## cr18310 ## Source details **Canonical URL:** [cr18310](https://www.imf.org/-/media/files/publications/cr/2018/cr18310.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2018/cr18310.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2018/cr18310.pdf.json) --- ### Executive summary - SMP approved by IMF Management in May 2018 covering January 1–July 31, 2018; aims to reduce the budget deficit through non-hydrocarbon revenue mobilization and expenditure reduction while protecting social spending and addressing public financial management weaknesses. - SMP objectives also: improve the business climate; foster economic diversification; lay the basis for improving governance and transparency; bolster capacity and build a track record for a potential Fund-supported program later in 2018. - Political support strong; private sector confidence appears to be improving. ### Macroeconomic context, outlook, and risks - Recent developments: - 2017 real GDP contraction slowed to 3.2 percent (from 8.6 percent in 2016). - Non-hydrocarbon GDP increased by 0.2 percent in 2017. - Inflation in June 2018: 1.6 percent y/y (after -0.2 percent in December 2017 and -1.2 percent in March 2018). - Government overall surplus of 0.6 percent of GDP through end-April 2018 versus a projected deficit of 1.3 percent. - Imputed NFAs at the BEAC remained negative through June 2018 but increased during Q2. - 2018 outlook: - Real GDP projected to decline by 7.7 percent in 2018 owing to increased contraction in hydrocarbon output. - Non-hydrocarbon sector expected to continue to grow; inflation expected to remain subdued. - BEAC imputed reserves expected to rise reflecting narrower current account, FDI flows, and public deposit repatriation. - Medium-term projections (selected, percent unless otherwise noted): - Real GDP growth: 2017 prel. -3.2; 2018 Prog. -7.9; 2018 Proj. -7.7; 2019 -2.6; 2020 -2.3; 2021 -1.4; 2022 -1.7; 2023 3.4. - Hydrocarbon growth: 2017 -5.6; 2018 Prog. -14; 2018 Proj. -14; 2019 -7.4; 2020 -7.9; 2021 -6.5; 2022 -7.5; 2023 2.6. - Non-hydrocarbon growth: 2017 0.2; 2018 Prog. 1.2; 2018 Proj. 0.8; 2019 3.0; 2020 3.5; 2021 3.3; 2022 3.2; 2023 4.0. - Inflation (annual average): 2017 0.7; 2018 Prog. 0.6; 2018 Proj. 0.9; 2019 1.4; 2020 1.9; 2021 2.5; 2022 3.0; 2023 3.0. - Overall fiscal balance: 2017 -2.5; 2018 prel. -0.9; 2018 Prog. 0.6; 2018 Proj. 2.3; 2019 2.5; 2020 2.0; 2021 1.2; 2022 1.3. - Non-resource primary balance: 2017 -15.8; 2018 prel. -14.0; 2018 Prog. -12.1; 2018 Proj -9.2; 2019 -7.2; 2020 -6.2; 2021 -5.7; 2022 -5.2. - Public debt (including domestic arrears): 2017 37.4; 2018 prel. 43.5; 2018 Prog. 37.3; 2018 Proj. 37.4; 2019 37.2; 2020 37.2; 2021 35.9; 2022 33.0. - Current account balance (- = deficit): 2017 -5.9; 2018 prel. -2.4; 2018 Prog. -3.1; 2018 Proj. -3.6; 2019 -4.3; 2020 -4.4; 2021 -18.0; 2022 -6.0. - Total external public debt: 2017 8.5; 2018 prel. 11.7; 2018 Prog. 10.5; 2018 Proj. 13.0; 2019 14.7; 2020 17.1; 2021 18.8; 2022 19.5. - Risks (tilted to the downside): - Upside: higher oil prices and SMP announcement supporting confidence; opportunity to save windfall and strengthen buffers. - Downside: weaker-than-reported banking sector health; failure of a systemic bank or spillovers from other CEMAC banking problems; failure to implement SMP measures; capacity constraints and governance vulnerabilities. ### Financial sector and monetary conditions - Banking soundness (end-April 2018): - NPLs to total loans: 28 percent (end-April 2018), down from 32 percent end-March 2018, and same level as end-December 2017. - Two-thirds of NPLs from construction companies, many with government arrears. - NPL provisions remain low but broadly in line with COBAC regulations. - Bank liquidity ample; private sector deposits declined 9 percent y/y in April 2018. - BEAC refinancing increased but below central bank ceiling; new BEAC lending to government remained at zero. - Financial soundness indicators (selected series, percent or index values as shown): - Regulatory capital to risk-weighted assets: 21.4, 19.9, 25.5, 24.1, 23.8, 28.4, 27.3, 28.3, 28.3, 31.2, 33.7. - NPLs ratio to total loans: 20.7, 15.2, 20.8, 17.0, 17.9, 28.6, 26.1, 28.8, 28.5, 27.8, 28.4. - Provisions to NPLs: 42.4, 50.3, 45.6, 52.8, 51.4, 36.5, 38.9, 39.5, 39.1, 40.3, 41.7. - Profitability (ROA, moving average): 1.4, 1.3, 1.2, 1.1, 0.8, 0.8, 1.1, 0.7, 0.9. - Liquidity ratio (high liquid assets (<1 M) to short term obligations (<1 M)): 207.1, 181.7, 194.0, 178.5, 200.7, 184.8, 158.4, 143.8, 146.6, 171.2, 161.0. - Source: COBAC. - Monetary aggregates and credit: - Broad money decline slowed to -5.3 percent y/y in April 2018 compared with -18 percent in April 2017. - Private sector credit growth: 1.0 percent y/y in April 2018 (after averaging 2.7 percent for first three months of 2018). - Credit growth led by long and medium-term credit (just over half of April increase), potentially supporting non-hydrocarbon activity. ### Program implementation (first review) and fiscal outcomes - Overall assessment: satisfactory implementation for the first review. - Quantitative performance measures and indicative targets: - All but one end-April 2018 PMs and indicative targets were met; one missed by a very small margin (external arrears ceiling). - All quantitative fiscal PMs and indicative targets for end-April 2018 were met. - Central Government fiscal outturn (end-April 2018, Billions of CFAF; Program vs Outturn): - Revenue: Prog. 289; Outturn 412. - Resource revenue: Prog. 214; Outturn 336. - Non-resource tax revenue: Prog. 37; Outturn 49. - Other non-resource revenue: Prog. 38; Outturn 27. - Expenditure: Prog. 386; Outturn 366. - Compensation of employees: Prog. 48; Outturn 51. - Purchase of goods and services: Prog. 124; Outturn 83. - Subsidies and transfers: Prog. 48; Outturn 73. - Net acquisition of non-financial assets: Prog. 153; Outturn 141. - Overall fiscal balance: Prog. -97; Outturn 47. - Non-resource primary balance: Prog. -300; Outturn -273. - Additional fiscal facts: - Non-resource tax revenue CFAF 49 billion through end-April (target CFAF 37 billion). - Non-resource primary deficit estimated at CFAF -273 billion (below program ceiling CFAF -300 billion). - Spending declines concentrated in goods and services and capital spending. - External arrears ceiling missed by a very small amount due to a logistic issue with correspondent bank; authorities seeking a solution. - Ceiling on contracting and guaranteeing new external debt met: contracted CFAF 70 billion vs ceiling CFAF 80 billion. - New BEAC credit to government maintained at zero. ### Fiscal consolidation strategy and measures (2018) - Consolidation focus: - 2018 fiscal program targets an adjustment (change in non-resource primary balance) of 3.7 percent of GDP, following an adjustment of 7.8 percent of GDP in the previous year. - First four months of 2018 consolidation driven by expenditure cuts and higher non-resource tax revenues. - Expenditure reduction: - Non-priority public spending reduced, capital projects confined to higher-impact projects, tighter approval controls. - Fuel subsidies growing faster than in same period of 2017; risk of surpassing ceiling of CFAF 23 billion for 2018 if trend continues; staff urged pump price adjustment but authorities cited political/social difficulty. - Revenue mobilization: - Draft tax regulations to implement measures to increase non-resource tax revenues to be sent to parliament in early August 2018. - Administrative measures: limit tax fraud and exemptions; better border enforcement; require companies to file corporate taxes in Malabo. - Customs reforms: ASYCUDA operational in Malabo; roll out to Bata by year-end; plan to join World Customs Organization. - Computerization of revenue departments and public relations campaign planned. - Financing and arrears: - Drawing on Export-Import Bank of China facility to finance the 2018 budget. - Draft terms of reference for audit of domestic arrears; plan to hire independent auditor and work on settlement proposals. - Plan to use part of oil windfall to clear more domestic arrears while strengthening BEAC deposit and reserve buffers. - Staff supports using part of windfall to pay down arrears to reduce NPLs and support diversification. ### Public financial management, transparency, and governance - PFM reforms implemented: - Full devolution of budget implementation to Ministry of Finance, Economy, and Planning (MFEP) after merger. - Current spending reviewed by Directorate General of Budget Control; capital spending reviewed by standing committee of technicians. - Budget preparation revamped; projects reviewed by budget committee in context of policy priorities. - End-July structural measure on tracking expenditure commitments and strengthening expenditure controls appears met; staff to assess at next review. - Recommendation: unify expenditure control mechanism and computerize expenditure processes; move to multi-year budgeting. - Governance and transparency actions: - Ratified UN Convention Against Corruption (structural measure, July 2018). - Governance diagnostic mission visited Malabo 11–15 June 2018; study due by September 2018 and to inform governance strategy. - Progress in preparing for EITI membership; national committee completed work program; authorities indicated intention to present membership application to EITI by end-August. - Launched bidding to hire independent firms to (i) audit state-owned oil and gas companies’ accounts and (ii) reconcile gross hydrocarbon output with hydrocarbon revenues for 2016 and 2017 (structural measure, July 2018). - New Ministry of Finance website launched to post historical fiscal data; staff recommended broader and regular data dissemination and e-GDDS subscription preparatory work completed. ### Structural reforms to boost non-hydrocarbon growth and business climate - Diversification and sector initiatives: - Preparations for national conference scheduled March 2019 to revise Horizonte 2020; revised strategy to integrate Millennium Development Goals and environmental considerations. - Sectoral initiatives: tourism national plan; fisheries training institute in Bata; agricultural initiatives; reforms of autonomous agencies. - Business environment: - April 2018 amendment eliminated local partner 35 percent capital requirement. - One-stop shop for foreign investment operationalized. - Planned business climate diagnostic with World Bank; national business climate commission to review recommendations. - Invitation to Singapore Corporation Enterprise for practical steps; plans to create investment and export promotion agencies. ### Social protection, statistics, and capacity building - Social spending: - Expenditure reallocated toward social areas, raising health and education spending. - Construction of small “urban districts” prioritized for low-income housing, medical and educational facilities. - Floor on social spending: current social spending 1.8 percent of GDP; 2018 budget increases to 2.0 percent of GDP. - Statistics and capacity: - Staff urged regular household budget surveys to improve poverty and social indicators. - IMF training delivered in macroeconomic analysis and forecasting in early June 2018 to a cohort of 25 public officials. - Authorities requested TA on tax and customs implementation, expenditure control computerization, and debt management. ### Program monitoring, structural benchmarks, and TMU highlights - Program monitoring: - First review completed early August 2018 (data through end-April). - Second review with data through end-July to be done by end-October 2018. - High-level committee established to review SMP implementation meets at least monthly. - Selected structural benchmarks and statuses (Table 6 highlights): - Secure congressional approval of 2018 budget: Met (prior to submission to management); Not met (End-April 2018). - Hire firm to audit state-owned oil and gas accounts and reconcile hydrocarbon output/revenue: End-July 2018 / To be assessed. - Hire independent auditor for domestic arrears: End-July 2018 / To be assessed. - Adopt mechanisms to track and control expenditure commitments: End-July 2018 / To be assessed. - Submit EITI membership application: End-July 2018 / Not met. - Ratify UN Convention Against Corruption: End-July 2018 / Met. - Quantitative performance measures (selected, Billions of CFAF, cumulative): - Floor on non-resource tax revenue of central government: 37 (Prog.); 49 (Outturn) — Met. - Floor on non-resource Primary balance: -300 (Prog.); -273 (Outturn) — Met. - Ceiling on contracting and guaranteeing new external debt: 80 (ceiling); contracted 70 — Met. - Ceiling on new BEAC credit to government: 0 — Met. - Ceiling on net domestic bank credit to government: -127 — Met. - Floor on social spending (education and health): 30 — Met. - TMU exchange rates (program exchange rates defined as of December 29, 2017): - CFAF 546.951 to USD 1 - CFAF 655.957 to EUR 1 - CFAF 83.98 to CNY 1 - CFAF 739.008 to GBP 1 - CFAF 778.929 to SDR 1 - Treatment of hydrocarbon excess revenue: use difference to reduce deficit and accumulate BEAC deposits; exceptions for revenues used to guarantee external borrowing under China framework. ### Annexes and selected data series (highlights) - National accounts revision (Annex I): - Nominal GDP level 1.3 percent higher in 2014 and up to 14 percent by 2017; real GDP 1.1 percent higher in 2014 and about 2.1 percent higher in 2017; share of non-hydrocarbon sector increased. - Annex II (Fiscal consolidation measures): - Measures include tighter controls on goods and services, reprioritization of capital projects, creation of large taxpayer unit, ASYCUDA rollout, and training/public relations campaigns. - Annex III (External debt from China): - As of end-December 2017, debt owed to China about CFAF 555 billion, or 20 percent of total public debt. - Eximbank facility allows borrowing up to US$2 billion; collateralization requirements effective at about 50 percent. - Key balance sheet and projection excerpts (selected values): - Oil price (Brent): 2014 92.34; 2015 47.03; 2016 39.05; 2017 51.46; 2018 68.96; 2019 69.76; 2020 66.06. - Reserve assets at the BEAC (months of next years' imports): 2014 6.0; 2015 3.6; 2016 0.2; 2017 0.1; 2018 0.8; 2019 2.2; 2020 3.5. - Broad money (billions of CFAF): 2014 1,557; 2015 1,387; 2016 1,160; 2017 1,172; 2018 1,194. - Current account (billions of CFAF): 2014 -457; 2015 -1,266; 2016 -864; 2017 -430; 2018 -228. - Overall balance (billions of CFAF): 2014 -586; 2015 -846; 2016 -712; 2017 -432; 2018 72. - Change in domestic arrears (billions of CFAF): 2014 2.8; 2015 12.2; 2016 3.0; 2017 -2.3; 2018 -17.7 (note: includes a one-time clearance via securitization in 2018). ### Staff appraisal and recommendations - Staff view: program performance satisfactory for first review; authorities met all but one quantitative PM (external arrears breach small and technical). - Key recommendations and priorities: - Maintain commitment to fiscal consolidation and structural reform agenda; save excess oil revenues to strengthen buffers. - Accelerate audit and settlement of domestic arrears to reduce NPLs and improve financial stability. - Speed up PFM reforms: unify expenditure control, computerize expenditure processes, and move to multi-year budgeting. - Urge COBAC to conduct a banking sector asset quality review as early as possible and address vulnerabilities revealed. - Press ahead with governance and transparency measures: complete audits of state oil and gas companies, submit EITI application, adopt governance strategy based on diagnostic study. - Continue capacity building and technical assistance in tax administration, customs, expenditure controls, and debt management. *Source: Republic of Equatorial Guinea — IMF Executive Summary and staff report excerpts (cr18310).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Staff-Monitored Program (SMP) - SMP approved by IMF Management in May 2018 covering January 1–July 31, 2018. - Main fiscal objectives: - reduce the budget deficit through non-hydrocarbon revenue mobilization and expenditure reduction while protecting social spending; - address critical weaknesses in public financial management. - Program measures also aim to: - improve the business climate; - foster economic diversification; - lay the basis for improving governance and transparency. - SMP aims to bolster capacity and build an adequate track record as the basis for discussions on a potential Fund-supported program later in 2018. - Domestic political support remains strong; private sector confidence appears to be improving. ### Macroeconomic context and recent developments - Economic performance and prices: - 2017 real GDP contraction slowed to 3.2 percent (from 8.6 percent in 2016). - Non-hydrocarbon GDP increased by 0.2 percent in 2017 (first increase since 2013). - Inflation in June 2018: 1.6 percent y/y (after -0.2 percent in December 2017 and -1.2 percent in March 2018). - Inflation pick-up since April driven by CFAF depreciation against the dollar; economic slack and low international inflation are containing inflation. - Fiscal and external buffers: - Government generated an overall surplus of 0.6 percent of GDP through end-April 2018 versus a projected deficit of 1.3 percent. - Surge in resource revenues (higher oil prices) and lower spending supported the surplus and a large increase in government deposits at the BEAC. - Imputed net foreign assets (NFAs) at the BEAC remained negative through June 2018 but increased during Q2. - Large private sector outflows, partly related to payment of government arrears toward end-2017 and early 2018, kept imputed NFAs negative. - National accounts revision: - Authorities revised national accounts for 2014–2016 implying positive GDP growth in 2014 (vs. contraction in the vintage), a somewhat lower contraction in 2016, an increased share of the non-hydrocarbon sector, and an upward revision to nominal GDP (Annex I). ### Financial sector and monetary conditions - Banking soundness (end-April 2018): - Nonperforming loans (NPL) to total loans: 28 percent (end-April 2018), down from 32 percent end-March 2018, and at same level as end-December 2017. - Two-thirds of NPLs are from construction companies, most of which the government has arrears with. - NPL provisions remain low but broadly in line with COBAC regulations. - Bank liquidity remains ample, but private sector deposits declined 9 percent y/y in April 2018 due to decline in foreign assets and base money over the last year. - BEAC refinancing to the banking system increased but remains well below central bank ceiling. - Financial soundness indicators (selected from Text Table 1, percent unless otherwise indicated): - Regulatory capital to risk-weighted assets: values across periods include 21.4, 19.9, 25.5, 24.1, 23.8, 28.4, 27.3, 28.3, 28.3, 31.2, 33.7. - NPLs: ratio to total loans: values across periods include 20.7, 15.2, 20.8, 17.0, 17.9, 28.6, 26.1, 28.8, 28.5, 27.8, 28.4. - Provisions to non-performing loans: 42.4, 50.3, 45.6, 52.8, 51.4, 36.5, 38.9, 39.5, 39.1, 40.3, 41.7. - Profitability (ROA, moving average): values include 1.4, 1.3, 1.2, 1.1, 0.8, 0.8, 1.1, 0.7, 0.9. - Liquidity ratio (ratio of high liquid assets (<1 M) to short term obligations (<1 M)): values include 207.1, 181.7, 194.0, 178.5, 200.7, 184.8, 158.4, 143.8, 146.6, 171.2, 161.0. - Source: COBAC. - Monetary aggregates and credit: - Broad money decline slowed to -5.3 percent y/y in April 2018 compared with -18 percent in April 2017. - Private sector credit growth: 1.0 percent y/y in April 2018, after averaging 2.7 percent for the first three months of 2018. - Growth in credit is led by long and medium-term credit (just over half of the April increase), potentially supporting non-hydrocarbon activity. - BEAC new lending to the government remained at zero in line with SMP and regional commitments. ### Outlook and risks - 2018 outlook: - Real GDP projected to decline by 7.7 percent in 2018 owing to increased pace of contraction in hydrocarbon output. - Non-hydrocarbon sector expected to continue to grow as confidence recovers and bank credit expands. - Inflation expected to remain subdued due to output below potential and low world inflation despite CFAF depreciation. - EG’s external buffers at the BEAC expected to rise, reflecting a narrower current account deficit, continued FDI flows, and public-sector deposit repatriation. - Medium-term scenario (Text Table 3, selected indicators, percent of GDP or percent as shown): - Real GDP growth, percent: 2017 prel. -3.2; 2018 Prog. -7.9; 2018 Proj. -7.7; 2019 -2.6; 2020 -2.3; 2021 -1.4; 2022 -1.7; 2023 3.4. - Hydrocarbon sector growth: 2017 -5.6; 2018 Prog. -14; 2018 Proj. -14; 2019 -7.4; 2020 -7.9; 2021 -6.5; 2022 -7.5; 2023 2.6. - Non-hydrocarbon sector growth: 2017 0.2; 2018 Prog. 1.2; 2018 Proj. 0.8; 2019 3.0; 2020 3.5; 2021 3.3; 2022 3.2; 2023 4.0. - Inflation, percent (annual average): 2017 0.7; 2018 Prog. 0.6; 2018 Proj. 0.9; 2019 1.4; 2020 1.9; 2021 2.5; 2022 3.0; 2023 3.0. - Overall fiscal balance: 2017 -2.5; 2018 prel. -0.9; 2018 Prog. 0.6; 2018 Proj. 2.3; 2019 2.5; 2020 2.0; 2021 1.2; 2022 1.3. - Non-resource primary balance: 2017 -15.8; 2018 prel. -14.0; 2018 Prog. -12.1; 2018 Proj -9.2; 2019 -7.2; 2020 -6.2; 2021 -5.7; 2022 -5.2. - Public debt (including domestic arrears): 2017 37.4; 2018 prel. 43.5; 2018 Prog. 37.3; 2018 Proj. 37.4; 2019 37.2; 2020 37.2; 2021 35.9; 2022 33.0. - Current account balance (- = deficit): 2017 -5.9; 2018 prel. -2.4; 2018 Prog. -3.1; 2018 Proj. -3.6; 2019 -4.3; 2020 -4.4; 2021 -18.0; 2022 -6.0. - Total external public debt: 2017 8.5; 2018 prel. 11.7; 2018 Prog. 10.5; 2018 Proj. 13.0; 2019 14.7; 2020 17.1; 2021 18.8; 2022 19.5. - Risks (tilted to the downside despite some easing): - Upside factors: higher oil prices (well above program projections through June) and public announcement of SMP supporting private confidence and non-hydrocarbon sector uptick; opportunity to strengthen buffers and reduce fiscal deficit if higher oil prices are saved as planned. - Downside risks: - Underlying health of financial sector may be weaker than COBAC data suggest, risking negative bank–real economy feedback loops. - Failure of a systemic bank or spillovers from banking problems in other CEMAC countries could affect public debt, confidence, lending conditions, and growth. - Failure to fully implement remaining SMP measures would delay transition to any Fund-supported program, weaken confidence, deepen financing constraints, and set back macroeconomic and financial stability. - Capacity constraints and governance vulnerabilities could hinder fiscal and structural reform implementation. ### Program implementation (first review) - Overall assessment: satisfactory implementation for the first review. - Quantitative performance measures and indicative targets: - All but one end-April 2018 PMs and indicative targets were met; one was missed by a very small margin. - All quantitative fiscal PMs and indicative targets for end-April 2018 were met. - Fiscal outturn (Central Government, end-April 2018, In Billions of CFAF): - Program vs Outturn: - Revenue: Prog. 289; Outturn 412. - Of which Resource revenue: Prog. 214; Outturn 336. - Non-resource tax revenue: Prog. 37; Outturn 49. - Other non-resource revenue: Prog. 38; Outturn 27. - Expenditure: Prog. 386; Outturn 366. - Compensation of employees: Prog. 48; Outturn 51. - Purchase of goods and services: Prog. 124; Outturn 83. - Subsidies and transfers: Prog. 48; Outturn 73. - Net acquisition of non-financial assets: Prog. 153; Outturn 141. - Overall fiscal balance: Prog. -97; Outturn 47. - Non-resource primary balance: Prog. -300; Outturn -273. - Non-resource tax revenue increased to CFAF 49 billion through end-April, above program target CFAF 37 billion (reflecting revenue mobilization measures in SMP, Annex II). - Non-resource primary deficit of central government estimated at CFAF -273 billion, below program ceiling CFAF -300 billion. - Spending declines: sharp decline in goods and services and lower capital spending relative to program targets for end-April. - External arrears performance: - Ceiling on non-accumulation of external arrears was missed by a very small amount due to a logistical issue with a correspondent bank returning funds; authorities seeking a solution. - Debt and credit measures: - Ceiling on contracting and guaranteeing new external debt met: contracted CFAF 70 billion in new external loans through end-April vs end-April ceiling of CFAF 80 billion. - New BEAC credit to government maintained at zero through end-April as envisaged. - Indicative targets: - Net domestic bank credit to the government and social spending indicative targets were observed. - Revised 2018 budget: - Used by authorities to guide fiscal policy since early 2018 despite delayed parliamentary approval (approved only at end-July). ### Policy discussions and fiscal policy - Macro framework update: - Higher international oil prices contributed to a narrower external current account, higher government deposits, and higher imputed reserves at BEAC. - Revised framework assumes higher oil revenues will be used in a balanced manner to rebuild deposit and reserve buffers and clear domestic arrears. - Quantitative targets remain based on non-hydrocarbon fiscal variables; higher oil revenue will be saved. - Authorities plan to maintain a tight fiscal stance to lock in gains; however, postponement of a large FLNG gas project due to financing delays has weighed on growth, fiscal and external outlooks in outer years. - Fiscal consolidation commitment: - 2018 fiscal program targets an adjustment (change in non-resource primary balance) of 3.7 percent of GDP, following an adjustment of 7.8 percent of GDP in the previous year. - First four months of 2018 consolidation driven by both expenditure cuts and higher non-resource tax revenues. *Source: Republic of Equatorial Guinea — IMF Executive Summary (cr18310 - EXECUTIVE SUMMARY).* ### 11. Fiscal consolidation in 2018 would continue to concentrate on reducing central ### 11. Fiscal consolidation in 2018 would continue to concentrate on reducing central ### Expenditure reduction - Non-priority public spending is being reduced, including on public investment. - Authorities have confined capital projects to those with higher impacts and adopted tighter controls on the approval of spending. - Fuel subsidies: spending is growing at a faster pace than at the same period of 2017, reflecting higher international fuel prices. - Risk of surpassing announced ceiling of CFAF 23 billion on fuel subsidies for 2018 (see May 2018 MEFP, para. 11) if the trend continues. - Staff urged adjusting the local price of fuel at the pump to contain the subsidy to the level envisaged in the program. - Authorities indicated political and social difficulty in significantly adjusting fuel prices given other substantive fiscal adjustments, but agreed to maintain the program target. ### Revenue mobilization - Authorities will continue to implement and fine tune their revenue mobilization agenda. - Policy measure: plan to send to parliament in early August 2018 draft tax regulations to implement measures recommended to increase non-resource tax revenues. - Administrative measures planned to raise additional resources: - Limiting tax fraud and exemptions. - Better enforcement at the border. - Requirement that companies file their corporate taxes in Malabo. - Customs reforms: - ASYCUDA is operational in Malabo; plan to roll out new customs clearance procedures to Bata by year-end. - Plan to join the World Customs Organization to help cement customs reforms. - To keep up momentum on tax receipts, plan to ramp up public relations campaign and staff training. - Staff encouraged authorities to push ahead with computerization of the revenue departments to increase overall efficiency. ### Financing and arrears - Financing: authorities have started drawing on the already established loan facility with the Export-Import Bank of China to finance the 2018 budget (Annex III). - Authorities continue efforts to engage multilateral development banks on providing budget support, expecting an IMF-supported program in coming months. - Arrears: - Draft terms of reference developed for audit of domestic arrears; plan to hire an independent auditor. - Authorities continue consultations with domestic creditors and are working on proposals for settling validated domestic arrears once audited. - Plan to use part of the oil windfall to clear more domestic arrears than originally envisaged, while strengthening deposit and reserve buffers at the BEAC. - Staff supports using part of the windfall to pay down arrears because reducing these is key to lowering NPLs in the banking system, reducing risks to financial stability, helping recovery of credit to the non-hydrocarbon sector, and supporting economic diversification. ### Public Finance Management (PFM) - Strong measures to revamp and strengthen the PFM framework, including full devolution of budget implementation to the Ministry of Finance and the merger with the Ministry of Economy. - Specific procedures implemented for spending approvals and oversight for both current and capital spending: - Current spending reviewed by the Directorate General of Budget Control. - Capital spending reviewed by a standing committee of technicians that reviews projects and determines commitments. - Budget preparation process revamped: all projects are considered and reviewed by a budget committee in the context of government’s announced policy priorities (Annex IV). - Authorities appear to have met the end-July structural measure on tracking expenditure commitments and strengthening expenditure controls (Table 6); staff to make final assessment during next program review. - Staff urged unification of the expenditure control mechanism for overall spending and improvement of expenditure monitoring efficiency by computerizing expenditure processes. - Recommendation: move to multi-year budgeting in the future to further tighten fiscal management and discipline. ### Protecting the poor and improving social indicators - Expenditure is being reallocated toward social areas, including raising expenditure on health and education. - Authorities prioritizing construction of small “urban districts” in remote rural and underserved regions: - Key components: housing for low-income families, medical and educational facilities, and other basic public services and infrastructure. - Aimed at improving living conditions and protecting population from negative effects of fiscal adjustment. - Staff urged authorities to commence regular household budget surveys to improve data collection on poverty and other social indicators to better target social protection. ### Building financial sector resilience - Financial sector reforms mainly addressed at regional CEMAC level; domestic action can also contribute to financial stability. - Authorities support: - COBAC’s action plan to address high NPLs and strengthen supervision rules. - Implementation of new provisioning rules, among other measures. - COBAC asked to undertake an asset quality review of EG’s banking system, expected to be conducted by end-2018. - Dealing with government arrears to construction companies is key to sharply reducing NPLs and improving solvency; authorities are reducing arrears and launching arrears audit process. - Staff stressed the need to speed up arrears auditing and settlement. - Improved private confidence and fiscal discipline should help raise deposits and ameliorate liquidity conditions of banks in the medium term. - Asset quality review could inform strategy to reduce arrears not related to construction sector, which were already relatively high prior to the current crisis. - Banks have initiated legal actions to repossess collateral; banks report general satisfaction with legal and regulatory framework for foreclosures. - Banks noted increased vigilance of monetary and regulatory authorities in enforcement of anti-money laundering rules and stricter enforcement of foreign exchange regulations. ### Structural reforms to boost non-hydrocarbon growth - Authorities implementing reform agenda focused on economic diversification and improving business environment. - Economic diversification: - Preparing background studies to inform a national conference (scheduled for March 2019) to revise the Horizonte 2020 strategy. - Revised strategy to integrate Millennium Development Goals and environmental considerations; will guide diversification and sectoral policies for next 5 to 10 years. - Sectoral initiatives in progress: - Tourism: national tourism development plan expected to be completed later this year; discussing options to facilitate tourist visa issuance. - Fisheries: establishing a training institute in Bata for fisherfolk and constructing basic infrastructure to support the sector. - Agricultural sector initiatives being developed. - Measures to reform autonomous agencies focusing on improving corporate governance and profitability. - Business environment: - April 2018 amendment of foreign investment law eliminated requirement for a local partner contributing 35 percent of the capital in the non-hydrocarbon sector. - Operationalized the one-stop shop for foreign investment. - Plan to launch a business climate diagnostic later this year, jointly prepared with the World Bank; national business climate commission to review recommendations for implementation. - Invitation to Singapore Corporation Enterprise to share practical steps for improving business environment using the Singapore example. - Plans to create investment and export promotion agencies to support private investment. ### Improving governance and transparency - Governance and transparency agenda under the SMP focuses on: - Strengthening governance and anti-corruption measures: - May 2018 ratification of the United Nations Convention Against Corruption (structural measure, July 2018); authorities deliberating regulations to implement the convention. - Amendment of foreign investment decree to remove requirement for a local partner should help reduce corruption opportunities. - No progress yet on fully operationalizing the Accounts Tribunal Office to conduct annual audits and publish findings; authorities expect creating fiscal space and staffing/facilities needs will likely take them beyond 2018. - Governance diagnostic: - Fund mission visited Malabo during 11-15 June 2018 to conduct governance diagnostic study; study due by September 2018. - Study will report on governance and corruption challenges and propose measures; will inform preparation of a governance strategy to be adopted by government in consultation with Fund staff. - Authorities reaffirmed commitment to publishing the study and the strategy. - Transparency in the hydrocarbon sector: - Progress in preparing for EITI membership, but application not yet submitted; EITI National Committee completed work program and plans, and prepared a budget; authorities indicated they will present membership application to the EITI by end-August. - Launched bidding process—based on terms of reference prepared in consultation with staff—to hire independent firms for: - (i) auditing the accounts of the state-owned oil and gas companies; and - (ii) conducting a detailed reconciliation of EG’s gross hydrocarbon output with hydrocarbon revenues received by the budget in 2016 and 2017 (structural measure, July 2018). Staff is in discussions to assess compliance. - Data dissemination: - New Ministry of Finance website launched and used to post historical fiscal data. - Staff recommended using the website to disseminate more fiscal data and information—including on fiscal legislation—and to regularly update it. - Authorities completed preparatory work for subscribing to the general data dissemination standards (e-GDDS); next step is an e-GDDS implementation mission to EG. - Note: An e-GDDS assessment mission took place in June 2016 and draft metadata were prepared. An e-GDDS mission is tentatively scheduled for the first quarter of 2019. ### Capacity building - Fund delivered training in macroeconomic analysis and forecasting in early June 2018 for public officials. - Authorities discussing plans to use the newly trained cohort to monitor technical progress on program work. - New TA needs generated as prior TA recommendations are implemented. - Authorities requested TA on implementing tax and customs recommendations, particularly training of tax inspectors. - Requested additional assistance on enhancing expenditure controls based on previous FAD TA and expressed strong interest in computerization of expenditure processes. - Working on enhancing debt management by expanding training opportunities and revamping systems and platforms. ### Staff appraisal - Program performance has been satisfactory thus far; authorities have made a satisfactory effort to reduce macroeconomic imbalances and in most cases overperformed quantitative program targets. - Revised 2018 budget implementation contributed to improved fiscal outturn through April. - Commitment to the program and willingness to take tough measures is helping bolster public finances and rebuild private confidence. - Non-hydrocarbon sector outlook improved modestly: after modest growth in 2017, expected to continue to expand in 2018. - Operationalization of one-stop shop and business environment initiatives should make EG more attractive to foreign investors by reducing transaction costs and bottlenecks. - Authorities plan to include Millennium Development Goals as a key pillar of a revised Horizonte 2020 development plan to be discussed in March 2019. - Authorities decided to use excess revenues from recent oil revenue windfall to rebuild external and fiscal buffers: - Reducing fiscal deficit and accumulating more deposits at the BEAC than originally envisaged under the program. - Strengthening imputed NFA buffers at the BEAC, which are expected to turn positive by end-2018. - Efforts to change composition of public expenditure to create room for higher social spending to improve living conditions of low-income groups are welcomed. - Expenditure control and treasury management measures were key to initial program success: - Devolving budget implementation to the Ministry of Finance, Economy, and Planning, and bringing all capital spending on budget are positive steps aided by merger of Ministries of Finance and Economy. - New procedures for preparing the budget should help weed out low priority projects and promote ownership and support for fiscal program. - Recommendation: further strengthen expenditure management by improving information systems used in spending control and tracking. - Financial system stability: - Protecting fiscal consolidation gains and maintaining non-hydrocarbon recovery require a stable financial system. - Halt to further accumulation of domestic arrears is enhancing financial stability and boosting confidence. - Authorities need a clear strategy for repayment of existing arrears to permit elimination of most NPLs while rebuilding deposit and reserve buffers at the BEAC. - Important to tackle non-construction related NPLs, which would remain relatively high and could restrict banks’ ability to support non-hydrocarbon sector recovery. - Recommendation: COBAC should conduct a banking sector asset review as early as possible and address any additional financial sector vulnerabilities that the exercise may uncover. *IMF staff report excerpt (Republic of Equatorial Guinea).* ### 23. The initial efforts being made to foster good governance and enhance transparency ### 23. The initial efforts being made to foster good governance and enhance transparency ### Governance and transparency: findings and next steps - Initial efforts to foster good governance and enhance transparency are welcome, but more work is needed. - Staff welcomes the authorities’ ratification of the UN Convention Against Corruption and their actions thus far in deliberating rules for its implementation. - The recent amendment to the foreign investment law to remove the domestic partner requirement may also help to tackle corruption. - After the completion of the diagnostic study on governance, it would be important for the authorities to adopt a strategy to foster good governance and fight corruption. - The authorities need to press ahead with the audits of the state-owned oil and gas companies. - The authorities should move forward with their membership application to the EITI. ### Program risks, concerns, and policy recommendations - Risks to the program, while subsiding somewhat, are still tilted to the downside. - Potential risks identified previously concerning the underlying strength of the banking system and public-sector management capacity are all still important concerns. - While program performance for the first review has been satisfactory, the authorities need to remain vigilant as future slippages would delay transiting to any potential Fund-supported program and set back macroeconomic stability. - The authorities need to remain committed to implementing the fiscal adjustment and structural reform agenda necessary to revive the economy. - The authorities also need to continue saving the excess revenues from higher oil prices, thereby protecting the fiscal program and strengthening public finances. *Source: cr18310 - 23. The initial efforts being made to foster good governance and enhance transparency* ### 25. Staff supports the completion of the first review under the SMP arrangement. ### 25. Staff supports the completion of the first review under the SMP arrangement. ### Program assessment and staff view - Staff supports the completion of the first review under the SMP arrangement. - Although the PM on external arrears was missed, the non-compliance with the ceiling is small and does not imperil the successful implementation of the program. ### Key macroeconomic projections and outcomes (selected) - Real GDP (annual percentage change): 2014: 0.4; 2015: -9.1; 2016: -8.6; 2017: -3.2; 2018: -7.7; 2019: -2.6; 2020: -2.3; 2021: -1.4; 2022: -1.7; 2023 (Prel.): 3.4 - Hydrocarbon sectors (annual percentage change): 2014: 1.3; 2015: -9.4; 2016: -8.5; 2017: -5.6; 2018: -13.9; 2019: -7.4; 2020: -7.9; 2021: -6.5; 2022: -7.5; 2023: 2.6 - Non-hydrocarbon sectors (annual percentage change): 2014: -0.8; 2015: -8.8; 2016: -8.7; 2017: 0.2; 2018: 0.8; 2019: 3.0; 2020: 3.5; 2021: 3.3; 2022: 3.2; 2023: 4.0 - GDP deflator (annual percentage change): 2014: -1.3; 2015: -20.2; 2016: -6.4; 2017: 12.5; 2018: 8.6; 2019: 1.3; 2020: 0.3; 2021: 1.8; 2022: 3.2; 2023: 2.4 - Consumer prices, annual average: 2014: 4.3; 2015: 1.7; 2016: 1.4; 2017: 0.7; 2018: 0.9; 2019: 1.4; 2020: 1.9; 2021: 2.5; 2022: 3.0; 2023: 3.0 - Broad money, annual percentage change: 2014: -14.1; 2015: -10.9; 2016: -16.4; 2017: 1.0; 2018: 1.9; 2019: 14.6; 2020: 9.8; 2021: 6.2; 2022: 6.6; 2023: 7.4 ### External sector and balance of payments (selected) - Current account balance (including official transfers; - = deficit, percent of GDP): 2014: -4.3; 2015: -16.2; 2016: -12.9; 2017: -5.9; 2018: -3.1; 2019: -3.6; 2020: -4.3; 2021: -4.4; 2022: -18.0; 2023: -6.0 - Exports of goods, f.o.b. (percent of GDP): 2014: 58.2; 2015: 43.2; 2016: 36.9; 2017: 37.5; 2018: 39.6; 2019: 36.6; 2020: 32.7; 2021: 29.6; 2022: 26.7; 2023: 25.8 - Hydrocarbon exports (percent of GDP): 2014: 57.1; 2015: 41.3; 2016: 35.8; 2017: 36.0; 2018: 38.4; 2019: 35.2; 2020: 31.0; 2021: 27.6; 2022: 24.4; 2023: 23.3 - Trade balance (percent of GDP): 2014: 32.9; 2015: 16.5; 2016: 16.3; 2017: 21.0; 2018: 25.1; 2019: 22.4; 2020: 19.1; 2021: 17.2; 2022: 2.8; 2023: 13.4 - Reserve assets at the BEAC (months of next years' imports): 2014: 6.0; 2015: 3.6; 2016: 0.2; 2017: 0.1; 2018: 0.8; 2019: 2.2; 2020: 3.5; 2021: 3.0; 2022: 5.0; 2023: 5.4 - Oil price (U.S. dollars a barrel, Brent local price includes quality discount): 2014: 92.34; 2015: 47.03; 2016: 39.05; 2017: 51.46; 2018: 68.96; 2019: 69.76; 2020: 66.06; 2021: 63.15; 2022: 56.85; 2023: 55.4 ### Fiscal outcomes and projections (selected) - Revenue (percent of GDP): 2014: 24.1; 2015: 26.6; 2016: 16.9; 2017: 17.0; 2018: 18.3; 2019: 17.3; 2020: 17.3; 2021: 16.5; 2022: 15.8; 2023: 15.2 - Resource revenue (percent of GDP): 2014: 21.3; 2015: 22.2; 2016: 12.7; 2017: 13.6; 2018: 13.7; 2019: 13.2; 2020: 12.6; 2021: 10.8; 2022: 9.4; 2023: 8.1 - Expenditure (percent of GDP): 2014: 31.6; 2015: 41.6; 2016: 27.8; 2017: 19.6; 2018: 19.3; 2019: 16.6; 2020: 15.0; 2021: 14.0; 2022: 13.8; 2023: 13.9 - Overall fiscal balance (Commitment basis, percent of GDP): 2014: -7.5; 2015: -15.1; 2016: -10.8; 2017: -2.5; 2018: -0.9; 2019: 0.6; 2020: 2.3; 2021: 2.5; 2022: 2.0; 2023: 1.3 - Overall fiscal balance (Cash basis, percent of GDP): 2014: -4.7; 2015: -2.9; 2016: -7.9; 2017: -4.8; 2018: -17.1; 2019: 2.3; 2020: 2.5; 2021: 2.0; 2022: 1.2; 2023: 1.3 - Non-resource primary balance (percent of GDP): 2014: -28.4; 2015: -36.9; 2016: -23.3; 2017: -15.8; 2018: -14.0; 2019: -12.1; 2020: -9.2; 2021: -7.2; 2022: -6.2; 2023: -5.2 - Outstanding public debt (percent of GDP, includes domestic arrears): 2014: 12.6; 2015: 33.6; 2016: 43.3; 2017: 37.4; 2018: 43.5; 2019: 37.3; 2020: 37.4; 2021: 37.2; 2022: 37.2; 2023: 33.0 - Change in domestic arrears (billions of CFA francs): 2014: 2.8; 2015: 12.2; 2016: 3.0; 2017: -2.3; 2018: -17.7; 2019: 0.0; 2020: 0.0; 2021: 0.0; 2022: 0.0; 2023: 0.0 - Note: Includes a one-time clearance of outstanding arrears through securitization in 2018. ### Monetary sector (selected) - Broad money (billions of CFA francs): 2014: 1,557; 2015: 1,387; 2016: 1,160; 2017: 1,172; 2018: 1,194; 2019: 1,368; 2020: 1,502; 2021: 1,596; 2022: 1,701; 2023: 1,827 - Net foreign assets (BEAC and commercial banks, billions of CFA francs): 2014: 1,629; 2015: 854; 2016: 163; 2017: 751; 2018: 553; 2019: 174; 2020: 505; 2021: 937; 2022: 680; 2023: 806 - Credit to the private sector (billions of CFA francs): 2014: 968; 2015: 1,105; 2016: 1,151; 2017: 1,167; 2018: 1,181; 2019: 1,249; 2020: 1,325; 2021: 1,425; 2022: 1,507; 2023: 1,625 - Credit to the economy (annual percentage change): 2014: 17.4; 2015: 13.8; 2016: 5.8; 2017: 1.5; 2018: 1.2; 2019: 5.6; 2020: 5.9; 2021: 7.4; 2022: 5.6; 2023: 7.7 ### Selected public finance and government operations details (2014–18, billions of CFA francs) - Revenue (2014–2018 Prog./Outturn): 2014 Prog.: 2,585; 2015: 2,071; 2016: 1,129; 2017 Prog.: 1,238; 2017 Outturn: 1,153; 2018 Prog. M4: 1,257; 2018 Out. M4 Q3: 1,243; 2018 Out. M7 Q4: 1,159 - Resource revenue (2014–2018 series): 2014: 2,293; 2015: 1,731; 2016: 846; 2017 Prog. M4: 988; 2017 Outturn: 859; 2018 Prog. M4: 963; 2018 Out. M4 Q3: 903; 2018 Out. M7 Q4: 759 - Expenditure (2014–2018 series): 2014: 3,396; 2015: 3,247; 2016: 1,853; 2017 Prog. M4: 1,422; 2017 Outturn: 1,212; 2018 Prog. M4: 1,212; 2018 Out. M4 Q3: 1,080; 2018 Out. M7 Q4: 986 - Net change in domestic arrears (2014–2018): 2014: 300; 2015: 953; 2016: 200; 2017: -165; 2018 Prog M4: 0; 2018 Out. M4 Q3: -27; 2018 Out. M7 Q4: -1,288 - Gross government deposits (2014–2018, billions of CFA francs): 2014: 1,163; 2015: 1,218; 2016: 761; 2017: 536; 2018 Prog. M4: 516; 2018 Out. M4 Q3: 566; 2018 Out. M7 Q4: 710 *Source: Staff report and tables contained in the cited IMF document.* ### 1. Total financing requirements839458884007958209601,0261,0072,8351,289 ### 1. Total financing requirements839458884007958209601,0261,0072,8351,289 ### Financing requirements - Current account deficit: 5269242,1401,4577384154615505672,390840 - Debt amortization: 353 - 308178143131206138185192246269 - Change in gross reserves (increase=+): -40-1,186-1,431-1,200-75200361291248199179 ### Total financing sources - Total financing sources: 104113674813836247298617132,5531,000 - Capital transfers: 00000000000 - Foreign direct investment (net): 2,146 - 1,1381,1863196152805356154872,130688 - Portfolio investment (net): 2924200-2-2-2-2-2-2 - Debt financing: 433154200612392254226228230232232 - Public sector: 324 - 3098529285254226228230232232 - Non-public sector: 10912410383108000000 - Other net capital inflows: -2,599-905-1,022-450-62492-2920-219381 - Errors and omissions: -829-365469-25-152000000 ### Financing gap - Financing gap: 0 - Follow-on figures: 0000196231165295282288 *Source: Fund staff estimates and projections.* ### Prior and Structural Measures (Table 6 — selected entries) - Secure congressional approval of a 2018 budget consistent with targets under the SMP - Target date / Status: Before submitting first Review of SMP to management / Met - Secure congressional approval of a 2018 budget consistent with targets under the SMP - Target date / Status: End-April 2018 / Not met - Hire an internationally reputable firm to (i) audit the accounts of the state-owned oil and gas companies and (ii) conduct a detailed reconciliation of EG’s gross hydrocarbon output with hydrocarbon revenue received by the budget for 2017 - Target date / Status: End-July 2018 / To be assessed - Hire an independent entity to conduct an audit of domestic arrears accumulated through end-2017 - Target date / Status: End-July 2018 / To be assessed - Adopt mechanisms to track and control expenditure commitments and strengthen treasury cash management - Target date / Status: End-July 2018 / To be assessed - Submit a membership application to the Extractive Industries transparency Initiative (EITI) - Target date / Status: End-July 2018 / Not met - Ratify the United Nations Convention Against Corruption - Target date / Status: End-July 2018 / Met *Sources: IMF staff.* ### Quantitative Performance Measures and Indicative Targets (Table 7 — selected entries, Billions of CFA Francs, cumulative for each quarter) - A. Quantitative performance measures (End-Jul. / End-Sep. / End-Dec. Prog. / Actual / Status / Prog. / Proj. / Proj.) - Floor on non-resource tax revenue of the central government: 37 / 49 / Met / 90 / 140 / 180 - Floor on non-resource Primary balance of the central government: -300 / -273 / Met / -540 / -569 / -882 - Ceiling on external debt arrears accumulation: 1,2 / 0 / 0 / Not met / 000 - Ceiling on contracting and guaranteeing new external debt: 80 / 70 / Met / 100 / 110 / 140 - Ceiling on new BEAC credit to the government: 0 / 0 / Met / 000 - B. Indicative Targets - Ceiling on net domestic bank credit to the government: -127 -127 Met -127 -127 -122 - Floor on social spending (education and health): 3 / 30 / 30 / Met / 60 / 80 / 150 Notes: - 1 This quantitative measure will apply continuously. - 2 As of April 30th 2018, there is an external arrear of 160,000 USD with the Russian Federation. - 3 The floor for social spending is based on SMP definition of social spending. ### Annex I. Revision of National Accounts — key features - A higher level of GDP - Nominal GDP: level is 1.3 percent higher in 2014 and increases gradually to 14 percent by 2017. - Real GDP: 1.1 percent higher in 2014 and about 2.1 percent higher in 2017. - GDP growth (revised) - Real GDP growth: 2014 was 0.4 percent (vs. negative 0.7 in May 2018 staff report). 2016 growth is slightly higher, but lower in 2017. Nominal growth is higher through 2017. - Composition of GDP - Share of the non-hydrocarbon sector in total real GDP has increased, mainly driven by new estimates for public administration. Revised GDP series compared with the SMP Vintage, 2014-2017 (in percent) - Real GDP series — New GDP relative to old: 2014 1.1, 2015 1.1, 2016 2.4, 2017 2.1 - Growth — Old series: 2014 -0.7, 2015 -9.1, 2016 -9.7, 2017 -2.9 - Growth — New series: 2014 0.4, 2015 -9.1, 2016 -8.6, 2017 -3.2 - Share of Non-hydrocarbon GDP — Old series: 2014 40.1, 2015 40.0, 2016 38.5, 2017 40.2 - Share of Non-hydrocarbon GDP — New series: 2014 40.8, 2015 40.9, 2016 40.9, 2017 42.3 - Nominal GDP series — New GDP relative to old: 2014 1.3, 2015 8.4, 2016 10.6, 2017 14.0 - Growth — Old series: 2014 -2.1, 2015 -32.2, 2016 -16.1, 2017 5.7 - Growth — New series: 2014 -0.9, 2015 -27.5, 2016 -14.4, 2017 8.9 - Share of Non-hydrocarbon GDP — Old series: 2014 41.9, 2015 55.6, 2016 59.3, 2017 57.4 - Share of Non-hydrocarbon GDP — New series: 2014 43.1, 2015 54.8, 2016 60.3, 2017 56.1 ### Annex II. Fiscal Consolidation Measures in 2018 — summary of measures and implementation - Fiscal adjustment reduced the non-hydrocarbon primary deficit in the first four months of 2018, supported by revenue and expenditure measures; bulk of adjustment came from reductions in expenditure. - Expenditure control and reprioritization: - Tighter controls on purchase of goods and services, including electricity/lighting. - Smaller than expected contingent and unforeseen expenditures. - All spending must be approved by the MFEP before implementation. - Capital spending projects reprioritized based on perceived impact on economic and social welfare. - Increases in transfers and subsidies (maintenance, fuel subsidy, subsidies to families and other social expenditures). - Revenue mobilization reforms: - Hired a tax expert to implement recommendations of the 2018 FAD TA report on tax policy and tax administration. - Tax administration measures: creation of large taxpayer unit; better enforcement of corporate tax code; mandating all corporate taxes filed in Malabo; creation of a single bank account to collect non-hydrocarbon revenues; unification of the Directorate General for Taxes and Contributions; tightened exemptions per Decree 134 of 2015. - Tax amnesty law passed by parliament in late 2017 not yet operationalized; authorities studying amendment proposals. - Customs reorganization and implementation of ASYCUDA in Malabo; expected introduction in Bata by year-end; implementation of the CEMAC common external tariff has begun. - Supporting initiatives: - Public relations campaign to encourage voluntary tax compliance. - Training agenda to upgrade skills of public officers. ### Annex III. External Debt from China — key points - As of end-December 2017, debt owed to China amounted to about CFAF 555 billion, or 20 percent of total public debt. - Main modalities: official concessional loans and a credit facility with the Export-Import Bank of China (Eximbank). - Eximbank facility features: - Allows Equatorial Guinea to borrow up to US$2 billion on non-concessional terms; usage below that amount so far. - Credits drawn in tranches, amortized; overall facility resembles revolving credits. - Loans are secured by deposit accounts opened by Equatorial Guinea in Eximbank; proceeds from hydrocarbon exports to China deposited into these accounts. - Required deposit in Eximbank increases with utilization; required balances are not freely available for repatriation. - Additional amounts credited to deposits can be used to service existing loans under this facility. - Staff assumes utilization of these loans comprises the full amount of identified fiscal financing in the projection period. - Collateralization requirements assumed to remain at the effective rate (about 50 percent). - Other potential Chinese lending: - ICBC announced an infrastructure cooperation agreement in April 2015 entailing potential lending of up to US$2 billion on commercial terms, insured by Sinosure; authorities have not yet drawn on these facilities. ### Annex IV. Reforming Public Financial Management Framework — implemented measures - Institutional reorganization: merger of the Ministry of the Economy and Planning with the Ministry of Finance to form the Ministry of Finance, Economy, and Planning (MFEP); Minister of Finance now responsible for both capital and current expenditure. - Capital spending controls: - MFEP works continuously with GE Projectos; MFEP and GE Projectos jointly sign spending authorizations. - MFEP does not sign contracts for capital projects not covered in the budget. - Internal technical committee from MFEP and GE Projectos monitors project readiness for payment. - Control of current spending: - All current spending must be approved by the Directorate of finance control in MFEP, then by the Minister of Finance, then by the director of budget for payment orders. - Budget execution and preparation: - Technical committee monitors spending monthly. - Budget committee coordinates submissions; ministries present requests and discuss within policy priorities. - Training seminars for public officials on budget preparation. - Treasury cash management improvements: - Payments scheduled with resource availability; public accounts monitored daily. - Banks informed that payments bypassing treasury control will not be honored. - Reinforced use of IT cash management systems (SIGMA used with BEAC) through technical training. - Treasury accounts and training: - Centralization of hydrocarbon cash revenues in one main BEAC account; streamlining of accounts in domestic commercial banks. - Stepped-up training on budget preparation for technical staff. - Planned further reforms: - Create a unified control system for capital and current spending. - Develop a multi-year budget. - Request technical assistance to computerize spending control functions. ### Appendix I. Letter of Intent (excerpts) - Date and place: Malabo, October 23, 2018 - Government uses a 7-month IMF Staff-Monitored Program (SMP) approved in early May 2018 as a framework to build capacity and a track record for potential IMF financial assistance. - SMP policy focus: reducing macroeconomic imbalances; improving conditions for inclusive growth; fostering economic diversification; strengthening governance; contributing to regional CEMAC adjustment strategy. - Policy actions: - Reducing public spending and re-orienting budget composition toward growth-enhancing and social spending. - Gradual reforms of the public financial management framework. - Measures to increase revenues through improved administration and measures to raise non-hydrocarbon revenues. - Petitioned COBAC to do an asset quality review of banks to resolve high NPLs. - Structural policy changes: amended foreign investment law removing requirement for local partner; operationalized one-stop shop for investors. - Transparency and governance: - New MFEP webpage to disseminate fiscal outturns and SMP materials; plans to post revised 2018 budget, future annual budgets, quarterly SMP reviews. - Parliament ratified the UN Convention against Corruption in May; discussing implementing legislation. - Compliance with SMP: - Committed to LOI of May 11, 2018. - For first review period ending April 2018, met all but one quantitative performance measure (small breach on non-accumulation of external debt payments arrears due to correspondent bank logistical issue). - 2018 revised budget approved by parliament in late July 2018. *Source: IMF staff estimates and projections (Republic of Equatorial Guinea content from the provided document).* ### 2018. In particular, as mentioned above, we have already ratified the UN Convention against ### cr18310 - 2018. In particular, as mentioned above, we have already ratified the UN Convention against ### Background and program stance - The Government of Equatorial Guinea’s reform program is supported by a seven-month Staff-Monitored Program (SMP) and is described as "off to a good start." - The Government remains fully committed to the objectives set forth in the May 2018 Memorandum of Economic and Financial Policies (MEFP). - Program aims: (i) reduce macroeconomic imbalances, (ii) improve conditions for inclusive growth, (iii) foster economic diversification, (iv) improve social protection, (v) strengthen governance and fiscal transparency, (vi) protect financial stability, and (vii) strengthen capacity. - The Government requests IMF Management to complete the first review under the SMP and authorizes IMF publication of the letter, attachments, and staff report for the first review. ### Macroeconomic developments, program implementation, and outlook - Real GDP: - It is anticipated a contraction of 8 percent of real GDP in 2018. - Real GDP growth is projected to contract by almost 8 percent in 2018 and by 2.6 percent in 2019. - In the medium term, overall growth is expected to slowly return to a positive rate as policy measures and funding restrictions are relaxed. - Inflation: - Expected to remain low, broadly in line with 2017. - Reserves and external sector: - Net imputed reserves at the BEAC have not recovered due to persistent private sector demand for foreign exchange. - The economic program is expected to reduce the external current account deficit and contribute to an increase in BEAC reserves. - Program performance (first review period ending April 2018): - Met all quantitative performance measures (PMs) except one, missed due to technical reasons not attributed to the government. - Non-resource primary deficit of the central government: CFA Francs -273 billion (target CFA Francs -300 billion). - Non-resource tax revenue: CFA Francs 49 billion (target CFA Francs 37 billion). - Ceiling on contracting and guaranteeing new external debt: government contracted CFA Francs 70 billion (ceiling CFA Francs 80 billion). - New BEAC credit: gross new credit maintained at zero (target for end-April). - Indicative targets on net domestic bank credit to the government and social spending met. - External arrears: small breach owing to correspondent bank in the US being unable to process a payment because it is subject to US government sanctions. ### Structural reforms and governance measures - Key actions taken: - Ratified the UN Convention against Corruption in May 2018; parliament deliberating a law for its implementation. - Strengthened public expenditure control by devolving control to the Ministry of Finance, Economy, and Planning. - Drafted terms of reference to hire independent auditors to: audit public sector domestic payment arrears; audit state-owned oil and gas companies; reconcile hydrocarbon revenues in the budget with production for 2016 and 2017. - Revised 2018 budget (approved by parliament at end-July 2018) and fiscal policy conducted within the boundaries of the revised proposal. ### Policy objectives and fiscal strategy - Program fiscal targets: - Planned fiscal adjustment (change in non-hydrocarbon primary balance) of 3.7 percent of GDP in 2018, with a 15 percent cut in expenditure in nominal terms. - Target for the non-hydrocarbon primary balance in 2018: 12.1 percent of GDP, 3.7 percentage points lower than the actual non-hydrocarbon primary balance in 2017. - Fiscal consolidation aims: - Minimize the financing gap and maintain public debt sustainability. - Reduce primary deficit from -28.4 percent of GDP in 2014 to -15.8 percent in 2017. - Large part of adjustment to come from additional government spending cuts. - Improve tax policy and administration to increase non-hydrocarbon tax revenue. ### Revenue measures and tax administration reforms - 2018 revenue plan: increase total tax revenue by 0.5 percent of GDP; 0.3 percentage points from improvements in measures already adopted. - Administrative and policy measures: - Large taxpayer unit activated; introduced single taxpayer identification number; streamlined tax returns; transferred tax collection management from the Treasury to tax and customs administrations; all companies required to file taxes in Malabo. - Customs reorganization and implementation of ASYCUDA-based procedures; increased number of inspectors at border crossings. - Directed customs posts to apply prescribed common sub-regional tariffs on alcohol, cigarette and luxury goods to generate positive revenue inflows later in 2018. - Implementation of measures provided in Decree 134 of 2015 to penalize tax evasion, reduce exemptions, and increase nontax revenue; all exemption requests go through the Ministry of Finance. - Negotiations with oil and gas companies to apply the 2004 tax law instead of the 1986 law to generate additional tax revenue. - Strengthen revenue administration and auditing capacity with IMF technical assistance; develop capacity to audit oil and gas companies and monitor contractual tax obligations; unify Directorate of taxes and collections; hired a tax expert to implement IMF 2017 TA recommendations. - Plan to amend the 2017 Tax Amnesty Law to replace write-offs with negotiated payment arrangements to protect potential revenue and encourage compliance. - Review of tax legislation with IMF technical assistance to reduce exemptions and implement measures to increase non-hydrocarbon tax revenue, including short-term measures from the January 2018 FAD mission report. - Begin computerization of tax departments to facilitate voluntary filing and network with the rest of the economy. - Training of tax administration personnel to create a specialized corps of tax inspectors. - Introduced a single card for goods imports to simplify customs procedures and allow customs duties to be paid into banks. - Operationalized a funded one-stop facility to reduce red tape and improve revenue collection. ### Expenditure measures and public investment priorities - Expenditure adjustment: - Revised 2018 budget approved by parliament late July 2018; public finances managed in line with its parameters. - Capital expenditure reduced to make room for more social spending. - Intend to decrease capital expenditure by 2.6 percent of GDP in 2018. - From 2014 to 2017, capital spending reduced by 74 percent, reprogrammed and prioritized. - New public investment priorities: education, health, housing, roads, and waterworks. - Ensure capital expenditure does not exceed the government’s resources. - Current expenditure: - Limit fuel subsidy to its 2017 level (CFAF 23.3 billion) and target subsidy to low-income population. - Public expenditure controls: - Created a database of public investment projects as a centralized repository. - Ensure Ministry of Finance, Economy, and Planning has full control of the budget. - Maintain strict expenditure control by monitoring and controlling expenditure commitments on an annual and multiyear basis and strengthen Treasury cash flow management. - All government spending fully incorporated into the national budget. ### Social protection and statistics - Social spending: - Current social spending is 1.8 percent of GDP. - 2018 budget increases social expenditure to 2.0 percent of GDP as a floor on social spending to guarantee continued support in health and education. - This increase financed by reallocating capital and current expenditure and by increasing non-hydrocarbon tax revenue. - Data and strategy: - Plan to fund periodic household budget surveys to improve poverty and social indicator data. - Working with the World Bank on a social sector study to design a national strategy focused on education, health, and social welfare to develop human capital and improve social outcomes. ### Financing strategy and external support - Financing gap: - Despite announced revenue and expenditure measures, a financing gap in 2018 is expected. - Government seeks financial assistance and has intensified negotiations with the World Bank and the African Development Bank to obtain financing. - These negotiations, combined with the present program, aim to lay the basis for financial support under a possible future IMF-supported program. - Other financing actions: - Continue using existing line of credit from China to support priority investment projects. - Propose issuing short-term debt instruments with one-year maturities on the national and regional markets. - Apply a proportion of available deposits to offset public sector financing requirements. - Advances received from BEAC in recent years have been converted into a long-term loan to be repaid over 10 years starting in 2022. _Rep. of Equatorial Guinea — Memorandum on Economic and Financial Policies (Attachment I) as presented to the IMF in 2018._ ### 14. Domestic arrears. Our commitment under this program is to avoid accumulating ### 14. Domestic arrears. Our commitment under this program is to avoid accumulating ### Domestic arrears - Commitment: avoid accumulating additional net arrears. - Financing approach: use available deposits and, as indicated above, issue domestic debt as needed to cover short-term financing needs. - External support: a possible program from the IMF, along with budgetary support from the WB and the AfDB under that program, will help cover financing needs throughout 2018 and avoid accumulation of additional net arrears. - Audit and payment plan (structural measure, end-July 2018): - Terms of reference drafted to hire an independent auditor to validate claims before drawing up a payment plan. - Once validated, bonds will be issued to creditors and fiscal space created to make cash payments to settle obligations. - Terms of reference agreed with IMF technical staff. - Interim action: continue to make small payments on arrears as public finances permit. ### Public Debt - Composition: - Majority denominated in CFAs. - About half of CFA-denominated debt consists of domestic payment arrears (see para. 14). - Other domestic components: loans from the BEAC, securities issued in the nascent regional market—also mainly held by banks. - External debt: relatively small, simple structure, mainly with one main creditor. - Policy commitments: - Plan to manage debt portfolio more closely and strengthen the debt office (institutional structure and training in debt management). - Commitment to adhere to the ceiling of external debt envisaged in the SMP. ### Financial Sector Policies - Measures to strengthen banks and manage risks: - Support COBAC and BEAC on compliance with prudential standards—provisioning standards in particular—stricter banking supervision and monitoring of systemic banks, money laundering and terrorism financing, greater financial inclusion, and implementation of monetary policy reform. - Request COBAC to conduct a quality assessment of the banking system’s assets in 2018; COBAC could hire a private firm for a more comprehensive review if it sees fit. - Footnote: An "asset quality assessment" typically examines the valuation of assets, the classification of overdue loans, the level of provisioning, the value of collateral, etc. ### Structural Reforms to Stimulate Growth of the Non-Hydrocarbon Sector - Objective: improve the business climate, promote efficiency and competitiveness, support diversification, and earn rents from infrastructure created under Horizonte 2020. - Sectoral focus: tourism, fishing, agriculture, livestock, financial services. - Key elements: - Economic diversification strategy: Holding Guinea Equatorial 2020 created in 2014 to centralize and improve management of non-hydrocarbon public sector assets and provide joint funding via the Co-Investment Fund (FCI). FCI has not attracted private takers; initiatives to reform autonomous agencies and improve corporate governance continue. - Revising Horizonte 2020: national economic conference planned in March 2019 to establish guidelines for updating Horizon 2020; updated strategy to guide five- to ten-year sectoral policies; social focus on poverty reduction, social inclusion, youth empowerment. - Priority sectors specifics: - Tourism: drafting a national tourism development plan; proposals on easing visa access for tourism travel to EG. - Fishing: development of a national fisheries industry including creation of a training institute for fisherfolk; creation of a tuna factory; construction of two fishing ports. - Agriculture and financial services: firm proposals still in progress. - Business climate diagnostics: diagnostic study with the World Bank; National Technical Committee for Doing Business created; agreement with the Singapore Corporation Enterprise for a practical seminar on reforming the business climate. - Private investment reforms: - Decree 72/2018 of April 18th eliminated the requirement to partner with a local entity contributing 35 percent of the capital (prior action). - Operationalized the one-stop shop for investors (Article 23.6 of Decree 134/2015). - Planned instruments: (i) special economic zones; (ii) agency to promote foreign direct investment in Equatorial Guinea; (iii) a digital portal for strategic access to business opportunities. - Design of special economic zones to be discussed with IMF staff. ### Improved Governance and Transparency - Governance diagnostics and strategy: - Working with the IMF to prepare a diagnostic study on governance; process started December 2017 with scoping mission and continued in June with a follow-up mission. - Plan to adopt and publish a governance strategy within an IMF-supported program. - Governance and corruption: - Ratified the United Nations Convention Against Corruption (structural measure, end-July 2018); regulations for implementation are under deliberation in parliament. - Make operational the Audit Court to conduct annual audits of budget execution and publish an annual report. - Hydrocarbon sector transparency: - In process of completing documentation and domestic consultations to submit membership application to the EITI (structural measure, end-July 2018). - Seminar presentation on proposed submission to parliament before presenting application to EITI as decided by National Commission. - Shared all existing oil and gas contracts with IMF staff. - Drafted terms of reference to hire an internationally recognized firm to audit accounts of state enterprises in the oil and gas sector for 2016–2017 and to reconcile gross production of oil and gas with oil and gas revenue recorded in the budget (structural measure, end-July 2018). These terms of reference were worked out with IMF staff; audit intended to start in the third quarter of 2018. - Footnote: auditing and contract-sharing will promote better understanding of the tax regime and improve macroeconomic forecasts of oil and gas revenue. ### Public Financial Management - Implementing IMF technical assistance recommendations with goals to: (i) assign both capital and current expenditure to a single authority, the Ministry of Finance, Economy and Planning; (ii) include all capital expenditure in the national budget and ensure it is covered in full by available budgetary resources; (iii) improve coordination in preparing and executing the investment budget; (iv) improve monitoring of domestic arrears via periodic meetings with the national payments committee; (v) improve monitoring and control of annual and multiyear expenditure commitments to ensure spending is limited to resource allocations and avoid recurrence of arrears; (vi) adopt centralized control for expenditure approvals under the Ministry of Finance, Economy, and Planning; (vii) improve application of government procurement procedures. - Administration of oil and gas funds: document operating rules applicable to such funds as part of the general fiscal policy framework; details of contracts governing those funds shared with IMF technical staff. ### Data dissemination - Commitment: provide data necessary for program monitoring in a timely manner, including complete fiscal accounts reconciled with monetary data on net credit to the government. - Actions taken: - Launched a new webpage for the Ministry of Finance, Economy, and Planning in May 2018 (www.minhacienda.gob.gq), publishing quarterly data on central government budget performance for 2015–17. - Plan to publish the revised 2018 national budget on the website and future budgets, and regularly report existing economic data to the IMF Statistics Department. - Shared details about foreign deposit contracts pertaining to the line of credit provided by China, and shared the framework agreement on economic cooperation with China, with IMF technical staff. ### Fiscal safeguards assessment - Will ask the IMF to conduct an assessment of the public financial management framework focusing on budget preparation and execution, cash management, controls and audit procedures, supervision, and fiscal reporting. - Assessment objectives: ensure funds are used for budgetary expenditure through transparent and efficient processes of budget preparation, accounting, banking, and auditing. - Use assessment conclusions as guidelines to strengthen cash management. - Request IMF technical assistance for a Fiscal Transparency Assessment. ### Capacity Building - Commitment to capacity building and institutional development in the public sector. - Recent actions: - Hosted IMF capacity development institute in early June 2018; delivered training to a cohort of 25 public officials (including BEAC staff) in macroeconomic analysis and forecasting. - Planned actions: - Leverage training to establish a policy unit within the Ministry of Finance and Economy to maintain the macro-fiscal framework. - Ask the IMF for additional financial support for training in public financial management (PFM), tax reform, fiscal and economic data, revenue administration, and capacity building for macroeconomic analysis and policymaking. - Preference for practical training from resident experts where possible. ### Program Monitoring - Reviews: quarterly reviews monitored by quantitative performance measures, indicative targets, and structural measures (set out in Tables 1 and 2). - Review schedule: - First review (with data through end-April) completed in early August 2018. - Second review (with data through end-July) would be done by end-October 2018. - Government will provide detailed information for program monitoring as stated in the Technical Memorandum of Understanding (TMU), which includes definitions and reporting procedures. - Governance of program implementation: high-level committee established with support of the Minister of Finance, Economy, and Planning and the Secretary of State for the Treasury; committee meets at least once a month to review SMP implementation and compliance. ### Key quantitative performance measures and indicative targets (from Table 1; Billions of CFA Francs, cumulative for each quarter) - Table header: End-Jul.End-Sep.End-Dec. Prog. ActualStatusProg.Proj.Proj. - A. Quantitative performance measures - Floor on non-resource tax revenue of the central government37 - Values shown: 49 Met 90 140 180 - Floor on non-resource Primary balance of the central government - Values shown: -300 -273 Met -540 -569 -882 - Ceiling on external debt arrears accumulation1,2 - Values shown: 0 0 Not met 0 0 0 - Ceiling on contracting and guaranteeing new external debt - Values shown: 80 70 Met 100 110 140 - Ceiling on new BEAC credit to the government - Values shown: 0 0 Met 0 0 0 - B. Indicative Targets - Ceiling on net domestic bank credit to the government - Values shown: -127 -127 Met -127 -127 -122 - Floor on social spending (education and health)3 - Values shown: 30 30 Met 60 80 150 - Notes: - Sources: Equatorial Guinea authorities; and IMF staff estimates and projections. - 1 This quantitative measure will apply continuously. - 2 As of April 30th 2018, there is an external arrear of 160,000 USD with the Russian Federation. - 3 The floor for social spending is based on SMP definition of social spending. - Additional label: 2018 SMP End-Apr. ### Prior measures and structural measures for 2018 (from Table 2) - Prior Measures - Secure congressional approval of a 2018 budget consistent with targets under the SMP - Target date: Before submitting first Review of SMP to management - Macroeconomic objective: Improve macro-fiscal management - Government Unit / instrument: Ministry of Finance and Economy - Status: Met - Secure congressional approval of a 2018 budget consistent with targets under the SMP - Target date: End-April 2018 - Macroeconomic objective: Improve macro-fiscal management - Government Unit / instrument: Ministry of Finance and Economy - Status: Not met - Hire an internationally reputable firm to (i) audit the accounts of the state-owned oil and gas companies and (ii) conduct a detailed reconciliation of EG’s gross hydrocarbon output with hydrocarbon revenue received by the budget for 2017 - Target date: End-July 2018 - Macroeconomic objective: Foster transparency and good governance - Government Unit / instrument: Ministry of Mines in publication on official website - Status: To be assessed - Structural Measures - Hire an independent entity to conduct an audit of domestic arrears accumulated through end-2017 - Target date: End-July 2018 - Objective: Improve public financing management - Government Unit / instrument: Ministry of Finance and Economy / submission of document to Fund staff - Status: To be assessed - Adopt mechanisms to track and control expenditure commitments and strengthen treasury cash management - Target date: End-July 2018 - Objective: Improve public financial management - Government Unit / instrument: Ministry of Finance and Economy - Status: To be assessed - Submit a membership application to the Extractive Industries transparency Initiative (EITI) - Target date: End-July 2018 - Objective: Increased transparency of the oil sector - Government Unit / instrument: Ministry of Finance and Economy / submission of document to Fund staff - Status: Not met - Ratify the United Nations Convention Against Corruption - Target date: End-July 2018 - Objective: Foster good governance - Government Unit / instrument: Ministry of Finance and Economy publication on official website - Status: Met - Sources: IMF staff. *Source: cr18310 - 14. Domestic arrears. Our commitment under this program is to avoid accumulating* ### Appendix I. Key Policies and Structural Reform Program During 2018 ### Appendix I. Key Policies and Structural Reform Program During 2018 ### Public Finance — Budget and Fiscal Management - Adopt a budget for 2018 that is consistent with the central government’s targeted deficit under the program (prior measure, before submitting the first Review of the SMP to management). - Establish a minimum floor for social spending and limit capital expenditure to realistic plans focusing on high priority projects (ongoing, for the program period). - Adopt mechanisms to strengthen cash management and expenditure control, including processes for monitoring and controlling expenditure (end-July 2018). - Include all government spending in the national budget (from 2018, continuous). - Ensure that the Ministry of Finance controls all spending decisions (2018). ### Tax Policy and Administration - Ensure that the Large and Medium Taxpayers Unit is fully operational (end-July 2018). - Introduce a single taxpayer identification number (end-July 2018). - To increase non-hydrocarbon tax revenue, review the existing tax legislation with a view to implementing the short-term measures identified by the November 2017 IMF technical assistance mission (end-July 2018). ### Customs Administration - Improve and reorganize customs offices by adopting modern customs clearance procedures using ASYCUDA software at the airport and at the port of Malabo (end-July 2018), and at Luba and Bata (end-December 2018). - Manage customs exemptions correctly with ASYCUDA once it is installed and operational. ### Arrears - Hire an independent firm to audit public sector arrears (structural measure, end-July 2018). - Complete the audit of domestic arrears (end-December 2018). - Start holding quarterly meetings of the National Payments Committee to improve the monitoring of domestic arrears (end-April 2018). ### Social Policies - Establish a minimum level of spending on social programs for the low-income population (2018). - Improve data on social indicators by conducting periodic surveys of household income and expenditure to collect better data on poverty and other social indicators (2018). ### Financial Sector - Petition the COBAC to review the assets of the banks in Equatorial Guinea (end-July 2018). - Work with COBAC to strengthen bank regulation and supervision and ensure compliance with prudential norms (continuous). ### Business Climate and Economic Diversification - Reform foreign investment legislation by eliminating local partner requirements (prior measure, before submitting SMP request to management). - Start operating the one-stop shop for investors (Article 23.6, Decree 134/2015) (end-July 2018). - Conduct a diagnostic study of the business climate and review and update the government’s strategy for economic diversification (2018). ### Governance and Anticorruption Measures - Apply for membership in the EITI (structural measure, end-July 2018) then work towards continued compliance with standards, with a view to increasing transparency in the oil and gas sector. - Ratify the United Nations Convention Against Corruption (structural measure, end-July 2018). - Begin operating the Audit Court, which will conduct annual audits of budget execution and publish its findings in an annual report that is available to the public (2018). - Strengthen the management of resource-related funds by documenting their operating rules (including investment policies) as part of the general fiscal policy framework (2018). - Carry out a diagnostic study of governance and adopt a governance strategy (2018). - Conduct a fiscal safeguards assessment with technical assistance from the IMF (2018). - Ask the IMF to perform a Fiscal Transparency Assessment (2018). ### Data Dissemination and Transparency of Information - Share all oil and gas contracts with the IMF technical staff (prior measure, before submitting SMP request to management). - Hire an internationally recognized firm to (i) audit the accounts of state-owned oil and gas companies; and (ii) perform a detailed crosscheck of gross oil and gas production in Equatorial Guinea against oil and gas revenue reported in the budget, under the terms of reference agreed upon with the IMF technical staff (structural measure, end-July 2018). - Begin publishing the national budget on the Ministry of Finance website (end-April 2018). - Start the publication of quarterly data on central government accounts for 2015–17 (prior measure, before submitting SMP request to management). - Periodically report existing macroeconomic data to the IMF Statistics Department (continuous). - Share foreign deposit contracts with the IMF technical staff, including contracts related to the line of credit from China (2018). ### Technical Memorandum of Understanding — Key Reporting and Valuation Rules - TMU period covered: January 1 to end-July 2018. - All foreign exchange assets, liabilities, and flows will be valued on the basis of the “program exchange rates” defined as of December 29, 2017: - CFAF 546.951 to USD 1 - CFAF 655.957 to EUR 1 - CFAF 83.98 to CNY 1 - CFAF 739.008 to GBP 1 - CFAF 778.929 to SDR 1 - Items that affect the government’s fiscal balances will be valued at the current exchange rate (exception to the program exchange rates). - Data on variables subject to quantitative targets shall be transmitted periodically to the IMF in accordance with the timetable shown in Annex 1. Any updates shall be reported promptly (within one week). ### Quantitative Targets — Definitions and Reporting Deadlines - "Government" refers to the central government as defined in GFSM 2001, paragraphs 2.48–2.50. - Fiscal year: January 1 to December 31. - Quantitative objectives are measured cumulatively from the start of the calendar year to which they apply. - Reporting deadline for data on quantitative targets: no later than 45 days after the assessment date, unless otherwise indicated. Key variable definitions: - Cumulative Floor for Central Government Nonoil Tax Revenue: - Non-hydrocarbon tax revenue = total government tax revenue (GFSM 2001, Chapter 5, recorded on a cash basis) less tax revenue from hydrocarbons. - Reporting: no later than 45 days after the assessment date. - Cumulative Floor of the Central Government’s Non-Hydrocarbon Primary Balance: - Non-hydrocarbon primary balance = non-hydrocarbon revenue (not including income from interest on government assets) less total government expenditure, excluding interest payments on domestic and external debt. - Total government expenditure: sum of personal expenditure, current expenditure on government goods and services, transfers and subsidies, interest payments (domestic and foreign), and capital or investment spending (recorded on an accrual basis unless otherwise indicated). - Reporting: no later than 45 days after the assessment date. - Adjustor: In the event of additional foreign grants for budgetary support, the floor of the non-hydrocarbon primary balance shall be adjusted upwards by the amount of the grant. - Ceiling on New BEAC Loans to Central Government: - New BEAC financing defined as BEAC’s gross lending to the central government above the existing stock (CFA 609 billion) as of December 31, 2017. - Reporting: no later than 45 days after the assessment date. - Ceiling on New External Loans and Loan Guarantees to the Central Government: - External debt defined as debt borrowed or serviced in a currency other than the CFA franc. Net increase = central government debt issuance less repayments, and guaranteed debt, in CFA francs. Debt expressed in foreign exchange converted to CFAF at the program exchange rate. - External debt considered contracted or guaranteed when all conditions for the debt to take effect have been met, including pertinent approvals by the Republic of Equatorial Guinea. - Definition of "debt" follows paragraph 8(a) of the Guidelines on Public Debt Conditionality (lists loans, suppliers' credits, leases, penalties/judicially awarded damages as debt where applicable). - Reporting: no later than 45 days after the assessment date. - Adjustor: Ceiling increased by the value of the State’s capital investment in the joint Fortuna FLNG project financed with public debt. - Ceiling on Accumulation of Arrears on the Central Government’s External Debt: - External arrears = debt obligations not paid on the terms specified in the contract. Arrears = difference between amount owed and amount actually paid after the due date. - Reporting: no later than 45 days after the assessment date; report external payment arrears immediately when they arise. - Coverage: central government and guarantees to public institutions; excludes arrears where a liquidation framework or rescheduling efforts are underway. - Accumulation of Domestic Arrears by Central Government: - Domestic arrears = commitments owed to residents under contractual obligations unpaid 90 days after the due date (including contractual grace periods). Includes direct arrears on central government debt, suppliers, recurring payments, and capital expenditure. Accumulation = change in stock of domestic arrears compared with level at end-December 2017. - Reporting: no later than 45 days after the assessment date. ### Quantitative Indicative Targets — Definitions - Ceiling on Net Credit to the Government from National Banks: - Net financing from national banks = change in government’s net position vis-à-vis the commercial banking system since the end of the previous year. - Cap not applicable to new agreements on domestic debt restructuring and securitization of domestic arrears. - Reporting: no later than 45 days after the assessment date. - Floor for Social Spending by the Central Government: - Social spending = sum of central government expenditure on social safety net programs as set out in the central government’s budget for the fiscal year. Includes health and education (preschool, primary, secondary, university, technical and vocational training, support for children in low income households to attend school, teacher training). Public health programs include vaccination campaigns, HIV/AIDS programs, maternal and child health, malaria control, assistance to low income hospitalized or sick children, and financing for public hospitals. Target includes current and capital expenditure programs. - Reporting: no later than 45 days after the assessment date. ### Treatment of Hydrocarbon Revenues in Excess of Program Level - If hydrocarbon revenues exceed program expectations, the government shall use the difference to reduce the deficit targeted under the program and accumulate deposits at the BEAC. - If hydrocarbon revenues are less than expected, the government shall take fiscal measures to maintain the budget deficit envisaged under the program. - Adjustor: Revenues from oil shipments used to guarantee external borrowing up to the ceiling on external borrowing in the program, under the framework agreement with the Chinese government, are excluded from this requirement. ### Structural Benchmarks - The structural benchmarks are detailed in Table 2 of the MEFP. ### Reporting Timetable — Selected Items and Frequencies (Table 1 highlights) - Monetary survey. Reporter: BEAC. Frequency: Monthly, within 45 days from the end of the month. - BEAC loans to central government. Reporter: BEAC. Frequency: Monthly, within 45 days from the end of the month. - Central government position with commercial banks (loans and deposits). Reporter: BEAC. Frequency: Monthly, within 45 days from the end of the month. - Other sources of financing (including INSESO, bonds, Treasury notes and bills issued in CFAF). Reporter: Ministry of Finance, Economy, and Planning (MFEP). Frequency: Monthly, within 45 days from the end of the month. - Foreign deposits by the central government, by type of foreign currency and bank. Reporter: MFEP. Frequency: Monthly, within 45 days from the end of the month. - External financing: disbursements, amortization, interest, exceptional financing, zero coupon bonds, accumulation of arrears. Reporter: MFEP. Frequency: Monthly, within 45 days from the end of the month. - Acquisition of financial interests (Fortuna FLNG or other projects). Reporter: MFEP. Frequency: Monthly, within 45 days from the end of the month. - Central government budget execution, broken down by category (revenues, current and capital expenditures). Reporter: MFEP. Frequency: Monthly, within 45 days from the end of the month. - Breakdown of tax revenue by type of tax. Reporter: MFEP. Frequency: Monthly, within 45 days from the end of the month. - Income from hydrocarbons, broken down by type (tax or nontax). Reporter: MFEP. Frequency: Monthly, within 45 days from the end of the month. - Social spending (broken down by program, capital expenditure, and current expenditure). Reporter: MFEP. Frequency: Monthly, within 45 days from the end of the month. - Stock of domestic arrears (including arrears on interest payments). Reporter: MFEP. Frequency: Quarterly, within 45 days from the end of the quarter. - Stock of external debt. Reporter: MFEP. Frequency: Monthly, within 45 days from the end of the month. - Loan-by-loan accounting of all new loans contracted or guaranteed by the public sector. Reporter: MFEP. Frequency: Monthly, within 45 days from the end of the month. - Provisional balance of payments statistics. Reporter: BEAC. Frequency: Annually, within three months from the end of the year. - Oil and gas exports (values, volumes, and prices) broken down by product and oilfield. Reporter: MMH. Frequency: Monthly, within 45 days from the end of the month. - Provisional national accounts (supply and expenditure side). Reporter: INEGE. Frequency: Annually, within three months from the end of the year. - Consumer price index. Reporter: INEGE. Frequency: Monthly, within 45 days from the end of the month. *Source: Appendix I. Key Policies and Structural Reform Program During 2018, cr18310* --- _Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18310.pdf_