Press Release No. 18/255

IMF Staff Completes Review Mission to Gabon

June 25, 2018

• Economic growth is expected to recover in 2018 and reach 2 percent against 0.5 percent in 2017.
• Program performance was weak with substantial fiscal slippages and slow progress on structural reforms. The authorities agreed to take strong corrective action.
• Discussions to continue to finalize a package of measures and reforms that could be presented to the IMF Executive Board by end-July.

An International Monetary Fund (IMF) mission led by Alex Segura-Ubiergo visited Libreville during June 13-25 to conduct discussions for the second review of Gabon’s [1] extended arrangement under the Extended Fund Facility (EFF). [2] The EFF-supported program will help Gabon restore macroeconomic stability and lay the basis to sustain higher and more inclusive growth. The program seeks to buttress debt sustainability at the national level, improve the transparency and efficiency of public spending, and contribute to the external stability of the Central African Economic and Monetary Union (CEMAC), building on the collective efforts of the other member states and regional institutions of the currency zone.

At the conclusion of the IMF mission for the second review, Mr. Segura-Ubiergo issued the following statement:

“Economic activity appears to be stabilizing, with growth estimated at about 0.5 percent in 2017. Traditional sectors of economic activity (oil, commercial and service sectors) were weak, but robust activity in mineral extraction, agriculture and the timber sectors helped the economy avoid a recession. This suggests that some elements of the authorities’ diversification strategy are beginning to have a positive impact.

“Inflation was modest at 2.7 percent, and oil exports and new mining capacity helped reduce the current account deficit in 2017. Economic growth appears set to recover in 2018 and reach 2 percent, which is a more modest bounce back than previously expected. Nonetheless, the medium-term outlook remains favorable if adequate policies are implemented as planned. Prospects remain good for a gradual recovery driven by an increase in large-scale private investment in Gabon’s transportation infrastructure and its emerging and established export sectors. The largely rural and labor-intensive agriculture and forestry projects could also generate positive spillovers, but this potential will largely depend on reforms to tackle the weak business climate, where greater reforms are needed.

“Financial sector vulnerabilities increased in 2017. Bank deposits and credit to the private sector decreased, while loans in arrears increased. Conditions worsened in the first quarter of 2018, reflecting the impact of the government’s domestic arrears to its suppliers. Decisive steps will be needed to accelerate the repayment of domestic arrears, which has become a serious burden on the capacity of the private sector to sustain growth and could weaken further the health of the banking system. The repayment plan, including under the “Club of Libreville” arrangement should be executed transparently.

“The mission expressed concern about weak program performance, substantial fiscal slippages, and disappointing progress on structural reforms. The overall fiscal deficit (cash basis) declined by about 3 percent of GDP, broadly in line with program projections. This helped contain public debt (including domestic arrears) at around 63 percent of GDP. But the composition of the adjustment was less than optimal as it relied on a large drop in public investment, which can have a negative impact on growth. There was also insufficient progress to contain current spending (wages and salaries, transfers, subsidies and special accounts) and weak non-oil revenue collections. Progress to clear domestic and external arrears was also slower than expected, and many important structural reforms have been delayed or not implemented as planned.

“The authorities acknowledged the need to step up program implementation and agreed to implement decisive measures through the 2018 supplementary budget. The mission noted that efforts included the draft supplementary budget to reduce the wage bill will help alleviate cashflow pressures and place public finances on a sustainable path. But it also noted that measures to strengthen revenue mobilization, as well as additional reductions in the total level of spending will be needed, while ensuring that social spending is adequately protected. More rigor will also be needed in the execution of the budget and cashflow management to avoid the recurrent problem of accumulation of external arrears, which is negatively affecting the international image and creditworthiness of the country.

“The authorities indicated their intention to push forward with a decisive package of reforms to mobilize additional non-oil revenues, contain public spending, improve the transparency and efficiency of the budget, protect social spending in favor of the most vulnerable groups of the population, and improve cashflow management to avoid new accumulation of domestic and external arrears. Discussions will continue in the coming days to finalize a package of economic measures and reforms that could be presented to the IMF Executive Board for discussion by end-July.

“The mission would like to thank the Gabonese authorities for the constructive discussions and warm hospitality.”