high wage bill, review and reprioritize major projects with a limited economic impact over the medium term, and seek private financing through public-private-partnerships on the basis of appropriate legislation. Given weakening oil prices, additional tax measures and decisive action to address the rising wage bill and further reduce fuel subsidies will likely be needed in early 2016.

“If the government can maintain sufficient resources for the PSGE, overall growth in Gabon could bounce back to an average of about 5 percent in 2016–20. The main risk to this outlook is an insufficient fiscal adjustment in response to weak oil prices. Higher-than-budgeted spending or lower-than-expected prices would force the government to substantially draw down deposits and/or significantly increase borrowing. An ancillary risk concerns a stronger-than-expected spillover of the oil price shock to non-oil economic activity.

“Gabon’s banking system appears sound, with adequate aggregate bank capital and liquidity levels. The mission noted financial vulnerabilities at three state-owned banks. The risks to the banking system appear nonetheless contained, as the three banks are relatively small and they have limited linkages to the rest of the financial sector. Nevertheless, the risks need to be addressed in the near term, and will likely entail fiscal costs. Beyond the recent action undertaken by the authorities to stabilize the banks, additional concerted action is needed from the monetary authorities and the government to definitively resolve the problems at the three public banks.

“With oil price shock weighing on private sector activity, the growth and diversification objectives of the PSGE need to be protected and structural reforms accelerated. The focus should be on improving economic competitiveness and productivity, notably by strengthening education, infrastructure, and institutional capacity, rather than providing costly fiscal incentives to attract investors. In addition, business climate reforms should be accelerated along the lines of an action plan already developed with the International Finance Corporation. Finally, Gabon should advocate for deeper regional integration and explore opportunities for synergies from infrastructure projects underway in neighboring countries.

“The Executive Board of the IMF is expected to consider the staff report on the Article IV consultation in February 2016.

“The IMF mission wishes to express its gratitude to the Gabonese authorities for the constructive discussions and hospitality during its visit to Libreville.” 

The mission had discussions with Mr. Daniel Ona Ondo, Prime Minister; Mr. R?gis Immongault, Minister of Sustainable Development, Economy, Investment Promotion and Prospective; Mr. Christian Magnagna, Minister of Budget and Public Accounts; Members of the Finance Committees of the National Assembly; as well as other senior government officials, representatives of the private sector, civil society, and development partners.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country authorities.