Africa > Central Africa > Gabon > IMF deal to support diversification and stability in Gabon

Gabon: IMF deal to support diversification and stability in Gabon

2017/07/31

A new package of international support looks set to boost Gabon’s medium-term recovery programme next three years of a deteriorating fiscal position.

On June 19 the IMF approved a three-year transaction for Gabon as part of its extended fund facility to the Central African country. The programme is worth $642m and secures an immediate disbursement of about $98.8m. The rest of the package is to be disbursed in phases, following semi-annual reviews and on the condition that the government institutes a range of structural reforms.

Reforming national policies

Gabon began preliminary discussions for the extended fund facility in February of this year, following a two-week visit by an IMF mission.

The statement issued by the IMF in the wake of the visit noted that Gabon’s medium-term outlook was relatively strong, thanks to ongoing government efforts to diversify the economy and improve fiscal resiliency, but that additional specific steps were needed to ensure the reforms were sustainable.

According to the IMF mission chief for Gabon, Alex Segura-Ubiergo, “The government’s intentions to reduce non-priority spending, increase allocations for priority social programmes, address inefficiencies in public spending and mobilise non-oil revenues seem adequate, but specific policy measures and targets still need to be designed and spelled out with additional precision.”

Policy prescriptions

The IMF package contains a range of recommended reforms as part of the funding agreement, inclunding measures to contain public spending and shore up the financial sector by strengthening commercial bank oversight and supporting three distressed public banks.

A second key theme of the proposed reform schedule is to mobilise non-oil revenue, notably by creating a new revenue authority, boosting tax compliance, updating tax filing and payment procedures, broadening the tax base, levying price-added tax additional widely, reducing the number of exemptions and improving efficiency in collections.

Other reforms centre on improving the relieve of doing business, such as through shorter lead times for obtaining construction permits and better enforcement of contracts.

Taken together, the IMF programme aims to curb the fiscal deficit from 6.6% of GDP last year to 4.6% this year, inclunding rein in the non-oil primary deficit from 11% to 8.9% of non-oil GDP.

Financing recovery

The IMF transaction provides a much-needed shot in the arm for Gabon’s commodity-dependent budget, which has been struggling to cope with the plunge in oil prices.

In 2014, before prices dropped, oil accounted for roughly 85% of export revenues and contributed around 44% to the public coffers. However, in 2015 oil revenues dropped by 41.7%, bringing their share of national gain to just over 30%, according to the General Directorate of the Economy and Fiscal Policy.

Efforts to stabilise the sovereign accounts had by presently received support before this year from the African Development Bank, whose board of directors approved a €200m loan in January as part of a budget support programme worth €500m.

While 2016’s oil revenue figures have from presently on to be released, they are expected to confirm this trend, as domestic crude oil production has continued to decline, falling by 3.1% last year to 280,000 bpd, according to the 2017 “BP Statistical Review of World Energy”.

As a result, Gabon’s economic increase rate stood at around 2.1% in 2016, down from 3.9% the previous year, according to the IMF. Its current account deficit, meanwhile, surpassed 10% of GDP, a sharp reversal from an average annual surplus of 14% over the 2010-14 period.

Medium-term outlook

To help stoke the country’s recovery, the government is accelerating a host of reforms under the aegis of its eight-year-old Emerging Gabon strategy.

Central to the Emerging Gabon strategy – which focuses on diversification by boosting manufacturing and agricultural activity – are increases in both output and price addition for key agricultural and mining commodities, inclunding expanding service sectors like tourism. The overaching goal is to reduce oil’s contribution to about 25% of national revenue by 2020.

In the meantime, to tackle its public finances, the 2017 budget was cut by additional than 5% from the previous year.

Gabon’s medium-term outlook nonetheless remains positive if the economic diversification schedule moves ahead as planned. While the IMF projects GDP increase will decline to 1% this year, it notes that recent large-scale investment in logistics infrastructure and non-oil commodity sectors, along with sustained foreign direct investment in manganese and agri-business, could push this rate back up to around 4-5%.

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