## GABON — FIRST REVIEW OF THE EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY

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### Executive summary and recent program decisions
- Amount referenced: 142.860 million (about US$ 202.3 million).
- Gabon’s three-year, SDR 464.4 million extended arrangement (about US$ 642 million at the time of approval, the equivalent of 215 percent of Gabon’s quota) was approved on June 19, 2017.
- Completion of the first review would make available a purchase equivalent to SDR 71.43 million.
- The Executive Board approved a waiver of non-observance of the continuous performance criterion on the ceiling on the accumulation of new external payment arrears by the central government for the first review.
- Staff supports completion of the first review and modification of performance criteria for end-December 2017, following clearance of all official external arrears as a prior action for the review.

### Recent economic developments and macro outcomes (H1–H2 2017)
- Activity and output:
  - Oil output: production declined by 7 percent through June 2017; oil production fell by 7.2 percent during the first six months of the year.
  - GDP growth: revised from 1 percent to 0.8 percent in 2017.
  - 2017 non-oil growth: 1.7 percent.
  - 2018 overall growth expected: 2.7 percent.
  - 2018 non-oil growth expected: 3 percent.
  - Medium-term growth: expected to reach 4–5 percent.
  - Oil production increase projection: 0.8 percent.
  - Manganese production: up by over 50 percent; export-oriented sectors outperforming.
- Prices and inflation:
  - 12-month average consumer price inflation: decreased from 2.1 percent in December 2016 to 3 percent in August 2017 (Letter of Intent notes 3.6 percent in August 2017 in another instance).
- External sector:
  - Export values grew 37½ percent (y/y) in H1 2017.
  - Imports declined by 13.4 percent in H1 2017.
  - Current account: projected to adjust from a deficit of 10 percent of GDP in 2016 to 5.4 percent in 2017.
  - Financial account weaker than expected in H1 2017 due to shortfall in external project financing and delayed FDI.
  - Projected FDI in 2017: 8.4 percent of GDP (versus initial projections of 10.1 percent).
  - Gabon mobilized US$200 million in August 2017 by reopening an existing Eurobond (raising outstanding from US$500 to US$700 million, coupon 6.95 percent).
  - Anticipated receipts: about US$100 million in windfall capital gains tax from sale of Shell Gabon; OLAM announced additional FDI of about US$400 million for airport construction by mid-2020.

### Fiscal performance, arrears, and financing
- Fiscal outturns and targets:
  - End-June non-oil primary balance target: met.
  - Overall fiscal deficit (cash basis) projected to decline from 3.6 percent of GDP in 2017 to 2.3 percent in 2018.
  - 2017 overall fiscal deficit (cash basis) projected at 3.6 percent of GDP (compared with program target of 4.6 percent of GDP).
  - 2016 overall fiscal deficit: 6.6 percent of GDP.
  - Non-oil primary deficit (in percent of non-oil GDP): expected to improve from 11 percent in 2016 to 9.2 percent in 2017; expected to decline to about 6 percent of non-oil GDP in 2018.
  - Public debt expected: decline from 64.2 percent of GDP in 2016 to 59 percent of GDP in 2017 and fall below 50 percent of GDP by 2021.
- Revenue performance:
  - Non-oil revenue expected yield: 0.9 (percent of GDP) in 2018 projection table.
  - Revenue administration normalization caused an estimated revenue shortfall in 2017 of 0.4 percent of GDP.
  - Specific estimated yields (percent of GDP, 2018 Proj.):
    - Measures on CIT 1/0.1
    - Rationalization of tax exemptions: 0.4
    - VAT: 0.1
    - Import tax: 0.3
    - Full implementation of CEMAC customs tariffs: 0.1
    - Removal of exemptions incl. in "programme de lutte contre la vie chere": 0.2
    - Full taxation of products not incl. in "programme de lutte contre la vie chere": 0.0
    - Removal of illegal base reductions: 0.1
    - Measures on excise taxes: 0.3
    - Modernization of the customs administration (ASYCUDA World): 0.1
  - Additional measures to increase corporate income taxes and remove illegal custom exemptions expected to yield about 0.3 percent of GDP.
- Expenditure containment and social spending:
  - Primary spending projected savings: 0.8 (percent of GDP) broken down: Wage bill: 0.4; Review of remuneration policies: 0.4; Special accounts: 0.4.
  - Authorities expect to generate fiscal space to increase public investment by about ¾ percent of GDP after deeper reductions in 2017.
  - Social protection outlays on goods and services and transfers: on track through June 2017; floor on social protection spending was missed.
- Arrears and financing stress:
  - Shortfalls in domestic and external financing of approximately 2.7 percent of GDP by end-Q3 2017 contributed to accumulation of additional external arrears.
  - External arrears increased from 2 percent of GDP at end-2016 to about 3.1 percent of GDP at end-September 2017; end-November 2017 estimate: 3.1 percent of GDP (CFA 273.3 billion).
  - Stock of external arrears at end-2016: 164.6 (CFA billions) (2.0 percent of GDP).
  - Stock of domestic arrears at end-August 2017: 6.8 percent of GDP.
  - Total stock of arrears at end of August 2017: 10 percent of GDP (external 3.1 percent; domestic 6.8 percent).
  - Domestic financing fell short by 1.2 percent of GDP at end-Q2 2017 relative to program expectations.
  - Government paid CFAF 63bn more than initially anticipated in the cashflow plan through August 2017 for early repayment of some domestic arrears and moratorium debt.
  - VAT arrears repayment: CFAF42 billion repaid against CFAF87 billion planned; commitment to clear total amount by 2020.
- Financing and capacity:
  - Residual financing gap CFA108.5 billion to be covered by Fund under three-year extended arrangement (equivalent to SDR71.43 million or 33.069 percent of quota).
  - In case of full drawing under the extended arrangement, repayments at end of projection period would remain manageable at 0.3 percent of GDP, or 2.7 percent of gross reserves.

### Financial sector conditions and banking sector health
- Deposits and credit:
  - Bank deposits declined by about 14½ percent (y/y) in H1 2017 (other excerpt: deposits decreased by 11.3 percent over first eight months).
  - Credit to the private sector declined by about 7½ percent (y/y) in H1 2017 (other excerpt: credit decreased by 6.3 percent over first eight months).
  - Credit growth projection: about 7½ on average during 2018–20.
- Nonperforming loans (NPLs) and solvency:
  - Loans in arrears rose from 9¾ percent at end-2016 to 13½ percent at end-August 2017.
  - Nonperforming loans increased from 9.7 percent to 13.5 percent of gross loans (further deterioration).
  - Capital adequacy ratio: 15.2 percent at end-August (excluding the three distressed public banks), well above prudential norm of 8 percent; bank solvency (excluding three state-owned banks) improved from 13.1 percent to 15.2 percent.
- State-owned banks:
  - Three distressed public banks with equity between minus 140 percent and minus 500 percent of weighted assets; draft restructuring plan prepared July 2017.
  - Revised restructuring plan required; amended plan to be prepared by March 2018 (new structural benchmark) and implemented no later than May 2018.
  - Policy principle: No public funds will be used to recapitalize or restructure public banks until a credible plan, discussed with the IMF, has been adopted.
- Regulatory changes and NPL framework:
  - COBAC decision: increase risk weighting of sovereign debt from zero to 85 percent; three-year transitional phase allowed (COBAC also suspended for 3 years the application of risk weights to sovereign debts note).
  - Progress on national strategy to strengthen legal and supervisory frameworks for NPLs has been slow; reforms needed include training of specialized judges, establishment of commercial courts, modernization of the real estate credit registry.

### Program monitoring, performance criteria, and structural benchmarks
- Monitoring framework:
  - Program monitored semiannually through quantitative performance criteria (PCs), indicative targets (ITs), and structural benchmarks (SBs); TMU defines QPCs and reporting.
  - Prior action for first review: Clearance of all official external arrears.
  - Completion of first review would release SDR 71.43 million.
- Performance summary (mid-2017 / end-September update):
  - Nearly all end-June PCs and ITs observed except: continuous PC on non-accumulation of new external arrears (missed) and IT on social protection spending (missed).
  - Two structural benchmarks for end-June were met (IFMIS payment module; plan for orderly resolution of three distressed state-owned banks).
  - Several SBs met: established PPP monitoring unit (end-September SB); prepared national strategy on NPLs (end-September SB).
  - Report on stock of arrears (end-September SB) delayed.
- Quantitative targets and selected figures (as presented):
  - Unadjusted floor on primary fiscal balance, excluding oil (payment order basis): -331.2 (CFAF billions).
  - Unadjusted ceiling on stock of net claims of the banking system on CG: 724.2 (CFAF billions).
  - Unadjusted ceiling on contracting or guaranteeing external debt (program and project): 329.4 (US$ millions equivalent in program tables).
  - Continuous PC on accumulation of new external arrears: zero limit throughout the program (not met in instances).
- Reporting and exchange rates:
  - Official exchange rate of CFAF to the U.S. dollar: 581.551 as of September 30, 2017.
  - Cross-rates: Euro = 1.1279 U.S. dollars; Pound Sterling = 0.7858 U.S. dollars; Chinese Yuan = 6.8885 U.S. dollars; SDR = 1.3848 U.S. dollars.
  - Official gold holdings valued at 1,253.71 U.S. dollars per fine ounce.
- Monthly reporting requirements: comprehensive monetary survey, central government financial operations (payment order basis), detailed oil revenue and non-oil revenue breakdowns, debt-service obligations, stock of external and domestic debt, treasury float details, procurement contract reports, and other indicators within six weeks after month end.

### Structural reforms, public financial management, and revenue administration
- Main PFM and revenue actions:
  - Implemented IFMIS module making payments conditional upon issuance of payment orders.
  - New expenditure execution procedure (Decree of May 29, 2017): mandatory purchase order for payment; VECTIS updated; e-BOP to be adapted by January 2018 (new SB).
  - Roll-out of GEBUCO to all institutions by end-March 2018.
  - Publish quarterly budget execution reports (first report covering Q4 2017) by end-February 2018; ongoing reporting cadence defined.
  - Eliminate tax exemptions without legal basis (new structural benchmark); reduce number of totally exempt products from 191 to 171.
  - Adopt immediate cash payments for customs clearance, with limited exceptions (new SB); use bonded bank guarantees only for selected operators.
  - Modernize customs administration (ASYCUDA World) and implement anti-tax evasion plans; collect recoverable tax arrears (estimated stock exceeds 5 percent of GDP).
- Debt management and arrears clearance:
  - Complete three-year debt management strategy with arrears clearance plan by end-January 2018 (new SB).
  - Clear all external arrears to official external creditors (Prior Action).
  - VAT arrears and moratorium debt to be reimbursed over four years, from 2017 to 2020; budgetary float to be settled over 2017–2018.
  - Activate Treasury Committee and extend Treasury Single Account coverage; inventory of accounts outside CUT by end-January 2018 (new SB).
- Public procurement and investment:
  - No investment project to receive public funding from 2018 unless supported by a feasibility study; Standardized Guide for Investment Projects to be published by end-2017.
  - Quarterly reports on procurement and PPP statistics to improve monitoring.
- Institutional reforms for revenue authority:
  - Preparatory steps for Gabon Revenue Authority (Office Gabonais des Recettes, OGR) targeting launch of activities in January 2019.

### Outlook, risks, and contingency planning
- Short-term outlook:
  - Rebound expected in 2018 driven by recovery in oil prices, strength in commodity sectors, agribusiness investment, improving private sector confidence, and recent FDI developments.
- Risks:
  - Near-term: weaknesses in non-oil revenue collections, tight short-term liquidity, volatile oil revenues, and continued accumulation of arrears undermining confidence and financial-sector stability.
  - Failure to implement revenue mobilization measures in the 2018 Budget could trigger financing short-falls and accumulation of new external arrears.
  - Delays in PFM and cashflow management reforms, PPP monitoring, and public bank restructuring/liquidation increase contingent liability risks.
  - Medium-term: protracted effects of fiscal adjustment, slower private investment if business climate reforms stall, and political tensions undermining stability.
- Upside scenario:
  - Higher medium-term growth if FDI-financed investment projects are implemented as planned (staff baseline includes part of planned inflows).
  - Example project mentions: US$1.6 billion urea fertilizer plant; US$750 million expansion of the bulk port; New airport: US$400 million (construction started in August 2017).
- Contingency measures:
  - Authorities should be ready to take additional revenue and expenditure measures, including containing the wage bill and postponing lower priority public investment projects.
  - Preparation of a Supplementary Budget in early 2018 may be required if budget developments deviate from current projections.

### Staff views, conditionality adjustments, and recommendations
- Staff appraisal highlights:
  - Program implementation broadly satisfactory at mid-2017 with most end-June PCs and SBs met; exceptions noted on external arrears accumulation and social spending IT.
  - Urgent priority: non-oil revenue mobilization after a decline of almost 5 percent of GDP since 2014.
  - Immediate focus: ensure no new arrears emerge through (i) extension of expenditure tracking software to non-central government entities, (ii) strengthen Treasury cash management and liquidity forecasting, (iii) develop medium-term debt management strategy.
  - Financial sector: resolve three distressed public banks, minimize fiscal costs, and communicate plans to clear domestic arrears to reduce NPLs and support credit growth.
  - Improve quality and dissemination of economic statistics; timely national accounts and fiscal data dissemination recommended.
- Staff recommends:
  - Granting a waiver for non-observance of the continuous performance criterion on external arrears based on corrective measures, completion of financing assurances review, and approval of authorities’ request for completion of the first review.
  - Support for modification of end-December 2017 PCs on primary fiscal balance, net claims of the banking system on the central government, central bank net claims on central government, and contracting or guaranteeing of external debt.

*International Monetary Fund staff report — First Review of the Extended Arrangement for Gabon (December 4, 2017).*

### 142.860 million (about US$ 202.3 million).

### GABON — FIRST REVIEW OF THE EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY

### Executive summary and recent program decisions
- Amount referenced: 142.860 million (about US$ 202.3 million).
- The Executive Board approved a waiver of non-observance of the continuous performance criterion on the ceiling on the accumulation of new external payment arrears by the central government for the first review.
- Gabon’s three-year, SDR 464.4 million extended arrangement (about US$ 642 million at the time of approval, the equivalent of 215 percent of Gabon’s quota) was approved on June 19, 2017.
- Completion of the first review would make available a purchase equivalent to SDR 71.43 million.
- Staff supports completion of the first review and modification of performance criteria for end-December 2017, following clearance of all official external arrears as a prior action for the review.

### Context and political environment
- The political environment remains challenging after the highly-contested August 2016 Presidential election; main opposition party did not take part in a national dialogue organized by the ruling party.
- Civil servant strikes (e.g., teachers, customs officials) caused recent disruptions; risks of new disruptive strikes remain.
- Continued national dialogue with all political forces and civil society is emphasized to secure broad support for program policies.
- Regional policy assurances by CEMAC institutions are key for program success.

### Recent economic developments and program performance
- Activity: Signs of stabilization though subdued overall.
  - Oil output: production declined by 7 percent through June 2017 due to one-off technical disruptions and OPEC production cut.
  - GDP growth: small markdown from 1 percent to 0.8 percent in 2017.
  - Non-oil sectors: export-oriented sectors (manganese, wood, agribusiness) outperforming; manganese production up by over 50 percent.
- Inflation:
  - 12-month average consumer price inflation: decreased from 2.1 percent in December 2016 to 3 percent in August 2017.
- External sector:
  - Export values grew 37½ percent (y/y) in H1 2017.
  - Imports declined by 13.4 percent in H1 2017.
  - Current account: projected to adjust from a deficit of 10 percent of GDP in 2016 to 5.4 percent in 2017.
  - Financial account: weaker than expected in H1 2017 due to shortfall in external project financing and delayed FDI.
  - Projected FDI in 2017: 8.4 percent of GDP (versus initial projections of 10.1 percent).
  - External operations: Gabon mobilized US$200 million in August 2017 by reopening an existing Eurobond (raising outstanding from US$500 to US$700 million, coupon 6.95 percent).
  - Anticipated receipts: about US$100 million in windfall capital gains tax from sale of Shell Gabon; OLAM announced additional FDI of about US$400 million for airport construction by mid-2020.
- Fiscal performance:
  - End-June non-oil primary balance target was met.
  - Authorities contained non-wage current spending; capital spending execution rate lower than projected.
  - Slippages on transfers and subsidies due to freezing of international fuel price pass-through from March to September.
  - Preliminary July–August data: substantial underperformance of non-oil revenues due to delays in revenue measures and tax-collector strikes.
- Arrears and financing stress:
  - Shortfalls in domestic and external financing of approximately 2.7 percent of GDP by end-Q3 2017 contributed to accumulation of additional external arrears.
  - External arrears increased from 2 percent of GDP at end-2016 to about 3.1 percent of GDP at end-September 2017.
  - Most additional external arrears were with commercial creditors; about one-third were bilateral and multilateral arrears.
  - Domestic financing shortfall: domestic financing fell short by 1.2 percent of GDP at end-Q2 2017 relative to program expectations.
  - The government paid CFAF 63bn more than initially anticipated in the cashflow plan through August 2017 for early repayment of some domestic arrears and moratorium debt.

### Financial sector conditions
- Banking sector impacts:
  - Bank deposits declined by about 14½ percent (y/y) in H1 2017.
  - Credit to the private sector declined by about 7½ percent (y/y) in H1 2017.
  - Loans in arrears rose from 9¾ percent at end-2016 to 13½ percent at end-August 2017.
  - Excess reserves (above mandated reserve requirements) declined by about ⅔ since mid-2016 peak.
- Policy emphasis:
  - Timely clearance of domestic arrears expected to strengthen banks’ balance sheets and increase private sector credit.
  - Clearance of external arrears is crucial to maintain creditworthiness and access to external financing.
  - Decisive steps needed to resolve three distressed public banks while minimizing fiscal costs.
  - Government should communicate plans to gradually clear domestic arrears to help reverse rise in non-performing loans and support private sector credit growth.

### Outlook and risks
- Short-term outlook remains challenging, but rebound expected in 2018:
  - Growth rebound in 2018 expected due to recovery in oil prices, strength in other commodity sectors, investment in agribusiness, improving private sector confidence, and recent FDI developments.
- Risks:
  - Weaknesses in non-oil revenue collections and tight short-term liquidity conditions are fiscal risks.
  - Volatile oil revenues pose substantial near-term risks to the recovery plan.
  - Continued accumulation of arrears could undermine confidence and financial-sector stability.
- Fiscal projections:
  - Overall fiscal deficit (cash basis) projected to decline from 3.6 percent of GDP in 2017 to 2.3 percent in 2018.

### Program policies and recommended reforms
- Fiscal consolidation measures for 2018:
  - Containment of current spending.
  - Stronger public financial management (PFM) to strengthen controls on arrears.
  - Greater non-oil revenue mobilization efforts.
  - Strengthening expenditure prioritization and cashflow management.
- Revenue mobilization:
  - Authorities should aim to mobilize non-oil revenues, which have dropped to historically low levels.
  - Reforms recommended: scale back excessive use of ad hoc tax exemptions; address weaknesses in tax and customs administration.
- Public financial management and social protection:
  - Strengthen short-term cash flow management and liquidity forecasting to avoid new arrears accumulation.
  - Improve monitoring of spending on critical social programs to protect the most vulnerable during fiscal consolidation.
- Structural and medium-term measures:
  - Support economic diversification via a stronger financial sector.
  - Focus on business environment improvements and on quality and dissemination of economic statistics.
- Regional policy support:
  - Program benefits from supportive policies by regional institutions: tighter monetary policy, elimination of statutory advances, sound bank regulation and supervision, and firm controls over the extension of credit to banks.

### Staff views and implementation status
- Program implementation: broadly satisfactory with most end-June performance criteria and structural benchmarks met.
- Prior actions and review:
  - Clearance of all official external arrears was a prior action for the first review.
  - Following prior action and performance, staff supports completion of the first review and modifications of performance criteria for end-December 2017.
- Expected financing:
  - Completion of the first review would make available a purchase equivalent to SDR 71.43 million.

_Italic: International Monetary Fund staff report — First Review of the Extended Arrangement for Gabon (December 4, 2017)._

### 15.2 percent capital adequacy ratio at

### 15.2 percent capital adequacy ratio at

### Program performance and compliance (mid-2017)
- Capital adequacy ratio: 15.2 percent at end-August (excluding the three distressed public banks), well above the prudential norm of 8 percent.
- Overall program performance: subject to substantial risks but appears broadly satisfactory at mid-2017, except for external arrears accumulation.
- End-June performance:
  - Nearly all end-June performance criteria (PCs) and indicative targets (ITs) were observed.
  - Continuous PC on non-accumulation of new external arrears was missed.
  - IT on social protection spending was missed.
  - Two structural benchmarks (SBs) for end-June were met.
- Structural benchmarks implemented:
  - Fully implemented the Integrated Financial Management Information System (IFMIS) module that makes payments conditional upon the issuance of payment orders (end-June SB).
  - Prepared a plan for the orderly resolution of three distressed state-owned banks (end-July SB).
  - Established a unit to monitor Public-Private Partnerships (PPPs) (end-September SB).
  - Prepared a national strategy to strengthen the framework concerning non-performing loans (end-September SB).
  - A report on the stock of arrears (end-September SB) has been delayed.
- Continuous Performance Criterion:
  - New external payment arrears: Not met (continuous PC missed).

### Monetary developments (January 2014–August 2017) — text figure reference
- Text Figure 4: Gabon: Monetary Decelopments (January 2014-August 2017) — sources: Gabon authorities, IMF staff calculations.
- Series referenced in figure: Excess reserves (CFA blns, RHS); Private credit (3 mon avg., yoy).

### Outlook and risks
- Near-term growth projections:
  - 2017 overall real GDP growth: 0.8 percent.
  - 2017 non-oil growth: 1.7 percent.
  - 2018 overall growth expected to increase to 2.7 percent.
  - 2018 non-oil growth expected to increase to 3 percent.
  - Oil production increase projection: 0.8 percent (linked to higher exploration/extraction spending).
- Medium-term growth:
  - Diversification strategy expected to increase growth to 4–5 percent over the medium term.
- Public debt and arrears projections:
  - Public debt expected to decline from 64.2 percent of GDP in 2016 to 59 percent of GDP in 2017 and fall below 50 percent of GDP by 2021.
- Key downside risks:
  - Oil dependence: oil accounts for one-third of revenues; lower energy prices and/or disrupted production could lower growth and require further fiscal tightening.
  - Short-term risks requiring monitoring:
    - Failure to implement agreed revenue mobilization measures in the 2018 Budget could trigger financing short-falls and increase the risk of new accumulation of external arrears, weaken plans to reduce domestic arrears, undermine confidence, and constrain credit growth.
    - Delays in implementing measures to address weaknesses in public financial and cash flow management, including monitoring risks associated with PPPs, autonomous public entities, and public bank restructuring/liquidation, would weaken debt management strategy implementation and increase the risk of new contingent liabilities.
  - Medium-term risks:
    - Protracted effects of fiscal adjustment.
    - Slower-than-expected private investment if business climate reforms stall.
    - Political tension undermining order and political stability.
- Upside scenario:
  - Higher medium-term growth if FDI-financed investment projects are implemented as planned.
  - Example projects mentioned (staff baseline includes only part of planned inflows):
    - US$1.6 billion urea fertilizer plant.
    - US$750 million expansion of the bulk port.
    - New airport: US$400 million (construction started in August 2017).

### Policy recommendations and contingency measures
- Authorities should pursue privatization plans, as agreed under the program.
  - Program included plans to mobilize CFAF 50 billion in privatization receipts in 2017; this amount has been programmed for 2018.
- Authorities should be ready to take additional revenue and expenditure measures, including efforts to contain budget pressures from the wage bill and, if needed, postponement of lower priority public investment projects.
- Preparation of a Supplementary Budget in early 2018 may be required if budget developments deviate from current projections.

### Economic policies and fiscal outcomes (2017–18)
- Regional context:
  - CEMAC: drop in economic activity since oil price shock, rising public debt, international reserves about 2.2 months of imports at end-2016.
  - Regional central bank: maintained a tight monetary policy stance, including a freeze in gross credit to the government (statutory advances).
- 2017 fiscal outturn (projection and drivers):
  - Overall fiscal deficit (cash basis) projected to decline to 3.6 percent of GDP in 2017 (compared with program target of 4.6 percent of GDP).
  - Non-oil primary deficit (in percent of non-oil GDP) expected to improve from 11 percent in 2016 to 9.2 percent in 2017 (about 0.3 percent higher than initially envisaged).
  - Public debt expected to decline to 59 percent of GDP (compared with 64.6 percent of GDP initially projected), reflecting slightly less external borrowing and appreciation of the exchange rate vis-à-vis the U.S. dollar.
  - Non-oil revenues expected to underperform due to delays in agreed measures and disruptive strikes by custom officials; oil revenues likely to overperform, in part due to some capital gains taxes.
  - Authorities are containing non-wage current spending and public investment; wage negotiations led to a payment of about 0.2 percent of GDP in performance bonuses.
- 2018 fiscal consolidation objectives:
  - Authorities targeting improvements in fiscal balances of between 1¼ and 3 percent of GDP, depending on the fiscal indicator.
  - Overall fiscal deficit (cash basis) expected to decline to 2.3 percent of GDP — an improvement of 1.3 percentage points.
  - Overall fiscal deficit (commitment basis) expected to decline to 1¼ percent of GDP.
  - Non-oil primary deficit expected to decline to about 6 percent of non-oil GDP — an improvement of about 3 percentage points.
  - Fiscal consolidation composition: adjustments in primary current spending (about 0.8 percent of GDP) and strong non-oil revenue mobilization efforts (1.4 percent of GDP), offsetting a drop in oil revenues of similar magnitude.
- Revenue mobilization specifics:
  - Net yields from the reduction of tax expenditures and increases in excise taxes are expected to amount to about 0.4 percent (text truncated in source).

*IMF staff report excerpt.*

### 0.3 percent of GDP, respectively. Additional measures to increase corporate income taxes and

### cr17408 - 0.3 percent of GDP, respectively. Additional measures to increase corporate income taxes and

### Fiscal measures and revenue projections
- Additional measures to increase corporate income taxes and remove illegal custom exemptions are expected to yield about 0.3 percent of GDP.
- Estimated yield of fiscal measures (percent of GDP, 2018 Proj.):
  - Non-oil revenue: 0.9
  - Measures on CIT 1/0.1
  - Rationalization of tax exemptions: 0.4
  - VAT: 0.1
  - Import tax: 0.3
  - Full implementation of CEMAC customs tariffs: 0.1
  - Removal of exemptions incl. in "programme de lutte contre la vie chere": 0.2
  - Full taxation of products not incl. in "programme de lutte contre la vie chere": 0.0
  - Removal of illegal base reductions: 0.1
  - Measures on excise taxes: 0.3
  - Modernization of the customs administration (ASYCUDA World): 0.1
- Text Table 4 note: 1/ Includes broadening of the tax base of the single combined tax, development of electronic procedures, regularisation program, and campaigns for tax compliance.
- Revenue administration normalization had caused an estimated revenue shortfall in 2017 of 0.4 percent of GDP.

### Expenditure policy and social spending
- Primary spending projected savings: 0.8 (percent of GDP)
  - Wage bill: 0.4
  - Review of remuneration policies: 0.4
  - Special accounts: 0.4
- Authorities expect to generate fiscal space to increase public investment by about ¾ percent of GDP after deeper reductions in 2017.
- Social spending:
  - Pro-poor spending fell short of program targets in the first half of 2017.
  - Social protection outlays on goods and services and transfers were on track through June 2017.
  - Shortfalls stem from delays on foreign-financed investment projects in education and vocational training, preventing budget execution of domestic counterpart.
  - 2018 budget includes allocations for projects not fully executed in 2017.
  - New structural benchmark: publish quarterly fiscal reports to improve monitoring and reporting of social spending expenditure.

### Financing needs, cashflow, and debt management
- Gross financing needs in 2018: about 9¼ percent of GDP (elevated, albeit about 25 percent lower than in 2017).
- Financing of the fiscal deficit represents only ¼ of gross financing needs; bulk needed to cover:
  - External amortization: 1.8 percent of GDP
  - T-bill redemptions: 1.5 percent of GDP
  - Clearance of domestic arrears following a 3 to 4-year repayment plan.
- Near-term debt management priorities:
  - Avoid accumulation of new external arrears.
  - Timely clearance of domestic arrears.
  - System to closely monitor the expenditure chain and identify arrears by public entities expected by end-2017 (MEFP, ¶18).
- Cashflow management measures:
  - Strengthen expenditure controls, budget execution and cashflow forecasting.
  - Treasury committed to developing quarterly estimates of cash inflows and outflows.
  - Completion of a debt management strategy with a plan to clear all arrears by January 2018.
  - Reactivation of the Treasury Committee, strengthen treasury single account, set up an escrow account at BEAC for VAT refunds (MEFP, ¶19).

### Structural fiscal reforms and public finance strengthening
- Priorities to boost revenue mobilization ahead of a revenue authority in 2019:
  - Adopt an anti-tax evasion plan and implement revenue generating measures identified by FAD mission.
  - Address relatively high number of tax defaulters.
  - Collect recoverable tax arrears (estimated stock exceeds 5 percent of GDP).
  - Introduce risk-based tax audits.
- Customs administration issues to address:
  - Gross undervaluation of import values.
  - Abuse of exemption and duty suspension mechanism.
  - Misapplication of the common external tariff.
  - Deficiencies in payment system to clear customs.
- Two new structural benchmarks:
  - Elimination of tax exemptions without a legal base.
  - Adoption of immediate cash payments for customs clearance, with limited exceptions.
- Expenditure controls and fiscal reporting:
  - Implemented new expenditure framework preventing issuance of purchase orders without verification against budget lines.
  - Authorities should activate follow-up system of deadlines in expenditure chain.
  - Expand budget coverage to reintegrate earmarked revenues and special accounts; publish quarterly fiscal reports (new structural benchmark).
- Public investment management:
  - Need greater transparency in procurement and regular cost-benefit analysis.
  - Quarterly reports on public procurement statistics and PPPs to improve monitoring.
  - Authorities committed to systematic cost-benefit analysis for major investment projects; guidelines and procedures to be developed by end of the year (MEFP ¶29).

### Financial sector: soundness, NPLs, and state banks
- Credit growth projection: about 7½ on average during 2018–20, broadly consistent with projected annual nominal GDP growth (Table 5).
- Clearance of arrears to government suppliers and stabilization of loans in arrears are key determinants of credit expansion.
- COBAC decision: increase risk weighting of sovereign debt from zero to 85 percent; three-year transitional phase allowed.
- NPLs:
  - Progress on national strategy to strengthen legal and supervisory frameworks for NPLs has been slow.
  - Reforms needed: training of specialized judges, establishment of commercial courts, modernization of the real estate credit registry (MEFP, ¶34).
- Distressed state-owned banks:
  - Draft restructuring plan prepared July 2017 for three public banks in distress (BGD transformation, Post Bank activities, microfinance via Post Bank network).
  - Authorities agreed the original plan had weaknesses; a revised plan is required (new structural benchmark MEFP, ¶33) to assess feasibility, costs, and trade-offs.
  - Staff will support preparation of revised restructuring plan to ensure financial stability, protect depositors and limit fiscal costs.

### Reforms to foster private sector development
- Special Economic Zones (SEZs) and PPPs used to attract private investment (e.g., agri-business).
- Near-term priorities:
  - Fully operationalize the High-Level Council on Investment to facilitate public-private dialogue.
  - Address legal bottlenecks: land titling, construction permits, arbitration chamber for business dispute resolution.
  - Establish a one-stop shop for administrative procedures.
- Progress reported on electronic tax filing and an online land registry (MEFP, ¶37).

### Strengthening statistics
- Broad-based initiative launched early 2017 to improve national accounts, fiscal, and balance of payments statistics, supported by IMF and other partners.
- IMF technical assistance supporting definitive national accounts data for 2010-2016.
- World Bank assisting development of a new enterprise survey to integrate SEZ firm activities.
- Planned surveys and updates:
  - New poverty survey (preliminary results expected in early 2018).
  - Update of CPI basket (2019).
  - New surveys on demographics and health (2019).
- Near-term recommendation: disseminate existing data, including regular reports of national accounts and fiscal data to IMF Statistics Department.

### Program modalities, financing assurances, and arrears
- Program monitored semiannually through quantitative performance criteria (PCs), indicative targets (ITs), and structural benchmarks (SBs) (MEFP Tables 1-4).
- Staff supports authorities’ request for modification of end-December 2017 PCs on primary fiscal balance, net claims of the banking system on the central government, central bank net claims on central government, and contracting or guaranteeing of external debt.
- Prior action implemented ahead of Executive Board: Clearance of all external arrears to official creditors.
  - Authorities indicated intention to clear all remaining external arrears, including commercial creditors, by end-December 2017.
  - Fund may provide financing notwithstanding external arrears to commercial creditors given good faith efforts.
- Program financing:
  - In August 2017, Gabon raised about US$200 million from the Eurobond market.
  - Projected financing gap for 2017 covered by budget support:
    - African Development Bank (CFA196.8 billion)
    - France (CFA49.2 billion)
    - World Bank (CFA116.3 billion)
  - Residual financing gap CFA108.5 billion to be covered by Fund under three-year extended arrangement (equivalent to SDR71.43 million or 33.069 percent of quota).
  - Bilateral and multilateral donors confirmed support for 2018; prospects for 2019 and beyond are good with remaining access under the extended arrangement.
- Capacity to repay the Fund:
  - In case of full drawing under the extended arrangement, repayments at end of projection period would remain manageable at 0.3 percent of GDP, or 2.7 percent of gross reserves (Table 7).

### Program risks, safeguards, and staff appraisal
- Program implementation risks elevated but manageable under baseline of stable international oil prices and sound domestic policies.
- Risks could increase with deterioration of external environment or rising domestic social and political tensions, requiring deeper adjustment.
- Need successful implementation of programs with other bilateral and multilateral institutions to secure external financing.
- Safeguards assessment: full safeguards assessment for regional central banks completed August 2017; noted positive steps by BEAC to strengthen governance and plans to transition to IFRS.
- Staff appraisal highlights:
  - Economic activity expected to rebound in 2018 due to recovery in oil prices, manganese strength, agribusiness investments, and arrears clearance.
  - Medium-term growth expected to reach 4-5 percent with large investments in new pillars (especially agribusiness).
  - Urgent priority: non-oil revenue mobilization after a decline of almost 5 percent of GDP since 2014.
  - Continue reforms to increase expenditure efficiency, protect vulnerable groups, and strengthen public investment management.
  - Immediate focus: ensure no new arrears emerge through (i) extension of expenditure tracking software to non-central government entities, (ii) strengthen Treasury cash management and liquidity forecasting, (iii) develop medium-term debt management strategy.
  - Financial sector: resolve three distressed public banks, minimize fiscal costs, and effectively communicate plans to clear domestic arrears to reduce NPLs and support credit growth.
  - Improve quality and dissemination of economic statistics; lack of high frequency indicators and quarterly national accounts complicates assessment.
- Staff recommends granting a waiver for non-observance of the continuous performance criterion on external arrears based on corrective measures, completion of financing assurances review, and approval of authorities’ request for completion of the first review of the Extended Arrangement.

*Source: Gabon — IMF staff report and MEFP (excerpts).*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Progress under the program and immediate priorities
- The attached Memorandum of Economic and Financial Policies (MEFP) updates the previous MEFP and highlights policy steps ahead.
- Progress reported:
  - End-June deficit and all other performance criteria, apart from the non-accumulation of new external arrears, were met.
  - All but two of the five structural benchmarks initially planned for the June-October period were met; the remaining ones expected to be completed by end-December.
  - Political and social tensions "have been defused through dialogue."
- Commitments:
  - Continued commitment to structural reforms to bolster competitiveness and support a durable recovery.
  - Authorization for the Fund to publish this letter of intent, the MEFP for 2017–18, the TMU, and the forthcoming staff report for the first review.

### Macroeconomic developments and outlook
- 2017 macro performance and drivers:
  - Oil output likely to underperform in 2017; overall growth revised from 1.0 to 0.8 percent.
  - Export-oriented sectors (manganese, wood, agroindustry) outperforming expectations due to new operators and a rebound in commodity prices.
  - Slow clearance of government arrears and fiscal consolidation remain headwinds to activity in government-linked sectors.
- Economic activity and inflation:
  - Oil production fell by 7.2 percent during the first six months of the year.
  - 12-month average inflation increased from 2.1 percent in December 2016 to 3.6 percent in August 2017.
- External sector and reserves:
  - Based on preliminary customs data for H1 2017:
    - Value of exports increased by 37.5 percent (year on year).
    - Value of imports fell by 13.4 percent.
  - Gabon’s imputed reserves declined from around three months of next year’s imports in June 2016 to just one and a half months in June 2017.
- Monetary conditions:
  - Expanded monetary base decreased by 9 percent in 2017 compared to 2016.
  - Credit to the private sector decreased by 8 percent in 2017 compared to 2016.
- Financing and balance-sheet items:
  - FDI expected to be lower in 2017 than initially forecast by about CFAF100 billion (1.2 percent of GDP).
  - Gabon mobilized US$200 million in international financial markets by reopening an existing government bond; funds reserved for amortization in December as part of a debt roll-over operation.
  - Government to receive US$100 million in windfall capital gains tax from the sale of Shell Gabon to the Carlyle Group.
  - Multilateral and bilateral disbursements in 2017:
    - IMF disbursed US$98 million in June 2017 and will disburse an additional US$98 million by end-December.
    - World Bank disbursed US$200 million during the last quarter.
    - AFD disbursed €75 million during the last quarter.
    - AfDB disbursed €500 million in total over the course of 2017.
  - Stock of external arrears at end-August 2017: 3.1 percent of GDP.
  - Stock of domestic arrears at end-August 2017: 6.8 percent of GDP.
  - Total stock of debt at end-2017 estimated at 59 percent of GDP (compared to 64.7 percent forecast earlier).
- Outlook:
  - 2018 overall growth projected at 2.7 percent, compared with 0.8 percent in 2017.
  - Non-oil growth expected to reach 3 percent.
  - Medium-term growth expected to strengthen to around 4-5 percent by 2020.

### Fiscal policy stance and arrears strategy
- Fiscal targets and 2018 budget:
  - 2017 overall fiscal deficit (on a cash basis) projected at 3.6 percent of GDP (compared to 6.6 percent of GDP in 2016).
  - 2018 draft budget pursues a program target of an overall deficit (on cash basis) of 2.3 percent of GDP.
  - Draft budget underpinned by measures to strengthen cashflow management, increase non-oil revenues, and permanently contain current spending.
- Arrears clearance commitments:
  - Prior action: all official external arrears cleared in December (as of letter).
  - Domestic arrears (6.8 percent of GDP at end-August) to be cleared per the agreed calendar during program negotiation:
    - VAT arrears and moratorium debt to be reimbursed over four years, from 2017 to 2020.
    - Floating debt to be cleared in 2017 and 2018.
  - About 21 percent of external arrears accumulated in 2016 have been paid by end-September.
  - Fiscal efforts reduced stock of domestic arrears and arrears on the budgetary float by 2.6 percent of GDP.

### Financial sector stability and bank restructuring
- Banking sector:
  - Banking sector described as "generally sound" with credit expansion expected to pick up.
  - Expanded efforts to develop a framework for resolution of NPLs; progress has been slow.
  - Work continues on resolution of three distressed public banks.
  - Two of the troubled banks have liquidation mandated by COBAC; liquidation and other options considered with attention to minimizing fiscal costs.
- Communication:
  - Commitment to improve communication of plans to gradually clear domestic arrears to reduce NPLs and support private sector credit growth.

### Program monitoring, requests, and institutional commitments
- Program monitoring:
  - Implementation to be monitored through quantitative performance criteria, structural benchmarks and indicative targets as described in the Technical Memorandum of Understanding (TMU), Attachment II.
- Requests to IMF:
  - Request completion of the first review under the extended arrangement.
  - Request waiver of non-observance of the continuous performance criterion of non-accumulation of external arrears.
- Government commitments to IMF:
  - Stand ready to take additional measures if needed and to consult with the IMF before revising policies.
  - Will provide Fund staff all data and information needed to assess policies, particularly those referenced in the TMU.

*Source: Appendix I. Letter of Intent, December 3, 2017.*

### 3.6 percent of GDP, based on tight expenditure controls.

### 3.6 percent of GDP, based on tight expenditure controls.

### Revenue performance and measures to mobilize non-oil revenue
- Oil sector revenues are rising due to higher prices and receipt of windfall revenues.
- The expected increase of 0.7 percent of GDP in non-oil revenue has not materialized owing to:
  - (i) a slightly larger-than-expected slowdown in growth;
  - (ii) the late promulgation, in August 2017, of the supplementary budget; and
  - (iii) social tensions with the staff in charge of the collection of tax and customs revenues.
- Measures adopted despite the difficult context:
  - Revised exemptions under the program to mitigate the high cost of living: reduced the number of totally exempt products from 191 to 171.
  - Created a lump-sum combined tax on commercial activities with a turnover of less than CFAF30 million to strengthen taxation of previously informal activities.
  - Activated exchange of information between the Customs and Tax administrations.
  - Since October, CEMAC tariffs have been fully implemented, ending reduced rates and exemptions.

### Expenditure containment and fiscal administration in 2017
- Public spending was strongly contained in 2017 reflecting:
  - Savings in non-wage current spending.
  - Limited rate of execution of public investment (existence of arrears on investment projects with foreign partners slowed disbursements).
  - Budget regulation applied to expenditure on goods and services.
  - Gradual reintegration into the budget of receipts from the Special Accounts improved transparency, strengthened expenditure controls, and reduced their deficit.
- Two unforeseen expenditures contained:
  - Support for fuel prices: CFAF25 billion.
  - Payment of bonuses and arrears on bonuses to tax and customs officials: CFAF16.9 billion.
- Budgetary float limited to 10 percent of non-wage primary expenditure (excluding foreign-financed investments).
- VAT arrears repayment constrained by liquidity: CFAF42 billion repaid against CFAF87 billion planned; commitment to clear total amount by 2020.
- Commitment to save 5 percent of oil revenues to the Fund for Future Generations (FGF) or the Stabilization Fund could not be met in 2017; envisaged attainment by 2018 and progressive increase to 35 percent thereafter.
- External and domestic borrowing remained under control; public debt declined.
- Disbursements from IMF, World Bank, African Development Bank and the AFD significantly contributed to financing needs.

### Medium-term fiscal outlook (2018-20)
- During the program period (2018-20):
  - Overall fiscal deficit (cash basis) is expected to decline by about 2 percent of GDP, aiming for a fiscal surplus by end of program (2020).
  - Non-oil primary deficit expected to reach 3.1 percent of non-oil GDP by 2020.
  - Expected public debt reduction to 53 percent of GDP by end of the program, and below 50 percent of GDP over the following 2 years.
  - Non-oil primary deficit of less than 4 percent reflects gradual depletion of oil resources and need to save part of oil revenues.
- Reduction of the budget deficit expected to:
  - (i) contribute to regional adjustment by reversing the loss of foreign exchange reserves within CEMAC;
  - (ii) avoid further accumulation of arrears and enable repayment of existing arrears over three to five years;
  - (iii) help significantly reduce domestic borrowing by the Government;
  - (iv) increase deposits at the central bank, including those of the FGF.

### 2018 fiscal policy stance and spending control measures
- 2018 draft Budget Law targets an overall fiscal deficit, on a cash basis, of 2.3 percent of GDP.
- Measures to control spending:
  a. Wage bill reduction and control:
    - Systematic retirement of state employees who have reached retirement age.
    - Freeze on recruitment except in priority sectors of education and health.
    - Elimination of housing and transportation allowances to beneficiaries who receive government housing and cars.
    - Clean-up of payroll records.
    - Reduction by 10 percent of allowances to chairpersons of the boards of public institutions and of emoluments to members of Government.
    - Incorporation of allowances within overall wage bill ceilings; ongoing reforms to evaluate public officials in program-based budgeting.
  b. Containment of expenditures on goods and services at 2017 level; planned audit of government grants and subsidies to generate efficiency gains.
  c. Investment spending to focus on projects with highest economic and social priority.
  d. Aim for financial equilibrium of Special Accounts by end of year through survey and management improvements.

### Emergency and structural measures to mobilize non-oil revenues (2018)
- Emergency measures (in addition to structural reforms of tax and customs administrations):
  - Continue full implementation of CEMAC tariffs (initiated in 2017).
  - Broaden the tax base for excise duties by including new products.
  - Strictly adhere to regulations regarding the high cost of living: require payment of taxes other than customs duties and VAT, limiting reduced rates to listed targeted products.
  - Eliminate illegal deductions of import duty and undervaluation of imports.
  - Terminate customs clearance defaults.
- Expected outcomes from stronger fiscal consolidation in 2018:
  - Reduced need for financing and increased deposits.
  - Targets for capping the budgetary float and paying 10 percent of oil revenue to the FGF will be met.
  - Deposits at the central bank projected to increase by 0.4 percent of GDP from 2017 to 2018.
  - Public debt to remain under control; repayment of arrears to continue per initial schedule.

### Management and clearance of arrears
- Total stock of arrears at end of August 2017: 10 percent of GDP.
  - Outstanding arrears on external debt: 3.1 percent of GDP.
  - Outstanding arrears on domestic debt: 6.8 percent of GDP, composed of:
    - 0.8 percent of GDP arrears on domestic debt service.
    - 3.8 percent of GDP arrears on VAT refunds.
    - 2.2 percent of GDP represents the budgetary float (expenditures with payment order issued but not yet paid).
- Importantly, all arrears related to external debt will be fully cleared by the end of December 2017.
- Repayment schedule under Fund-supported program:
  - All external arrears will be cleared by December 2017; external arrears to official creditors will be cleared before the first program review.
  - VAT arrears to be repaid over four years, from 2017 to 2020.
  - Moratorium debt to be repaid over four years, from 2017 to 2020.
  - Budgetary float to be settled over two years, 2017 and 2018.

### Structural measures to prevent new arrears and improve cash management
- New procedure for execution of expenditures (Decree of May 29, 2017):
  - Mandatory purchase order to obtain payment for goods supplied or services delivered.
  - VECTIS information system updated to allow systematic issuance of purchase orders as of July 1, 2017, at commitment stage.
  - e-BOP to be adapted by January 2018 to enable systematic issuance of purchase orders at local level (new structural benchmark).
  - Roll-out timetable for public administrations and institutions to be defined in consultation with management teams.
- Improve identification and monitoring of expenditure arrears:
  - Define payment delays by type of expenditure beyond which budgetary float becomes arrears; update Circular of January 29, 2012 by the Budget Ministry.
  - Activate VECTIS module to monitor deadlines and trigger alerts by December 2017; set up local monitoring via e-BOP adaptations.
  - Prepare report on trend and composition of budgetary float and arrears; first assessment of arrears by the ten largest public institutions to be finalized by end of 2017.
  - Independent audit of 2015 and 2016 arrears by Government and public institutions; results to be made available by March 2018.
  - Roll-out program for budget information system (GEBUCO) to all institutions by end-March 2018 to improve financial information availability.
- Cash flow optimization measures:
  - Complete three-year debt management strategy and combine with arrears clearance program by end of January 2018; attach strategy to the Budget Law and publish on Budget and Economy ministries’ websites (new structural benchmark).
  - Immediately reactivate the Government’s Cashflow Committee; Committee to meet at least once every fortnight.
  - Extend coverage of the Treasury Single Account (Compte unique du Trésor, CUT); carry out complete inventory of accounts opened outside the CUT by end of January 2018 and strictly limit opening of new bank accounts (new structural benchmark).
  - Create an escrow account to receive revenue for refunds of VAT credits; initially opened with the Caisse des dépôts et consignations and administered by the Chief Tax Collector; Memorandum of Understanding to define clearing with the CUT. Transfer to CUT in 2019 to be analyzed in context of setting up the Gabonese Revenue Authority.

### Other structural reforms of public finance management (PFM) and revenue administration
- Streamline and better manage tax and customs exemptions:
  - Abolish exemptions not provided for under the law but currently applied by the General Directorate of Customs and Taxes (new structural benchmark).
  - Identify existing exemptions and assess economic justification; inspect beneficiary companies to verify counterpart measures.
- Impose immediate payment in cash as principal means of payment for tax and customs obligations (new structural benchmark); reserve bonded bank guarantees for selected operators meeting strict criteria.
- Strengthen prevention, detection and treatment of fraudulent VAT:
  - Update and publish monthly the file of actual taxpayers (active) and sub-file of taxpayers subject to VAT on the website of the Directorate General of Taxes and in the local press.
  - Economic operators importing more than CFAF 60 million, not on the VAT taxpayer list, will only take possession of goods cleared through Customs after regularizing tax situation (new structural benchmark).
- Continue reforms to improve tax compliance and electronic payments:
  - e-tax project enables filing declarations and paying corporate taxes online; about 400 companies currently use this procedure.
- Preparatory studies for establishment of Gabon Revenue Authority (Office Gabonais des Recettes, OGR):
  - Steering committee set up under Strategic Committee chaired by Minister of the Economy.
  - Concept note developed with goal of launching OGR activities in January 2019; to be updated based on IMF Fiscal Affairs Department advice.
  - Objectives include implementing priority reforms for operational establishment of OGR, clarifying Board role, modernizing HR management, securing financing, and specifying administrative organization for tax and customs policy within the Ministry of the Economy.

### Public financial management, procurement, and public investment
- Strengthen transparency of budgetary expenditure financed by earmarked revenues:
  - 2017 supplementary budget created two new special accounts (CAS): training for employment; audiovisual and cinematographic production—bringing total CAS to five (others: pensions, family benefits, promotion of sports).
  - 2018 draft Budget Law provides for introduction of another CAS: universal service of electronic communications.
  - CAS expenditures to be executed using VECTIS or GEBUCO modules; improve use of budget nomenclature to track revenues and expenditures.
  - Technical support from AFRITAC to specify methods for dealing with expenses financed by earmarked revenue, including creating CAS or applying LOLFEB procedures, or eliminating non-legal allocations.
- Strengthen financial supervision of state-owned enterprises (SOEs) and government agencies:
  - 2017 supplement budget requires justification for use of resources or a resource utilization plan in line with annual performance contract.
  - Plan to create a unit in General Directorate of Budget and Public Finance to gather and coordinate SOE financial information; new Decree establishing harmonized statutes for public administrative institutions to be published by end-January 2018.
  - Legislation to specify Government shareholder policy objectives; monitoring framework with comprehensive list of public enterprises and government directors to be drawn up.
- Quarterly reports on budget execution:
  - Circular on procedure for preparation of quarterly reports drawn up; report for Q1 2017 sent to Parliament; Q2 2017 report being finalized.
  - Government committed to producing and publishing quarterly reports on Budget Ministry website as of March 2018 (for the report on the implementation of the last quarter of 2017 - new structural benchmark), within 55 days after the end of the quarter (with exception for last quarter allowing additional 20 days).
  - Legislation necessary to implement Article 45 of LOLFEB to be finalized in December 2017.
- Public procurement transparency and performance:
  - Public Procurement Code limits single tenders to 15 percent of total amount of contracts; however, 94 percent of contracts concluded until July 2017 were based on single tenders.
  - Government commitments:
    - Submit quarterly note to Council of Ministers with statistics on public procurement, including nature and number of single tender contracts.
    - Systematically refuse recourse to single tenders when conditions are not respected.
    - Present justification for any use of single tenders in annual public reports by Directorate for Tenders.
    - Implement penalties envisaged under regulations for rule violations.
- Public investment management:
  - From 2018, no investment project will receive public funding unless supported by a feasibility study; 2018 draft budget law envisages a Fund for cost-benefit analysis studies.
  - National Agency for Major Infrastructure Works (ANGTI) to verify feasibility requirement.
  - A Standardized Guide for Investment Projects to be published by end of 2017.
  - Use of public-private partnerships (PPP) enhanced by three decrees of September 13, 2017 specifying procedures; quarterly reports on PPP statistics and exemptions to be submitted to Council of Ministers.

### Social sector protections
- Government consolidating measures to protect social sector spending in 2017:
  - Categories covered: prevention and primary health care and fight against AIDS; pre-school education; primary and secondary education; operation of schools including in remote areas; health insurance and social assistance for poorest groups.
- Quarterly budget execution reports will include detailed analysis of budgetary achievements in health, education and social security sectors, comparing them with Budget Law projections (new structural benchmark).

### Stability of the local and regional financial sectors (excerpt)
- The Gabonese financial sector situation continued to deteriorate in 2017:
  - Over first eight months of the year, deposits decreased by 11.3 percent and loans decreased by 6.3 percent, well below 2016 performance.
  - Over the same period, loans in arrears increased.

*IMF country report excerpt.*

### 9.7 percent to 13.5 percent of gross loans, reflecting a further deterioration of the banks' portfolios.

### cr17408 - 9.7 percent to 13.5 percent of gross loans, reflecting a further deterioration of the banks' portfolios.

### Banking sector condition and restructuring plans
- Nonperforming loans increased from 9.7 percent to 13.5 percent of gross loans, reflecting a further deterioration of the banks' portfolios.
- Bank solvency (excluding the three state-owned banks) improved from 13.1 percent to 15.2 percent, driven by a rebound in profits.
- The COBAC has suspended for 3 years the application of risk weights to the sovereign debts of CEMAC member states.
- The restructuring plans for state-owned banks will be improved to consider the option of orderly liquidation before any injection of government funds.
- The restructuring plans presented to IMF staff do not yet include the evaluation (feasibility and costs) of the various options available nor of the financial projections.
- Given the deteriorated situation of these banks (equity between minus 140 percent and minus 500 percent of the weighted assets), the option of orderly liquidation of the three banks will be evaluated.
- An amended plan will be prepared by March 2018 (new structural benchmark) that will evaluate the options available, including the orderly liquidation of these banks.
- The amended plan will be consulted with the IMF on the assumptions, and implemented no later than May 2018.
- Policy principle: No public funds will be used to recapitalize or restructure public banks until a credible plan, discussed with the IMF, has been adopted.

### Options and alternative measures under consideration
- Reevaluate financing support for SMEs via state-owned commercial bank (BGD) and consider modern alternatives that better manage Government risk, such as guarantees or lines of financing granted to the banks.
- For Postebank, evaluate transfer of its healthy assets to another credit institution (bank or microfinance institution) that could guarantee offering basic banking services while benefiting from the expertise of an experienced player.

### Loan arrears clearance strategy and institutional actions
- Strategy areas identified: improvement of judicial procedures and training of specialized judges; establishment of commercial courts (Ministry of Justice); modernization of the registry regarding trade and real estate credit (Ministry of Justice); creation of an Arbitration Chamber within the Chamber of Commerce; repayment of arrears by the Government (Ministry of Finance); development of the credit registry at the central bank (BEAC).
- Leadership and coordination: Strategy to be defined and led by the High Council for the Promotion of Investment (Haut Conseil pour la Promotion de l’Investissement, HCPI), with responsibility to the Presidency of the Republic.
- The HCPI will consult the Professional Association of Credit Institutions in carrying out the action plans and to identify potential areas for reform.
- Action plans will identify authorities in charge, objectives, actions to be implemented, means to be deployed, and timetable for implementation. They will be prepared no later than February 2018.
- Training of judges in banking and commercial activities, and the actual handling of cases relevant to these activities by these judges, will be implemented no later than June 2018.

### Business environment, diversification, and structural reform priorities
- Context: Sharp drop in oil prices and maturing oil fields require structural transformation and diversification while pursuing fiscal consolidation.
- Short-term pillars: (1) strengthen financial stability so the financial sector supports the private sector; (2) improve and strengthen attractiveness of Gabon's business environment via structural and institutional reforms under the Economic Recovery Program (Programme de Relance Economique, PRE).
- PRE targets nine specific areas to promote competitiveness and sustainable growth:
  - (1) modernize the forestry sector;
  - (2) improve productivity of agriculture and "livestock" sector;
  - (3) promote the fishing industry;
  - (4) enhance the mining sector value chain by establishing a metallurgical center in Moanda;
  - (5) strengthen the framework of public-private partnerships to support infrastructure works (transport, energy, social housing, telecommunications);
  - (6) create the conditions to encourage wider and more prevalent use of mobile online banking;
  - (7) develop the tourism industry;
  - (8) following the opening of the port of Owendo in October, continue to improve the transport network to reduce costs and facilitate logistics of Gabonese companies;
  - (9) increase the supply of electricity (of up to 789 MW) and water (of up to 140,000 cubic meters, particularly in Libreville).

### Specific institutional and regulatory commitments
- Land titles:
  - Complete comprehensive mapping of land occupation and land use (available online at www.pnat.ga) followed by arbitration to resolve conflicts/overlaps between forest concessions, mining permits, agricultural concessions and protected areas.
  - Establish the "Commission for the Regulation of Natural Resources and Land Use" to manage conflicts and finalize allocation decisions.
  - A Commission was created in July 2017 by a decree specifying its organization and operation.
  - Commitments: (1) resolution of all land disputes (by June 2018); (2) approval of the National Master Plan (by June 2018).
- PPPs:
  - Following approval of legal framework for PPP in 2016 and 2017, the National Investment Promotion Agency set up the PPP Committee within the Ministry of the Economy to guide implementation and manage budgetary risks.
  - Committee ensures compliance with rules in the Order relating to competition of service providers in choosing private partners.
- Arbitration Chamber:
  - Launched an itinerant information campaign by end of June; premises inaugurated end of September 2017.
  - Commitments: (i) improving training of specialized judges; (ii) establishing commercial courts (Ministry of Justice); (iii) modernizing registry regarding trade and real estate credit (Ministry of Justice); (iv) creating an Arbitration Chamber within the Chamber of Commerce.
- Building permits: Commitment to reduce average time and cost to obtain permits.
- One-stop shop: Fully operational one-stop shop in Libreville; Visitors’ Center in Libreville Airport; one-stop shop set up end of May 2017 in Nkok Industrial Area; government to measure impact via regular survey of business community; information campaign launched in October 2017 in coordination with Chamber of Commerce.

### Transparency, statistics, and public-private dialogue
- Extractive Industries Transparency Initiative: Application for candidacy to EITI will continue; Decree creating the EITI Multi-Stakeholder Group signed in December 2016 and published in January 2017; goal to produce the report in due time and obtain validation by the EITI Secretariat.
- Statistics:
  - National Statistics Agency created in 2015; statisticians placed in key ministries.
  - Commitments: conduct surveys on demography and health in 2018; on poverty by 2019; and on businesses and households by 2019.
  - With support from AFRITAC and BEAC, intensify efforts to improve quality, coverage and timeliness of statistics for national accounts, fiscal sector and balance of payments.
  - Ensure companies in Special Economic Zones (SEZs) fully respect legal obligation to provide statistics; Ministry of Commerce issued regulations end of June 2017 making submission of statistics a legal criterion for operating in SEZs.
- High-level public-private dialogue:
  - Platform established and to be continued; High Council for Investment (HCI) operational with internal regulations and detailed action plan.
  - HCI established February 2014 under the President to improve competitiveness and encourage economic diversification; mission includes supporting active dialogue between national authorities and private sector on strategic reforms.

### Program monitoring and performance criteria
- Program implementation monitored through prior actions, semi-annual reviews, quantitative performance criteria and indicative targets, continuous performance criteria, and structural benchmarks.
- Second review set for June 2018, based on end-December 2017 quantitative performance criteria, the continuous performance criterion and relevant structural benchmarks.
- For all reviews, quantitative performance criteria will include:
  - a floor on the primary fiscal balance, excluding oil revenue (on a payment order basis);
  - a ceiling on the stock of net claims of the banking system on the central government;
  - a ceiling on central bank net claims on central government, excluding the use of IMF credit;
  - a ceiling on contracting or guaranteeing of external debt (program and project);
  - a ceiling on the accumulation of new external arrears by the central government.
- Prior actions and structural benchmarks are set out in Tables 3 and 4; quantitative targets for target dates through end-December 2018 and a continuous quantitative performance criterion are set out in Tables 1 and 2.

*Source: IMF staff report (excerpts provided).*

### annex to the 2018 Budget

### annex to the 2018 Budget

### Structural benchmarks and completed measures (2017)
- Complete an independent audit of 2015 and 2016 domestic expenditure arrears.
  - Timeframe: End-March 2018.
  - Transparency action: Publication of the audit report in the webpage of the Ministry of Economy.
- Publish an annex to the Budget Law covering derogations from the existing tax exemption regime, including details on their economic, budgetary, and social impact.
  - Timeframe: End-December 2017.
  - Deliverable: Copy of the annex to the 2018 Budget Law.
- Financial sector measures completed in 2017:
  - Prepare a plan for the orderly resolution of the activities of the three distressed state-owned banks.
    - Timeframe: End-July 2017. Related documentation: Copy of the document signed by Minister of Economy. Status: Met.
  - Prepare a national strategy to strengthen legal and supervisory frameworks concerning non-performing loans.
    - Timeframe: End-September 2017. Related documentation: Copy of the document presenting the national strategy signed by Minister of Economy. Status: Met.
- Business climate / PPPs:
  - Establish assessment, validation, and monitoring bodies for PPPs in the Ministry of Economy as provided for by the PPP Law.
    - Timeframe: End-September 2017. Related documentation: Copy of the Presidential decree. Status: Met.

### Proposed new structural benchmarks for 2018
Tax Policy / Revenue Administration
- Eliminate tax and customs exemptions from computer software system that do not have a legal basis.
  - Timeframe: End-March 2018.
  - Rationale: Boost revenue collection.
  - Deliverable: Report providing the list of custom codes extracted from the IT system on the nature and amounts of the retained tax and custom exemptions.
- Inform importers that cash payment is the regular procedure for the clearance of customs debts and define the list and selection criteria for importers eligible for a bonded bank guarantee (crédit d’enlèvement).
  - Timeframe: End-March 2018.
  - Rationale: Boost revenue collection.
  - Deliverable: Report on the sensitization campaign and the list and selection criteria for importers eligible for the removal credits.
- Regularize tax situation of importers not subject to VAT, but whose transactions exceed the VAT liability threshold.
  - Timeframe: End-March 2018.
  - Rationale: Boost revenue collection.
  - Deliverable: Report on completed tax adjustments.

Public Expenditure Management (PFM)
- Publish quarterly budget execution reports transmitted to Parliament, using elements and nomenclature of the budget law and including a specific analysis on social spending.
  - Timeframe: End-February 2018 (first report will provide information for the fourth quarter of 2017; each subsequent report published 55 days after the end of the quarter; 65 days allowed for the report related to Q4 each year).
  - Rationale: Improve transparency of budget execution and fiscal reporting.
  - Deliverable: Reports published on the Budget Ministry website’s homepage.
- Adapt the E-BOP information system to the new expenditure execution procedure to allow the systematic issuance of purchase orders, and train local staff concerned in the new procedure.
  - Timeframe: End-January 2018.
  - Rationale: Improve transparency of public procurement and efficiency of public spending.
  - Deliverable: Copies of the order forms issued by the system and report on the training completed.
- List all central government entities whose funds are not deposited on the Treasury single account, and strictly limit the opening of new bank accounts.
  - Timeframe: End-January 2018.
  - Rationale: Improve and rationalize cash flow management.
  - Deliverable: Inventory submitted to IMF staff.

Debt Management
- Clear all external arrears to official external creditors.
  - Classification: Prior Action.
  - Rationale: Strengthen debt and cash management.
  - Deliverable: Signed letter of confirmation from the Minister of Economy.
- Update the debt management strategy that is annexed to the budget law, including a strategy for the clearance of arrears based on transparent criteria for prioritization of external and domestic arrears payments.
  - Timeframe: End-January 2018.
  - Rationale: Ensures government’s gross financing needs and payment obligations are met on a timely basis at a reasonable cost.
  - Deliverable: Publication of the updated debt management strategy and of the arrears liquidation plan on Economy and Budget Ministries websites’ homepage.

Financial Sector (proposed)
- Prepare an assessment of options, reviewed and agreed by staff, for the resolution/restructuring of the public banks that protects financial stability while minimizing the costs to the state.
  - Timeframe: End-March 2018.
  - Rationale: Reduce financial sector vulnerabilities and fiscal risks.
  - Deliverable: Copy of the document signed by Minister of Economy.
- Note: The debt management update should be based on a quarterly cash flow plan.

### Technical Memorandum of Understanding (TMU) — Quantitative performance criteria (QPC) and definitions
- Scope and timing:
  - The TMU sets out understandings for definition of QPC and indicative targets (IT), QPC and IT adjusters, and data reporting requirements for the duration of the extended arrangement under the Extended Financing Facility (authorities’ LOI dated December 3, 2017).
  - PCs and ITs are set for December 31, 2017 and June 30, 2018; the same variables are indicative targets for September 30, 2017; March 30, 2018; September 30, 2018; and December 31, 2018.
- Exchange rates for program accounting:
  - Official exchange rate of the CFAF to the U.S. dollar: 581.551 as of September 30, 2017.
  - Cross-rates: Euro = 1.1279 U.S. dollars; Pound Sterling = 0.7858 U.S. dollars; Chinese Yuan = 6.8885 U.S. dollars; Special Drawing Right (SDR) = 1.3848 U.S. dollars.
  - Official gold holdings valued at 1,253.71 U.S. dollars per fine ounce.
- Definition of the central government (CG):
  - CG consists of all institutions, government units, and special funds (including the Road Fund) currently covered under the state budget; excludes local government authorities, the BEAC, or any government-owned entity with separate legal status unless incorporated into CG by authorities.
- Fiscal year:
  - Calendar year, starting on January 1 and ending on December 31.

A. Cumulative Floor on the Non-Oil Primary Fiscal Balance on a Payment Order Basis
- Definition components:
  - i. total central government revenue on a cash basis (excluding oil revenue), and
  - ii. total central government expenditure on a payment order basis excluding interest payments.
- Revenue and expenditure specifics:
  - Total CG revenue (excluding oil) measured on a cash basis; includes offsetting revenue and expenditure operations and all earmarked revenues (Road Fund and special funds).
  - Oil revenue includes payments received in cash and in crude; revenue received by the treasury registered after encashment, at most 7 days after receipt; oil revenue received in kind recorded at transaction value on the day of sale.
  - Total CG expenditure includes spending on a payment order basis (ordonnancements), treasury advances (avances à régulariser), and outlays on special funds and earmarked revenues.
  - TOFE will recognize additional expenditure categories including capital transfers arising from assumption of obligations of public enterprises undergoing privatization or liquidation, capital transfers from assumption of obligations of private enterprises, capital grants from assumption of obligations of other general government units, and current transfers at the end of the fiscal year used for financing deficits on Treasury accounts.
- Reporting: Data provided to the Fund with a lag of no more than six weeks after the end of the month.
- Adjuster: Floor adjusted downward (upward) to the extent that external financing is more (less) than external program disbursements given in Text Table 1, to a maximum of CFAF 80 billion.

B. Ceiling on the Net Claims of the Banking System on the Central Government
- Definition: Change in net claims measured per BEAC accounting practice, defined as sum of:
  - i. Central bank net claims on CG (deposits, loans, advances, accounts receivable, and any other government claim or liability as defined in the monetary survey).
  - ii. Other depository corporation net claims on CG (securities of the CG, loans to central government, other advances to CG, and deposits of the central government with depository corporations).
- Stock level: Net claims of the banking system on the central government amounted to CFAF 646.9 billion as of June 30, 3017 (Text Table 2).
- Exclusions: Ceiling does not apply to new agreements for the restructuring of domestic debt or the securitization of domestic arrears.
- Reporting: Data provided to the IMF with a lag of no more than six weeks after the end of the month.
- Adjusters for this ceiling:
  - i. Program ceiling adjusted downward (upward) by the full amount of the cumulative excess (shortfall) in external program disbursements relative to the baseline projections in Text Table 1, up to a maximum of CFAF 80 billion.
  - ii. Oil-price-related adjuster to shield fiscal objectives:
    - a. If Brent oil price projections as reported by IMF-WEO decline by up to 25 percent relative to the program baseline (US$55.23 per barrel), the ceiling will be adjusted upward to accommodate the shortfall in oil revenue in a given quarter.
    - b. If Brent oil price projections as reported by IMF-WEO decline by more than 25 percent relative to the baseline program projection, then a consultation between the government and the IMF is required.
    - c. If Brent oil price projections as reported by IMF-WEO rise relative to the baseline program projection for 2017, one-third of higher-than-programmed oil revenue should be used to reduce the stock of domestic payment arrears, one-third should be used to increase central government expenditure on high-priority public investment projects, and one-third allocated to increase central government deposits at the BEAC, with a requisite downward adjustment of the cumulative ceiling on net claims of the banking sector on the CG.
  - iii. The program ceiling will be adjusted upward to reflect any purchase by commercial banks of outstanding contractual government credit (rachat de créances) and government bonds issued on the CEMAC market held by non-bank private sector creditors as of end-2016.

C. Ceiling on Net Claims of the BEAC to the Central Government, Excluding the use of IMF Credit
- Definition: Gross change of claims of the BEAC on the central government, including BEAC statutory advances to the CG and other BEAC claims on the CG (excluding BEAC claims on the CG created by the on-lending of IMF credit), less the change in the gross liabilities of the BEAC to the CG (treasury vault cash, deposits of the Future Generation Fund, deposits of the Sovereign Wealth Fund, and other central government deposits held at the central bank).
- Applicability: Ceiling applied from end-March 2017.
- Reporting: Data provided to the IMF with a lag of no more than six weeks from the end of the month.

D. Ceiling on Contracting or Guaranteeing External Debt by the Central Government
- Debt definition follows paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements (IMF Executive Board Decision No. 15688-(14/107), adopted on December 5, 2014).
- Debt understood as a current liability created under a contractual arrangement requiring future payments in assets or services; primary forms include:
  - i. loans (including deposits, bonds, debentures, commercial loans and buyers’ credits), repurchase agreements, and official swap arrangements;
  - ii. suppliers’ credits (deferred payments for goods/services);
  - iii. leases, where debt equals the present value (at inception) of lease payments expected during the agreement (excluding payments covering operation, repair, or maintenance).
- Arrears, penalties, and judicially awarded damages arising from failure to make payments under contractual obligations that constitute debt are treated as debt.

### Key numeric program figures and table excerpts (as presented)
- Program accounting exchange rates and valuations:
  - CFAF to U.S. dollar: 581.551 (as of September 30, 2017).
  - Euro = 1.1279 U.S. dollars.
  - Pound Sterling = 0.7858 U.S. dollars.
  - Chinese Yuan = 6.8885 U.S. dollars.
  - SDR = 1.3848 U.S. dollars.
  - Gold = 1,253.71 U.S. dollars per fine ounce.
- Text Table 1. Gabon: External Program Disbursements (Baseline Projection) (In US$ Millions)
  - External loans for budget support:
    - End September 2017: 310.3
    - End December 2017: 1034.6
    - End March 2018: 94.1
    - End June 2018: 199.9
  - External loans for project financing:
    - End September 2017: 41.8
    - End December 2017: 269.4
    - End March 2018: 71.1
    - End June 2018: 142.2
  - External loans from commercial sources and international capital markets:
    - End September 2017: 238.5
    - End December 2017: 254.0
    - End March 2018: 13.6
    - End June 2018: 27.2
  - Source: Gabonese authorities and IMF staff projections.
- Text Table 2. Gabon: Net Claims on Central Government (CFAF billions, stock) (stock excerpts)
  - Banking system, Net claims on central government:
    - Dec-15: 143.5
    - Dec-16: 653.7
    - Jun-17: 646.9
  - Central Bank, Net claims on central government:
    - Dec-15: -79.5
    - Dec-16: 220.6
    - Jun-17: 268.5
  - Claims on central government (central bank):
    - Dec-15: 452.9
    - Dec-16: 452.7
    - Jun-17: 511.0
  - Loans to central government:
    - Dec-15: 452.5
    - Dec-16: 452.5
    - Jun-17: 452.5
  - Use of IMF credit:
    - Dec-15: 0.0
    - Dec-16: 0.0
    - Jun-17: 58.0
  - Other (central bank):
    - Dec-15: 0.4
    - Dec-16: 0.2
    - Jun-17: 0.4
  - Liabilities to central government (central bank):
    - Dec-15: 532.4
    - Dec-16: 232.1
    - Jun-17: 242.4
  - Treasury vault cash:
    - Dec-15: 18.6
    - Dec-16: 36.8
    - Jun-17: 36.8
  - Fund for Future Generations/Sovereign Wealth Fund:
    - Dec-15: 146.6
    - Dec-16: 150.2
    - Jun-17: 122.3
  - Treasury current accounts at the BEAC:
    - Dec-15: 367.2
    - Dec-16: 45.1
    - Jun-17: 83.3
  - Other Depository Corporations, net claims on central government:
    - Dec-15: 223.0
    - Dec-16: 433.1
    - Jun-17: 378.4
  - Claims on central government (other depository corporations):
    - Dec-15: 412.0
    - Dec-16: 621.7
    - Jun-17: 582.7
  - Securities Central Government:
    - Dec-15: 357.7
    - Dec-16: 517.6
    - Jun-17: 500.1
  - Regional bonds:
    - Dec-15: 54.3
    - Dec-16: 104.2
    - Jun-17: 82.5
  - Liabilities to central government (other depository corporations):
    - Dec-15: 189.1
    - Dec-16: 188.6
    - Jun-17: 204.3
  - Treasury deposits:
    - Dec-15: 42.2
    - Dec-16: 42.2
    - Jun-17: 36.1
  - Other deposits:
    - Dec-15: 146.9
    - Dec-16: 146.4
    - Jun-17: 168.2
  - CCA:
    - Dec-15: 0.0
    - Dec-16: 0.0
    - Jun-17: 0.0
  - Source: BEAC.

*Source: annex to the 2018 Budget (cr17408)*

### 21.      Definition: For the purposes of the ceiling on contracting or guaranteeing external debt by

### cr17408 - 21.      Definition: For the purposes of the ceiling on contracting or guaranteeing external debt by

### Definition: Ceiling on contracting or guaranteeing external debt by the central government
- External debt is defined as debt contracted or serviced in a currency other than the franc of the Financial Community of Africa (CFAF).
- The PC concerning external debt contracted by the central government applies to all external debt (whether or not concessional) contracted or guaranteed by the CG, including commitments or guaranteed for which no value has been received.
- The performance criterion will be assessed on a cumulative basis during the fiscal year.
- The performance criterion does not apply to:
  - i. Normal import-related commercial debt having a maturity of less than one year;
  - ii. Rescheduling agreements;
- For program monitoring purposes, external debt is deemed to be contracted or guaranteed once all conditions for its entrance into effect have been met, including approval of the relevant agreement by the Republic of Gabon.
- In the case of the issuance of euro bond, the amount deemed contracted is the amount subscribed/purchased at the end of the subscription/purchase period as specified in the final documentation.
- For program purposes, the value in U.S. dollars of new external debt is calculated using the program accounting exchange rate.

### Adjusters to the program ceiling on new external debt
- i. The program ceiling applicable to new external debt is adjusted upward up to a maximum of 5 percent of the ceiling on new external debt in cases in which differences vis-à-vis the PC on new debt are caused by a variation in financing conditions (interest, maturity, grace period, payment schedule, front-end fees, management fees) of the debt or debts. The adjustor may not be applied when the differences are the result of an increase in the face value of the total debt contracted or guaranteed.
- ii. The program ceiling will be adjusted upward (downward) in cases where early (late) disbursements of specifically agreed and identified financing flows take place.

### Reporting requirements for external borrowing
- The authorities will inform IMF staff of any planned external borrowing and the conditions on such borrowing before the loans are either contracted or guaranteed by the government.

### Ceiling on the accumulation of new external arrears by the central government
- Definition: The accumulation of external payments arrears by the CG will be a continuous performance criterion with a zero limit throughout the program period.
- External payment arrears are defined as contractual external debt service obligations (interest and/or principal, including moratorium and later/penalty interest, where applicable) of the CG that have not been made after falling due.
- Arrears resulting from the nonpayment of the debt service for which a rescheduling agreement is sought are excluded from this definition.
- Reporting: The Ministry of Economy will provide the final data on the stock of external arrears of the CG to the IMF, with a lag of not more than six weeks from the end of the month.
- This PC will be monitored on an ongoing basis, and the Ministry of Economy will provide to the IMF data concerning any external arrears of the CG immediately after such arrears are incurred.

### Quantitative Indicative Targets: Definitions of variables
- A. Cumulative Floor on the Net Reduction of the Stock of Domestic Arrears of the Central Government
  - Definition: The stock of domestic payment arrears of the CG is defined as the sum of all contractual obligations that remained unpaid 90 days after the payment order date.
  - This stock includes payment obligations from procurement contracts for goods and services and other contracts providing for payment in domestic currency, as well as statutory obligations for payment (e.g., civil service wages, VAT reimbursements, and other entitlements).
  - The cumulative floor on the net reduction of the stock of domestic arrears of the CG is measured as the stock of outstanding domestic arrears on the test date minus the stock of outstanding domestic arrears as of January 1, 2017.
  - Reporting: Data on repayment and new accumulation of domestic payment arrears and the remaining previous-year stock of domestic payment arrears will be provided to the IMF with a lag of no more than six weeks from the end of the month.
- B. Cumulative Floor on Central Government Tax Revenue, Excluding Oil Revenue
  - Definition: Non-oil revenue refers to revenue from tax and non-tax collection and exclude all revenue from asset sales, grants, and oil revenue.
  - Reporting: Data will be provided to the IMF with a lag of no more than six weeks from the end of the month.
- C. Cumulative Floor on Central Government Social Spending
  - Definition: Floor on non-wage social spending as defined in the CG budget for a particular fiscal year. Funded by government resources. The floor includes:
    - (i) spending on primary, secondary, and vocational education, including basic goods and services, and school infrastructure and rehabilitation;
    - (ii) spending on health programs, including basic goods and services, and transfers for primary health care facilities;
    - (iii) spending on social protection including health insurance and targeted safety nets.
  - Reporting: Data will be provided to the IMF with a lag of no more than six weeks from the end of the month.

### Program monitoring — reporting requirements (monthly)
- The government will prepare and send to the IMF by e-mail data and monthly reports within six weeks following the end of the preceding month, including:
  - the comprehensive monetary survey, the central bank balance sheet, and the consolidated balance sheet of the commercial banks (electronic file);
  - the central government financial operations (opérations financières de l’Etat) on a payment order basis (ordonnancements), identifying any discrepancy between the fiscal deficit and changes in domestic and external arrears and in the treasury float, and total net domestic bank/nonbank and net external financing (electronic file);
  - detailed breakdown of oil revenue by type (royalties, profit tax, dividends, boni and other) and by company/type of contract, and detailed breakdown of non-oil tax revenue and nontax revenue (electronic file);
  - detailed breakdown of total central government expenditure, on an adjusted commitment basis, adjusted payment order basis, and cash basis as presented in the Tableau Intégré (electronic file);
  - details for domestic and external debt-service obligations, on a contractual and actual payments basis, with breakdown into interest and principal and by creditor, and any possible accumulation of domestic or external arrears (electronic file);
  - details on the stock of external and domestic debt at the end of each quarter prepared by the Generate Directorate of Debt, with external debt stock evaluated at end-of-quarter exchange rates (electronic file);
  - details for the outstanding stock of the treasury float (month to month) and the cumulative flows from January 1, 2017; net accumulation of new float during 2017, defined in paragraph 6 as the difference between payment orders (ordonnancements) and payments made (cash basis), and the repayment of pre-2017 float, with both items broken down by wages and salaries, goods and services, transfers and subsidies, interest, capital expenditure, and net lending; any stock-flow adjustment not consistent with flows should be explained (electronic file);
  - information on the balance of the accounts relating to treasury correspondents (correspondants du Trésor), local governments (collectivités locales), and other treasury financial operations specified in the TOFE;
  - the amount of new external debt contracted or guaranteed by the central government, with detailed information on original terms and conditions (currency of denomination, interest rate, grace period, and maturity) and the envisaged path of disbursement;
  - actual disbursements on external debt, including on newly contracted loans, by creditors and by projects/programs and the amounts of debt relief, if any, granted to Gabon by external creditors (electronic file);
  - monthly information on the oil sector: export prices, effective exchange rate, production per oil field, volume of exports and volumes provided to SOGARA based on data from the Direction Générale des Hydrocarbures (electronic file);
  - quarterly report on numbers and value of procurement contracts treated by the Direction Générale des Marchés Publics (DMP) by type of contracting;
  - indicators and other statistical data on recent economic developments (household consumer price index, merchandise imports and exports by value and volume, timber production and exports by categories, quarterly reports on economic activity by the General Directorate of the Economy (DGE) and six-monthly report of the balance of payments by the BEAC);
  - a status report on the implementation of the structural reforms specified in Table 2 attached to the letter of December 3, 2017.
- The Technical Committee in charge of monitoring the Fund-supported program will provide the African Department of the IMF with any other information that may be requested by IMF staff.

### Update on end-September 2017 indicative targets and external arrears (staff findings)
- Preliminary end-September ITs appear to have been met for:
  - the ceiling on net claims of the banking system,
  - the ceiling on central bank net claims on central government (excluding the use of IMF credit),
  - the ceiling on contracting or guaranteeing of external debt (program and project).
- The IT on the non-oil primary balance appears to have been missed, due to a shortfall in non-oil revenues and higher-than-expected transfers and subsidy spending during Q3 2017.
- Misses likely contributed to apparent breaches of the ITs concerning the floor on non-oil revenues and the ceiling on the stock of domestic arrears.
- The overall fiscal balance (on a cash basis) was approximately 1.1 percent of GDP, suggesting the year-end target of 3.6 percent of GDP is within reach.
- Partial nature of preliminary data limits definitive assessment; reconciliation needed for financing adjustors, domestic arrears, and non-oil revenues. Preliminary data to compute the IT on social spending is not yet available.

### Selected numerical program results and status (from Update to Attachment 1, Table 1)
- Floor on primary fiscal balance, excluding oil revenue (on a payment order basis):
  - Unadjusted target (floor) -331.2
  - Adjustment for lower (higher) than expected external program disbursements 80.0
  - Reported series includes values: -646.1, -646.1, -167.1, -146.7, -331.2, -251.2, -221.9; Status entries include Met and values -358.6, -389.7, -532.5, -559.3
- Ceiling on stock of net claims of the banking system on the central government:
  - Unadjusted target (ceiling) 724.2
  - Adjustment for lower (higher) than expected external program disbursements 80.0
  - Reported series includes values: 574.2, 653.7, 521.4, 662.1, 724.2, 804.2, 646.9; Status entries: Met; other values 742.7, 640.5, 752.8, 819.1
- Ceiling on central bank net claims on central government, excluding use of IMF credit:
  - Series includes 240.7, 220.6, 240.7, 252.9, 240.7; Status: Met; other values 240.7, 217.9, 189.7, 220.6
- Ceiling on contracting or guaranteeing of external debt (program and project):
  - Unadjusted target (ceiling) 329.4
  - Adjustment for early (late) external program disbursements 0.0
  - Adjustment for variation in financing conditions 0.0
  - Reported series shows values including 191.9, 138.9, 329.4, 329.4, 225.8; Status: Met; other values 511.1, 353.9, 1022.8, 916.2
- Continuous Performance Criterion — Ceiling on accumulation of new external arrears by the central government:
  - Zero limit throughout the program period; table entries show instances: 0, 660..., 110 Not Met, 0144 Not Met, 00
- Indicative Targets:
  - Ceiling on the stock of domestic arrears: reported values include 638.6, 638.6, 638.5, 589.0, 638.5, 638.5, 637.2; Status: Met; other values 577.6, 610.3, 411.7, 453.5
  - Floor on government tax revenue, excluding oil revenue: reported values include 899.4, 899.4, 196.9, 212.5, 379.2, 379.2, 463.0; Status: Met; other values 693.9, 676.5, 989.6, 860.9
  - Floor on social protection spending: reported series includes 30.3, 68.2, 68.2, 49.4; Status: Not Met; other values 106.1, 151.6, 151.6

### Update on external arrears through end-November 2017
- Clearance: data indicate a reduction in the stock of external arrears (since end-September), reflecting the clearance of arrears of approximately US$98 million (CFA 55 billion) in November to official creditors.
- New accumulation: further arrears accumulated worth roughly US$30 million (CFA 17 billion) from end-September to end-November 2017, constituting a nonobservance of the continuous PC on non-accumulation of new external arrears.
- Corrective measure: authorities cleared all official arrears (to bilateral and multilateral creditors) ahead of the Executive Board meeting and committed to clearing all remaining external arrears by end-December 2017.
- Update to Text Table 2 — Total External Arrears (CFA Billions; Percent of GDP):
  - End 2016 (Act.): External Arrears 164.6 (2.0); Multilateral 9.9 (0.1); Bilateral 23.0 (0.3); of which: Paris Club 6.1 (0.1); Commercial 131.7 (1.6)
  - End Sept. 2017 (Est.): External Arrears 234.8 (2.7)
  - End Nov. 2017 (Est.): External Arrears 273.3 (3.1); Multilateral 25.1 (0.3); Bilateral 51.8 (0.6); of which: Paris Club 13.6 (0.2); Commercial 196.4 (2.3)
  - End 2017 (Est.): External Arrears 0.0 (0.0); Multilateral 0.0 (0.0); Bilateral 0.0 (0.0); of which: Paris Club 0.0 (0.0); Commercial 0.0 (0.0)

*Document: cr17408 - 21. Definition: For the purposes of the ceiling on contracting or guaranteeing external debt by (Supplementary Information and Supplementary Letter of Intent; December 2017).*

### 6.6 percent of GDP in 2016 to 3.6 percent in 2017, as a result of continued tighter control of

### 6.6 percent of GDP in 2016 to 3.6 percent in 2017, as a result of continued tighter control of

### Fiscal outlook and consolidation
- Fiscal deficit projected to decline from 6.6 percent of GDP in 2016 to 3.6 percent in 2017 as a result of continued tighter control of non-wage current spending and lower public investment amid declining non-oil revenue.
- In 2018, authorities will pursue fiscal consolidation through an intensification of the mobilization of non-oil revenues and expenditure control.
- The 2018 budget submitted to the Parliament is consistent with the program and targets a fiscal deficit of 2.3 percent of GDP.
- Authorities will pursue a timely clearance of domestic arrears while avoiding accumulation of new arrears.
- External financing will be critical, including from the country’s partners, and the Fund in particular.

### Budget measures and cashflow management
- 2018 budget includes numerous measures aimed at containing current spending and strengthening cashflow management.
- Reduction and control of the wage bill will continue, with a freeze on recruitment in all but priority social sectors.
- Implementation of the new procedure for the execution of expenditures that was adopted in May 2019 will be extended to limit the use of exceptional procedures and prevent the occurrence of new arrears.
- Planned cashflow management measures include:
  - Reactivation of the Treasury Committee.
  - Expansion of coverage of the Treasury single account.
  - Setup of an escrow account at BEAC for VAT credit refunds.
- Authorities will publish quarterly reports on budget execution, as requested by the organic budget law.

### Revenue mobilization and public finance management
- To increase mobilization of non-oil revenues, exemptions not provided for under the law will be abolished.
- Prevention, detection and treatment of fraudulent VAT cases will be strengthened.
- Work for the establishment of the Gabon Revenue Authority (Office Gabonais des Recettes, OGR) will continue, with the goal of launching its activities in January 2019.
- Financial supervision of state-owned enterprises (SOEs) and government agencies will continue.
- Public procurement performance will be enhanced through greater transparency to ensure efficiency of public investment.
- Authorities will press ahead with public finance management reforms.

### Financial sector stability
- Authorities determined to preserve financial sector stability and will pursue recent efforts to strengthen legal and supervisory frameworks.
- Commitment to improving communication about plans to gradually clear domestic arrears and reduce NPLs.
- Continued work on the resolution of distressed public banks, for which a strategy was prepared in July 2017.
- In resolving distressed banks, authorities will aim to minimize fiscal costs and consider potential impact on financial inclusion objectives.

### Structural reforms and private sector development
- Authorities will pursue structural reforms to bolster competitiveness and support a durable recovery.
- Commitments include:
  - Lifting obstacles to increased FDI and private sector development.
  - Advancing reform measures that facilitate access to land titles and the establishment of public private partnerships (PPPs).
  - Streamlining procedures for building permits.
  - Strengthening the quality of statistics.
- Authorities will ensure full operationalization of the High-Level Council for Investment (HCI) to support a more active dialogue between national authorities and the private sector on strategic reforms related to the business climate.

### Conclusion
- Gabonese authorities continue to implement prudent policies to adjust to the challenging domestic and external environment.
- Coupled with efforts at the regional level, authorities are optimistic about prospects for restoring macroeconomic and external stability.
- Performance of the Fund supported program has been satisfactory so far and authorities remain committed to achieving the objectives of the program.
- Fund’s continued support is greatly appreciated.

*Source: IMF content unit.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17408.pdf_