Public Information Notice: IMF Executive Board Concludes Article IV Consultation with Equatorial Guinea

June 14, 2006

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

Public Information Notice (PIN) No. 06/66
June 14, 2006

On May 10, 2006 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Equatorial Guinea.1


The economic growth of Equatorial Guinea since the discovery of oil has been unprecedented, averaging 37 percent per year during the last decade. This has led to a rapid rise in per capita income to that of middle-income countries, but the standard of living for the population at large has not improved commensurately.

In 2005, a slowdown in hydrocarbon production caused overall real GDP growth to decelerate sharply, but non-oil GDP growth remained buoyant. End-of-year inflation declined from 5.1 percent in 2004 to 4.8 percent in 2005, despite an increase in fuel prices at the beginning of the year.

Soaring oil prices boosted fiscal revenues in 2005, enabling the government to raise outlays on goods and services and public investment to meet some urgent social needs and to accelerate improvements in key infrastructure. Nevertheless, Equatorial Guinea also achieved a larger-than-budgeted fiscal surplus (23 percent of GDP). With the much larger revenues, outlays on goods and services and public investment were raised to meet some urgent social needs and to accelerate improvement in key infrastructures. The increase in government savings from oil revenues led to a further substantial increase in government deposits with both BEAC and the commercial banks, leaving the growth of broad money high.

The oil windfall also contributed to a strengthening of the external position. The current account deficit narrowed to 13 percent of GDP in 2005 from 24 percent of GDP in 2004, and the balance of payments recorded an overall surplus that raised the level of international reserves to the equivalent of about 15 months of projected imports of goods and services.

Overall, movements in the real effective exchange rate appear to have responded to favorable terms of trade developments—particularly world oil prices.

The relatively solid macroeconomic situation and the availability of adequate resources create a unique opportunity for the country to make rapid progress toward alleviating poverty and achieving the Millennium Development Goals (MDGs). However, to channel resources to priority areas efficiently, there is a need for a well designed development strategy and strengthened institutional capacity.

Executive Board Assessment

Directors welcomed that macroeconomic developments in Equatorial Guinea in 2005 continued to be broadly satisfactory, benefiting from a significant improvement in the terms of trade. The external position strengthened further, and international reserves rose significantly. However, Directors observed that while inflation has declined, it remains above the level of the Central African Economic and Monetary Union (CEMAC) regional convergence criterion. Directors supported the authorities' medium-term goals of diversifying the economy into the fisheries, tourism, and regional financial services areas, and of creating an environment conducive for developing the domestic private sector in order to secure continued strong growth as energy resources diminish.

Directors called on the authorities to take steps to regularize fiscal and budget policy and make it a more effective planning and allocative tool. They cautioned that better-than-expected revenue performance in Equatorial Guinea has tended to go hand-in-hand with expenditure overruns, even though most of the overspending was occurring in the area of physical infrastructure, which, they recognized, greatly needs investment. Directors urged the authorities to make realistic budget estimates and adequate contingency provision for unanticipated urgent expenses to facilitate budget execution within clear parameters, and enhance commitment control, transparency, and the predictability of the fiscal stance.

Given the large oil export revenues, a low debt level, and favorable medium-term economic prospects, Directors noted that Equatorial Guinea can make rapid progress toward alleviating poverty and achieving the Millennium Development Goals (MDGs). However, they observed that so far the improvement in the standard of living of the population at large was not commensurate with the rapid increase in per capita income, and poverty remains the big challenge. Directors welcomed the authorities' intention of preparing a National Poverty Reduction Strategy (NPRS) to guide government policies in fighting poverty while maintaining macroeconomic stability. They commended the authorities for establishing a Social Needs Fund to operate until the NPRS is finalized.

Directors agreed that there is room for increasing spending in the social sectors and on the physical infrastructure. However, as the medium-term fiscal framework is not yet fully developed, attention needs to be given to using resources effectively and avoiding wasteful spending, which will also help contain inflation and preserve the international competitiveness of the country's non-oil economy. Directors welcomed the assignment of two Fund-provided resident advisors for capacity building in public finance management and macro-fiscal issues.

Directors emphasized the importance of improving governance, transparency, and accountability as more resources become available to the government. They encouraged the authorities to take the necessary steps towards full participation in the Extractive Industries Transparency Initiative, including adopting the EITI decree, convening a discussion with stakeholders on the government's disclosure policy, appointing an aggregator to compile, reconcile and oversee the quality of data, and finalizing the agreed action plans.

Directors recommended that domestic liquidity be monitored in case measures are required to temper inflationary pressures. Given that monetary policy is carried out at a regional level, fiscal policy has to assume the main role in liquidity management. They considered that the pegged exchange rate regime has provided an anchor to hold down inflation and has had a positive impact on investors' confidence. However, in the absence of nominal exchange rate adjustments to buffer shocks, Directors stressed the need for careful focus on the macroeconomic and structural policy options for improving the resilience and productivity of the economy.

Directors supported the authorities' resolve to continue enhancing banking supervision, while ensuring that banks comply with prudential regulations, in order to further strengthen the banking system. At the same time, they shared the authorities' concern about the relatively low level of financial intermediation, and encouraged them to address structural rigidities—including in the judicial system to clarify rights and obligations of both borrowers and creditors.

Directors encouraged Equatorial Guinea to work with the other members of CEMAC to gradually reduce the current common external tariff. They observed that the elimination of nontariff barriers and taxes on exports would be instrumental for improving international competitiveness.

Directors urged the authorities to allocate with priority the required resources to enhance the statistical capacity, as the lack of timely, accurate, and comprehensive macroeconomic data hampers the monitoring of economic and financial developments and the formulation of policy.

Equatorial Guinea: Selected Economic and Financial Indicators


2002 2003 2004 2005 2006


      Est. Proj.


(Annual percentage change, unless otherwise specified)

Domestic economy






Real GDP

20.1 13.6 30.0 6.5 -0.4

Of which: non-oil GDP

10.4 11.3 11.3 10.7 10.2

Oil production (thousands of barrels per day) 1/

250.6 283.9 382.8 403.6 397.8

Consumer prices (end of period)

6.2 5.9 5.1 4.8 3.7







External economy






Exports, f.o.b.

22.0 32.3 64.1 55.0 17.0

Imports, c.i.f.

-37.3 154.1 18.7 24.6 -1.6

Exchange rate (CFA Francs/U.S. dollar)

697.0 581.2 528.3 526.9 ...

Real effective exchange rate (depreciation -) 2/

7.4 10.0 4.3 4.4 ...







Financial variables






Government revenue 3/

19.1 13.7 78.2 81.9 28.8

Government expenditure and net lending

27.5 102.5 19.7 16.6 16.6
  (In percent of GDP, unless otherwise specified)

External economy






Current account balance (including official transfers; deficit -)

-13.5 -43.8 -24.2 -13.3 -5.8

Outstanding medium- and long-term public debt

10.2 10.1 6.2 2.7 2.1

Debt service-to-export ratio

0.3 0.4 0.2 0.2 0.2







Financial variables






Gross investment

31.8 60.9 45.9 33.4 23.4

Gross national savings

18.3 17.1 21.6 20.1 17.6

Government revenue 3/

28.5 28.7 34.4 42.9 47.0

Of which : oil revenue

25.0 25.0 31.4 40.5 44.5

Government expenditure and net lending

17.0 30.5 24.5 19.6 19.4

Overall government balance (including oil revenue; deficit -)

11.4 -1.8 9.9 23.3 27.7
  (In millions of U.S. dollars, unless otherwise specified)

External economy






Exports, f.o.b.

2,117 2,801 4,596 7,125 8,332

Imports, c.i.f.

-507 -1,288 -1,529 -1,906 -1,875

Current account balance (deficit -) 3/

-281 -1,238 -1,120 -898 -437

Overall balance of payments (deficit -)

5 122 652 1,400 1,300

Financial variables


Gross official reserves 4/

567 890 1,566 2,936 4,241

(equivalent months of imports, c.i.f.)

3.0 3.9 5.5 10.4 15.2

(equivalent months of non-oil sector imports, c.i.f.)

4.9 5.7 8.1 15.1 21.2

Sources: Equatorial Guinean authorities; and staff estimates and projections.
1/ Including oil equivalent of methanol and liquefied gas.
2/ Period average changes.
3/ Including grants.
4/ Imputed reserves with BEAC and government offshore deposits.

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's authorities.


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