Press Release No. 17/233

IMF Executive Board Approves US$642 Million Extended Arrangement Under the Extended Fund Facility (EFF) for Gabon

June 20, 2017

•  The program will help Gabon ensure macroeconomic stability and lay the basis for sustainable and equitable growth.
•  The three-year extended arrangement will help anchor prudent fiscal policies and a sustainable balance of payments position.
•  Fiscal consolidation will help ensure debt sustainability and support the stabilization of the regional international reserve pool.

On June 19, 2017, the International Monetary Fund (IMF) approved a three-year extended arrangement under the Extended Fund Facility (EFF) for Gabon for SDR 464.4 million (about US$642 million), or 215 percent of Gabon’s quota, in support of the authorities’ medium-term recovery program.

The EFF-supported program will help Gabon ensure macroeconomic stability and lay the basis for sustainable and equitable growth. It seeks to attain debt sustainability at the national level and help contribute to restoring and preserving external stability for the Central African Economic and Monetary Union (CEMAC).

Yesterday’s Executive Board’s decision enables an immediate disbursement of SDR71.43 million, about US$ 98.8 million. The remaining amount will be phased over the duration of the program, subject to semi-annual reviews.

Following the Executive Board discussion on Gabon, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair stated:

“Gabon is facing significant macroeconomic challenges due to a sharp decline in oil prices. Growth has declined, fiscal and external buffers have diminished, and public debt levels have increased. The authorities’ Fund-supported economic program appropriately focuses on addressing these large fiscal and external imbalances, as well as structural fiscal reforms to improve the efficiency and transparency of public spending, and policies to enhance financial sector stability and economic diversification.

“The three-year extended arrangement under the Extended Fund Facility will help anchor prudent fiscal policies and a sustainable balance of payments position. While downside risks in the short term are high, the authorities have presented an adequate policy package to manage risks. Over the medium term, the economic outlook remains positive, provided policies envisaged under the Fund-supported arrangement are rigorously implemented.

“Fiscal consolidation will help ensure debt sustainability and support the stabilization of the regional international reserve pool. The authorities’ plan to contain current spending, while protecting critical social programs, and pursue non-oil revenue mobilization efforts through improvements in tax administration and streamlining of tax exemptions. Prudent financial management will help improve the efficiency and transparency of public spending, especially to prevent recurring problems of extra budgetary spending and arrears accumulation. Efforts to improve oil revenue management are also expected to play an important role.

“Safeguarding financial sector stability and promoting financial inclusion will ensure that the financial sector supports economic objectives. An expeditious resolution of the three distressed public banks and strengthening of the supervisory framework for commercial banks would also support financial intermediation and contribute to private-sector led economic growth.

“Further improvements to the business climate—particularly in the areas of starting a business, dealing with construction permits, registering property, paying taxes and enforcing contracts—would help diversify the economy. Improvements in the production and dissemination of economic statistics are also needed.

“The success of Gabon’s program will also depend on the implementation of supportive policies and reforms by the regional institutions.”

Annex

Recent Economic Developments

Since mid-2014, the decline in oil prices has generated large drops in oil exports and fiscal revenues. Within this context, Gabon’s economy is facing three crucial macroeconomic challenges, including slowing growth, rising public debt levels, and insufficient fiscal and external buffers. The decline in economic activity continued in 2016, with 2.1 percent growth, down from 3.9 percent in 2015. Despite substantial fiscal adjustment since 2014, the overall fiscal position has deteriorated substantially. Additionally, the rising deficit in the overall fiscal balance has increased financial needs, which has given rise to large domestic bank financing and the accumulation of arrears. The current account deficit widened sharply in 2016, moving to a deficit of over 10 percent of GDP, from an average surplus of about 14 percent of GDP over 2010-14 period. Average inflation has picked up to 2 percent in 2016, but remains within the CEMAC convergence criterion.

The medium-term economic outlook remains favorable, provided prudent policies are implemented as planned. Growth can return to previous levels of 4-5 percent, supported by the authorities’ ongoing diversification strategy. Large scale investments in agriculture and logistics are projected to develop a competitive advantage in agri-business as well as unlock downstream activity in other non-oil commodity sectors. Gabon’s diversification strategy around these projects could help boost competitiveness and productivity and help restore external stability over time.

Program Summary

The three-year EFF-supported program builds on the strategy set out by the CEMAC heads of state at their December 2016 summit in Yaoundé. Recognizing the potentially serious economic and political disruptions that could result from a change in the exchange rate regime, they agreed on a strategy based on maintaining the current peg, while putting in place substantial fiscal adjustments in each country, all supported by tightening monetary policy at the regional level. In that context, Gabon’s EFF-supported program will buttress the broad objectives of the country’s economic recovery program. The EFF-supported program is built on three key pillars: well-balanced fiscal consolidation that minimizes the impact on growth and protects vulnerable groups; structural reforms to improve the efficiency and transparency of public spending; and policies to enhance financial sector stability and economic diversification.

As part of the IMF-supported program, the authorities are committed to protecting social sector expenditure and to redirecting a portion of the budget resources to those sectors. The main objective is to ensure that expenditure in priority sectors—healthcare, education, and social protection—continues to promote the development of human capital, and protects the most vulnerable groups from the impact of the required fiscal adjustment.

The program’s fiscal policy aims at reducing the overall deficit (on a cash basis) to 4.6 percent of GDP in 2017 from 6.6 percent in 2016; and the non-oil primary deficit to 8.9 percent of non-oil GDP from 11 percent. Additionally, the government is taking steps to improve non-oil revenue mobilization, boost tax compliance and combat tax evasion; modernize tax filing and payment procedures; broaden the tax base through the reduction of special tax regimes and exemptions, particularly on VAT; and create a revenue authority.

A strategy for the full repayment of arrears will also be implemented over the EFF-supported program period and the government will accelerate public finance management reforms , including toward implementing CEMAC directives, improving budget transparency and public investment management as well as strengthening of the financial oversight of public companies and government agencies.

Background

Gabon, which became a member of the IMF on September 10, 1963, has an IMF quota of SDR 216 million.

For additional information on the IMF and Gabon, see:

http://www.imf.org/external/country/GAB/index.htm