Public Information Notice: IMF Concludes Article IV Consultation with Gabon
November 22, 2000
|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.|
On October 23, 2000, the Executive Board concluded the Article IV consultation1 with Gabon.
Gabon's overall macroeconomic performance strengthened over 1995-97 but deteriorated sharply in 1998, mainly due to large slippages in central government finances and an inadequate policy response to lower world oil prices. According to the findings of the two audits of central government finances in 1997-98 and of the domestic public debt, the fiscal accounts for 1998 showed an unprecedented level of extrabudgetary expenditures of 20 percent of GDP; and a primary budget deficit of 6.3 percent of GDP and an overall budget deficit of 14 percent of GDP, both on a commitment basis. The domestic public debt, which had initially been estimated at 28 percent of GDP at end-1998, was revised downward to 15 percent of GDP.
Since 1999, the Gabonese authorities have achieved significant progress in restoring macroeconomic stability, and the fiscal accounts have improved substantially. Fiscal discipline and transparency in central government finances have been restored, and significant steps have been taken to strengthen governance and tackle poverty. The economic prospects for 2000 and 2001 have taken a favorable turn, with large prospective oil revenue.
As a result of fiscal tightening and higher world oil prices, the primary fiscal balance switched to a surplus of 8.1 percent of GDP in 1999—a turnaround of about 14.5 percentage points of GDP from the 1998 level. Total noninterest expenditure in relation to GDP was cut back by half to 20.6 percent of GDP from the 1998 level, nearly 5 percentage points of GDP below the 1997 level. The domestic public debt was reduced further to 12.8 percent of GDP by end-1999. However, external debt-service arrears continued to accumulate in 1999 and during the first half of 2000, reaching 17.8 percent of GDP (CFAF 604.5 billion) by end-June 2000.
Gabon underwent a severe economic recession in 1999. Real GDP contracted by 9.6 percent, reflecting a further drop in oil output (to 15.6 million tons or by 11.4 percent) and an estimated 8.9 percent decline in real non-oil GDP. The sharp contraction of activity in the non-oil sector was due to drastic cuts in the public investment program, a weakening performance of the public corporate sector, and a wait-and-see attitude of the private corporate sector. The overall effect of these factors more than offset the positive impact of the recovery in the forestry sector, which was driven by strong demand for timber. During the first half of 2000, growth in the non-oil sector remained weak as activity linked to public works and construction continued to be depressed. There were, however, signs of recovery. In particular, activity in the forestry and wood-processing sector remained robust and foreign trade recovered, reflecting high oil prices, demand for wood, and a sharp increase in imports.
Consumer prices declined by 0.7 percent in 1999 after increasing moderately by 2.3 percent in 1998. By end-June 2000, consumer prices declined further by 0.6 percent (on a 12-month basis). The external current account deficit of 1998 switched to a small surplus in 1999, owing to the improving oil prices and declining merchandise imports in line with the contraction of economic activity. The external current account surplus is expected to increase in 2000 due to higher world oil prices and continued strong performance of timber exports.
Gabon reduced the net claims of the regional central bank, the BEAC, on the government to about CFAF 104 billion by end-June 2000, from about CFAF 175 billion at end-1999 and CFAF 199 billion at end-1998. It also reduced its net debt to the commercial banks, increasing bank liquidity. As a result, Gabon contributed to the further buildup in the net foreign assets of the BEAC during the first six months of 2000.
On structural reforms, the process resumed in late 1999 and took a new momentum in May 2000, with the formulation of refocused agenda centered on the privatization of five major public enterprises in the key sectors of telecommunications, transport, agribusiness, and wood processing. The agenda also proposes a new timetable for the submission of a number of key codes, including notably the Labor and the Forestry Codes, to parliament.
Since 1999, Gabon's short-term fiscal revenue prospects have improved as a result of substantially higher oil prices and non-oil revenue mobilization efforts. However, with a declining medium-term trend in oil output, strong and sustained growth of Gabon's non-oil sector is needed to offset the expected contraction of the oil sector and mitigate the impact on income.
Executive Board Assessment
Executive Directors noted that, since taking office in January 1999, the new government had taken steps to redress weaknesses in governance, correct the large budgetary imbalances of 1998, and establish transparency in government financial operations. These have helped lend greater credibility to government finances and instill confidence in government actions.
Directors commented that the strengthened institutional, administrative, and statistical capacity, and the improved short-term economic prospect associated with higher world oil prices provided Gabon with a unique opportunity to address the acute challenges confronting the country. They pointed to the excessive dependence on oil revenue; the heavy external debt service burden; a domestic economic environment that is not yet conducive to private sector development and job creation; an oversized civil service in need of streamlining; disturbingly weak social indicators; rising poverty; and high youth unemployment.
Directors observed that a strategy to address these problems effectively requires a radical change in the way of doing business, sustained improvement in openness and governance, and avoidance of the "stop-go" pattern of adjustment and reform. They therefore welcomed the emphasis of the government's program for 2000-01 on fiscal consolidation, to increase government savings, and on measures to reduce corruption and improve governance, strengthen the rule of law, and enhance the functioning of the judiciary.
Directors noted that medium-term budgetary consolidation is needed to free up resources for critical public investment in basic infrastructure, to support private sector activities and bolster growth in the non-oil sector, as well as for essential social spending on primary health care and education. In this regard, they welcomed the steps being taken to prepare for a comprehensive poverty reduction strategy.
Directors supported the fiscal adjustment embedded in the revised Budget Appropriations Act for 2000 and the added tightening envisaged for 2001, especially at a time of windfall oil revenues. They noted, in particular, the sustained effort to rein in noninterest current outlays on nonessential goods and services, transfers and subsidies. Directors stressed, however, that attainment of the fiscal program objectives for 2000 and 2001 will require the government to keep noninterest current spending in check, and not to relax its stance in the run-up to the 2001 elections. In this regard, they welcomed the authorities' intention to deposit the expected cash treasury surplus in 2001 in a special account at the Bank of Central African States.
Directors noted the considerable scope to increase non-oil tax revenue through more effective collection procedures and improved tax and customs administration. They urged the authorities not to grant any new tax exemptions until the intended review of those granted so far is completed. Directors welcomed the authorities' intention to reassess the quasi-fiscal levies that had proliferated in recent years. They also welcomed the authorities' decision to reform the official land registry and introduce a real property tax in 2001 in the context of the newly launched land reform.
Directors considered that governance measures are a key pillar in the program. They urged that the measures envisaged under the economic program for the remainder of this year and for 2001 be implemented quickly. In particular, early enactment of an Anticorruption Law providing for the establishment of an agency independent from the executive branch will be critical for investor confidence and to promote the rule of law.
Directors commended the authorities for the renewed impetus given to structural reforms. Progress in this area should help alleviate the burden on the budget of a costly civil service and of an inefficient public enterprise sector. It will also help lower the cost of doing business in Gabon and thereby give a needed boost to non-oil sector activity. Directors were encouraged by the authorities' determination to move ahead with privatization, and to enact the relevant legislation and codes into law, in particular the Labor Code as soon as possible.
Directors noted the progress made since 1999 in the provision of data for surveillance and program implementation and monitoring. However, noting the persistent deficiencies in the quality of national accounts, price and balance of payments statistics, they urged the government to continue to improve basic macroeconomic data with a view to promoting timely and comprehensive economic analysis.