Press Release: IMF Approves Stand-By Credit for Gabon
October 23, 2000
The Executive Board of the International Monetary Fund (IMF) today approved an 18-month Stand-By credit for Gabon in an amount equivalent to SDR 92.58 million (about US$119 million) to support the government's economic program for 2000-01. The Gabonese authorities intend to treat the Stand-By credit as precautionary from 2001, if the projected world oil prices assumed in the program for 2001 materialize.
In commenting on the Executive Board discussion, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, said:
"The Gabonese authorities made good progress in correcting exceptionally large fiscal imbalances and restoring macroeconomic stability in 1999. Fiscal performance continued to improve during the first eight months of 2000 in the context of higher world oil prices and further consolidation and transparency efforts. The net financial position of the government at the central bank also improved, and the external current account position strengthened.
"The focus of macroeconomic policies in the program on achieving an adequate level of government savings and improving the quality of spending, is welcome. The substantial revenue-mobilization and expenditure-reducing steps that have already been implemented, the significant measures taken so far to address the serious weaknesses in the transparency of central government operations and governance more generally, the new impetus being given to the structural reform process, and the initial steps taken to address poverty, are all steps in the right direction.
"The authorities are urged to adopt a draft Appropriations Act for 2001 that is fully consistent with the fiscal program for 2001, as outlined in the memorandum of economic and financial policies of September 12, 2000. Early completion of the planned review of tax exemptions, and consolidation of the quasi-fiscal levies, are also highly desirable. Efforts to enhance tax collection, strengthen further the tax and customs administration, broaden the tax base, pursue forcefully the civil service reform, and rein in noninterest current outlays should be maintained in 2001 and beyond. Such a sustained policy stance is necessary, in view of the prospect for declining oil output over the medium term and the heavy external debt-service burden. It is also needed to make room for spending on basic infrastructure to support private sector activities and primary health and education, and to help improve Gabon's disturbingly weak social indicators. In this regard, the government's intention to formulate a comprehensive poverty reduction strategy by end-2001 is a welcome initiative.
"Timely implementation of measures in the areas of governance and the judiciary envisaged under the economic program, will be critical for fighting corruption, fostering investor confidence, and promoting the rule of law. Accordingly, it is desirable that preparation of the draft Anticorruption Law proceeds swiftly, so that it can be submitted to parliament by end-December 2000, as scheduled. It is expected that the law will provide for the establishment of an agency independent from the executive branch. A new integrated fiscal information system is expected to be fully operational by end-January 2001, at the time when the 2001 budget will start to be implemented. This important instrument should help to enhance the transparency of central government operations and promote sound fiscal management.
"The recent resumption of structural reforms including progress in privatizing the telecommunications sector, is welcome. Effective implementation of the privatization program and other structural reforms would help place the economy on a sustained growth path, improve the competitiveness of the non-oil private corporate sector, and reduce budget subsidies," Mr. Sugisaki said.
Gabon's overall macroeconomic situation has improved significantly since 1999, recovering from the breakdown of financial management in 1998. The massive fiscal slippages in 1998 have been largely corrected as a result of strengthened expenditure control and monitoring, increased transparency in government financial operations, and exceptionally high oil prices. Changes in the government, the reorganization of the Ministry of Finance, and improved governance were other key factors. Buoyant activity in the forestry sector also helped improve the external position. Nevertheless, there was a further large buildup of external debt-service arrears, which reached nearly 18% of GDP by end-June 2000.
Macroeconomic Policies Under the Program
The major goal of the government's program is to lay the foundation for sustainable growth, a prerequisite for achieving poverty reduction. To this end, the program seeks to achieve an average real economic growth in the non-oil sector of about 2.5% a year to partly offset a continuing decline in oil output; contain the average inflation rate at about 2%; and improve the external current account surplus by 1.5 percentage points of GDP over the two-year period.
On the fiscal policy front, the government has decided to take advantage of the improved oil revenue in 2000-01 to increase substantially its savings so as to better prepare its economy to respond to fluctuations in fiscal revenues in the medium term that could stem from the oil sector. Efforts in this area are to be supported by further actions to strengthen governance, including submission to Parliament of an Anticorruption Law and the implementation of an integrated fiscal information system.
In May 2000, the authorities formulated a revised structural reform 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 government to submit to parliament a number of key codes, including a revised Labor Code and a new Forestry Code with appropriate environmental safeguards.
Social Sector Policies and Poverty Reduction
Although Gabon does not qualify for assistance under the PRGF or the HIPC Initiative, the government has conducted roundtable discussions with civil society on a poverty study prepared by the World Bank in 1997. These discussions have created a growing awareness of the poverty situation in the country. In fact, despite a GDP per capita of about US$4,000 and large oil revenues, income distribution is skewed in Gabon, and the country's social indicators remain very poor.
Pending the formulation of a comprehensive poverty reduction strategy by late 2001, the government has already taken steps to better ascertain the extent of poverty in Gabon by launching two studies, one on health and one on education, and a comprehensive demographic and health survey.
Gabon joined the IMF on October 9, 1963, and its quota is SDR 154.30 million (about US$198 million). Its outstanding use of IMF financing currently totals SDR 58.83 million (about US$75 million.