Public Information Notice No. 13/20

Gabon: IMF Executive Board Concludes 2012 Article IV Consultation

February 19, 2013

On February 13, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Gabon.¹

Background

The authorities have launched an ambitious public investment and reform program to transform Gabon into a diversified emerging market economy by 2025. Although current economic conditions remain supportive, a critical issue ahead is how to use oil and mineral resources efficiently to support inclusive growth. While Gabon has the fourth highest level of income per capita in Sub-Saharan Africa, poverty and unemployment remain widespread, and the economy is heavily dependent on oil, which makes it vulnerable to volatile oil prices.

Gabon’s recent economic performance has been robust. Partly driven by a scaling-up of public investment, the non-oil economy has performed well, in particular mining, wood processing, and construction, helping to boost real gross domestic product (GDP) growth to 7 percent in 2010–11. On the other hand, oil production in maturing fields has been on a declining trend. In 2012, real GDP is projected to rise at about 6 percent, with the continued support of large public investment. Inflation remains under control within the Central African Economic and Monetary Community convergence criteria, at around 3 percent for the annual average, notwithstanding a sharp increase in food prices in mid-2012. Bank deposits and private credit grew rapidly in 2011–12, but from a low base, and banks remain highly liquid.

The external position remained strong, with high oil prices and increasing manganese exports contributing to a large current account surplus while imports associated with the scaled-up public investment and the African Cup of Nations soccer tournament rose rapidly. In 2011, the current account surplus reached its highest level since 2008, at 14 percent of GDP, and is projected to decline only slightly in 2012 as hydrocarbons and manganese exports are expected to falter a little. With large repatriation of profits by foreign oil companies offsetting the current account surplus to a large extent, official reserves have increased only moderately in 2011–12. The real effective exchange rate has remained broadly stable, despite significantly improved terms of trade in 2010–11.

The fiscal stance has been expansionary since 2009 and the overall fiscal balance would register a deficit in 2012 for the first time since 2000. While oil revenues expanded by 80 percent between 2009 and 2012, public expenditure increased by 70 percent over the same period. In particular, capital spending tripled, reflecting the public investment associated with the economic development plan and the infrastructure requirements for hosting the African Cup of Nations. Current expenditures have also been boosted by an increase in the wage bill and subsidies for petroleum products. As a result, the non-oil deficit is projected to peak at 27 percent of non-oil GDP in 2012.

Beyond 2012, the outlook is favorable but subject to risks. Large public investment will continue to improve infrastructures and the authorities plan to take swift actions to improve the business environment and the labor market. Non-oil growth is thus expected to remain robust, as new sources of growth emerge, including in Special Economic Zones. As oil production in mature fields will continue to decline until new fields can be explored, the current account surplus will deteriorate over the medium term, ending in broad balance by 2017. The budget will register small deficits over the next five years as the government executes its investment program while fiscal oil receipts would decline. The foremost risk to the outlook is a possible global slowdown that could lead to a prolonged decline in oil and manganese prices, which the authorities would face with limited fiscal buffers. Moreover, the success of the authorities’ strategy to transform Gabon into an emerging market heavily depends on the efficiency of public investment and effective reforms to unlock the potential for private sector development and economic diversification.

Executive Board Assessment

Executive Directors welcomed Gabon’s robust economic performance in recent years, driven by high oil prices and public investment. However, despite strong economic growth, poverty remains widespread and unemployment is high. Against this backdrop, Directors commended the launch of a long-term development plan to transform Gabon into a diversified emerging market economy. They urged ambitious policies and reforms to support more inclusive growth and build adequate policy buffers against oil price volatility.

While recognizing the need for higher investment and social spending, Directors encouraged a more prudent fiscal stance and a measured pace of increase in public investment. This is important to safeguard medium-term fiscal sustainability and to ensure that public investment spending does not outstrip administrative and absorptive capacities. Directors called for restraint on wage bill growth, lower and better targeted subsidies for oil products, and an expansion in the non-oil tax base. They saw merit in a simple fiscal oil price rule to help anchor spending. Directors also urged continued efforts to strengthen investment planning and execution capacities, improve the quality of investment spending, increase fiscal transparency, and enhance public finance management in order to ensure the efficient use of oil resources.

Directors concurred that comprehensive reforms are needed to remove structural constraints on inclusive and diversified growth and private sector development, which is key to job creation and poverty reduction. Particular attention should be given to enhancing the business environment to spur private investment. Education and labor market reforms are also vital to better match labor supply and demand.

Directors underscored the importance of preserving financial stability and deepening financial intermediation. They encouraged the authorities to improve the institutional environment for access to credit; complete the restructuring of two distressed public banks; and strengthen financial regulation and supervision, including the regime against money laundering and terrorism financing.

Directors encouraged development of a statistical action plan to improve the quality and timeliness of economic and financial data.