Public Information Notice: IMF Executive Board Concludes 2007 Article IV Consultation with the Republic of Equatorial Guinea

April 28, 2008

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. 08/48
April 28, 2008

On June 8, 2007 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Equatorial Guinea.1


Equatorial Guinea has recorded one of Africa's fastest growth rates over the past decade, as its petroleum industry has expanded and diversified into hydrocarbon derivatives. The development of downstream activities strengthens the country's longer-term economic and fiscal sustainability. However, weaknesses in the business environment and transparency could jeopardize successful development.

Macroeconomic performance was mixed in 2006. After rapid economic development in recent years, the real economy declined around 5 percent, on account of a temporary drop in oil and methanol production. In the non-oil sector, strong growth was observed in construction, utilities, and finance and housing, mainly driven by a large increase in public capital spending. Strong domestic demand exerted upward pressure on prices. With inflation above that in major trade partners and the euro appreciating against the U.S. dollar, the real exchange rate continued to rise.

The authorities are now developing a National Development Plan, with a 2020 horizon, to be supported by a macro-fiscal framework that takes account of hydrocarbon resource exhaustibility. Hydrocarbon revenues have provided the country with adequate resources to alleviate poverty and achieve the Millennium Development Goals (MDGs). Informal indicators suggest a growing prosperity, but the importance of a sound statistical base for policy making—including accurate measures on indicators of well-being—is becoming more pressing.

Fiscal performance in 2006 benefited from the high oil prices. The overall fiscal surplus rose to 23 percent of GDP, reflecting stronger oil revenues, partially offset by a sizeable rise in capital spending, which considerably exceeded the budget. This overexecution reflected unbudgeted purchases of shares in hydrocarbon sector projects and spending on physical infrastructure. Education, health, and water and sewerage projects remain only a small share of public investment spending. The non-oil primary deficit—a key fiscal indicator—remained at about 64 percent of non-oil GDP. Although revised estimates of the non-oil GDP and non-oil revenues significantly improved measures of fiscal sustainability compared to previous estimates, the gap with a sustainable fiscal position over the long term remains sizeable.

The oil price windfall has also led to robust balance of payments surpluses, and the accumulation of sizeable financial assets. The balance of payments surplus was US$712 million driven by continued inflows of foreign direct investment and improvement in the terms of trade. The current account moved into surplus. Deposits at the Banque des Etats de l'Afrique Centrale (BEAC) reached US$3.1 billion and deposits in foreign commercial banks reached US$2.1 billion, at end-2006. In the absence of an active sterilization policy by the regional central bank, monetary conditions in 2006 continued to be shaped by fiscal and balance of payments developments. The financial system remains underdeveloped but stable.

Executive Board Assessment

Executive Directors observed that, following a pause in 2006, Equatorial Guinea was poised to resume strong growth in 2007. Continued robust oil exports and diversification of the hydrocarbons industry into derivatives should help to sustain favorable growth prospects in the medium term.

Directors endorsed the authorities' efforts to formulate a long-term National Development Plan, aimed at enhancing productivity and accelerating progress toward the MDGs. In that context, and in view of the inflationary pressures and real exchange rate appreciation, Directors underscored the importance of ensuring that macroeconomic policies help to safeguard competitiveness, and are accompanied by accelerated structural measures to support a sound business climate, economic diversification, and job creation.

Directors welcomed the development of a medium-term fiscal framework that takes into account the exhaustibility of hydrocarbon resources. They supported the authorities' adoption of a fiscal policy guided by a reduction in the non-oil primary fiscal deficit. A key priority is to ensure that budgetary execution adheres to spending limits and safeguards the quality of public expenditure. Directors also stressed the need to improve the performance of non-oil revenues, which will require sustained attention to tax and customs administration reform.

Directors considered that the continued saving of a significant part of hydrocarbon revenues is critical to generate investment income to replace oil revenues that will decline over time. They emphasized the importance of Equatorial Guinea fulfilling its obligations within the monetary union to remit fiscal savings to the BEAC. Directors called on the authorities to work with their BEAC partners to reformulate the investment strategy for reserves and to ensure an appropriate return on oil savings.

While recognizing the country's needs for physical infrastructure, Directors underlined that the authorities' immediate priority is to reorient capital spending toward human resource development, and to ensure that current spending receives an appropriate allocation to operate and maintain the growing public capital stock. They welcomed the creation of a Social Needs Fund to guide the government's social welfare activities, and looked forward to implementation of its programs in 2007. A timely public expenditure review, with World Bank support, should contribute to enhancing the efficiency of public investments and improving social spending.

Directors regretted the lack of progress in public financial management reform, and encouraged the authorities to invigorate their efforts. They underscored the critical role of transparency and accountability in the fiscal accounts and oil sector, in particular through undertaking regular audits of the national oil and gas companies, and publishing the central government budget and its execution, as well as data and information related to the oil and gas sector in accordance with international best practice. In this regard, Directors urged faster progress toward full participation in the Extractive Industries Transparency Initiative.

Directors emphasized the need for clear and transparent implementing regulations for the new hydrocarbons law and tax laws. They encouraged the authorities to move expeditiously to reconcile the fiscal and local content terms of the hydrocarbons law with existing oil sector contracts.

Directors supported the authorities' efforts to strengthen the role of the financial system in private sector development, including by improving access to credit by small- and medium-sized enterprises. They highlighted the need for proper sequencing and integration into the National Development Plan. Directors welcomed the authorities' interest in a national Financial Sector Assessment Program (FSAP), to complement the findings of the regional FSAP. They looked forward to the early operation of the recently-created National Agency for Financial Investigation to counter money laundering and combat the financing of terrorism.

Directors saw Equatorial Guinea's minimal debt service burden and high reserves as key buffers against economic shocks. To preserve the advantages of a strong external position, they cautioned against sizable new borrowing. All external borrowing should be reflected transparently in the fiscal accounts and balance of payments.

Directors noted that Equatorial Guinea's statistical apparatus remains weak and hampers macroeconomic analysis and policy formulation. They encouraged the authorities to allocate with priority the required resources to enhance the statistical capacity, including by establishing a National Statistical Institute, and to consider participating in the General Data Dissemination System.

The Republic of Equatorial Guinea: Selected Economic Indicators
  2003 2004 2005 2006 2007


      Prel. Proj.
  (Annual percentage change)

Production, prices, and money


Real GDP

11.6 31.7 6.7 -5.2 10.3

Oil and gas GDP (excluding hydrocarbons secondary production)

13.4 35.2 3.3 -10.2 2.4

Non-oil GDP (including hydrocarbons secondary production)

3.7 15.4 25.8 17.6 37.8

Hydrocarbons production (thousand of barrels of oil equivalent per day)

283.1 381.9 402.6 365.8 408.4

Oil and gas primary production 1

262.2 354.5 366.2 328.7 336.4

Hydrocarbons secondary production 2

21.0 27.4 36.4 37.2 71.9

Consumer prices (end of period)

5.9 5.1 3.2 3.8 6.1

Broad money

56.7 33.5 34.7 14.1 28.3
  (Percent of GDP, unless otherwise specified)

Government operations


Overall balance after grants (cash basis)

11.6 12.5 19.3 23.4 22.7

Non-oil primary balance (cash basis, percent of non-oil GDP) 3

-44.4 -73.9 -64.3 -64.4 -63.8
  (Millions of U.S. dollars)

Gross official foreign assets

891 1,633 2,922 5,175 7,273

Reserve assets at the BEAC

231 930 2,113 3,076 4,380

Government bank deposits abroad

659 703 809 2,099 2,893
  (Percent of GDP, unless otherwise specified)

External sector


Current account balance (including official transfers; deficit -)

-33.3 -21.9 -5.5 4.4 2.4

Outstanding medium- and long-term public debt

9.3 6.0 3.4 1.7 1.3

Real effective exchange rate (annual average percentage change) 4

16.9 7.0 2.7 2.4 ...

Sources: Data provided by the Equatoguinean authorities; and staff estimates and projections.
1 Including oil equivalent of gas.
2 Including oil equivalent of LNG, LPG, butane, propane, and methanol.
3 Excluding oil revenues, oil-related expenditures, and interest earned and paid.
4 Negative values indicate depreciation.

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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