## IMF Staff Report — Third Review under the Extended Arrangement for Gabon (cr1917-gabon) ## Source details **Canonical URL:** [IMF Staff Report — Third Review under the Extended Arrangement for Gabon (cr1917-gabon)](https://www.imf.org/-/media/files/publications/cr/2019/cr1917-gabon.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/cr1917-gabon.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/cr1917-gabon.pdf.json) --- ### Context, outlook, and recent developments - Political risks have subsided with completion of legislative and local elections in October. - Economy: slow recovery; fiscal consolidation continued; inflation remained low; trade balance improved. - Growth and inflation: - Real growth projected to recover in 2018 at 1.2 percent (down from earlier expectation of 2 percent). - Growth revised to 3.1 percent in 2019 (from 3.4 percent). - Inflation: 3.4 percent (12-month average) in September 2018 from 2.7 percent in December 2017; forecast 4.0 percent in 2018 and 3.0 percent in 2019. - External position: trade balance improved driven by stagnant import growth; oil export rebound slightly weaker-than-expected. - Public debt: projected to decline to 53.1 percent at end-2019 from 61.7 percent in 2017 (staff projections elsewhere show 53.0 percent of GDP in 2019). *Key implementation notes* - Overall program performance through end-June 2018: two of four end-June 2018 QPCs missed; continuous zero ceiling on external arrears missed; three indicative targets missed. - Improvement since second review: corrective measures in 2018 supplementary budget implemented; most end-September 2018 indicative targets met; most structural benchmarks implemented albeit with delays. - External/commercial arrears (reported): new accumulation of external official and guaranteed arrears of CFAF 9.4 billion (as of end-November), of which CFAF 8.5 billion have been cleared; accumulation of CFAF 5.1 billion of commercial non-guaranteed arrears planned to be cleared by end-December 2018; authorities provided payment orders for remaining CFAF 0.9 billion. - Staff recommends completion of the third review, modification of the external debt PC, and waiver of the continuous PC on non-accumulation of external arrears. ### Fiscal outcomes, targets, and consolidation strategy - Non-oil primary deficit and fiscal consolidation: - Non-oil primary deficit expected to fall to 6.4 percent of non-oil GDP in 2018 from 11 percent in 2016. - 2019 overall deficit target: 4.5 percent of non-oil GDP (down from 6.4 percent in 2018). - Non-oil revenue projected: 17.0 percent of non-oil GDP in 2019, up from 16.4 percent in 2018. - 2019 domestically-financed capital spending forecast at 2.7 percent of non-oil GDP, up from 1.3 percent of GDP. - Oil revenue expected at 6.9 percent of GDP in 2019. - Overall balance (cash basis) projected at 1.5 percent of GDP in 2019; financing: external 1.8 percent of GDP and domestic 1.8 percent of GDP. - Result: support reduction of total public debt to 53.0 percent of GDP. - 2018–2019 revenue and expenditure measures (estimated yields and savings) - 2018 Total Revenue Measures: 140.45 CFAF billions; 8.8 percent of Non-oil GDP; projection columns show 2.23 and 0.93. - Clearance of expired suspensive customs procedures and warehousing arrangements: 22.0 CFAF billions; 1.4 percent of Non-oil GDP; 0.35; 0.02. - Elimination of the "programme de lutte contre la vie chere": 21.0 CFAF billions; 1.3 percent of Non-oil GDP; 0.33; 0.02. - Taxation of public entities PIT: 30.0 CFAF billions; 0.1 percent of Non-oil GDP; 0.48; 0.02. - (Additional line items listed with exact figures in source.) - 2018 Total Expenditure Measures: 132.78 CFAF billions; 1.0 percent of Non-oil GDP; projection columns 2.11; 1.28. - Reduction of the wage bill: 75.4 CFAF billions; 34.6 percent of Non-oil GDP; 1.20; 0.55. - Reduction of special accounts' deficits: 54.1 CFAF billions; 22.2 percent of Non-oil GDP; 0.86; 0.35. - 2019 Total Revenue Measures: 147.7 CFAF billions; 2.1 percent of Non-oil GDP. - Notable items: Elimination of unjustified tax exemptions or reduced rates: 62.0 CFAF billions; 0.92 percent of Non-oil GDP. - New measures include tax on household waste: 12.0 CFAF billions; 0.18 percent of Non-oil GDP. - 2019 Total Expenditure Measures: 138.2 CFAF billions; 2.04 percent of Non-oil GDP. - Reduction of the wage bill: 25.4 CFAF billions; 0.38 percent of Non-oil GDP. - Reduction of net lending: 67.8 CFAF billions; 1.00 percent of Non-oil GDP. - 2018 fiscal performance (highlights as of end-September 2018) - Non-oil primary deficit as of end-September 2018: 5.4 percent of non-oil GDP (lower than adjusted program target of 6.0 percent). - Non-oil revenue collection higher than targeted. - Expenditures exceeded programmed levels; wage bill savings fell short as bonuses and salaries were not yet reduced. - Financing and arrears management (selected figures) - Financing needs for remainder of 2018: fully covered (Text Table 5). - World Bank budget support: US$ 222.7 million (3.8 percent of GDP) expected disbursed early January 2019 (delay in meeting triggers). - African Development Bank budget support disbursement: €100 million versus €200 million originally envisaged. - Authorities contracted a one-year maturity external bridge loan of US$300 million. - Selected financing and deficit figures (2018 prog./proj. and differences): - Overall fiscal deficit (cash basis): 0.3 ; 0.6 ; 0.4 (Prog. 1/Proj. Difference). - Total financing needs: 8.0 ; 8.2 ; 0.2. - Identified sources of financing: 3.6 ; 4.0 ; 0.4 (External: 1.1 ; 1.8 ; 0.7; Domestic: 2.5 ; 2.2 ; -0.3). - Financing gap: 4.4 ; 4.2 ; -0.2. - Exceptional external financing: 3.2 ; 3.0 ; -0.2. - IMF-EFF: 1.2 ; 1.2 ; 0.0. - Domestic debt stock by components (Percent of GDP) - Total Domestic Debt: 26.8 ; 23.9 ; 19.6 ; 16.5 (2016, 2017, 2018 Proj., 2019 Proj.). - Total domestic arrears: 7.2 ; 5.2 ; 2.9 ; 1.8 (2016, 2017, 2018 Proj., 2019 Proj.). - VAT arrears: 4.2 ; 3.8 ; 2.9 ; 1.8. ### External arrears, Fund financing, and program support - External arrears status and clearance commitments - Gabon has outstanding sovereign external arrears to both official bilateral and commercial creditors. - Authorities are in process of clearing external arrears to official bilateral creditors and plan to complete clearance before the Executive Board meeting. - Authorities indicated intention to resolve remaining CFAF 37.0 billion in commercial arrears by end-2018 (CFAF 37.8 billion at second review). - For commercial arrears, staff ascertained Gabon is making a good faith effort to reach collaborative agreement; Fund financing may be provided notwithstanding external commercial arrears. - Fund financing availability on completion of third review - Completion would make available the equivalent of SDR 71.43 million (about US$ 100.618 million) to Gabon, based on recent performance and prospective completion of prior actions and corrective measures. - Schedule of disbursements under Extended Arrangement (selected entries) - June 19, 2017: Approval — 71.430 SDRs; 96.649 US$; 33.069 percent of quota. - December 1, 2017: Completion of first review — 71.430 SDRs; 98.915 US$; 33.069 percent of quota. - June 1, 2018: Completion of second review — 71.430 SDRs; 100.618 US$; 33.069 percent of quota. - December 1, 2018: Completion of third review (proposed) — 71.430 SDRs; 101.357 US$; 33.069 percent of quota. - Total: 464.400 SDRs; 648.985 US$; 215.000 percent of quota. - Gabon's quota: SDR 216.0 million. ### Monetary and financial sector indicators and policy priorities - Key indicators (selected, exact figures from report) - Broad money growth: 23 percent (year-on-year) at end-September 2018. - Bank lending to private sector: 4.7 percent (year-on-year). - Nonperforming loans (NPLs): 10 percent of gross loans at end-August 2018; overdue loans: 15 percent of gross loans at end-August 2018; NPL provisioning coverage ratio: over 90 percent. - Banking sector soundness table shows NPLs rising into 2017–2018 (series include 11.3, 10.5 by quarters reported). - Financial sector policy and bank resolution - Three public banks in financial distress are under liquidation (Postebank, BHG, BGD); fiscal cost for resolution estimated at some 1 percent of GDP (incorporated into fiscal program). - Authorities committed to: - Facilitate orderly liquidation process and nominate government representatives to liquidation support group for each liquidator (proposed structural benchmark, end-January 2019). - Adopt and monitor a credible strategy and action plan to reduce overdue loans (proposed reset structural benchmark, end-March 2019). - Initiate sale of state stake in BICIG promptly; if COBAC approves state acquisition of a new bank, initiate sale of state share within three months; if not approved, join main shareholder in selling existing shareholding. - Foreign exchange and reserves policy: stop providing new exemptions from compliance with forex regulations; ensure exporters repatriate and surrender FX earnings; revise legislation on repatriation and surrender of export receipts in line with BEAC draft. ### Public financial management, transparency, and governance reforms - Treasury Single Account (TSA) and cash management - Prior action: closure of all public accounts at state depository corporation and repatriation of deposits to the TSA (MEFP ¶15). - Commitments to finalize 2019 treasury plan and attach to 2019 budget law; develop weekly cash flow forecasts starting early 2019; organize monthly transfers of debt-service related data from Debt Department to Treasury starting early 2019. - Technical assistance from IMF in November 2018; staff supports waiver of nonobservance of continuous PC on external arrears given timebound corrective actions and TA implementation. - PFM and transparency priorities - Publish report disclosing volume and value of major oil assets and previous year sales and fiscal revenue (proposed structural benchmark, end-June 2019). - Apply for EITI membership (proposed structural benchmark, end-September 2019). - Eliminate non-compliant earmarking of revenues (proposed structural benchmark, end-October 2019). - Consolidate TSA by closure of all central government accounts opened with commercial banks (proposed structural benchmark, end-March 2019). - Publish quarterly budget execution reports (program structural benchmark; multiple publications completed). - Procurement and investment project oversight - Commit to cost-benefit analysis for major investment projects > CFAF 20 billion (structural benchmark, end-December 2018). - Reduce single-source awards; publish procurement statistics starting Q1 2019. ### Social spending, distributional considerations, and safety nets - Social spending execution and coverage - Priority social spending lower than program target at end-September 2018 due to low execution of investment expenditure in education and transfers to social protection (about 23 percent of total priority social spending). - Authorities increased budget allocations in July 2018 Supplementary Budget; expected to accelerate execution by end-December 2018. - Program indicator of social spending to be reviewed to better capture efforts protecting vulnerable groups. - Social Expenditure Committee established with World Bank support; work to better identify and target vulnerable groups based on recent household survey. - Social protection and fiscal targeting - Staff urges adherence to targets on social protection spending to mitigate impact of consolidation on the poor. - Contingency and automatic adjustment mechanisms in budgets to protect social spending where possible. ### Risks, staff appraisal, and conditionality - Main risks (tilted to the downside) - Failure to implement planned fiscal consolidation and critical reforms. - Lower-than-expected oil production and/or weaker oil prices. - Lower global growth and marked tightening of global financial conditions. - Upside: higher medium-term growth if FDI-financed projects (including recent offshore oil discoveries) are implemented; staff baseline incorporates only part of expected FDI. - Staff appraisal and recommendations - Staff welcomes authorities’ efforts and supports completion of third review. - Recommends waiver for nonobservance of continuous PC on external arrears based on corrective measures and TA. - Proposes modification to external debt PC; setting QPCs for end-June 2019; making completion of fourth review conditional on union-level measures. - Emphasizes need to stay the course on fiscal consolidation, strengthen fiscal transparency, improve cash management, accelerate bank liquidations, and ensure repatriation of export receipts to rebuild BEAC international reserves. - Program conditionality and monitoring - Program monitored via semi-annual reviews, QPCs, indicative targets, and structural benchmarks. - Prior actions: one implemented; two remaining prior actions for third review (closure of CDC accounts and submission to Senate of 2019 budget) pending. - Selected new structural benchmarks include: nominate representatives to liquidation support groups (end-Jan. 2019); TSA consolidation through closure of central government accounts in commercial banks (end-Mar. 2019); publish oil asset report (end-Jun. 2019); submit EITI application (end-Sep. 2019). ### Technical Memorandum of Understanding (TMU) — monitoring and definitions (selected) - Program accounting exchange rates and valuation rules: - BEAC U.S. dollar valuation: 553,07 (note comma as in source) as of June 1, 2018. - Cross-rates: Euro 1.1860 USD; Pound Sterling 0.7408 USD; Chinese Yuan 6.4766 USD; SDR 1.4190 USD. - Official gold valuation: 1,260.98 USD per fine ounce. - Quantitative performance criteria and indicative targets (definitions and adjusters) - Cumulative floor on non-oil primary fiscal balance measured on payment order basis; adjuster for external financing up to CFAF 80 billion. - Ceiling on net claims of banking system on central government (BEAC accounting practice); adjusters include external disbursement shortfalls up to CFAF 80 billion and an oil-price shield (baseline US$71.900 per barrel). - Ceiling on BEAC net claims on CG excluding use of IMF credit. - Ceiling on contracting or guaranteeing external debt (applies to debt contracted once disbursed or guaranteed; excludes normal import-related commercial debt with maturity <1 year). - Continuous PC: zero ceiling on accumulation of new external arrears by central government (arrears defined as payments not made within 30 days after falling due). - Detailed reporting requirements: monthly data to IMF within six weeks, specific electronic files for monetary survey, TOFE items, oil revenue breakdown, debt-service details, arrears, procurement contracts, and other indicators. *Italic source attribution: IMF staff report — EXECUTIVE SUMMARY (Third Review under the Extended Arrangement for Gabon).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and Outlook - Political risks have subsided with completion of legislative and local elections in October. - Economy is slowly recovering; fiscal consolidation has continued; inflation has remained low; trade balance improved. - Recovery expected to firm up in 2019; medium-term outlook promising but risks tilted to the downside. ### Program performance (through end-June 2018 and subsequent developments) - Overall performance through end-June 2018 was weak: - Two out of four end-June 2018 quantitative performance criteria (QPCs) were missed; the continuous zero ceiling on external arrears was also missed. - The other two QPCs (for which data were not available at the time of the second review) were met. - The three indicative targets for end-June 2018 were missed. - Improvement since the second review: - Authorities fully implemented the package of corrective measures in the 2018 supplementary budget. - Most indicative targets for end-September 2018 were met; most structural benchmarks implemented, albeit some with delays. - One prior action completed; two remaining prior actions for this review are being implemented. - External and commercial arrears: - New accumulation of external official and guaranteed arrears of CFAF 9.4 billion (as of end-November), of which CFAF 8.5 billion have been cleared. - Accumulation of CFAF 5.1 billion of commercial non-guaranteed arrears planned to be cleared by end-December 2018. - Authorities provided payment orders for remaining CFAF 0.9 billion. ### Policies and program support - Fiscal consolidation remains a priority under the program. - Non-oil primary deficit expected to fall to 6.4 percent of non-oil GDP in 2018 from 11 percent in 2016. - Fiscal policy in 2019 focuses on enhancing non-oil revenue mobilization and improving composition of public spending to create space for priority social and capital expenditure. - Structural agenda priorities: - Improve public financial management (PFM) and transparency and oversight of autonomous agencies and state-owned enterprises. - Enhance transparency in the oil sector, including application to EITI by end-September 2019. - Strengthen banking sector resilience. - Treasury and debt management: - Consolidation of the treasury single account (TSA) and implementation of IMF technical assistance recommendations (including weekly cashflow forecasts) to strengthen debt and cash management and avoid accumulation of new arrears. - Regional context: - Program policies will support the CEMAC strategy to rebuild external buffers. ### Staff recommendations and financing - Staff recommends: - Completion of the third review. - Modification of the external debt performance criterion. - Waiver of the continuous performance criterion on non-accumulation of external arrears (at the authorities’ request). - Financial support: - Completion of the review would make available the equivalent of SDR 71.43 million (about US$ 100.618 million) to Gabon, based on recent performance and prospective completion of prior actions and corrective measures. ### Recent macroeconomic developments (key figures) - Growth: - Real growth projected to recover in 2018 at 1.2 percent (down from earlier expectation of 2 percent) due to lower-than-expected oil production through Q3 2018 and slower execution of public investment. - Inflation: - Inflation rose to 3.4 percent (12-month average) in September 2018 from 2.7 percent in December 2017. - External position: - Trade balance improved driven by stagnant import growth; oil export rebound slightly weaker-than-expected due to disappointing oil volumes and a manganese derailment. - Fiscal performance (highlights as of end-September 2018): - Non-oil revenue collection higher than targeted. - Expenditures exceeded programmed levels; wage bill savings fell short of target because bonuses and salaries were not yet reduced. - Non-oil primary deficit as of end-September 2018: 5.4 percent of non-oil GDP (lower than adjusted program target of 6.0 percent of non-oil GDP). - Public debt and arrears: - Ongoing difficulties in remaining current on external debt service due to tight liquidity, coordination issues between the debt unit and the Treasury, and technical debt servicing challenges from penalty fees. - Reported new external official and guaranteed arrears: CFAF 9.4 billion (8.5 billion cleared). - Commercial non-guaranteed arrears: CFAF 5.1 billion planned to be cleared by end-December 2018. - Monetary and financial sector: - Broad money growth: 23 percent (year-on-year) at end-September 2018. - Bank lending to private sector: 4.7 percent (year-on-year). - Nonperforming loans (NPLs): 10 percent of gross loans at end-August 2018. - Overdue loans: 15 percent of gross loans at end-August 2018. - NPL provisioning coverage ratio: over 90 percent. ### Macroeconomic outlook and risks - Near-term outlook: - Growth revised to 3.1 percent in 2019 (from 3.4 percent). - Forecast inflation: 4.0 percent in 2018 and 3.0 percent in 2019. - Public debt projected to decline to 53.1 percent at end-2019 from 61.7 percent in 2017. - Slower near-term recovery due to fiscal consolidation and slow clearing of domestic arrears; some oil sector improvement from new production that came online in late 2018. - Medium-term outlook: - Non-oil growth expected to increase gradually to around 5 percent over the medium term as agri-business and mining projects mature. - Overall growth projected to rise to 4–5 percent in 2022–23, assuming stabilization of oil production in line with a long-term trend decline of around -1 percent per annum. - Inflation expected to remain below 3 percent; current account expected to reach surplus from 2020 on expanded non-oil exports (manganese, palm oil) and stable oil prices. - Risks (mostly tilted to the downside): - Failure to implement planned fiscal consolidation and critical reforms. - Lower-than-expected oil production and/or weaker oil prices. - Lower global growth and marked tightening of global financial conditions. - Upside risk: higher medium-term growth if FDI-financed projects (including recent offshore oil discoveries) are implemented; staff baseline conservatively incorporates only part of expected FDI inflows. ### Policy discussions — Fiscal policy and reforms (selected items) - Fiscal consolidation progress: - Non-oil primary deficit expected to fall to 6.4 percent of non-oil GDP in 2018 from 11 percent in 2016. - Consolidation initially leaned on non-wage expenditures; since mid-2018 increasingly based on public wage bill measures and non-oil revenue mobilization. - Remainder of 2018: - Smaller-than-programmed non-oil primary fiscal deficit projected in 2018, implying additional adjustment of 0.7 percent of non-oil GDP relative to previous target under the second review; adjustment mainly through slower execution of domestically-financed capital expenditure. - Revenue corrective measures in the 2018 supplementary budget fully implemented but with delays; expected yields reassessed at 0.9 percent of non-oil GDP for 2018 (roughly 40 percent of earlier forecast). - Structural and PFM priorities and measures: - VAT regularization completed in early November 2018. - Clearance of half of expired customs procedures and collection of 40 percent of recoverable tax arrears (as of mid-November, 39 percent of 2018 recoverable tax arrears were collected) to be implemented by end-2018 (proposed reset structural benchmark, end-December 2018). - New deferred VAT payment mechanism included in 2019 draft budget law, effective January 1, 2019. - Planned public-sector salary cuts and reduction in government agencies delayed due to October elections (public-sector salary cuts require a law to modify civil service status). - Consolidation of TSA will be accelerated with closure and repatriation of government accounts at the deposits and consignments fund as a prior action for completion of the third review. *Source: IMF staff report — EXECUTIVE SUMMARY (Third Review under the Extended Arrangement for Gabon).* ### 12. The authorities have started to implement timebound corrective measures to prevent ### The authorities have started to implement timebound corrective measures to prevent the accumulation of new external arrears. ### Corrective measures to prevent new external arrears - Closure of all public accounts at the state depository corporation and repatriation of deposits to the Treasury Single Account (TSA) as a prior action (MEFP ¶15). - Expected effects: relieve liquidity constraints and ensure sufficient resources to remain current on debt service. - Cash liquidity management improvements, supported by recent IMF technical assistance mission, including: - Complete the 2019 treasury plan and attach it to the 2019 budget law (start early 2019) (MEFP ¶14). - Develop weekly cash flow forecasts, starting in early 2019 (MEFP ¶14). - Organize monthly transfer of data related to debt service from the Debt Department to the Treasury, starting early 2019 (MEFP ¶14). - Authorities intend to request a long-term expert to support implementation of these measures. - Staff assessment: waiver of nonobservance for the continuous performance criterion on external arrears accumulation can be recommended given timebound corrective actions and implementation of November 2018 IMF TA recommendations. ### 2018 fiscal measures — estimated yields and savings (Text Table 3) - Total Revenue Measures: 140.45 CFAF billions; 8.8 percent of Non-oil GDP; 2.23 (in second projection column) ; 0.93 (in other projection column) - Clearance of expired suspensive customs procedures and warehousing arrangements: 22.0 CFAF billions; 1.4 percent of Non-oil GDP; 0.35; 0.02 - Elimination of the "programme de lutte contre la vie chere": 21.0 CFAF billions; 1.3 percent of Non-oil GDP; 0.33; 0.02 - Revision of taxation modalities of manganese and wood exports (actual cost): 5.9 CFAF billions; 6.3 percent of Non-oil GDP; 0.09; 0.10 - Taxation of public entities PIT: 30.0 CFAF billions; 0.1 percent of Non-oil GDP; 0.48; 0.02 - Strengthening of quality and frequency of CIT controls: 10.0 CFAF billions; 24.0 percent of Non-oil GDP; 0.16; 0.38 - Taxation of luxury vehicles: 1.3 CFAF billions; 1.1 percent of Non-oil GDP; 0.02; 0.02 - Taxation of fund transfers: 3.0 CFAF billions; 3.0 percent of Non-oil GDP; 0.05; 0.05 - Revised rates of property transfers taxes: 4.0 CFAF billions; 6.8 percent of Non-oil GDP; 0.06; 0.11 - Revised rates of excise taxes: 16.4 CFAF billions; 9.4 percent of Non-oil GDP; 0.26; 0.15 - Census of tax exemptions and elimination of unjustified exemptions: 20.5 CFAF billions; 0.5 percent of Non-oil GDP; 0.33; 0.01 - Implementation of the withholding personal income tax (5 percent) to customs: 2.1 CFAF billions; 2.1 percent of Non-oil GDP; 0.03; 0.03 - Broadening the tax basis of the single combined tax for activities with a turnover of less CFAF 35,000 (CIT): 4.2 CFAF billions; 1.9 percent of Non-oil GDP; 0.07; 0.03 - Total Expenditure Measures: 132.78 CFAF billions; 1.0 percent of Non-oil GDP; 2.11; 1.28 - Reduction of the wage bill: 75.4 CFAF billions; 34.6 percent of Non-oil GDP; 1.20; 0.55 - Reduction of non-social transfers by strengthening financial oversight on units and agencies benefiting from these transfers: 3.2 CFAF billions; 24.2 percent of Non-oil GDP; 0.05; 0.38 - Reduction of special accounts' deficits by strengthening expenditure controls through implementation of adequate IT systems in agencies or administrative units managing these accounts, and reducing the number of central government's agencies: 54.1 CFAF billions; 22.2 percent of Non-oil GDP; 0.86; 0.35 - Note: Given its possible impact on exchange restriction, implementation of the measure on taxation of fund transfers was not recommended (footnote 1). ### Domestic arrears clearance and 2018 financing (Text Tables 4 and 5) - Warning: Slower clearance of arrears or accumulation of new domestic arrears could jeopardize fiscal consolidation, undermine confidence, weaken the banking system, and constrain credit growth. - Financing needs for remainder of 2018: fully covered (Text Table 5). - Financing needs slightly higher due to lower than anticipated oil revenue. - World Bank budget support: US$ 222.7 million (3.8 percent of GDP) expected disbursed early January 2019 (delay in meeting triggers). - African Development Bank budget support disbursement lower than expected: €100 million versus €200 million originally envisaged. - Authorities have cut spending in goods and services and other non-priority spending. - Authorities contracted a one-year maturity external bridge loan of US$300 million; committed to repay as soon as possible. - Using deposits could reduce CEMAC’s level of international reserves and heighten external vulnerability (footnote 5). - Selected financing and deficit figures (2018 prog./proj. and differences): - Overall fiscal deficit (cash basis): 0.3 ; 0.6 ; 0.4 (Prog. 1/Proj. Difference) - Other financing needs: 7.7 ; 7.6 ; -0.2 - Amortization (including arrears): 5.5 ; 5.4 ; -0.1 - BEAC: 0.3 ; 0.9 ; 0.5 - Other: 1.9 ; 1.4 ; -0.6 - Total financing needs: 8.0 ; 8.2 ; 0.2 - Identified sources of financing: 3.6 ; 4.0 ; 0.4 - External: 1.1 ; 1.8 ; 0.7 - Domestic: 2.5 ; 2.2 ; -0.3 - T-bill issuance: 1.6 ; 1.6 ; 0.0 - Privatization receipts: 0.4 ; 0.4 ; 0.0 - Recovery of domestic tax arrears: 0.5 ; 0.2 ; -0.3 - Financing gap: 4.4 ; 4.2 ; -0.2 - Exceptional external financing: 3.2 ; 3.0 ; -0.2 - Multilateral: 2.7 ; 2.5 ; -0.2 - African Development Bank: 1.4 ; 0.7 ; -0.7 - World Bank: 1.3 ; 0.0 ; -1.3 - Other (Africa EXIM Bank): 0.0 ; 1.8 ; 1.8 - Bilateral: 0.5 ; 0.5 ; 0.0 - Residual financing needs: 1.2 ; 1.2 ; 0.0 - IMF-EFF: 1.2 ; 1.2 ; 0.0 - Domestic debt stock by components (Percent of GDP; 2016, 2017, 2018 Proj., 2019 Proj.): - Total Domestic Debt: 26.8 ; 23.9 ; 19.6 ; 16.5 - Domestic debt outstanding: 19.6 ; 18.8 ; 16.7 ; 14.7 - Regional securities markets: 3.5 ; 4.3 ; 4.6 ; 4.7 - Treasury bills: 2.3 ; 2.3 ; 2.2 ; 2.1 - Bank loans (over the counter): 4.3 ; 4.3 ; 3.1 ; 2.2 - Statutory advances from BEAC: 5.4 ; 5.2 ; 4.8 ; 4.5 - Moratorium debt: 3.8 ; 2.5 ; 2.0 ; 1.2 - Other domestic debt: 0.2 ; 0.2 ; 0.1 ; 0.0 - Total domestic arrears: 7.2 ; 5.2 ; 2.9 ; 1.8 - Exceptional budgetary float: 3.0 ; 1.4 ; 0.0 ; 0.0 - VAT arrears: 4.2 ; 3.8 ; 2.9 ; 1.8 - Memo Item — Club de Libreville: 3.3 ; 2.1 ; 1.3 ### Policies and fiscal strategy for 2019 - 2019 budget objective: consolidate recent gains and improve budget structure to support sustained adjustment (Text Figure 3). Priority measures: enhance revenue mobilization, improve spending composition by containing non-priority spending, strengthen economic governance and quality of public spending, reduce corruption, and improve cash management. 2019 adjustment relies on full impact and deepening of measures started in 2018. - 2019 targets and projections: - Overall deficit target: 4.5 percent of non-oil GDP in 2019, down from 6.4 percent in 2018. - Non-oil revenue projected: 17.0 percent of non-oil GDP in 2019, up from 16.4 percent of non-oil GDP in 2018. - Drivers: deepening 2018 corrective revenue measures, full elimination of tax exemptions, adoption of new measures (Text Table 6, MEFP ¶9). Continued improvements in revenue administration required, including improved data sharing between tax and customs administrations and strengthened monitoring of VAT taxpayers and payroll tax withholding. Customs compliance to be enhanced through upfront payments of customs debts, online payment processes, and implementation of ASYCUDA World. - Current spending projected to fall by 0.8 percentage points of non-oil GDP to 19.4 percent of non-oil GDP, reflecting acceleration in wage bill reforms and improved control on non-priority spending. Closure of several public agencies expected to lower special accounts deficits. - Domestically-financed capital spending forecast at 2.7 percent of non-oil GDP, up from 1.3 percent of GDP. - Oil revenue expected at 6.9 percent of GDP. - Overall balance (cash basis) projected at 1.5 percent of GDP. - Financing: external financing 1.8 percent of GDP and domestic financing 1.8 percent of GDP. - Result: support reduction of total public debt to 53.0 percent of GDP. - 2019 Fiscal Measures (Text Table 6) — estimated yields and savings: - Total Revenue Measures: 147.7 CFAF billions; 2.1 percent of Non-oil GDP; 8 (Proj. columns show) 2.18 - Previous measures: - Elimination of the "programme de lutte contre la vie chere": 19.7 CFAF billions; 0.29 percent of Non-oil GDP - Taxation of public entities PIT: 3.0 CFAF billions; 0.04 percent of Non-oil GDP - Elimination of unjustified tax exemptions or reduced rates: 62.0 CFAF billions; 0.92 percent of Non-oil GDP - Strengthening of quality and frequency of CIT controls: 20.0 CFAF billions; 0.30 percent of Non-oil GDP - Strengthening of quality and frequency of VAT controls: 16.0 CFAF billions; 0.24 percent of Non-oil GDP - New measures (to be introduced in 2019): - Broadening of property tax basis: 5.0 CFAF billions; 0.07 percent of Non-oil GDP - Tax on household waste: 12.0 CFAF billions; 0.18 percent of Non-oil GDP - Combined collection of PIT levy and customs tariffs: 10.0 CFAF billions; 0.15 percent of Non-oil GDP - Total Expenditure Measures: 138.2 CFAF billions; 2.04 percent of Non-oil GDP - Reduction of the wage bill: 25.4 CFAF billions; 0.38 percent of Non-oil GDP - Reduction of net lending: 67.8 CFAF billions; 1.00 percent of Non-oil GDP - Reduction of special accounts' deficits: 45.0 CFAF billions; 0.44 percent of Non-oil GDP - Authorities Proposed Other Revenue Measure: Tax on civil servants in higher salary brackets: 230.00 CFAF billions; 0.44 percent of Non-oil GDP (included in proposed measures; draft budget law includes creation but needs Constitutional Court approval). - Implementation risks flagged by staff: weak administrative capacity and coordination could delay reforms and jeopardize revenue target; precarious financial position of several public agencies and enterprises represents contingent liabilities. - Contingency measures: automatic adjustment mechanism from 2018 supplementary budget maintained and increased in 2019 budget; unanticipated revenues should be saved to rebuild fiscal buffers. Privatization operations identified as contingent reserve totaling CFAF 26 billion. ### Public financial management (PFM), transparency, and governance reforms - Operationalize and strengthen oversight of central government agencies and transparency of fiscal reporting (MEFP ¶25). Expand reforms to state-owned enterprises, particularly those in oil sector, to assure effective and transparent collection of oil revenues. Commitments include: - Publish a report disclosing the volume and value of major oil assets, and the volume and value of the previous year’s sales and fiscal revenue (proposed new structural benchmark, end-June 2019) (MEFP ¶23). - Apply for EITI membership (proposed new structural benchmark, end-September 2019) (MEFP ¶23). - Eliminate non-compliant earmarking of revenues to improve transparency and efficiency of budget execution (proposed new structural benchmark, end-October 2019). - Accelerate efforts to better prioritize investment projects and increase transparency of public procurement. - Consolidate the Treasury Single Account (TSA) by closure of all central government accounts opened with commercial banks (proposed new structural benchmark, end-March 2019). ### Financial sector policies and banking resolution - Distressed state-owned banks and high non-performing loans (NPLs) need to be addressed. Three public banks in financial distress are under liquidation; their financial situation continues to deteriorate and weigh on the budget. - Fiscal cost for resolution of the banks amounts to some 1 percent of GDP (incorporated into the fiscal program). - Authorities committed to: - Facilitate an orderly liquidation process (MEFP ¶29), including nominating government representatives to a liquidation support group for each liquidator (proposed new structural benchmark, end-January 2019). Support group composition: exclusively individuals with no conflicts of interest; liquidator to lead and suggest composition. - Adopt and monitor a credible strategy and action plan to reduce overdue loans (proposed reset structural benchmark, end-March 2019) (MEFP ¶28). Strategy should include short-term financial component for clearance of overdue loans (including repayment of government expenditure arrears) and longer-term reforms to legal and institutional frameworks, judicial processes, and collateral registries. - Sale of state stake in BICIG (third largest Gabonese bank): should be initiated promptly. If state acquisition of a new bank is approved by COBAC, authorities shall initiate sale of state’s shareholding within three months (MEFP ¶30). If COBAC does not approve acquisition, state shall join main shareholder in selling its existing shareholding so new strategic investor can enjoy a controlling majority. - Foreign exchange and reserves policy: stop providing new exemptions from compliance with forex regulations, including obligation to repatriate and surrender FX earnings. Ensure customs administration enforces requirement that all export transactions be done through resident banks. Legislation on repatriation and surrender of export receipts will be revised in line with revised draft legislation prepared by BEAC. ### Distributional and social spending issues - Authorities committed to improving execution and reporting of social spending. Priority social spending was lower than program target at end-September 2018, largely due to low execution of investment expenditure in education and transfers to social protection. - Budget allocations for these sectors were increased in July 2018 Supplementary Budget; lengthy public tendering delayed priority capital spending in social ministries (about 23 percent of total priority social spending). Authorities expect to accelerate execution by end-December 2018. - Authorities noted that program definition of social spending does not fully capture efforts to protect vulnerable groups (MEFP ¶27). In collaboration with World Bank, they set up a Social Expenditure Committee and are working to better identify and target vulnerable groups based on the recently completed household survey. ### Program modalities, conditionality, and structural benchmarks - Program monitoring: semi-annual reviews, semi-annual and continuous performance criteria and indicative targets, and structural benchmarks. Attached LOI and SMEFP describe progress; updated conditionality presented in MEFP Tables 1 and 2; revised TMU attached. - Prior actions and commitments: - One prior action implemented; two remaining prior actions to complete review (MEFP Tables 3 and 4). - Commitments: (i) closure of all central government accounts opened with deposits and consignments fund and repatriate balances to TSA (pending); (ii) submission to Senate of a 2019 budget in line with program objectives (pending); (iii) regularization of tax situation of importers not subject to VAT but whose transactions exceed VAT liability threshold (completed). - Performance criteria and targets: QPCs for end-December 2018 proposed to remain unchanged except external debt PC modified to be monitored on disbursement basis; staff proposes modification of all indicative targets for end-March 2019 and establishment of new QPCs for end-June (all previously indicative targets) in line with revised quarterly projections. - Requests to reset structural benchmarks: reset to end-December 2018 the structural benchmark on collection of 40 percent of recoverable tax arrears (delays due to government repayment of domestic arrears); reset to end-April 2019 the structural benchmark on audit of 2015 and 2016 domestic arrears (government signed contract selected via public tender in March 2018); reset the structural benchmark on a strategy to clearance of loans in arrears in the banking sector to end-March 2019 to allow collaboration between national and regional authorities. - New proposed structural benchmarks emphasize governance reforms: strengthen PFM, oil revenue transparency, judicial system, and end exemptions from compliance with forex regulations to reduce vulnerabilities to corruption. *Source: IMF staff report (content extracted from provided chapter).* ### 25. Gabon has outstanding sovereign external arrears to both official bilateral and ### 25. Gabon has outstanding sovereign external arrears to both official bilateral and commercial creditors. ### External arrears and clearance efforts - Gabon has outstanding sovereign external arrears to both official bilateral and commercial creditors. - The authorities are in the process of clearing the external arrears with respect to official bilateral creditors and plan to complete clearance before the Executive Board meeting. - The Gabonese authorities have indicated their intention to resolve the remaining CFAF 37.0 billion in commercial arrears by the end of the year (CFAF 37.8 billion at the time of the second review), which arose due to past and ongoing fiscal difficulties. - In respect of external commercial arrears and in line with the Fund’s Lending-into-Arrears Policy, staff has ascertained that Gabon is making a good faith effort to reach a collaborative agreement with these commercial creditors. - The authorities have shared relevant information regarding their financial difficulties, indicated their commitment to clear the arrears by end-2018 and provided creditors with an opportunity to give inputs on their strategy to clear commercial arrears. - As prompt Fund financial support is considered essential for the successful implementation of Gabon’s program and Gabon is pursuing appropriate policies, the Fund may provide financing to Gabon notwithstanding its external arrears to commercial creditors. - Note: The authorities have decided to add the audit of 2017 arrears. ### BEAC and COBAC policy implementation and assurances - The BEAC and COBAC have pursued the implementation of their policy commitments and provided updated policy assurances in support of CEMAC countries’ programs. - In response to the lower NFA accumulation at end-June 2018 the BEAC and COBAC took corrective actions, with the BEAC increasing its policy rate and the COBAC strengthening the enforcement of its banks’ net open position limits regulations. - Consistent with the June 2018 policy assurances, by end-year the BEAC will also submit for adoption new foreign exchange regulations to the UMAC ministerial committee and make the new monetary policy framework fully operational. - The updated policy assurances present new projections for regional NFAS, with the end-2018 projection revised downward but the end-2019 projection broadly unchanged. - To achieve these projections, the BEAC reiterated its commitment to implement an adequately tight monetary policy, while member states will implement adjustment policies in the context of IMF-supported programs. - Starting in the first half of 2019, semi-annual consultations between the member states, the regional institutions, and IMF staff will be held to review the regional strategy implementation and, if necessary, identify and adopt any additional corrective measures at the national and/or regional policy levels to allow the continuation of (or approval of new) IMF financial support as part of the IMF-supported programs with CEMAC members. - The BEAC also continues to implement the remaining recommendations of the 2017 safeguards assessment. BEAC’s full transition to IFRS is progressing broadly as planned, and steps are being taken to accelerate the adoption of revisions to the secondary legal instruments to align these with the BEAC Charter, in consultation with IMF staff. ### Program financing, repayment capacity, and risks - The program remains fully financed and Gabon’s capacity to repay remains adequate, but subject to significant downside risks. - Financing needs for the next twelve months will be met by a combination of external borrowing, budget support and Fund financing, and there are firm commitments in place. - There are good prospects to achieve the projected financing through the end of the program (Table 4a and 4b), provided that the authorities implement their fiscal consolidation program as envisaged. - Repayments under the Extended Arrangement will remain less than 0.4 percent of GDP through the end of the projection period (2023), and peak at 1.2 percent of exports in 2024 (Table 7). ### Proposed structural conditionality for 2018–19 (highlights) - Prior Actions (examples) - Submission to Senate of a FY2019 budget and supporting measures, consistent with the budget objective of the government’s economic program supported by the IMF. — Pending Prior Action - Regularize tax situation of importers not subject to VAT, but whose transactions exceed the VAT liability threshold. — End-Jul. 2018 — Done — Prior Action - Close central government’s accounts opened at the CDC and repatriate balances to the TSA. — End-Sep. 2018 — Pending — Prior Action - Pending Structural Benchmarks (examples) - Publishing a new decree establishing harmonized statutes for public administrative institutions and repealing earlier provisions. — End-Sep. 2018 — Decree signed by Budget Minister and validated by the State Council; President’s signature pending - Clear 50 percent of expired suspensive customs procedures. — End-Dec. 2018 — No change - Reset Structural Benchmarks (examples) - Collect 40 percent of recoverable tax arrears. — End-Sep. 2018 — 39 percent of recoverable tax arrears collected as of mid-November — End-Dec. 2018 - Complete an independent audit of 2015, 2016, and 2017 domestic expenditure arrears. — End-Sep. 2018 — End-April. 2019 - Develop a strategy for the clearance of loans in arrears — End-Oct. 2018 — End-Mar. 2019 - New Structural Benchmarks (examples) - Nominate representatives to the liquidation support group of each state bank in liquidation — End-Jan. 2019 - TSA consolidation through closure of all central government accounts opened with commercial banks — End-Mar. 2019 - Publish a report disclosing the volume and value of major oil assets, as well as the volume and value of the previous year’s sales and fiscal revenue. — End Jun. 2019 - Submit application for EITI membership to EITI Secretariat — End-Sep. 2019 - Eliminate noncompliant earmarking of revenues and limit it to exceptions provided for by law. — End-Oct. 2019 ### Staff appraisal: assessment and policy recommendations - Regional context and BEAC/COBAC progress - The CEMAC regional strategy has helped to avert an immediate crisis but continues to face headwinds. - Uneven program implementation, insufficient repatriation of export proceeds and delays in securing IMF-supported programs with two-member countries have contributed to the underperformance of reserves accumulation, despite higher-than-projected oil prices. - Regional socio-political and security conditions remain difficult, and growth weak. However, the BEAC and COBAC have made progress in delivering on their policy assurances, including by further tightening liquidity conditions to support regional reserves. - Gabon authorities’ efforts and ongoing fragility - Staff welcomes the Gabon authorities’ efforts to improve program implementation and contribute to the regional effort to restore fiscal and external sustainability, despite challenging macroeconomic conditions. - Since the second review, the authorities have taken important and difficult actions to keep the program on track despite the October legislative elections. - The economic recovery remains fragile and further fiscal consolidation and decisive reforms are needed to achieve strong and sustainable growth thereby raising living standards. - Fiscal consolidation and social protection - Staff urges the authorities to stay the course on fiscal consolidation. This will require steadfast implementation of measures to boost non-oil revenue and contain non-priority spending while protecting social spending and infrastructure. - It will be important to adhere strictly to the targets on social protection spending to mitigate the potential impact of fiscal consolidation on the poor. - Risks of revenue shortfall are still high. If these risks materialize, the authorities should be ready to restrain current spending to stick to the deficit target, using the automatic adjustment mechanism envisaged in the budget laws. - Fiscal transparency, cash management, and debt servicing - Fiscal structural reforms to strengthen fiscal transparency and improve cash management will underpin fiscal discipline. - Enhance budgetary execution, align expenditure commitment and cash flow plans, set-up the Treasury Single Account, and enhance oil revenue management to strengthen transparency, cash management, and budget monitoring. - Continue efforts to strengthen debt management and improve processes to service debt, including through regular meetings between the Treasury and Debt Units to discuss weekly cash flow plans to prevent the accumulation of domestic and external arrears. - Pursue efforts to improve the oversight and transparency of government agencies and state-owned enterprises. - Financial sector stability - Reducing banking sector vulnerabilities is essential for financial stability and to support growth. - Accelerating the liquidation of the three distressed banks and expeditiously tackle the NPL overhang will support financial stability, promote credit to the private sector, and growth. - External stability and repatriation of export receipts - Ensuring external stability is critical for growth. - Continued fiscal consolidation and tangible actions to ensure the repatriation of forex by exporters (including national oil companies) will help rebuild the BEAC’s international reserves and buffers. - The latter will require revising the legislation on the repatriation and surrender of export receipts, in line with the new revised draft legislation prepared by BEAC. - The authorities should aim at adopting the national legislation in 2019. *International Monetary Fund — Staff Report excerpt* ### 34. Based on Gabon’s performance under the program, good progress toward the end- ### Based on Gabon’s performance under the program, good progress toward the end-December regional policy assurances and corrective actions to address end-June NFA underperformance, staff supports the authorities’ request for the completion of the third review under the Extended Fund Facility. ### Program review and staff recommendations - Staff supports completion of the third review under the Extended Fund Facility (EFF). - Staff recommends granting a waiver for non-observance of the continuous performance criterion on external arrears based on corrective measures to improve cash and debt management. - Staff proposes: - Modifications to the external debt performance criterion and end-March 2019 indicative targets. - Setting quantitative performance criteria for end-June 2019. - Making completion of the fourth review conditional on implementation of critical policy measures at the union level, as established in the December 2018 union-wide background paper. ### Growth, oil sector, and external sector outlook (Figure 1, Table 1 highlights) - Growth: - GDP at constant prices: 3.9 (2015), 2.1 (2016), 0.5 (2017), 2.0 (2018 (proj.)), 1.2 (2019 prog./Proj. row formatting ambiguous across table). - Non-oil growth: 3.8 (2015), 3.3 (2016), 1.7 (2017), 2.3 (2018 (proj.)), 1.9 (2019). - Oil: - Oil growth series shows high volatility (e.g., 4.0 in 2015; -2.7 in 2016; -4.8 in 2017; 0.8 in 2018 (proj.); -2.0 in 2019). - Oil production (mlns of barrels) and Gabon oil price (USD/bbl) shown in figure through 2010–23 with projected stabilization due to higher oil prices. - External sector: - Exports, f.o.b. and imports, f.o.b. series in Table 1 and Table 2 show recovery in exports supported by higher oil prices and mining activity. - Current account (percent of GDP): -5.6 (2015), -9.9 (2016), -4.7 (2017), -1.5 (2018), -2.2 (2019), -0.4 (2020), -1.0 (2021), 0.4 (2022), 1.0 (2023). - Imputed reserves (in millions of USD, RHS in figure) reverse deterioration and begin to increase in projections. - Inflation and monetary indicators: - Yearly average consumer prices: -0.1 (2015), 2.1 (2016), 2.7 (2017), 2.8 (2018), 4.0 (2019), 2.5 (2020–2023 in table showing repeated 2.5). - Monetary liquidity improving; credit growth remains low. ### Fiscal indicators and outlook (Figure 2, Tables 3a–3c highlights) - Expenditure composition: - Total expenditure (percent of GDP) and shifts in 2018 toward current spending from public investment. - Total expenditure and net lending (CFAF billions): 1,879 (2015 Act.), 1,833 (2016 Est./Prog. formatting), 1,649 (2017 Prog.), 1,709 (2018 Proj.), 1,679 (2019 Prog./Proj.), 1,818 (2020 Proj.), 1,711 (2021 Proj.), 1,902 (2022 Proj.). - Revenues: - Total revenue and grants (CFAF billions): 1,797 (2015 Act.), 1,424 (2016 Est.), 1,423 (2017 Prog.), 1,760 (2018 Proj.), 1,722 (2019 Prog.), 1,871 (2020 Proj.), 1,842 (2021 Proj.), 1,988 (2022 Proj.). - Oil revenue and non-oil revenue split shown (e.g., Oil revenue: 603 (2015 Act.); Non-oil revenue: 1,194 (2015 Act.)). - Emphasis on increasing non-oil revenue mobilization. - Balances and debt: - Overall fiscal balance (commitment basis, percent of GDP): -1.0 (2015), -5.0 (2016), -2.6 (2017), 0.5 (2018 proj.), 0.5 (2019 proj.), 0.5 (2020 proj.), 1.3 (2021 proj.), 0.8 (2022 proj.), 1.6 (2023 proj.), 2.9 (2024 proj.), 2.7 (2025 proj.) — table formatting complex; values preserved as presented. - Non-oil primary balance (in percent of non-oil GDP): -9.0 (2015), -11.0 (2016), -9.7 (2017), -7.1 (2018), -6.4 (2019), -6.4 (2020), -4.5 (2021), -4.4 (2022), -2.5 (2023), 0.0 (2024), 0.0 (2025) in Table 1. - Total public debt (percent of GDP): 44.7 (2015), 64.2 (2016), 62.7 (2017), 56.0 (2018), 57.3 (2019), 54.4 (2020), 53.0 (2021), 50.2 (2022), 46.6 (2023), 43.2 (2024), 39.9 (2025) — series presented in Table 1. - Staff notes consolidation needed to achieve a trend decline in public indebtedness. ### Balance of payments (Table 2 highlights) - Current account (CFAF billions): -474 (2015 Est.), -823 (2016 Prog.), -406 (2017 Proj.), -138 (2018 Prog.), -204 (2019 Proj.), -40 (2020 Proj.), -99 (2021 Proj.), 43 (2022 Proj.). - Goods (net) and exports: - Exports of goods (fob): 3,315 (2015 Est.), 2,679 (2016 Prog.), 3,294 (2017 Proj.), 3,986 (2018 Prog.), 3,764 (2019 Proj.), 4,161 (2020 Proj.), 4,054 (2021 Proj.), 4,220 (2022 Proj.). - Hydrocarbons component significant: Hydrocarbons exports 2,494 (2015), 1,941 (2016), 2,234 (2017), 2,813 (2018), 2,678 (2019), 2,757 (2020), 2,725 (2021), 2,558 (2022). - Financial account and financing: - Financial account and direct investment: Direct investment (net): 586 (2015), 736 (2016), 785 (2017), 864 (2018), 870 (2019), 1,013 (2020), 1,031 (2021), 922 (2022). - Imputed reserves (end of period) showing large fluctuations in Table 2 and recovery in projections. ### Central government accounts and financing tables (Tables 3a–4b highlights) - Central government finances (2015–20, CFAF billions): - Total revenue and grants and total expenditure and net lending reported in Tables 3a–3c; see figures under Fiscal indicators section above. - Wages and salaries, interest payments, transfers and subsidies, capital expenditure broken down (e.g., Wages and salaries: 715 (2015 Act.), 731 (2016 Est.), 733 (2017 Prog.), 657 (2018 Proj.), 698 (2019 Proj.), 682 (2020 Proj.), 673 (2021 Proj.), 716 (2022 Proj.)). - Financing of the fiscal deficit (Table 4a and 4b): - Overall fiscal deficit (cash basis) (CFAF billions) and as percent of GDP: - 296.6 (Act. 2017), 24.7 (Prog. 2018?), 59.6 (Proj.), -51.3, -152.4, -91.6 depending on year column alignments in Table 4a. - Percent of GDP series shown in Table 4b: 3.4, 0.3, 0.6, -0.5, -1.5, -0.9 across years as presented. - Total financing needs (C=A+B): 924.5 (2017 Act.), 758.8, 776.4, 762.3, 765.8, 594.8 (2019–20 columns per table). - Identified sources of financing and exceptional external financing, including multilateral and bilateral components (e.g., Exceptional external financing: 487.8 (2017 Act.), 302.2, 284.2, 166.9, 288.7, 29.3 across columns). - IMF-EFF residual financing: IMF-EFF listed as 113.9 (2017 Act.), 112.0, 112.1, 112.4, 112.6, 28.0 across columns. - Memorandum item: Stock of government deposits at the BEAC: 315.0, 345.8, 396.0, 469.0, 517.4, 607.2. ### Monetary survey and banking sector indicators (Table 5 and Table 6 highlights) - Monetary aggregates (Table 5): - Broad money (M2) levels (CFAF billions) and growth rates: broad money series reported (e.g., Broad money (M2) 2,162 (2015 Act.), 2,049 (2016 Act.), 1,969 (2017 Act.), with projected increases to 2,267, 2,385, 2,542, 2,944 in projection columns). - Net foreign assets and net domestic assets series presented; BEAC net foreign assets and foreign liabilities shown. - Credit to the private sector: negative growth across several prior years (e.g., Credit to the private sector: -9.8 (2015), -5.6 (2016), -3.0 (2017), with later projections showing recovery). - Banking sector soundness (Table 6): - Regulatory capital to risk-weighted assets and Tier 1 ratios reported across quarters and years (e.g., Regulatory capital to risk-weighted assets: 12.3 (2013), 9.4 (2014 Q1), various quarterly values up to 14.5 and 12.9). - Non-performing loans (gross) to total loans (gross): rising trend into 2017–2018 (e.g., 2.7, 4.1, 5.3, 5.1, 7.2, 6.2, 6.6, 7.0, 7.9, 8.1, 9.1, 11.3, 10.5, 10.5 by reporting quarters). - Liquidity ratios: Liquid assets to total assets generally between about 20.0 and 32.8 across periods. - Gross loans (banks' book, in CFAF billions): series such as 1,870.8, 1,895.1, 1,764.3, 1,832.2, 1,891.0, 1,820.7, 1,927.3, 1,933.0, 1,853.3, 1,799.2, 1,768.4, 1,671.8, 1,767.3, 1,744.1 shown with annualized growth rates. ### Capacity to repay the Fund and Fund obligations (Table 7 highlights) - Outstanding Fund credit (in millions of SDRs): - 285.7 (2017), 285.7 (2018), 428.6 (2019), 464.4 (2020), 458.5 (2021), 434.6 (2022), 381.1 (2023), 306.7 (2024), 229.3 (2025), 151.9 (2026), 80.4 (2027), 26.8 (2028), 3.0 (2029), 0.0 (2030). - Fund obligations (existing and prospective credit) in millions of SDRs and in percent metrics presented across 2017–30, with associated projections for charges and interest and principal repayments. - Memorandum items: - Exports of goods and services (in millions of US$) series from 6,159 (earlier) to projected 12,246 (2030). - Debt service (in millions of US$) and nominal GDP (in millions of US$) series displayed. - Gross Official Reserves imputed to Gabon (in millions of US$) rising across projection years (e.g., 52, 9, 763, 1,070, 1,535, 2,116, 2,818, 3,607, 4,045, 4,488, 4,930, 5,364, 5,772, 6,138, 6,474 across table entries). ### Schedule of disbursements and timing of reviews under the Extended Arrangement (Table 8) - Disbursement schedule (amounts in millions of SDRs and US$ and Percentage of Quota): - June 19, 2017: Approval — 71.430 SDRs; 96.649 US$; 33.069 percent of quota. - December 1, 2017: Observance of PCs for end-June 2017 and completion of first review — 71.430 SDRs; 98.915 US$; 33.069 percent of quota. - June 1, 2018: Observance of PCs for end-December 2017 and completion of second review — 71.430 SDRs; 100.618 US$; 33.069 percent of quota. - December 1, 2018: Observance of PCs for end-June 2018 and completion of third review — 71.430 SDRs; 101.357 US$; 33.069 percent of quota. - June 1, 2019: Observance of PCs for end-December 2018 and completion of fourth review — 71.430 SDRs; 100.399 US$; 33.069 percent of quota. - December 1, 2019: Observance of PCs for end-June 2019 and completion of fifth review — 71.430 SDRs; 100.399 US$; 33.069 percent of quota. - April 30, 2020: Observance of PCs for end-December 2019 and completion of sixth review — 35.820 SDRs; 50.648 US$; 16.583 percent of quota. - Total: 464.400 SDRs; 648.985 US$; 215.000 percent of quota. - Quota note: Gabon's quota is SDR 216.0 million. *Source: Gabonese authorities and IMF staff estimates and projections.* ### Appendix I. Letter of Intent ### Appendix I. Letter of Intent ### Progress and program status - Date: November 20, 2018. - Recent political development: The October 2018 legislative and local elections have defused political and social tensions. - Program implementation: Improved since the conclusion of the second review in early August 2018. - Five end-September 2018 indicative targets were met. - The continuous PC on external arrears was missed. - Two indicative targets on the stock of domestic arrears and priority social spending were missed. - Delays in implementing structural benchmarks through end-November 2018. - Requests to the Fund: - Completion of the third review under the extended arrangement. - Waiver of nonobservance for the continuous performance criterion on the non-accumulation of external arrears. - Modification of the external debt performance criterion. - Government authorization: Authorizes the Fund to publish this letter of intent, the MEFP for 2018-19, the TMU, and the forthcoming staff report for the third review. ### Economic outlook - 2018 growth and drivers: - Overall GDP growth expected to reach 1.2 percent in 2018 (initial projection was 2.0 percent). - Oil production decline: -4.3 percent in 2018 with a 13.4 percent decline recorded in the first half of the year. - Non-oil sectors (mining, forestry, agriculture) experiencing strong performance, but non-oil growth weaker than estimated due to lower public investment. - Inflation and monetary conditions: - Average year-on-year consumer price increase: 3.4 percent in September 2018 (an increase of 0.7 points since June 2018). - Money supply (M2) grew 23 percent at end-September 2018. - Banking lending to the private sector remains weak; levels of nonperforming loans are still high. - Public debt and arrears (end-September 2018): - Total stock of debt: 52.5 percent of GDP (52.1 percent at end-June 2018). - Arrears on domestic debt: 5.2 percent of GDP. - Arrears on foreign debt: 0.6 percent of GDP. - Near-term and medium-term prospects: - 2019 GDP growth forecast: 3.1 percent (revised downward by 0.3 percentage points from previous forecast). - Medium-term GDP growth projection: 5 percent. - Projected recovery supported by continued strength in agriculture, forestry, and mining, and start of PPP-financed projects. - Oil industry remains important; recent discoveries and a new tax regime for oil expected to encourage investment. ### Fiscal policy (2018–2019) - 2018 fiscal outcome and targets: - Non-oil primary deficit expected to stand at 6.4 percent of nonoil GDP at end-2018 (an adjustment effort of 0.7 percentage points more than programmed). - Total revenues expected to increase by 1.8 percentage points of GDP (+3.6 percentage points of nonoil GDP) at end-2018 from 2017. - Oil revenues: +0.6 percentage points of GDP compared to 2017. - Non-oil revenue increase: 1.2 percentage points of GDP (or 2.3 percentage points of nonoil GDP). - 2018 revenue mobilization measures (DGDDI and General Directorate of Taxation actions): - DGDDI measures included: - elimination of suspended duty arrangements (normal temporary admission, special temporary admission, private warehouses); - application of values in the taxation of manganese; - collection of debts owed by the national refinery and other importers; - new arrangements for excise taxes; - measure to combat the high cost of living, with the introduction of a list of basic items. - General Directorate of Taxation measures included: - taxation of public departmental agencies; - strengthening quality and frequency of corporate income tax audits; - taxation of luxury vehicles and revision of the rates on funds transfers; - tax on personalized license plates; - increase in the rates of the capital transfer and excise taxes; - expansion of the taxable basis of the single combined tax (ISL). - Second phase of the “Tax Justice” operation (verification of justifications for exemptions) under way. - 2018 expenditure measures: - Wage bill containment measures: - staff reductions in offices of the President, Prime Minister, Ministers and Secretariat General of the Government; - systematic retirement of civil servants who have reached the maximum retirement age; - reduction in notice of termination from 4 months to 2 months for officials with civil service status; - elimination of notice of termination for officials without civil service status performing ministerial functions and relieved of duties; - freeze on recruitment in the civil service, except for education and health sectors; - elimination of housing and transportation allowances for recipients of government housing and vehicles; - purging of the payroll database; - streamlining of credits of non-permanent workforce and of financial authorities. - Goods and services and other controls: - strengthening supervision of foreign missions of government officials; - streamlining administrative lease expenditures by renegotiating lease agreements downward and repossessing property; - control and harmonization of tuition fees for students and scholarship holders; - focus on performance contracts for subsidies and public assistance and introduction of ceiling on value of purchases of government vehicles. - Automatic adjustment mechanism (supplementary budget): - Spending to be automatically adjusted during the final quarter of 2018 if non-oil revenues collected are 5 percent or more below forecast. - Any additional revenue not provided for in the initial budget framework will be used to increase reserves. - Treasury and collections: - Treasury float to be contained to a maximum of 15 percent of expenditure directly controlled by the government. - Collections target at end-2018: 40 percent of outstanding taxes identified as immediately recoverable (proposed reset structural benchmark; end-December 2018). - 2019 fiscal strategy and targets: - Objective: bring the non-oil primary deficit down to 4.5 percent of non-oil GDP (an adjustment of 1.9 percentage points vis-à-vis 2018). - Revenue-side measures: - non-oil revenue expected to increase by 0.5 percentage points of non-oil GDP. - reinforcement of 2018 measures: expansion of tax base by applying prepayment to IRPP and property taxes; stepping up tax audits; clearance of outstanding taxes. - new measures in 2019 draft budget include a tax on household waste management. - Customs and non-oil revenue measures: - Government commitment to clear 50 percent of expired warehousing arrangements (structural benchmark; end-December 2018). - Draft 2019 budget measures: - elimination of all illegal exemptions on customs duties and taxes, including elimination of the program to combat the high cost of living (with exceptions: provisions of the Customs Code of CEMAC, the tourist sector, special economic zones, and GSEZ); - introduction of a special hydrocarbons warehouse customs regime for import of petroleum products. - Expenditure-side measures for 2019: - Total reduction of 1.3 percentage points of nonoil GDP relative to 2018, via: - planned reduction in the wage bill: -1.1 percentage points of non-oil GDP; - net lending: -1.1 percentage points of non-oil GDP; - special accounts: -0.7 percentage point of non-oil GDP. - Specific wage bill measures: - systematic retirement of civil servants who have reached maximum retirement age; - termination of contracts with contractual civil servants over 60; - elimination of civil service job categories for jobs outsourced to public departmental agencies; - formalization of organizational frameworks for administrative services and public departmental agencies with World Bank assistance under GPEC. - Special accounts and earmarked revenues: - Work (with assistance from Central AFRITAC) on comprehensive inventory of earmarked revenues not included in government budget to better control special accounts and revenue earmarking to comply with Law 20/2014 (LOLFEB). - Results to be included in 2020 draft budget. - Elimination and/or merger of several departmental agencies to help balance special accounts. - Fiscal adjustment mechanism for 2019 draft budget: - Mandatory reserves rates and availability: - 20 percent for expenditures on goods and services; - 15 percent for transfer expenditures; - 16 percent for investment expenditures; - 10 percent for other expenditure. - These budgetary reserves will be unavailable until released. - Financing measures for 2019: - Intensified efforts to collect outstanding tax arrears. - Draft budget includes interventions on the regional financial market totaling CFAF 120 billion. - CFAF 26 billion could be mobilized as a contingency from sales of assets. - Budget timeline: - The 2019 draft budget, reflecting government commitments and including all fiscal targets and measures defined by the program, will be submitted to the Senate before the third review (prior action). - Medium-term fiscal objectives: - Cash-basis fiscal balance to move out of deficit in 2019, reaching 1.5 percent of GDP. - Primary non-oil deficit to decline to 4.4 percent of non-oil GDP in 2020. - Basic non-oil primary surplus to reach 1.6 percent of nonoil GDP by 2021. - Objective to reduce public debt level below 50 percent in the medium term. ### Arrears management - External and domestic arrears clearance commitments: - "All arrears on the commercial non-guaranteed external debt will be entirely cleared by end-December 2018." - VAT arrears will be paid until 2021. - Remaining exceptional Treasury float will be paid as planned in 2018. - Accumulation of a new float in 2019 will remain limited to 15 percent of total expenditures on goods and services, transfers and domestically financed investment. - Libreville Club arrangement: - Arrears covered by the Libreville Club consolidated at CFAF 285.7 billion, repayable over 74 months. - Gabonese government undertakes to pay CFAF 5 billion each month to the “Libreville Club” Economic Interest Group. - Government has already made five payments totaling CFAF 25 billion. - Libreville Club commitments in 2019 have been set at CFAF 60 billion. ### Structural measures to prevent accumulation of new expenditure arrears - Continued commitments and institutional measures noted in the letter: - Establishment of the single treasury account. - Implementation of IMF technical assistance mission recommendations regarding effectiveness of weekly treasury management meetings and strengthening communication between the Directorate General of the Debt and the General Directorate of the Treasury. - Greater control of spending of semi-autonomous government entities; announced elimination and merging of several autonomous agencies. - Financial sector measures: - Commitment to preserve financial sector stability. - Recognition that progress in developing a framework for resolution of NPLs has been slow. - Continued work on resolution and liquidation of three distressed public banks, with efforts mindful of minimizing fiscal costs. - Monitoring and conditionality: - Program implementation to be monitored through quantitative performance criteria (PCs), structural benchmarks (SBs), and indicative targets as described in the Technical Memorandum of Understanding (Attachment II). *Source: Appendix I. Letter of Intent and Attachment I. Memorandum of Economic and Financial Policies (November 20, 2018).* ### 14. The preparation of the new cash flow plan and its articulation with the debt ### 14. The preparation of the new cash flow plan and its articulation with the debt ### Cash flow management and debt articulation - Government requested technical assistance from the International Monetary Fund to improve cash flow management in connection with the management of the debt; mission took place in November 2018. - Government commitments and timelines: - Finalize the cash flow plan for 2019 and attach it to the approved budget law for 2019 by December 2018. - Initiate by March 2019 the preparation of weekly cash flow forecasts for a transition to this monitoring mode during the first half of 2019. - Build a consolidated funding program between the Treasury (DGCPT) and the Debt Directorate (DGD) starting in January 2019. - Organize the DGD's monthly transmission to the DGCPT, at least monthly, of the daily debt service and external loan drawdown forecasts over a rolling year horizon starting in January 2019. ### Unification of the single Treasury account (CUT) - Priority for 2018 and 2019 to enhance transparency and efficiency of cash flow management. - Technical discussions with the BEAC to define terms and conditions for creation of subaccounts within the CUT and to replace current agreements specific to each account. - Identified issues and government actions: - Technical obstacles prevented meeting the deadline for adapting CUT operations to repatriate deposit accounts of Treasury correspondent banks and government accountants opened with the state depository corporation (Caisse des dépôts et consignations—CDC). - Government undertakes to immediately close these accounts at the CDC and to repatriate the accounts whose existence remains justified in the context of the CUT (prior action). - Second and final phase: close accounts opened in commercial banks to repatriate their credit balances to the CUT (proposed new structural benchmark, end-March 2019). An initial inventory was completed prior to the second review; list to be completed and terms/conditions for closures defined in coordination with the BEAC, bearing in mind volume of deposits and method for handling debit balances. ### VAT deferred payment and escrow improvements - Pilot mechanism for deferred payment of VAT in 2019 to make VAT credit refunds more secure. - 2019 draft budget introduces possibility of deferred VAT payment for imports, eliminating cash advances by companies (including the two oil companies and the national mining company) and avoiding need for their refund (structural benchmark, end-October 2018). - Scope and eligibility: - Deferred payment applies exclusively to imports of materials, equipment, and spare parts for equipment and industrial machinery. - Eligibility criteria: respect of filing and payment obligations for taxes; fees and levies; respect of declaration and payment obligations for customs duties and taxes; compliance with various customs regimes; existence of a customs clearance credit with a forwarding agent licensed by Customs. - Escrow account operation for VAT credit refunds to be improved; a procedure of systematic collection and refund in the escrow account should be developed for VAT collections at the customs frontier, in cooperation with the Treasury. ### Expenditure execution control and arrears monitoring - Enhanced control of expenditure execution implemented centrally and provincially, to be expanded to public institutions and entities: - Systematized issuance of purchase orders when expenditures are committed via VECTIS (central government) and E-BOP (provincial departments). - Timetable prepared for deployment of information systems to extend new expenditure execution procedure to entities; effective implementation planned by end-2019. - Monitoring of arrears: - Since June, payment delays closely monitored using dedicated modules and alert procedures in VECTIS and E-BOP. - Report on volume and composition of remaining outstanding balances at end-2017 published in July 2018; report for first half of 2018 published in October (continuous structural benchmark). - Independent audit: PricewaterhouseCoopers selected after 2017 call for bids to audit government and public entity arrears for 2015 and 2016; mobilization advance paid, premises provided, service requisition signed. General Directorate of the Debt could not begin due to internal scope discussions. - Government undertakes to complete and publish results of this audit by the end of the first quarter of 2019, expanding scope to fiscal year 2017 (proposed reset structural benchmark, end-April 2019). ### Tax and customs administration measures to mobilize nonoil revenue - Rationalization and control of tax and customs exemptions: - List and amount of VAT exemptions detailed in a report attached to the 2018 Supplementary Budget; objective to consolidate and extend to other taxes. - Minister of Economy decision since October 2018 eliminated granting of tax and customs exemptions to companies holding public procurement and other government contracts. - One-stop tax window established in the SEZs of Nkok to monitor payment of non-exempt taxes; tax-exempt companies subject to on-site audits under “tax justice” initiative. - Strengthening customs and tax audit procedures: - Joint audits and strengthened data exchanges between customs and tax directorates continue. - To date: 31 companies audited; adjustments totaling CFAF 1.533 billion, of which CFAF 866 million have been recovered. Thirty companies could not be located. Thirty-three audits currently under way; these operations to be concluded by end-2018. - Audit program scheduled for 2019 based on list of companies identified through customs-tax cooperation to combat VAT fraud. - Payments and electronic systems: - Since Q1 2018, payment in cash became standard procedure; initial awareness campaign conducted, second planned. - List of companies eligible for exceptional customs bond (credit d’enlèvement) drawn up; 100 enterprises selected. - Operational arrangements defined to enable bank transfers of CFAF 100 million or more. - Government will appoint a joint tax/customs working group to assess upgrading E-tax to include payment of customs duties and taxes. - Migration to ASYCUDA World with integrated e-payment module to continue; pilot site (Owendo Central Office) planned in Q1 2019. - Actions to prevent/detect/address VAT fraud extended: - Situation of economic operators not subject to VAT though turnover exceeds CFAF 60 million was regularized (prior action). - Since July, electronic data exchanges between DGI and customs facilitated identification of taxpayers with inconsistent data; joint tax/customs committee formed. - Joint audit committee handling 16 enterprises; DGI tax audit directorate handling 14 enterprises; remaining taxpayers transferred to operational units. - Transfer of VAT taxpayer monitoring from CIPEPs to CIMEs and DGE to be finalized; physical files and taxpayer accounts being transferred; companies undertaxed in CIPEPs will be audited. - List of VAT taxpayers managed by CIMEs (Owendo and Port-Gentil) and by DGE has been published. ### Other structural public financial management reforms - Fiscal transparency commitments: - Government will step up efforts to submit Gabon's application to the Extractive Industries Transparency Initiative (EITI) by end-September 2019 (proposed new structural benchmark). - Government will prepare a report by end-June 2019 on status of 2018 petroleum assets and of oil sales, and revenue; report to estimate volume and value of key natural resource assets and sales and fiscal revenue in the preceding fiscal year (proposed new structural benchmark, end-June 2019). - Budget unity and earmarking: - Continue efforts to include complete overview of revenue, expenditure, and financing of all central government entities in the budget. - Government commits to eliminating, for the draft budget for the upcoming 2020 fiscal year, any earmarking of revenue not compliant with legal criteria (proposed new structural benchmark, October 2019). - Quarterly budget execution reports: - Publication of quarterly budget execution reports is ongoing structural benchmark; five quarterly reports published since program start. - Most recent pertains to Q2 2018 and published end-September 2018. - Publication deadline of 55 days specified in program not observed for a new fiscal year, but progress made; report for Q3 2018 posted online within specified deadline of November 24, 2018. - Major investment projects and procurement: - Government reaffirms commitment to subject all major investment projects to cost-benefit analysis (structural benchmark, end-December 2018) and open bidding. - Draft budget law does not include new projects > CFAF 20 billion; government committed to performing and publishing cost-benefit analyses for future projects > CFAF 20 billion. - As of September 30, 2018, single tenders accounted for 39 percent of the total and were valued at CFAF 67.9 billion. - In 2017, single tenders accounted for 89 percent (CFAF 211 billion) of the total. - DGBFIP moving toward bundled tender invitations; starting Q1 2019 public procurement statistics to be published periodically indicating nature and amount of single tenders and waivers for negotiated procedures. - Financial oversight of public entities: - Administrative unit for gathering/coordinating financial information on public entities created by Decree No. 000012/MBCP of October 23, 2018. - New draft decree establishing harmonized status of administrative public entities to be circulated and published in Q1 2019. - Unit responsible for financial oversight of public entities to be operational in 2019; personnel and resources to be assigned. - Law creating Gabonese Strategic Investment Fund (FGIS) to be amended to provide representation of Ministries of Economy and the Budget on FGIS board; government maintains and updates table of performance indicators based on comprehensive census of public enterprises with government equity and representatives. - CEMAC directives and program budgeting reform: - Provisions of organic budget law defining rules for transfer of appropriations to be revised to align with community directives. - Implementation of reforms specified in organic budget law and texts transposing CEMAC directives remains priority. - Gabon to share feedback with CEMAC on reform management, fiscal architecture, treatment of tax expenditure, and streamlining of management chain. ### Social sector policies - Government committed to improving predictability and quality of social expenditure. - Identified execution weaknesses due to constraints initiating bidding for school construction, delays in approving 2018 supplementary budget, and clearing payment orders. - Government actions: - Strengthen prioritization and acceleration of social spending execution despite tight liquidity. - More comprehensively define scope of social spending to include social benefits and pensions to civil servants, subsidies on butane gas and kerosene, and costs of electrification and hydraulic installations programs for rural areas without access to public water/electricity network. - Improve targeting of poor and vulnerable population based on 2017 Poverty Assessment Survey (EGEP) and Law No. 001/2018 of September 18, 2018 (amending Article 11 of Law No. 034/2007 of 28 January ratifying Ordinance No. 022 / PR / 2007 of 21 August 2007) establishing a health insurance and social guarantee system and providing a better definition of the poor in Gabon (GEF). - Formalize creation of a GEF (Economically Disadvantaged Gabonese) commission responsible for drafting laws to reduce inclusion errors, with roadmap indicating stages, timetables, necessary resources, and responsibilities. ### Financial sector and nonperforming loans - Clearance of domestic arrears expected to help reverse upward trend of nonperforming loans. - Financial system described as relatively stable and profitable, but nonperforming loans increased to 17 percent of total loans at end-June 2018 (from 15 percent at end-March 2018). - Government measures: - With the “Club de Libreville” and securitization, government intends to convert a large part of domestic debt into marketable securities to improve cashflow of SMEs and reduce nonperforming loans. - Government to finalize by March 2019 a strategy for resolving nonperforming loans (proposed reset structural benchmark). - First draft of the strategy to be sent to the IMF at the end of January 2019. - Strategy to be developed by the ministries of Economy and Justice in consultation with the bankers’ association and will focus on strengthening the judicial branch (training judges specialized in banking disputes), improving judicial procedures, creating commercial courts, and modernizing commercial credit and real estate registry. *Source: cr1917-gabon - 14. The preparation of the new cash flow plan and its articulation with the debt* ### 29. We will expedite the orderly liquidation of public banks. Since COBAC’s decision in ### cr1917-gabon - 29. We will expedite the orderly liquidation of public banks. Since COBAC’s decision in ### Liquidation of public banks - COBAC’s decision in September to withdraw the license of the Gabonese Development Bank (BGD) led to three public banks (Postebank, the Bank of Habitat of Gabon (BHG) and the BGD) being under liquidation. - To support independent liquidators and minimize fiscal cost: - Liquidators will form a liquidation support group including all stakeholders (liquidator, authorities, shareholders and supervisors) and observers if needed. - Authorities will appoint their representatives by the end of January 2019 (proposed new structural benchmark). - Group members must not present any conflict of interest. - The composition of the groups will be communicated to the IMF by the end of January 2019. ### Sale of BICIG - The government is committed to sell its non-strategic investment in the BICIG as quickly as possible. - The resale process shall begin within the three months following the COBAC approval of the acquisition. - If COBAC does not approve the transaction, the state shall join the main shareholder in selling its existing shareholding so the new strategic investor can enjoy a controlling majority. - A competitive bidding process in accordance with best international practices shall be organized. - Until the sale is completed, the government agrees to refrain from influencing the governance and operations of the bank. ### Promotion of the private sector - Government commitments: - Continue implementing structural and institutional reforms to promote growth driven by the private sector. - Strengthen financial stability so the financial sector can support the private sector. - Continue implementation of the Economic Recovery Program (PRE) and the Emerging Gabon Strategic Plan (Plan Stratégique Gabon Emergent). - Improve the business climate by strengthening the judicial system: launch of the Arbitration Division, training of specialized judges, and creation of commercial courts. ### Reorganization of public financing for SMEs - Actions guided by three core principles: - (a) authorize only indirect public financing through commercial banks; - (b) pool all SME public financing tools to improve impact, coordination, and visibility; - (c) support SMEs in preparing financing and business plans to obtain commercial bank financing. - After concertation among the involved ministries, the government will make its proposal for a grouping of the instruments and an action plan to improve SME financing in the short term. ### Statistics and data initiatives - Law No. 0015/2014 established the National Statistics System (SSN); government has begun reorganization of economic statistics. - Completed poverty survey to be published at end-2018. - Major collection initiatives: - Ongoing third Demographic and Health Survey (EDSG III), results expected by end-2019; - General Agricultural Census (RGA), pilot phase analyzed for official launch date set for December 2018. - Other 2019 initiatives: - Education yearbook initiative, results expected in May 2019; - Enterprise survey and informal sector survey currently in preparation. - With AFRITAC and the BEAC support, efforts stepped up to improve quality, coverage, and timeliness of data for national accounts, fiscal sector, and balance of payments. - National accounts: - 2011–16 national accounts revised, preliminary 2017 version available. - Priority to finalize assessment of coverage related to the wood industry and ZERP of Nkok activity before publishing final 2017 accounts and possibly completing the 2001–16 series per SNA 93. - Following transposition and transmission of 2012–16 budget statistics from the TOFE, government will begin to transpose the 2017 TOFE for submission to the IMF in 2019. ### Program monitoring and conditionality - Program implementation monitored through prior actions, semiannual reviews, quantitative performance criteria and indicative targets, ongoing performance criteria, and structural benchmarks. - Fourth review scheduled for June 2019, based on quantitative performance criteria for end-December 2018, ongoing performance criteria, and relevant structural benchmarks. - For all reviews, quantitative performance criteria will include: - a floor on the primary fiscal balance, excluding oil revenue (payment order basis); - a ceiling on the stock of net banking system claims on the central government; - a ceiling on the stock of central bank claims on the central government, excluding the use of IMF credit; - a ceiling on borrowing or guaranteeing external debt (program and project); - a floor on government tax revenue, excluding oil revenue; - a ceiling on the accumulation of new external arrears by the central government. - Prior actions and structural benchmarks are shown in Tables 3 and 4; quantitative targets up to end-December 2019 and a continuous quantitative performance criterion are shown in Tables 1 and 2. ### Selected quantitative targets and statuses (as presented) - Table 1 highlights (2018, Billions of CFA francs, unless otherwise indicated): - Floor on primary fiscal balance, excluding oil revenue (payment order basis): Prog. -104.3; Adj. -24.3; Act. -194.5 — Status: Not Met (and other quarterly entries listed, including Unadjusted target (floor) -104.3, -173.0, -333.8). - Ceiling on stock of net claims of the banking system on the central government: Prog. 861.1; Adj. 941.1; Act. 864.7 — Status: Met (additional entries and Unadjusted target (ceiling) 861.1, 878.3, 1087.9). - Ceiling on central bank net claims on central government, excluding use of IMF credit: examples include 219.2, 341.6 (Not Met), 193.3, 382.5, 338.3 (Not Met), 382.5 ... 315.3 (Met), 107.2. - Ceiling on contracting or guaranteeing of external debt (program and project): Prog. 99.7; and other quarter entries including 205.9, 125.9, 26.7, 22.1 (Met); Unadjusted target (ceiling) 99.7, 205.9, 143.8. - Floor on government tax revenue, excluding oil revenue: Prog. 275.1 ... 179.9 (Not Met); 570.5 ... 423.1; 462.0 Not Met; 596.3 ... 694.4 (Met); 941.3. - Continuous performance criterion — Ceiling on accumulation of new external arrears by the central government: entries show 0...46 (Not Met); 0...78 (Not Met); 0...14.5 (Not Met). - Indicative targets: Ceiling on the stock of domestic arrears: 379.0 ... 593.3 (Not Met); other entries 304.5 ... 527.7; 582.6 Not Met; 465.4 ... 547.0 Not Met; 372.6. - Floor on social protection spending: examples include 30.3 ... Not available; 68.2 ... 24.8 Not Met; 150.0 ... 93.6 Not Met; 214.3. - Table 2 highlights (2019, Billions of CFA francs, unless otherwise indicated): - Quantitative performance criteria examples: - Floor on primary fiscal balance, excluding oil revenue (payment order basis): September -76.5; December -125.6; other entries -13.7; -147.1; -232.8; -307.3. - Ceiling on stock of net claims of the banking system on the central government: 809.5; 766.5; 870.1; 802.3; 835.7; 820.0. - Ceiling on central bank net claims on central government, excluding use of IMF credit: 107.2; 57.0; 107.2; 57.0; 57.0; -64.5. - Ceiling on contracting or guaranteeing of external debt (program and project): 73.5; 285.4; 227.8; 412.2; 458.1; 585.0. - Floor on government tax revenue, excluding oil revenue: 199.7; 214.0; 529.6; 543.1; 784.2; 1062.4. - Continuous performance criterion: Ceiling on accumulation of new external arrears by the central government: entries show 00 00 0 0. - Indicative targets: Ceiling on the stock of domestic arrears: 354.0; 287.6; 333.9; 259.3; 327.3; 344.0. Floor on social protection spending: ... 90.8; ... 181.6; 272.4; 363.2. ### Structural benchmarks and proposed new conditionality (high level) - Structural benchmarks (selected): - Publish quarterly reports on unpaid payment orders and arrears — End-Sep. 2017 — Met. - Publish quarterly budget execution reports within 55 days of quarter end — End-Feb. 2018 — Not Met. - Publish cost-benefit analyses for investment projects with budgets exceeding CFAF 20 billion — End-Dec. 2018 — In progress. - Close central government accounts with the Caisse des dépôts et consignations (CDC) and repatriate balances to the TSA — End-Sep. 2018 — Not Met (Prior Action in Table 4). - Prepare an assessment of options for resolution/restructuring of public banks — End-Mar. 2018 — Not Met (note: "Done; in liquidation as of Sep. 2018"). - Proposed new structural conditionality (selected): - Submission to Senate of a FY2019 budget and supporting measures — Prior Action. - Regularize tax situation of certain importers — Prior Action. - Close central government’s accounts opened with the CDC and repatriate balances to the TSA — Prior Action. - TSA consolidation through closure of all central government accounts opened with commercial banks — End-Mar. 2019. - Publish a report disclosing volume and value of major oil assets and prior year sales and fiscal revenue — End-Jun. 2019. - Submission of application for EITI membership — End-Sep. 2019. - Nominate representatives to the liquidation support group for each state bank in liquidation — End-Jan. 2019 (document: copy of the terms of reference and list signed by Minister of Economy). *https://www.imf.org/-/media/files/publications/cr/2019/cr1917-gabon.pdf* ### 1. This Technical Memorandum of Understanding (TMU) sets out the understandings ### This Technical Memorandum of Understanding (TMU) sets out the understandings between the Gabonese authorities and the International Monetary Fund (IMF) regarding the definition of quantitative performance criteria (QPC) and indicative targets (IT). ### Overview - Purpose: Sets out understandings on definition of QPC and IT, QPC and IT adjusters, and data reporting requirements for the duration of the extended arrangement under the Extended Financing Facility as described in the authorities’ Letter of Intent (LOI) dated November 20, 2018, and the attached Memorandum of Economic and Financial Policies (MEFP). - Consultation requirement: The authorities will consult with the Fund before modifying measures contained in the LOI/MEFP or adopting new measures that would deviate from program goals and will provide the Fund with necessary information for program monitoring. - Program monitoring dates: Quantitative performance criteria (PCs) and indicative targets (ITs) are set for December 31, 2018 and June 30, 2019; the same variables are an indicative target for March 30, 2019, September 30, 2019, and December 31, 2019. - Reporting timeliness: Data will be provided to the IMF with a lag of no more than six weeks after the end of the month, unless otherwise specified (some items specify three weeks). ### Program accounting exchange rates and valuation rules - General rule: All foreign currency-related assets, liabilities, and flows will be evaluated at “program accounting exchange rates” as defined, except for items affecting government fiscal balances, which will be measured at current exchange rates. - BEAC U.S. dollar valuation: U.S. dollar denominated components of the balance sheet of the Bank of Central African States (BEAC) will be valued at the official exchange rate of the CFAF to the U.S. dollar of 553,07 as of June 1, 2018. - Cross-rates for other currencies (program purposes): - Euro valued at 1.1860 U.S. dollars - Pound Sterling valued at 0.7408 U.S. dollars - Chinese Yuan valued at 6.4766 U.S. dollars - Special Drawing Right (SDR) valued at 1.4190 U.S. dollars - Official gold valuation: 1,260.98 U.S. dollars per fine ounce. - Oil revenue recording: Revenue received by the treasury will be registered after encashment, at most 7 days after the date of receipt; oil revenue received in kind will be recorded at transaction value on the day of sale. ### I. Quantitative Performance Criteria: Definition of Variables - Central government (CG) definition: - Consists of all institutions, government units, and special funds (including the Road Fund) currently covered under the state budget. - Excludes local government authorities, the BEAC, or any government-owned entity with separate legal status. - Authorities will inform Fund staff of any new funds or special budgetary and extra-budgetary programs and ensure incorporation within the CG definition. - Fiscal year: Calendar year, January 1 to December 31. A. Cumulative Floor on the Non-Oil Primary Fiscal Balance on a Payment Order Basis - Definition: Measured as the difference between: i. total central government revenue on a cash basis (excluding oil revenue), and; ii. total central government expenditure on a payment order basis excluding interest payments. - Calculation basis: QPC calculated based on the projected exchange rate; reporting and adjustment made using current exchange rates. - Total CG revenue (excluding oil) measurement: Cash basis and includes offsetting revenue and expenditure operations, including private sector tax obligations offset against central government obligations to the private sector. Tax receipts per TOFE, including earmarked revenues (Road Fund and special funds). Oil revenue includes payments received in cash and in crude (Text Table 1). - Total CG expenditure measurement: Includes spending on a payment order basis (ordonnancements), treasury advances (avances à régulariser), outlays on special funds and from earmarked revenues. TOFE will also recognize: (i) capital transfers from assumption of obligations of public enterprises undergoing privatization or liquidation; (ii) capital transfers from assumption of obligations of private enterprises; (iii) capital grants from assumption of obligations of other general government units; (iv) current transfers at end of fiscal year used for financing deficits on accounts at the Treasury, accounts of Treasury correspondents and local governments. - Treasury correspondents/local governments accounts: Financial operations correspond to change in balance period to period. A debit entry for whole fiscal year cannot exceed balance at start of fiscal year; if it does, central government financing is recorded in TOFE as non-bank financing and corresponding increase in current transfers. - Reporting: Data provided with a lag of no more than six weeks after month end. - Adjuster: Floor on cumulative primary non-oil fiscal balance will be adjusted downward (upward) to the extent that external financing is more (less) than external program disbursements given in Text Table 1, to a maximum of CFAF 80 billion. B. Ceiling on the Net Claims of the Banking System on the Central Government - Definition: Measured in accordance with BEAC accounting practice; defined as sum of: i. Central bank net claims on CG (deposits, loans, advances, accounts receivable, and any other government claim or liability as defined in the monetary survey). ii. Other depository corporation net claims on CG (securities of the CG, loans to central government, other advances to CG, and deposits of the central government with depository corporations). - Stock value: Net claims of the banking system on central government amounted to CFAF 876.8 billion as of June 30, 2018 (Text Table 2). - Exemptions: Ceiling does not apply to new agreements for restructuring domestic debt or securitization of domestic arrears. - Reporting: Data provided with a lag of no more than six weeks after month end. - Adjusters for this PC: i. Program ceiling adjusted downward (upward) by full amount of cumulative excess (shortfall) in external program disbursements relative to baseline projections in Text Table 1, up to maximum CFAF 80 billion. ii. Oil-price shield: - a. If Brent oil price projections as reported by IMF-WEO decline by up to 25 percent relative to the program baseline (US$71.900 per barrel), the ceiling will be adjusted upward to accommodate shortfall in oil revenue in a given quarter. - b. If Brent oil price projections as reported by IMF-WEO decline by more than 25 percent relative to the baseline program projection, consultation between the government and the IMF is required. - c. If Brent oil price projections as reported by IMF-WEO rise relative to the baseline program projection for 2018-19, the entirety of oil revenues additional to the baseline program projection should be deposited in Gabon’s Fund for Future Generations at the BEAC. iii. Program ceiling adjusted upward to reflect any purchase by commercial banks of outstanding contractual government credit (rachat de créances) and government bonds issued on the CEMAC market held by non-bank private sector creditors as of end-2017. - Selected figures from Text Table 2 (stock, Billions of CFA francs): - Banking system, Net claims on central government: Dec-16 653.7 ; Dec-17 664.4 ; Jun-18 876.8 - Central Bank, Net claims on central government: Dec-16 220.6 ; Dec-17 249.3 ; Jun-18 451.3 - Claims on central government: Dec-16 452.7 ; Dec-17 564.2 ; Jun-18 566.0 - Loans to central government: Dec-16 452.5 ; Dec-17 452.5 ; Jun-18 452.5 - Use of IMF credit: Dec-16 0.0 ; Dec-17 111.3 ; Jun-18 113.1 - Liabilities to central government: Dec-16 232.1 ; Dec-17 315.0 ; Jun-18 114.7 - Treasury vault cash: Dec-16 36.8 ; Dec-17 41.5 ; Jun-18 40.4 - Fund for Future Generations/Sovereign Wealth Fund: Dec-16 150.2 ; Dec-17 47.2 ; Jun-18 10.8 - Treasury current accounts at the BEAC: Dec-16 45.1 ; Dec-17 226.2 ; Jun-18 63.5 - Other Depository Corporations, net claims on central government: Dec-16 433.1 ; Dec-17 415.2 ; Jun-18 425.5 - Claims on central government: Dec-16 621.7 ; Dec-17 528.5 ; Jun-18 538.3 - Securities Central Government: Dec-16 517.6 ; Dec-17 461.0 ; Jun-18 446.9 - Regional bonds: Dec-16 104.2 ; Dec-17 67.5 ; Jun-18 91.4 - Liabilities to central government: Dec-16 188.6 ; Dec-17 113.3 ; Jun-18 112.8 - Treasury deposits: Dec-16 42.2 ; Dec-17 24.8 ; Jun-18 27.2 - Other deposits: Dec-16 146.4 ; Dec-17 88.6 ; Jun-18 85.6 - CCA: Dec-16 0.0 ; Dec-17 0.0 ; Jun-18 0.0 - Source for Text Table 2: BEAC C. Ceiling on Net Claims of the BEAC to the Central Government, Excluding the Use of IMF Credit - Definition: Calculated as gross claims of the BEAC on the central government, including BEAC statutory advances to the CG and other BEAC claims on the CG (excluding BEAC claims on the CG created by on-lending of IMF credit), less gross liabilities of the BEAC to the CG (treasury vault cash, deposits of the Future Generation Fund, deposits of the Sovereign Wealth Fund, and other central government deposits held at the central bank). - Reporting: Data provided with a lag of no more than six weeks from the end of the month. - Adjusters: Oil-price shield and related adjuster rules identical to those specified under Section B (paragraphs a–c for Brent oil price projection changes). D. Ceiling on Contracting or Guaranteeing External Debt by the Central Government - Definition of debt: Uses definition in paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements (IMF Executive Board Decision No. 15688-(14/107), adopted December 5, 2014). Debt understood as a current liability created under a contractual arrangement requiring future payments in assets or services; includes loans, suppliers’ credits, leases (present value of lease payments at inception), arrears, penalties, judicially awarded damages that arise from failure to make payment under a contractual obligation that constitutes debt. - External debt definition for this PC: Debt contracted or serviced in a currency other than CFAF. PC applies to all external debt (concessional or not) contracted, once disbursed, or guaranteed by the CG. Guaranteeing external debt triggers nonobservance of the PC regardless of disbursement. PC assessed on cumulative basis during fiscal year. - Exclusions: i. Normal import-related commercial debt with maturity less than one year; ii. Rescheduling agreements. - Treatment of eurobond issuance: Amount deemed contracted equals amount subscribed/purchased at end of subscription/purchase period as specified in final documentation. - Adjusters: i. Program ceiling adjusted upward up to maximum of 5 percent of the ceiling on new external debt when differences vs. PC on new debt are caused by variation in financing conditions (interest, maturity, grace period, payment schedule, front-end fees, management fees). Adjustor cannot be applied when differences result from increase in face value of total debt contracted or guaranteed. ii. Program ceiling adjusted upward (downward) in cases where early (late) disbursements of specifically agreed and identified financing flows take place. - Reporting: Authorities will inform IMF staff within 2 weeks of any planned contracting or guaranteeing of external debt and related conditions before contracting/guaranteeing. Once agreement with IMF staff and debt is contracted or guaranteed by CG, disbursement becomes part of monitored disbursements of existing debts. E. Ceiling on the Accumulation of New External Arrears by the Central Government - Definition: Continuous performance criterion with zero limit throughout program period. - External payment arrears defined as contractual external debt service obligations (interest and/or principal, including moratorium and later/penalty interest, where applicable) of CG not paid within 30 days after falling due. - Exclusions: Does not apply to external payments arrears arising from external debt being renegotiated with external creditors, including Paris Club creditors, specifically where creditor has agreed no payment needs to be made pending negotiations. - Reporting: Monitored on an ongoing basis. Ministry of Economy provides final data on stock of external arrears of CG to IMF, including any new arrears accumulation, with a lag of not more than three weeks from the end of the month. F. Cumulative Floor on Central Government Tax Revenue, Excluding Oil Revenue - Definition: Floor on CG non-oil revenue. Non-oil revenue refers to revenue from tax and non-tax collection and excludes all revenue from asset sales, grants, and oil revenue. - Timing: Floor is a performance criterion beginning with end-December 2018 quantitative program target. - Reporting: Data provided with a lag of no more than six weeks from the end of the month. ### II. Quantitative Indicative Targets: Definition of Variables A. Cumulative Floor on the Net Reduction of the Stock of Domestic Arrears of the Central Government - Definition of stock of domestic payment arrears: Sum of all contractual obligations that remained unpaid 90 days after the payment order date. - Components included: Payment obligations from procurement contracts for goods and services and other contracts providing for payment in domestic currency, statutory obligations for payment (e.g., civil service wages, VAT reimbursements, and other entitlements). - Measurement of cumulative floor: Stock of outstanding domestic arrears on the test date minus the stock of outstanding domestic arrears as of January 1, 2018. *Italic source attribution: Technical Memorandum of Understanding (TMU), Gabon — IMF staff and Gabonese authorities (excerpts).* ### 30. Reporting: Data on repayment and new accumulation of domestic payment arrears and the ### Reporting: Data on repayment and new accumulation of domestic payment arrears and the remaining previous-year stock of domestic payment arrears ### Reporting requirements (timing and scope) - Data on repayment and new accumulation of domestic payment arrears and the remaining previous-year stock of domestic payment arrears will be provided to the IMF with a lag of no more than six weeks from the end of the month. - For the cumulative floor on central government social spending, data will be provided to the IMF with a lag of no more than six weeks from the end of the month. ### Definition: Cumulative floor on central government social spending - The program will have a floor on non-wage social spending as defined in the CG budget for a particular fiscal year. These programs are funded by government resources. The floor includes: - spending on primary, secondary, and vocational education, including basic goods and services, and school infrastructure and rehabilitation; - spending on health programs, including basic goods and services, and transfers for primary health care facilities; - spending on social protection including health insurance and targeted safety nets. ### Program monitoring — monthly reporting to the IMF (paragraph 33) - The government of Gabon will prepare and send to the IMF by e-mail data and monthly reports within six weeks following the end of the preceding month. Such data will include (but are not limited to): - the comprehensive monetary survey, the central bank balance sheet, and the consolidated balance sheet of the commercial banks (electronic file); - the central government financial operations (opérations financières de l’Etat) on a payment order basis (ordonnancements), identifying any discrepancy between the fiscal deficit and changes in domestic and external arrears and in the treasury float, on the one hand, and total net domestic bank/nonbank and net external financing, on the other (electronic file); - the detailed breakdown of oil revenue by type of revenue (royalties, profit tax, dividends, boni and other) and by company/type of contract, as well as the detailed breakdown of non-oil tax revenue (by type of tax) and nontax revenue (electronic file); - the detailed breakdown of total central government expenditure, on an adjusted commitment basis, adjusted payment order basis, and cash basis as presented in the Tableau Intégré (electronic file); - the details for domestic and external debt-service obligations, on a contractual and actual payments basis, respectively, with a breakdown into interest and principal and by creditor, as well as any possible accumulation of domestic or external arrears (electronic file); - the details on the stock of external and domestic debt at the end of each quarter prepared by the Generate Directorate of Debt. The external debt stock is to be evaluated at end-of-quarter exchange rates (electronic file); - the details for the outstanding stock of the treasury float (month to month) and the cumulative flows from January 1, 2018; the net accumulation of new float during 2018, defined in paragraph 6 as the difference between payment orders (ordonnancements) and payments made (cash basis), as well as the repayment of pre-2018 float, with both items to be broken down by wages and salaries, goods and services, transfers and subsidies, interest, capital expenditure, and net lending; any stock-flow adjustment not consistent with flows should be explained (electronic file); - information on the balance of the accounts relating to treasury correspondents (correspondants du Trésor), local governments (collectivités locales), and other treasury financial operations specified in the TOFE; - the amount of new external debt contracted or guaranteed by the central government, with the detailed information on the original terms and conditions (currency of denomination, interest rate, grace period, and maturity) and the envisaged path of disbursement; - actual disbursements on external debt, including on newly contracted loans, by creditors and by projects/programs and the amounts of debt relief, if any, granted to Gabon by external creditors (electronic file); - monthly information on the oil sector: export prices, effective exchange rate, production per oil field, volume of exports and volumes provided to SOGARA based on data from the Direction Générale des Hydrocarbures (electronic file); - quarterly report on numbers and value of procurement contracts treated by the Direction Générale des Marchés Publics (DMP) by type of contracting; - indicators and other statistical data on recent economic developments, such as the household consumer price index, merchandise imports and exports (in value and volume terms) by major categories on the basis of customs data, timber production and exports by categories (in value and volume terms), as well as the quarterly reports on economic activity prepared by the General Directorate of the Economy (DGE) and six-monthly report of the balance of payments by the BEAC; and - a status report on the implementation of the structural reforms specified in Table 2 attached to the letter of November 20, 2018. ### Additional monitoring provisions - The Technical Committee in charge of monitoring the Fund-supported program will provide the African Department of the IMF with any other information that the latter may deem necessary or that may be requested by the staff of the IMF for the effective monitoring of the program. ### Corrections to reported arrears - The authorities communicated that the total amount of new external arrears accumulated since the Board concluded the second review under the Extended Arrangement is CFAF 14.9 billion—and not CFAF 14.5 billion as previously reported. ### Recent economic developments and program performance (selected findings) - Economic activity picked up in 2018, driven mainly by buoyant agricultural and mining sectors. - Overall growth in 2018 will be lower than previously projected at around 1.2 percent, owing to under-execution of the public investment program and shortfalls in oil production. - Inflation increased slightly above the regional convergence criterion of 3 percent at end-September 2018 and will increase to 4 percent by end-year due to higher food prices and higher fuel prices. - Five out of seven indicative targets at end-September 2018 were met. - The two indicative targets missed were: the stock of domestic arrears and priority social spending — missed due mainly to strong liquidity pressures and low execution of investment budget in priority sectors. - The continuous performance criterion on external arrears was missed following the emergence of small amount of external arrears, which were cleared in early December 2018. The authorities requested a waiver for the nonobservance of that PC. - Fiscal performance at end-September 2018 exceeded expectations: the non-oil fiscal deficit at end-September 2018 settled 0.4 percentage points of non-oil GDP lower than programmed. - The non-oil fiscal deficit could outperform the program’s target by 0.7 percentage points, should the current fiscal stance be maintained throughout the last quarter of 2018. - This would represent a total adjustment of 4.6 percentage points of non-oil GDP since the beginning of the program. - Public debt will decline to below 60 percent of GDP in 2018 as it continues to be serviced and arrears are being repaid. - All external debt arrears to official creditors have been repaid and external arrears on non-guaranteed commercial loans should be fully settled by end-December 2018. - Repayment of domestic debt arrears to the “Club de Libreville” creditors has started, consistent with the agreed repayment schedule. - A contract with the firm selected to audit domestic arrears has been signed and the report of the audit should be available by end-April 2019. ### Policies and outlook for 2019 and beyond (selected projections and policy priorities) - Growth projections and inflation: - Growth will reach 3.1 percent in 2019. - Inflation is expected to decline from 4 percent in 2018 to 3 percent in 2019. - Fiscal policy and public financial management: - The draft 2019 budget law targets a lower fiscal deficit of 4.5 percent of nonoil GDP. - The mobilization of domestic resources and rationalization of expenditures remain top priorities. - Initiatives to streamline and control tax and customs exemptions will continue. - Measures to further reduce nonessential expenditure and the wage bill will be implemented, including continued consolidation of public agencies and formalization of organizational frameworks for administrative services. - The draft 2019 budget includes an automatic mechanism to adjust expenditures in case of revenue shortfalls. - Fiscal transparency and governance: - The authorities will step up efforts to submit the country’s application to the EITI in 2019. - The law creating the Gabonese Strategic Investment Fund (FGIS) will be amended to allow participation of the government official representatives on the FGIS Board of Governors. - Transposition of CEMAC directives on public financial management into Gabonese legislation will continue. - Social spending and protection: - Authorities will review the coverage of the program indicator for social spending to include various benefits already made to the most vulnerable groups and improve targeting of the poor based on the findings of the 2017 Household Survey, with the assistance of the World Bank. - Monitoring of social expenditure execution will benefit from ongoing modernization of public expenditure management. - Financial sector and arrears strategy: - Authorities plan to convert part of domestic debt into marketable securities. - A strategy for resolving NPLs will be prepared by end-Mach 2019. - Liquidation of public banks will be expedited with assistance from a liquidation support group whose members will be appointed by end-January 2019. - Authorities recognize that effective clearance of domestic arrears will improve corporations’ cash flow positions and help bring NPLs down. - Structural reforms: - Continued reforms aim to advance economic diversification, promote private-sector-led growth, strengthen the judicial system (launch of the Arbitration Division, training of specialized judges, creation of commercial courts), and make the financial sector a major player for SME financing. *Supplementary Letter of Intent and staff communications as provided in the source content.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/cr1917-gabon.pdf_