## 1gnqea2022001 ## Source details **Canonical URL:** [1gnqea2022001](https://www.imf.org/-/media/files/publications/cr/2022/english/1gnqea2022001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1gnqea2022001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1gnqea2022001.pdf.json) --- ### Recent developments and outlook - Real GDP growth (annual percent): -5.5 (2019), -4.2 (2020), -3.2 (2021), 5.8 (2022), -3.1 (2023), -12.3 (2024), -2.6 (2025), -4.7 (2026), -1.1 (2027). - Sectoral growth (annual percent): - Hydrocarbon sectors1: -8.8 (2019), -3.4 (2020), -7.3 (2021), 9.0 (2022), -8.3 (2023), -25.3 (2024), -10.0 (2025), -16.2 (2026), -9.0 (2027). - Non-hydrocarbon sectors: -1.4 (2019), -5.2 (2020), 1.6 (2021), 2.4 (2022), 2.7 (2023), 0.7 (2024), 3.0 (2025), 2.7 (2026), 3.1 (2027). - Inflation (consumer prices): - Annual average: 1.2 (2019), 4.8 (2020), -0.1 (2021), 5.1 (2022), 5.7 (2023), 5.2 (2024), 4.7 (2025), 4.2 (2026), 3.5 (2027). - End of period: 4.1 (2019), -0.5 (2020), 2.9 (2021), 6.0 (2022), 5.5 (2023), 5.0 (2024), 4.5 (2025), 4.0 (2026), 3.0 (2027). - Outlook narrative: - Growth in 2022 (5.8 percent) is supported by hydrocarbon production and Bata reconstruction. - Starting in 2023, the economy is projected to contract through the medium term, reflecting a reduction in hydrocarbon output together with a stalled structural reform agenda. - Inflation projected to rise to 6 percent by end-2022, driven by pass-through from higher international oil and food prices, and to moderate over the medium term. - Balance of risks to the outlook is tilted to the downside. ### Key risks and scenarios - Upside risks: - Continued increase in hydrocarbon prices would further boost export earnings, improve fiscal balances, and external reserves. - Stronger reform efforts would help reverse the medium-term decline in real GDP. - Downside risks: - A further sustained surge in international food prices. - A resurgence of the pandemic. - Lower oil prices. - A spike in marine piracy incidents. - Further delays in addressing governance and corruption vulnerabilities. - Worsening of banking sector stability indicators. - These downside risks could further depress real GDP and increase food insecurity. ### Executive Board assessment and near-term priorities - Executive Directors: agreed with the thrust of the staff appraisal; emphasized need to significantly strengthen commitment to reinvigorate the stalled structural reform agenda, particularly to address serious governance vulnerabilities. - Near-term priorities supported: - Sustain external and fiscal sustainability while providing targeted support to the most vulnerable. - Use part of windfall revenues from higher hydrocarbon prices to rebuild macroeconomic buffers, including via accumulation of foreign reserves, and address social needs, especially food insecurity. - Improve efficiency of public spending and non-hydrocarbon revenue, while promoting inclusive growth and economic diversification over the medium term. - Financial sector and governance priorities: - Tackle banking sector vulnerabilities: address high non-performing loans, undercapitalization, and low liquidity at some banks. - Accelerate plans to settle domestic arrears to help banking sector stability. - Strengthen management of state-owned banks and develop mobile payments to improve financial access and inclusion. - Substantially increase efforts to improve governance, enhance transparency, and fight corruption. ### Policy advice and recommended reforms - Near-term policy advice: - Protect food security for the most vulnerable households. - Rebuild macroeconomic buffers, including accumulating foreign reserves with windfall oil revenues. - Address banking sector stability concerns. - Medium-term policy advice: - Maintain fiscal sustainability and promote inclusive growth and economic diversification by recalibrating fiscal policy to improve non-hydrocarbon revenues and the efficiency of public spending. - Credibly implement the development plan and the action plan to improve governance, enhance transparency, and fight corruption. - Invest in basic healthcare, education, and sanitation to strengthen human capital and improve social outcomes. - Step up efforts to leverage existing public infrastructure to stimulate new economic activities and build a climate resilient economy. - Technical/programmatic notes: - Implementation of the three-year Fund-supported program (approved December 2019) has fallen below expectations; no reviews completed due to insufficient progress on structural measures. - The Fund stands ready to support the authorities, including through capacity development. ### Selected external and fiscal indicators (exact figures) - External sector and trade (annual percent change): - Exports, f.o.b.: -16.5 (2019), -38.5 (2020), 57.6 (2021), 64.5 (2022), -21.2 (2023), -30.3 (2024), -12.4 (2025), -17.3 (2026), -10.0 (2027). - Hydrocarbon exports: -15.7 (2019), -38.7 (2020), 63.8 (2021), 69.0 (2022), -22.3 (2023), -32.2 (2024), -13.8 (2025), -19.5 (2026), -11.9 (2027). - Imports, f.o.b.: -22.0 (2019), -31.2 (2020), 22.3 (2021), 46.7 (2022), -21.5 (2023), -11.2 (2024), 0.4 (2025), -4.1 (2026), -1.8 (2027). - Terms of trade: 12.5 (2019), -13.7 (2020), 24.9 (2021), 54.1 (2022), -15.4 (2023), -10.9 (2024), -0.3 (2025), -9.1 (2026), -6.5 (2027). - Fiscal indicators (percent of GDP): - Revenue: 18.6 (2019), 14.1 (2020), 15.3 (2021), 15.8 (2022), 16.0 (2023), 14.5 (2024), 13.2 (2025), 12.3 (2026), 11.6 (2027). - Hydrocarbon revenue: 14.8 (2019), 10.5 (2020), 12.3 (2021), 13.3 (2022), 12.9 (2023), 10.8 (2024), 9.1 (2025), 7.6 (2026), 6.7 (2027). - Non-hydrocarbon revenue: 3.8 (2019), 3.6 (2020), 3.0 (2021), 2.5 (2022), 3.0 (2023), 3.7 (2024), 4.1 (2025), 4.7 (2026), 5.0 (2027). - Expenditure: 16.8 (2019), 15.8 (2020), 12.7 (2021), 12.1 (2022), 11.8 (2023), 12.1 (2024), 12.0 (2025), 12.0 (2026), 11.6 (2027). - Overall fiscal balance (Commitment basis): 1.8 (2019), -1.7 (2020), 2.6 (2021), 3.7 (2022), 4.1 (2023), 2.4 (2024), 1.2 (2025), 0.3 (2026), 0.0 (2027). - Overall fiscal balance (Cash basis)2: -0.5 (2019), -3.2 (2020), 1.0 (2021), -2.7 (2022), 4.1 (2023), 2.4 (2024), 1.2 (2025), 0.3 (2026), 0.0 (2027). - Non-hydrocarbon primary balance3: -12.2 (2019), -11.1 (2020), -8.7 (2021), -8.5 (2022), -7.7 (2023), -7.3 (2024), -6.9 (2025), -6.4 (2026), -5.8 (2027). - Outstanding public debt4: 43.2 (2019), 48.4 (2020), 42.8 (2021), 27.1 (2022), 26.5 (2023), 28.5 (2024), 26.2 (2025), 24.1 (2026), 21.1 (2027). - External and reserve indicators: - Current account balance (including official transfers; - = deficit): -0.9 (2019), -4.2 (2020), -3.4 (2021), -1.6 (2022), -2.1 (2023), -5.3 (2024), -6.4 (2025), -7.1 (2026), -7.0 (2027). - Total external public debt: 14.0 (2019), 15.1 (2020), 12.9 (2021), 8.4 (2022), 9.0 (2023), 10.3 (2024), 10.0 (2025), 9.8 (2026), 9.2 (2027). - External debt service-to-exports ratio (percent): 5.2 (2019), 6.7 (2020), 4.1 (2021), 3.2 (2022), 3.9 (2023), 5.2 (2024), 6.9 (2025), 8.4 (2026), 9.9 (2027). - External debt service/government revenue (percent): 11.9 (2019), 14.4 (2020), 10.8 (2021), 9.4 (2022), 9.7 (2023), 11.2 (2024), 14.1 (2025), 15.5 (2026), 16.8 (2027). - Memorandum items: - CEMAC Foreign Reserves (US$ billions, end-of-period)5: 7.4 (2019), 7.8 (2020), 8.1 (2021), 10.5 (2022), 12.8 (2023), n.a (2024), n.a (2025), n.a (2026), n.a (2027). - CEMAC reserves (in months of extrazone imports): 3.6 (2019), 3.2 (2020), 2.7 (2021), 3.5 (2022), 4.2 (2023), 4.6 (2024), 5.0 (2025), n.a (2026), n.a (2027). - Oil price (U.S. dollars a barrel)6: 54.5 (2019), 39.1 (2020), 67.3 (2021), 107.7 (2022), 92.9 (2023), 84.1 (2024), 78.2 (2025), 74.4 (2026), 71.8 (2027). - Nominal GDP (billions of CFA francs): 6,658 (2019), 5,813 (2020), 6,804 (2021), 9,819 (2022), 8,946 (2023), 7,794 (2024), 7,755 (2025), 7,667 (2026), 7,846 (2027). - Non-hydrocarbon GDP (billions of CFA francs): 3,905 (2019), 3,832 (2020), 4,003 (2021), 4,323 (2022), 4,707 (2023), 5,002 (2024), 5,410 (2025), 5,810 (2026), 6,214 (2027). - Oil volume (crude + condensado, millions of barrels): 53 (2019), 52 (2020), 43 (2021), 43 (2022), 38 (2023), 30 (2024), 29 (2025), 25 (2026), 22 (2027). ### Fiscal developments and public spending - Capital spending decreased substantially to 2 percent of GDP in 2021, accounting for 17 percent of fiscal spending. - The non-hydrocarbon primary balance (NHPB) is projected to deteriorate to about -19.5 percent of non-hydrocarbon GDP in 2022—despite improved non-hydrocarbon revenues and tax administration. - A fuel subsidy reform implemented in March generated savings of 0.1 percent of GDP in 2022. - Increased fiscal spending for Bata reconstruction, support to the banking system, and higher other spending from the oil price increase would lower the 2022 NHPB by 4.6 percentage points of non-hydrocarbon GDP relative to 2021. - Authorities plan to settle audited domestic arrears financed by 90 percent of the 2021 SDR allocation and by government bonds; plan to start repaying BEAC statutory advances in 2022. - Authorities are settling audited domestic arrears with construction companies (about CFAF 650 billion or 7 percent of GDP) in a two-part operation starting in April 2022. ### Banking sector and financial soundness - Core vulnerabilities: high non-performing loans (NPLs), undercapitalization, and low liquidity at some banks. - NPLs and coverage (selected FSIs): - Regulatory capital to risk-weighted assets: 31.8 (2017); 29.5 (2018); -2.8 (2019); -1.6 (2020); -5.3 (Jun-21); -5.6 (Aug-21). - Tier 1 capital to risk-weighted assets: 32.6 (2017); 30.3 (2018); -1.6 (2019); -0.4 (2020); -4.0 (Jun-21); -4.3 (Aug-21). - Nonperforming loans to total gross loans: 27.2 (2017); 36.7 (2018); 48.8 (2019); 51.1 (2020); 56.2 (Jun-21); 58.3 (Aug-21). - Provisions to nonperforming loans: 40.8 (2017); 35.4 (2018); 34.3 (2019); 33.6 (2020); 30.2 (Jun-21); 29.3 (Aug-21). - Liquid assets to total assets: 31.2 (2017); 30.3 (2018); 20.2 (2019); 19.9 (2020); 19.8 (Jun-21); 19.1 (Aug-21). - Liquid assets to short-term liabilities: 171.2 (2017); 170.1 (2018); 120.7 (2019); 131.5 (2020); 146.2 (Jun-21); 143.8 (Aug-21). - Customer deposits to total (noninterbank) loans: 99.4 (2017); 98.1 (2018); 104.0 (2019); 98.5 (2020); 103.1 (Jun-21); 105.7 (Aug-21). - Policy recommendations for financial sector: - Advance hiring of a broker to assist timely completion of clearance of audited domestic arrears. - Enhance judiciary capacity and implement mechanisms to resolve commercial and credit disputes; set up specialized commercial courts. - Require institutions with capital shortfalls to submit credible recapitalization and/or restructuring plans to the supervisor (work with COBAC). - Adopt legislation to strengthen governance and transparency of state-owned banks. - Promote mobile payments with adequate oversight; strengthen Ministry of Finance financial sector unit. ### Social expenditure, food security and social protection - Major needs: invest in basic healthcare, education, and sanitation to strengthen human capital and improve social outcomes; address food security and social protection. - Priority actions: - Develop a social protection strategy with clear objectives, measures, timelines, and financing. - Create a single beneficiary registry with evidence-based criteria. - Support interim initiatives led by international institutions (e.g., Bata mobile cash transfer initiative). - Replicate the Baney “Distrito Sanitario” model to improve healthcare access. - Address immediate food security needs through targeted support, including temporary subsidization of basic food items or temporary reduction/suspension of import taxes. - Improve transparency of social spending plans and reporting. ### Boosting non-hydrocarbon growth and diversification - Key recommended actions: - Prepare an asset-sales plan based on open and transparent international tenders to accompany published asset lists for privatization. - Identify high-value liquid assets to fulfill financing needs. - Strengthen market regulations for privatized enterprises. - Establish an investment promotion agency and improve external competitiveness via governance and skills. - Establish a strategy to kick start tourism. - Climate and hydrocarbon transition: - Build a climate-resilient economy while carefully planning the transition away from hydrocarbons. - Promote exploration while avoiding incentives for early shutdowns of declining wells. - Require a transparent and credible framework to govern rents from biodiversity and protected forests. ### Fuel subsidy reform (Box 1) — key figures and assessment - Historical/context: - Annual fiscal cost in fuel subsidies has reached up to 1 percent of GDP since 2009. - Government spending on fuel subsidies ranged from 0.2 to 1.0 percent of GDP since 2009. - Subsidy peak of 1 percent of GDP in 2011–12 when Brent crude oil averaged $110 per barrel. - In 2021, fuel subsidies amounted to 0.5 percent of GDP. - 2022 reform: - Expected to generate small savings of about 0.1 percent of GDP in 2022. - Under a relatively high projected 2022 oil price of $108, the increase in regulated retail fuel prices is expected to generate small savings (of 0.1 percent of GDP in 2022) and contain the projected increase in the subsidy bill to 0.7 percent of GDP in 2022. - Net subsidy bill projected at 0.5 percent of GDP in 2022. - Expected inflation impact: - First-round effect on consumer inflation of about 0.3 percentage points. - Additional design measures recommended: - Clear communication strategy; keep kerosene prices unchanged; consider automatic pricing mechanism with price smoothing; targeted social assistance; transparency in disclosure; reconsider purchase limit of 150 liters per vehicle per day. ### External sector assessment and reserve targets - 2021 BEAC net foreign assets: -2.7 percent of GDP (improved from -4.6 percent of GDP in 2020). - Reserve target: staff estimates reserves need to reach EUR 655 million by 2027 to cover 3 months of prospective imports of goods and services. - Baseline medium-term gross asset projection: EUR 341 million (falls short of EUR 655 million target). - EBA-Lite estimates for 2021: - CA-Actual: -3.4 (percent of GDP) - Adjusted CA: -4.9 - CA Norm: 0.8 - CA Gap: -5.7 - REER Gap (in percent): 20.5 - Current account projections: total CA projected to be close to -7 percent of GDP by 2027; non-hydrocarbon CA expected to reach -8 percent of GDP in 2027. ### Debt sustainability and DSA highlights - Nominal gross public debt (percent of GDP): 25.2 (2011–2019), 48.4 (2020), 42.8 (2021), 27.0 (2022), 26.4 (2023), 28.3 (2024), 26.0 (2025), 23.9 (2026), 20.9 (2027). - Public gross financing needs (percent of GDP): 6.1 (2011–2019), 4.0 (2020), -0.7 (2021), 8.0 (2022), 1.8 (2023), 3.3 (2024), 5.7 (2025), 5.3 (2026), 6.2 (2027). - Long-term hydrocarbon resource and debt scenarios: - Proven liquid hydrocarbon reserves: 1.1 billion (barrels implied). - Proven gas reserves: 0.26 billion barrels of oil equivalent. - Total hydrocarbon wealth estimated at $105.6 billion or CFAF 60.8 trillion (using 2021 prices). - "No-reforms scenario": debt would rise to over 100 percent of GDP by 2036. - "Reform scenario": increasing non-hydrocarbon revenues by 5 percentage points and reducing expenditures by 5 percentage points would maintain debt-to-GDP ratio around 42 percent. ### Public investment and efficiency (2008–17) - Total investment: Budgeted USD31bn (183% of GDP); spent USD41bn (234% of GDP). - Key infrastructure outputs: - Roads: 2,530 km paved, 1,441 km graveled. - Electricity generation: Installed 847,969 MW. - Social housing: 10,477 units built, 7,842 distributed/awarded. - Ports: 6 newly built, 3 rehabilitated. - Telecommunications: National network of 208 GB fiber optic of 1,724 Km connecting 95% of Municipalities. - New Cities: Sipopo completed; work begun on Ciudad de la Paz. - Efficiency issues: - Public capital stock triple the size of that for SSA, but efficiency is low; physical infrastructure and social outcomes translate poorly into outputs. ### Piracy risk and economic implications (Annex IV) - Gulf of Guinea (GoG) context: - GoG covers 2.35 million square kilometers; accounts for two-thirds of hydrocarbon production in the region, 25 percent of Africa’s maritime traffic, and 35 percent of global petroleum reserves. - In 2020, over 95 percent of kidnapping at sea incidents globally occurred at GoG. - Equatorial Guinea rank and incidents: - Among GoG countries, EG ranks third, after Nigeria and Cameroon, with worst conditions on piracy and armed robbery at sea. - Example: 2020 incident where crew kidnapped from EG-owned vessels were held up to 150 days; about $200,000 paid in ransom in one incident. - Direct and indirect costs: - Direct costs estimated between $1 million and $4 million yearly; counterpiracy activities cost governments approximately $524 million a year; economic impact estimated at $800 million. - Indirect costs include discouraged investment, decreased trade, supply chain disruptions, human costs, and foregone resources on counterpiracy. - Policy responses: - National and regional coordination and economic development to disincentivize piracy. ### Risk Assessment Matrix (selected) - Domestic risks: - Financial sector exposure to non-hydro sectors — Relative Likelihood: High; Impact: High. Recommended: enforce prudential rules, restructure weak banks, settle domestic public payment arrears. - Weak governance and weak capacity — Relative Likelihood: High; Impact: High. Recommended: press ahead with governance and PFM reforms; request technical assistance. - External risks: - Russia’s invasion of Ukraine disruptions — Relative Likelihood: High; Impact: Medium. Recommended: use windfall hydrocarbon earnings to rebuild buffers; temporary fiscal measures to protect food security. - Rising and volatile food and energy prices — Relative Likelihood: High; Impact: High. Recommended: save additional revenue to rebuild buffers; adopt temporary measures to protect vulnerable population. ### Technical assistance priorities and data/statistics - TA priorities (2022–24): Tax policy and revenue administration; Public Financial Management; Expenditure Policy; Banking Sector; Legal Framework; Real Sector Statistics; Government Financial Statistics; External Sector Statistics. - Data gaps and issues: - Data provision has serious shortcomings that hamper surveillance; key gaps in external sector and net international investment position. - CPI, fiscal, and national accounts coverage improved but require further capacity strengthening. - National strategy for statistics 2022–25 approved and being implemented. *Source: STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION, Republic of Equatorial Guinea.* ### 5.8 percent in 2022 supported by hydrocarbon production and Bata reconstruction. ### 5.8 percent in 2022 supported by hydrocarbon production and Bata reconstruction. ### Recent developments and outlook - Real GDP growth: - Real GDP: -5.5 (2019), -4.2 (2020), -3.2 (2021), 5.8 (2022), -3.1 (2023), -12.3 (2024), -2.6 (2025), -4.7 (2026), -1.1 (2027). - Hydrocarbon sectors1: -8.8 (2019), -3.4 (2020), -7.3 (2021), 9.0 (2022), -8.3 (2023), -25.3 (2024), -10.0 (2025), -16.2 (2026), -9.0 (2027). - Non-hydrocarbon sectors: -1.4 (2019), -5.2 (2020), 1.6 (2021), 2.4 (2022), 2.7 (2023), 0.7 (2024), 3.0 (2025), 2.7 (2026), 3.1 (2027). - Inflation: - Consumer prices (annual average): 1.2 (2019), 4.8 (2020), -0.1 (2021), 5.1 (2022), 5.7 (2023), 5.2 (2024), 4.7 (2025), 4.2 (2026), 3.5 (2027). - Consumer prices (end of period): 4.1 (2019), -0.5 (2020), 2.9 (2021), 6.0 (2022), 5.5 (2023), 5.0 (2024), 4.5 (2025), 4.0 (2026), 3.0 (2027). - Inflation is projected to rise to 6 percent by end-2022, driven by pass-through from higher international oil and food prices, and to moderate over the medium term as these factors dissipate. - Outlook narrative: - Growth in 2022 (5.8 percent) is supported by hydrocarbon production and Bata reconstruction. - Starting in 2023, the economy is projected to contract through the medium term, reflecting a reduction in hydrocarbon output together with a stalled structural reform agenda. - The balance of risks to the outlook is tilted to the downside. ### Key risks and scenarios - Upside risks: - Continued increase in hydrocarbon prices would further boost export earnings, improve fiscal balances, and external reserves. - Stronger reform efforts would help reverse the medium-term decline in real GDP. - Downside risks: - A further sustained surge in international food prices. - A resurgence of the pandemic. - Lower oil prices. - A spike in marine piracy incidents. - Further delays in addressing governance and corruption vulnerabilities. - Worsening of banking sector stability indicators. - These downside risks could further depress real GDP and increase food insecurity. ### Executive Board assessment and priorities - Executive Directors' view: - Agreed with the thrust of the staff appraisal: economy slowly emerging from COVID-19 and Bata explosions, buoyed by higher oil prices, but severe challenges remain and risks are tilted to the downside. - Emphasized need to significantly strengthen commitment to reinvigorate the stalled structural reform agenda, particularly to address serious governance vulnerabilities, to support sustainable, inclusive growth. - The Fund stands ready to continue to support the authorities’ efforts, including through capacity development. - Near-term priorities supported by Directors: - Sustain external and fiscal sustainability while providing targeted support to the most vulnerable. - Use part of windfall revenues from higher hydrocarbon prices to rebuild macroeconomic buffers, including via accumulation of foreign reserves, and address social needs, especially food insecurity. - Improve efficiency of public spending and non-hydrocarbon revenue, while promoting inclusive growth and economic diversification over the medium term. - Financial sector and governance priorities: - Tackle banking sector vulnerabilities: address high non-performing loans, undercapitalization, and low liquidity at some banks. - Accelerate plans to settle domestic arrears to help banking sector stability. - Strengthen management of state-owned banks and develop mobile payments to improve financial access and inclusion. - Substantially increase efforts to improve governance, enhance transparency, and fight corruption to secure national development gains. - Support measures already underway: asset declaration regime for senior public officials (including publication), completion and publication of audits (including for state-owned hydrocarbon firms), regular publication of beneficial ownership information on emergency-related public spending, and publication of periodic implementation progress reports of the 2019 Good Governance and Anti-Corruption Action Plan. - Strengthen effectiveness of the AML/CFT framework and improve timely publication of economic data. ### Policy advice and recommended reforms - Near-term policy advice: - Protect food security for the most vulnerable households. - Rebuild macroeconomic buffers, including accumulating foreign reserves with windfall oil revenues. - Address banking sector stability concerns. - Medium-term policy advice: - Maintain fiscal sustainability and promote inclusive growth and economic diversification by recalibrating fiscal policy to improve non-hydrocarbon revenues and the efficiency of public spending. - Credibly implement the development plan and the action plan to improve governance, enhance transparency, and fight corruption. - Invest in basic healthcare, education, and sanitation to strengthen human capital and improve social outcomes. - Step up efforts to leverage existing public infrastructure to stimulate new economic activities and build a climate resilient economy. - Technical and programmatic notes: - Implementation of the three-year Fund-supported program (approved December 2019) has fallen below expectations; no reviews completed due to insufficient progress on structural measures. - The Fund stands ready to support the authorities, including through capacity development. ### Selected external and fiscal indicators (exact figures) - External sector and trade: - Exports, f.o.b. (annual percent change): -16.5 (2019), -38.5 (2020), 57.6 (2021), 64.5 (2022), -21.2 (2023), -30.3 (2024), -12.4 (2025), -17.3 (2026), -10.0 (2027). - Hydrocarbon exports (annual percent change): -15.7 (2019), -38.7 (2020), 63.8 (2021), 69.0 (2022), -22.3 (2023), -32.2 (2024), -13.8 (2025), -19.5 (2026), -11.9 (2027). - Imports, f.o.b. (annual percent change): -22.0 (2019), -31.2 (2020), 22.3 (2021), 46.7 (2022), -21.5 (2023), -11.2 (2024), 0.4 (2025), -4.1 (2026), -1.8 (2027). - Terms of trade (annual percent change): 12.5 (2019), -13.7 (2020), 24.9 (2021), 54.1 (2022), -15.4 (2023), -10.9 (2024), -0.3 (2025), -9.1 (2026), -6.5 (2027). - Fiscal indicators (percent of GDP unless otherwise specified): - Revenue: 18.6 (2019), 14.1 (2020), 15.3 (2021), 15.8 (2022), 16.0 (2023), 14.5 (2024), 13.2 (2025), 12.3 (2026), 11.6 (2027). - Of which: hydrocarbon revenue: 14.8 (2019), 10.5 (2020), 12.3 (2021), 13.3 (2022), 12.9 (2023), 10.8 (2024), 9.1 (2025), 7.6 (2026), 6.7 (2027). - Non-hydrocarbon revenue: 3.8 (2019), 3.6 (2020), 3.0 (2021), 2.5 (2022), 3.0 (2023), 3.7 (2024), 4.1 (2025), 4.7 (2026), 5.0 (2027). - Expenditure: 16.8 (2019), 15.8 (2020), 12.7 (2021), 12.1 (2022), 11.8 (2023), 12.1 (2024), 12.0 (2025), 12.0 (2026), 11.6 (2027). - Overall fiscal balance (Commitment basis): 1.8 (2019), -1.7 (2020), 2.6 (2021), 3.7 (2022), 4.1 (2023), 2.4 (2024), 1.2 (2025), 0.3 (2026), 0.0 (2027). - Overall fiscal balance (Cash basis)2: -0.5 (2019), -3.2 (2020), 1.0 (2021), -2.7 (2022), 4.1 (2023), 2.4 (2024), 1.2 (2025), 0.3 (2026), 0.0 (2027). - Non-hydrocarbon primary balance3: -12.2 (2019), -11.1 (2020), -8.7 (2021), -8.5 (2022), -7.7 (2023), -7.3 (2024), -6.9 (2025), -6.4 (2026), -5.8 (2027). - Outstanding public debt4: 43.2 (2019), 48.4 (2020), 42.8 (2021), 27.1 (2022), 26.5 (2023), 28.5 (2024), 26.2 (2025), 24.1 (2026), 21.1 (2027). - External and reserve indicators: - Current account balance (including official transfers; - = deficit): -0.9 (2019), -4.2 (2020), -3.4 (2021), -1.6 (2022), -2.1 (2023), -5.3 (2024), -6.4 (2025), -7.1 (2026), -7.0 (2027). - Total external public debt: 14.0 (2019), 15.1 (2020), 12.9 (2021), 8.4 (2022), 9.0 (2023), 10.3 (2024), 10.0 (2025), 9.8 (2026), 9.2 (2027). - External debt service-to-exports ratio (percent): 5.2 (2019), 6.7 (2020), 4.1 (2021), 3.2 (2022), 3.9 (2023), 5.2 (2024), 6.9 (2025), 8.4 (2026), 9.9 (2027). - External debt service/government revenue (percent): 11.9 (2019), 14.4 (2020), 10.8 (2021), 9.4 (2022), 9.7 (2023), 11.2 (2024), 14.1 (2025), 15.5 (2026), 16.8 (2027). - Memorandum items: - CEMAC Foreign Reserves (US$ billions, end-of-period)5: 7.4 (2019), 7.8 (2020), 8.1 (2021), 10.5 (2022), 12.8 (2023), n.a (2024), n.a (2025), n.a (2026), n.a (2027). - CEMAC reserves (in months of extrazone imports): 3.6 (2019), 3.2 (2020), 2.7 (2021), 3.5 (2022), 4.2 (2023), 4.6 (2024), 5.0 (2025), n.a (2026), n.a (2027). - Oil price (U.S. dollars a barrel)6: 54.5 (2019), 39.1 (2020), 67.3 (2021), 107.7 (2022), 92.9 (2023), 84.1 (2024), 78.2 (2025), 74.4 (2026), 71.8 (2027). - Nominal GDP (billions of CFA francs): 6,658 (2019), 5,813 (2020), 6,804 (2021), 9,819 (2022), 8,946 (2023), 7,794 (2024), 7,755 (2025), 7,667 (2026), 7,846 (2027). - Nominal GDP (millions of US dollars): 11,364 (2019), 10,099 (2020), 12,269 (2021), ... (2022), ... (2023), ... (2024), ... (2025), ... (2026), ... (2027). - Non-hydrocarbon GDP (billions of CFA francs): 3,905 (2019), 3,832 (2020), 4,003 (2021), 4,323 (2022), 4,707 (2023), 5,002 (2024), 5,410 (2025), 5,810 (2026), 6,214 (2027). - Oil volume (crude + condensado, millions of barrels): 53 (2019), 52 (2020), 43 (2021), 43 (2022), 38 (2023), 30 (2024), 29 (2025), 25 (2026), 22 (2027). - Exchange rate (average; CFA francs/U.S. dollar): 585.9 (2019), 575.6 (2020), 554.5 (2021), ... (2022), ... (2023), ... (2024), ... (2025), ... (2026), ... (2027). ### Context and policy implications - Context summary: - The COVID-19 pandemic in 2020-21 and Bata explosions in 2021 struck when Equatorial Guinea’s vulnerabilities had already been aggravated by prolonged depressed hydrocarbon prices and seven consecutive years of decline in real GDP. - The economy is slowly emerging, buoyed by higher international oil prices, but substantial challenges remain: surging food prices, banking sector vulnerabilities, declining hydrocarbon production, implied decline in external reserves, lagging governance and diversification reforms. - Policy implications: - Near-term: protect food security, rebuild buffers, address banking vulnerabilities. - Medium-term: recalibrate fiscal policy to improve non-hydrocarbon revenues and public spending efficiency; credibly implement development and governance reform plans; invest in healthcare, education, sanitation; leverage public infrastructure and build climate resilience. - Program implementation: progress on the three-year Fund-supported program has been below expectations; authorities have implemented some macro-critical governance reforms with mixed results. *Source: STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION, Republic of Equatorial Guinea.* ### 2.4 percentage points of GDP in 2021 relative to 2020, led by a decline in capital spending ### 2.4 percentage points of GDP in 2021 relative to 2020, led by a decline in capital spending ### Fiscal developments and public spending - Capital spending decreased substantially to 2 percent of GDP in 2021, accounting for 17 percent of fiscal spending (Text Figure 3a, 3b). - Fiscal spending composition referenced: CE - Compensation of employees; GS - Goods and Services; ST - Subsidies and Transfers; Interest; Capital spending. - The NHPB is projected to deteriorate to about -19.5 percent of non-hydrocarbon GDP in 2022—despite improved non-hydrocarbon revenues and tax administration. - A fuel subsidy reform was implemented in March generating savings of 0.1 percent of GDP in 2022. - Increased fiscal spending for Bata reconstruction, support to the banking system, and higher other spending from the oil price increase would lower the 2022 NHPB by 4.6 percentage points of non-hydrocarbon GDP relative to 2021. - Absent two one-off measures (support to banking system and Bata rehabilitation) and the impact on spending of higher oil prices, the NHPB (which includes higher resources to enhance the social safety net) would remain stable in 2022 relative to 2021, amounting to a neutral fiscal stance. - Authorities plan to settle audited domestic arrears financed by 90 percent of the 2021 SDR allocation and by government bonds; they also plan to start repaying BEAC statutory advances in 2022. - Authorities are in the process of settling audited domestic arrears with construction companies (about CFAF 650 billion or 7 percent of GDP) in a two-part operation starting in April 2022. ### External sector and reserves - The current account deficit is estimated to have narrowed modestly in 2021 to 3.4 percent of GDP, mainly due to a rise in hydrocarbon export earnings. - The financial account recorded net inflows of 4.9 percent of GDP in 2021 (after recording net outflows of 3.2 percent in 2020), supported by the SDR allocation and short-term capital inflows; net foreign direct investment inflows remained stable. - Equatorial Guinea’s net foreign assets (NFA) at BEAC increased but remained negative through end-December 2021—the twenty-fifth consecutive month of negative NFA—even when the government accumulated deposits at BEAC. NFA at BEAC turned positive in January 2022 for the first time since September 2019. - Relative to end-2021, NFA at BEAC at end-2022 is projected to increase but remain negative. - Higher hydrocarbon export earnings are expected to further increase the goods trade balance and reduce the current account deficit in 2022 (to 1.6 percent of GDP), while higher imports and higher net outflows on the income balance provide a partial offset. ### Banking sector and financial soundness - The banking sector has been weighed down by high non-performing loans (NPLs), undercapitalization, and low liquidity at some banks. - High NPLs and low coverage ratio are mainly driven by government arrears with construction firms (for which provisioning is not compulsory). Much of the NPLs are concentrated in the largest bank, in which the government acquired a majority stake in 2020. - Following COBAC’s alignment of capital definitions with the Basel II framework at end-2019, the banking sector is deeply undercapitalized (Text Table 1). - Aggregate short-term liquidity ratio remains above the prudential minimum, although deposits continue to decrease. - Selected Financial Soundness Indicators (2017–21, as presented): - Regulatory capital to risk-weighted assets: 31.8 (2017); 29.5 (2018); -2.8 (2019); -1.6 (2020); -5.3 (Jun-21); -5.6 (Aug-21). - Tier 1 capital to risk-weighted assets: 32.6 (2017); 30.3 (2018); -1.6 (2019); -0.4 (2020); -4.0 (Jun-21); -4.3 (Aug-21). - Nonperforming loans to total gross loans: 27.2 (2017); 36.7 (2018); 48.8 (2019); 51.1 (2020); 56.2 (Jun-21); 58.3 (Aug-21). - Provisions to nonperforming loans: 40.8 (2017); 35.4 (2018); 34.3 (2019); 33.6 (2020); 30.2 (Jun-21); 29.3 (Aug-21). - Liquid assets to total assets: 31.2 (2017); 30.3 (2018); 20.2 (2019); 19.9 (2020); 19.8 (Jun-21); 19.1 (Aug-21). - Liquid assets to short-term liabilities: 171.2 (2017); 170.1 (2018); 120.7 (2019); 131.5 (2020); 146.2 (Jun-21); 143.8 (Aug-21). - Net open position in foreign exchange to capital: 1.6 (2017); 3.0 (2018); -18.6 (2019); 28.8 (2020); 28.0 (Jun-21); 41.3 (Aug-21). - Customer deposits to total (noninterbank) loans: 99.4 (2017); 98.1 (2018); 104.0 (2019); 98.5 (2020); 103.1 (Jun-21); 105.7 (Aug-21). - FX loans to total loans: 0.0 (2017); 0.1 (2018); 0.5 (2019); 0.3 (2020); 0.3 (Jun-21); 0.3 (Aug-21). - The reduction in regulatory capital in 2019 results from the implementation of Basel II norms at end-2019. ### Near-term growth, inflation, and outlook - Near-term growth improved considerably despite the pandemic legacy. - GDP is projected to grow by about 5.8 percent in 2022 due to base effects from the lower-than-expected gas production in 2021, and the start of Bata reconstruction. - Inflation is projected to rise to 6 percent in 2022, driven by the pass-through from higher international oil and food prices, owing to global recovery from the pandemic and supply shocks caused by Russia’s invasion of Ukraine. - Owing to higher hydrocarbon revenues, the overall fiscal balance is projected to record a surplus of 3.7 percent of GDP in 2022 (1.1 percentage point higher than in 2021). ### Medium-term projections and risks - Real GDP is projected to decline over the next five years on falling hydrocarbon output and a stalled structural reform agenda. - Hydrocarbon output expected to fall as major fields mature and investments in new field exploration and development slow. - A continued slow pace of policy implementation and reforms will stymie growth and diversification; non-hydrocarbon growth would remain sluggish and living standards would fall. - Reduced access to external financing and tight domestic liquidity would limit deficit financing to available government deposits, further limiting room for capital spending. - A forced fiscal consolidation would delay investment and likely adversely impact priority spending (including water and sanitation). - The projected drawdown of government deposits at BEAC would reduce the country’s contribution to the NFA and Equatorial Guinea’s access to the reserve pool over the medium term. - Balance of risks titled to the downside. Upside: sustained increase in hydrocarbon prices and stronger reform efforts. Downside: sustained surge in international food and fertilizer prices, resurgence of the pandemic, lower oil prices, spike in marine piracy, failure to attract private investment for new gas fields, continued worsening banking sector stability indicators, further delays in addressing governance and corruption vulnerabilities. ### Fiscal policy recommendations (Short term and Medium term) - Short term priorities: - Use part of the revenue windfall from higher oil prices to rebuild buffers by accumulating deposits at BEAC and/or repaying domestic arrears. - Prioritize capital expenditures for water and sanitation for the poor and reconstruction of Bata infrastructure. - Consider temporary tax or temporary spending measures (e.g., subsidization of basic food items) to protect food security for the most vulnerable. - Authorities’ short-term plans: - Use part of hydrocarbon revenue windfall to rebuild macroeconomic buffers and protect the economy from future adverse shocks. - Protect vulnerable populations from higher food prices, support the banking system (including repayment of domestic arrears), and rebuild critical Bata infrastructure. - Medium term priorities: - Strengthen adherence to fiscal policy framework targeting a reduction in the non-hydrocarbon primary balance. - Spending priorities: strengthen PFM, implement more comprehensive fuel subsidy reform moving to an automatic pricing mechanism with price smoothing rules while protecting low-income households with targeted programs, tackle SOE underperformance and reduce transfers to the gas company and other public entities, increase spending efficiency prioritizing health and education, and strengthen public procurement and publish beneficial ownership information. - Revenue priorities: improve revenue collection from hydrocarbon, income tax (particularly corporates), customs, and excise taxes; ensure strong and rapid implementation of the new electronic VAT collection system; fully roll out customs IT reform; revamp organizational and functional structures of tax and customs offices; create a basic IT system in the tax administration; compile and publish an inventory of tax exemptions and prepare a plan for phasing them out. - Public debt management recommendations: - Conclude first part of domestic arrears clearance at the earliest and establish timeline for second part. - For new domestic arrears that could have accumulated since the last audit, launch a robust external independent audit (by end-2022) before settlements. - Settle external arrears in line with agreements. - Advance implementation of a multi-annual expenditure tracking and control system, and a new debt management and financial analysis system. ### Social outcomes and food security - Urban poverty increased during the pandemic by about 8 percentage points (to an estimated 44 percent of the population) in H2 2020. - Pandemic- and Bata-related spending amounted to 0.4 percent of GDP in 2021. - Authorities delivered targeted assistance (basic nutrients, water, hygiene supplies), distributed cash and other assistance to families affected by Bata explosions, and implemented mobile payments. - To mitigate recent hikes in local food prices, the authorities suspended some customs fees, plan to restructure port operations to reduce costs, and are considering targeted subsidies. - Authorities are advancing work on medium-term goals including boosting domestic food production and expanding the social safety net. *Source: IMF staff report excerpt (selected sections).* ### 19. Social expenditure requires a significant overhaul. There is a crucial need to invest in ### 19. Social expenditure requires a significant overhaul. There is a crucial need to invest in basic healthcare, education, and sanitation to strengthen human capital and improve social outcomes. ### Social expenditure: findings and prioritized actions - Major needs: invest in basic healthcare, education, and sanitation to strengthen human capital and improve social outcomes; address food security and social protection. - Priority actions: - Develop a social protection strategy with clear objectives, measures, timelines, and financing, within a streamlined administrative structure. - Create a single beneficiary registry with evidence-based criteria for social assistance based on social welfare. - Support interim initiatives led by international institutions in coordination with the government and NGOs, such as the Bata mobile cash transfer initiative (Annex VIII). - Replicate the Baney “Distrito Sanitario” model to provide better access to healthcare across the country. - Address immediate food security needs through targeted support benefiting vulnerable households for a limited time, including temporary subsidization of basic food items or temporary reduction or suspension of their import taxes, in line with international good practice (Annex IX). - Support domestic food production over the medium term. - Improve transparency of spending plans, execution, and outcomes by improving collection and reporting of social spending data that could be easily traced in the fiscal outturn. ### Authorities’ views on social measures - Authorities report improved coordination among social ministries, sharing information on social spending and medium-term plans. - Ongoing work: results-based budgeting for health, sustainable financing, and more efficient spending. - Plans to expand the social beneficiary registry with ongoing support from UNICEF and assistance from international financial institutions to improve progressive spending and taxation. - Recent measures to protect food security: containing food costs that disproportionately affect low-income households and ongoing work to boost domestic food production. ### Strengthening the banking sector and financial inclusion: findings and recommended measures - Current assessment: the banking system remains weak; longstanding vulnerabilities were further aggravated by the pandemic. - Government plan pillar: clearance of audited government domestic arrears expected to enable most banks’ liquidity and capital ratios to fulfill regulatory limits once completed. - COBAC is working with the banking sector to resolve deficiencies, but progress is slow. - Recommended coordinated measures to reduce NPLs, strengthen stability, and promote inclusion: - Advance hiring of a broker to assist timely completion of clearance of audited domestic arrears. - Enhance judiciary capacity and implement mechanisms to resolve commercial and credit disputes, drawing on regional experience to set up specialized commercial courts. - Swiftly complete work to strengthen the financial situation of state-owned systemic banks while minimizing fiscal cost and maintaining financial stability. - Require institutions with capital shortfalls to submit credible recapitalization and/or restructuring plans to the supervisor (work with COBAC). - Adopt legislation (consistent with regional regulation) to strengthen governance and transparency of state-owned banks. - Pursue a shareholding management framework for state-owned banks to ensure commercial terms and balance management independence and accountability. - Strengthen the financial sector unit of the Ministry of Finance to enhance monitoring in close cooperation with the supervisor, including regulatory compliance and quality of financial sector indicators. - Following adoption of the regional financial inclusion strategy, advance national financial inclusion strategy development (with World Bank TA) and work with BEAC to develop and promote mobile payments with adequate oversight. ### Authorities’ views on banking reforms - Authorities agree on the importance of completing clearance of audited domestic arrears in the coming months and commit to regularly update the public, banks, and firms on transaction progress. - Commitments: restore financial sector soundness and regulatory compliance in cooperation with regional authorities; implement a strategic plan to deal with weak banks and nonperforming loans while minimizing fiscal costs; support legal actions to maximize recoveries on nonperforming loans. - Plan to establish a shareholding management framework over the next twelve months, with Fund technical assistance. - Plan to pass legislation to establish a specialized commercial court by end-2022. - Plan to incentivize adoption of mobile payments to make them central and affordable. ### Improving governance, transparency, and anti-corruption: findings and measures - Context: continuing severe governance and corruption vulnerabilities; need to step up macro-critical governance reforms (Annex X). - 2019 actions: published a Governance Diagnostic Report and an Action Plan addressing governance weaknesses, transparency, and fighting corruption. - 2019 Governance Diagnostic Report identified challenges in: (i) public finance management and investment spending; (ii) rule of law implementation, transparency, and enforcement; (iii) weak legal and institutional AML and anti-corruption systems; and (iv) governance challenges affecting market regulation and business climate. - 2021: as part of the RFI request, authorities made additional/recalibrated commitments and started implementing anti-corruption framework and enhanced revenue administration (Table 1), but efforts need acceleration. - Recommended actions to prioritize: - Issue regulations and asset and interest declaration forms consistent with the anti-corruption law of 2021 and international good practices on asset declaration regimes. - Publish asset declarations of senior public officials on a government website and publish all by-laws needed to implement the anti-corruption law. - Complete and publish audits for COVID-19 pandemic and Bata rehabilitation and recovery spending. - Publish all COVID-19 and Bata rehabilitation public procurement contracts awarded after issuance of the beneficial ownership information regulation from December 2021, and publish beneficial owners of awarded entities. - Publish periodic reports on implementation progress of the 2019 Good Governance and Anti-Corruption Action Plan; continue to pursue EITI membership to enhance transparency in extractive industry. - Improve timely publication of economic data essential for surveillance; complete and publish audits of state-owned oil and gas companies. ### Authorities’ views on governance and transparency - Authorities emphasize commitment to improving governance, transparency, and fighting corruption as outlined in the 2019 Action Plan. - Plan to commence publication of semi-annual reports on implementation progress of the Good Governance and Anti-Corruption Action Plan starting in September 2022. - Highlighted recently adopted anti-corruption law, anticorruption commission, and asset declaration regime (being implemented). - Noted ongoing audits of COVID and Bata spending, and GEPetrol and SONAGAS companies, with preliminary draft reports available. - Ongoing work to update EITI membership application after voluntary withdrawal of previous submission. - Published beneficial ownership regulation in December 2021 and are working to publish more than twenty public contracts (for COVID and Bata) awarded since end-2021. ### Boosting non-hydrocarbon growth: findings and initiatives - Economic diversification away from hydrocarbons is key to sustained inclusive growth. - Authorities revised and updated Development Plan 2035 for private sector-led diversification and environmental sustainability (Annex XI). - Initiatives implemented: - Establishment of a one-stop shop for investment to improve the business environment and removal of the domestic partner requirement for foreign investors. - Recent decreases in telecommunication prices and establishment of a commission to improve port operations and reduce tariffs. - April 2022 publication of a list of state assets for privatization through outright sale or management contracts. - Identification of tourism development through improved visa accessibility and leveraging existing hotel and road networks. - Ratified the United Nations Framework Convention on Climate Change in 2018. - Launched the REDD+ program with roles for conservation, sustainable management of forests, and enhancement of forest carbon stocks; first step is developing a Land Use Plan with FAO (Annex XII). ### Overview of mixed progress on macro-critical governance reforms (highlights from Table 1) - Prior Actions met: - Publish the Governance Diagnostic Report and a governance strategy (published on Ministry website). - Submit a membership application to the EITI (authorities withdrew application after feedback and plan to resubmit an updated application in 2022). - Operationalize a system to track and control expenditure commitments (Met). - Share active oil and gas contracts with BEAC (Met). - Congressional approval of legislation to implement excise taxes (Met). - Congressional approval of amendments to the 2017 tax amnesty law (Met). - Outstanding items and next steps: - Clear audited domestic arrears through exchange with government bonds: Outstanding; securitization progressing slowly; authorities plan to complete settlement by end-2022. - Publish audits of GEPetrol and Sonagas: Outstanding; preliminary draft audit reports under company review; plan to publish once finalized. - Set up a complete Official Gazette website and upload all laws since 2000: Outstanding; website set up but incomplete. - Prepare an asset-sales plan based on open and transparent international tenders following publication of asset lists: Outstanding; lists approved and published, next step is asset-sales plan. - Revenue administration reforms: Implemented excise taxes; outstanding items include full ASYCUDA implementation, improve hydrocarbon revenue collection, introduce a computerized tax information system, strengthen enforcement, fully implement Decree 134 of 2015, and launch a tax-paying culture program. - PFM reforms: Some measures implemented; outstanding items include adopting a medium-term fiscal framework, establishing public accounting unit, publishing register and financial accounts for SOEs, and publishing SOE audits. - Rule of law reforms: Website for Official Gazette created; outstanding items include uploading all documents from 2000, setting up court websites and publishing judicial data, and publishing Supreme Court decisions and corruption/commercial decisions. - AML/CFT reforms: Implemented actions include ANIF applying for Egmont membership and creation of a National Coordination Committee; outstanding items include guidance for identifying domestic PEPs and beneficial owners, improving cooperation between ANIF and COBAC, and updating decree on asset declarations. - Data dissemination reforms: e-GDDS implemented and National Summary Data Page launched in 2019, but data not updated regularly; outstanding: enhance coverage, frequency, and timeliness, especially external and fiscal sector data, extractive industry statistics by concession, and CEMAC Code of Transparency data. - Fiscal safeguards review (FSR): Outstanding; FSR requested in February 2020 and delayed due to pandemic; a mission date to be established. *Source: IMF staff report excerpt (selected sections on social expenditure, banking sector and financial inclusion, governance and anti-corruption, and diversification).* ### 28. Boost credible efforts to ignite non-hydrocarbon growth. Full implementation of ### 28. Boost credible efforts to ignite non-hydrocarbon growth. Full implementation of ### Non-hydrocarbon growth: reforms and actions - Full implementation of structural reforms can yield substantial growth (Annex XIII). - Credibility of announced policy plans is crucial for consumers and investors. - Key recommended actions: - Prepare an asset-sales plan based on open and transparent international tenders to accompany the recently published list of assets for privatization, while enhancing safeguards to promote good governance. - Redouble efforts to identify high-value liquid assets that could help fulfill financing needs. - Strengthen market regulations to ensure newly privatized enterprises function efficiently. - Scale up efforts to improve the business environment to benefit from the AfCFTA agreement signed in 2018, including: - Establishing an investment promotion agency. - Improving external competitiveness by strengthening governance, the rule of law, and skills of the local workforce. - Establish a strategy to kick start the tourism industry, identified as a priority sector for diversification. ### Climate resilience and hydrocarbon transition - Build a climate-resilient economy while carefully planning the transition away from hydrocarbons. - Measures to promote investment in the hydrocarbon sector should: - Be assessed carefully. - Focus primarily on encouraging further exploration. - Avoid incentives for early shutdowns of declining wells. - A transparent and credible framework is required to govern expected economic rents from preserving biodiversity and protecting local forests. ### Authorities’ views (on non-hydrocarbon growth and transition) - Authorities broadly agreed with staff’s recommendations. - Emphasized points: - Supporting a dynamic private sector and the privatization strategy to leverage existing assets for non-hydrocarbon development. - Ongoing efforts to improve the business environment, including establishment of a one-stop-shop for investment, and recent initiatives to lower charges at the port and telecommunication rates. - Priority of enhancing skills of the local workforce, including through health and education. - A strategy to promote tourism is being developed, including measures to streamline visitor visa requirements. - Need for a structured and transparent framework for the sale of public assets. - Plans to carefully manage the transition away from hydrocarbons and to secure a financial return from environmental services provided by protected forests and biodiversity. ### Other issues — capacity development, governance, and statistics - Fund technical assistance (TA) focuses on enhancing governance and reducing corruption vulnerabilities. - Ongoing TAs to enhance financial sector soundness and strengthen macroeconomic statistics (Annex XIV). - On statistics: - Data provision has serious shortcomings that significantly hamper surveillance. - Progress made in compilation and dissemination of some macro data, including CPI, fiscal, and national accounts (including a quarterly index). - Key gaps remain due to continuing capacity weaknesses. - In November 2021, the authorities approved a 2022–25 national development strategy for statistics; the strategy is now being implemented. - A statistics action plan for 2022 and the different Ministries are aligned with the strategy. - Current activities include: - Elaboration of the national framework for quality assurance. - Implementing statistical services in all sectoral departments. - Introducing other economic indicators. - Phasing in a mechanism for the routine collection of statistics on public security, and vital statistics. - Going forward, critical remaining gaps include provision of economic statistics on the external sector and the net international investment position. ### Authorities’ views (on TA and statistics) - Authorities appreciated Fund TA, including on the anti-corruption law and the financial sector. - Requested additional TA in areas including: - Taxation of the hydrocarbon sector. - Tax policy (general tax code). - PFM (annual and multi-annual spending control and monitoring and a Fiscal Safeguard Review). - Revenue administration (review of draft Code of Tax Procedures and support for ASYCUDA). - Social protection (e.g., mobile transfers). - Reviewing needs for debt management TA. - National strategy for development of statistics is expected to guide future TA needs on statistics capacity building. - Noted that implementation of TA recommendations has been slower than envisaged due to the pandemic and Bata emergencies; expected improvement as conditions normalize. ### Safeguards assessment and banking sector - 2022 update safeguards assessment found BEAC maintained strong governance arrangements following legal reforms in 2017. - BEAC completed multi-year initiative in 2019 to transition to International Financial Reporting Standards. - External audit arrangements remain robust. - Remaining weaknesses at BEAC: - Internal audit mechanism faces capacity constraints and is not yet fully aligned to international practices. - Need to strengthen risk management and cyber resilience. - Need to develop business continuity and disaster recovery plans. - Banking sector recommendations: - Accelerate plan to clear domestic arrears. - Work with COBAC for institutions with capital shortfalls to submit credible recapitalization and/or restructuring plans. - Maximize recoveries on nonperforming loans via new mechanisms to resolve commercial and credit disputes. - Adopt legislation to strengthen governance and transparency of state-owned banks. - Promote development of mobile payments, accompanied by adequate oversight. ### Staff appraisal — key findings and priorities - The economy is slowly emerging from COVID-19 and Bata explosions, buoyed by higher oil prices, but substantial challenges remain. - Hydrocarbon output remains in secular decline; stalled structural reforms, governance and corruption concerns, and a weak business environment will drive a fall in output and living standards. - Near-term surge in food prices has increased the risk of food insecurity for a substantial proportion of the population. - Risks to the outlook are tilted to the downside, including: - Further sustained surge in international food prices. - Resurgence of pandemic variants. - A spike in marine piracy incidents. - Lower oil prices. - Further delays in addressing governance and corruption vulnerabilities. - Worsening of banking sector stability indicators. - External position assessed as substantially weaker than the level implied by medium-term fundamentals and desirable policies. - Near-term priorities: - Protect food security and rebuild macroeconomic buffers. - Authorities’ suspension of some customs fees and proposed reorganization of port operations are positive steps. - Recommend more targeted temporary support, such as subsidization of basic food items the poor consume, in absence of a national social safety net. - Increase domestic food production. - Use surge in international oil prices to rebuild macroeconomic buffers, including accumulation of foreign reserves. - Fiscal policy over medium term should: - Focus on maintaining sustainability while promoting inclusive growth. - Boost non-hydrocarbon revenues and enhance public spending efficiency. - Reallocate resources and achieve efficiency gains to invest in basic healthcare, education, and sanitation. - Develop a well-functioning social protection system supported by a single beneficiary registry with evidence-based criteria. - Improve transparency of spending plans, execution, and outcomes; enhance collection and reporting of social spending data. - Governance and anti-corruption priorities: - Press ahead with measures in the 2019 Good Governance and Anti-Corruption Action Plan. - Prompt completion and publication of audits for COVID-19 pandemic and Bata rehabilitation and recovery spending, and audits of state-owned oil and gas companies. - Commence publication of periodic implementation progress reports of the 2019 Action Plan. - Publish COVID-19 and Bata rehabilitation public procurement contracts and beneficial owners of awarded entities, per the December 2021 regulation. - Improve timely publication of economic data essential for surveillance. - Implement asset declaration regime for senior public officials credibly, including publication of declarations. - Structural reforms for diversification: - Swift preparation of an asset-sales plan based on open and transparent international tenders. - Leverage existing public infrastructure (e.g., make Bata port a trans-shipment hub for Central African countries). - Take concrete actions to stimulate tourism by addressing hurdles, including access to visitor visas. - Stepped up structural reforms would increase productivity and export competitiveness via investment in human capital and improved social outcomes, support diversification, rebuild macroeconomic buffers, and reduce external imbalances. - It is proposed that the next Article IV consultation take place in accordance with the Executive Board decision on consultation cycles for members with Fund Arrangements. ### Box 1 — Equatorial Guinea: 2022 Fuel Subsidy Reform (summary and key figures) - Context and goals: - Annual fiscal cost in fuel subsidies has reached up to 1 percent of GDP since 2009, due to relatively low regulated domestic retail fuel prices. - The 2022 fuel subsidy reform is expected to generate small savings of about 0.1 percent of GDP in 2022. - Reform safeguards the most vulnerable by leaving kerosene prices unchanged. - Further measures suggested: build a robust social safety net; consider moving to an automatic pricing mechanism with price smoothing rules; clearly communicate benefits to build public support. - Historical and projected figures (exact as in source): - Government spending on fuel subsidies has ranged from 0.2 to 1.0 percent of GDP since 2009. - Regulated retail fuel prices have been fixed since early 2007. - Subsidy peak of 1 percent of GDP in 2011–12 when Brent crude oil averaged $110 per barrel. - Following the decline in crude prices, subsidies fell through 2016 but rebounded starting in 2017. - In 2021, fuel subsidies amounted to 0.5 percent of GDP, bouncing back from 2020, with further increases expected in 2022. - Retail fuel prices in Equatorial Guinea are generally lower than in other countries in the region; kerosene is about half the price of the average in the rest of CEMAC. - In 2019, the subsidy bill in EG amounted to 0.5 percent of GDP compared to less than 0.05 percent for other countries in CEMAC that had subsidies for gasoline, diesel, and kerosene. - Under a relatively high projected 2022 oil price of $108, the increase in regulated retail fuel prices is expected to generate small savings (of 0.1 percent of GDP in 2022) and contain the projected increase in the subsidy bill to 0.7 percent of GDP in 2022. - Note: The net subsidy bill is projected at 0.5 percent of GDP in 2022 — net subsidy representing the difference between the fuel subsidy spending and the tax revenue from fuels. The $108 oil price is in line with IMF WEO March assumptions. *Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1gnqea2022001.pdf* ### Box 1. Equatorial Guinea: 2022 Fuel Subsidy Reform (concluded) ### Box 1. Equatorial Guinea: 2022 Fuel Subsidy Reform (concluded) ### Key finding: expected inflation impact - Given the small weight of fuels in the consumption basket, the price hikes are expected to have a first-round effect on consumer inflation of about 0.3 percentage points. - Since businesses do not have access to subsidized fuels and face market prices, second-round effects from the reform are expected to be limited. ### Assessment of the reform and additional design/implementation measures - The reform is a step in the right direction, and additional measures to strengthen the reform design and implementation are desirable. - In line with good practices and international experiences, as highlighted by the literature on fuel subsidy reforms, additional features to consider include: - A clear communication strategy helps the population better understand the need for the reform and builds public support. The communication campaign should highlight the magnitude of subsidies, how these generally benefit high-income groups, and how fuel subsidies crowd out other priority spending that better serves the most vulnerable population and productive investment. - Although keeping kerosene prices unchanged and adjusting gasoline prices only slightly aim to limit the impact on low-income households, more price flexibility together with social assistance programs specifically targeted to the poor, would serve the same goal and eliminate the need for large fuel subsidies and its negative externalities (e.g., cross-border smuggling, climate change). - Phasing out ad-hoc pricing and moving to a system of automatic pricing with smoothing mechanisms would also help stabilize tax revenues from fuels by moderating the pass-through from international market fluctuations. This would help improve macro-fiscal planning as well as that of firms and households. - A more comprehensive reform could also consider the environmental aspects to incentivize firms and households to switch to more efficient and clean energy sources. - Maintaining transparency in the disclosure of information regarding government spending in fuel subsidies is beneficial for policymaking. In the new fuel price structure, the subsidy is named “stabilization rate” and included as a component of taxes and levies. The “stabilization rate” captures the difference between the market price and the regulated retail price for each fuel. - Reconsideration of the limit set on the amount of subsidized fuel that individuals can purchase. The reform sets a relatively high limit (of 150 liters per vehicle per day) on the volume of fuels that individuals can purchase in gas stations at the subsidized price, creating inefficient arbitrage opportunities for individuals from reselling fuel to businesses. Moreover, international experience shows that these limits are very difficult to enforce in practice. *Source: Box 1. Equatorial Guinea: 2022 Fuel Subsidy Reform (concluded).* ### 1. Total financing requirements1,057180978846974724646 ### 1. Total financing requirements1,057180978846974724646 ### Total financing requirements and balance of payments components - Total financing requirements: 1,057180978846974724646 - Current account deficit: 667419455420482269327 - Trade balance: 2,0741,4442,1732,9461,9424,9653,919 - Exports: 3,8453,0423,6494,9753,2467,8016,145 - Imports: -1,771-1,598-1,476-2,029-1,304-2,837-2,226 - Services (net): -1,134-597-1,096-1,052-1,027-1,822-1,481 - Income (net): -1,280-544-1,205-1,767-1,074-2,845-2,208 - Transfers (net): -327-722-327-548-322-567-556 - Debt amortization: 173163148157210198193 - Net change in external arrears (increase =-): -80-5101030660 - Net change in government deposits abroad (increase=+): -223-1050170-64-77 - Net change in net reserves (increase=+): 441-247375149282254203 ### Total financing sources - Total financing sources: 852180773778793724646 - Capital transfers: 0000000 - Foreign direct investment (net): 590410636460617492517 - Portfolio investment (net): -219-2-2-2-2-2 - Debt financing: 255303172162174274276 - Public sector: 25520817264174172174 - Commercial banks' capital flows: 255 - (sub-items): 2-29-20-3 - Other net capital inflows: 1 - (sub-items): 6-1,054-361867-40-142 - Errors and omissions: 044700000 ### Financing gap and identified financing - Financing gap: 20502056818000 - Identified Financing: 2050205018000 - IMF: 8108108100 - AFDB: 124012409900 - RFI: ...0068.......... - Residual: 0000000 *Source: IMF staff estimates* ### Notes and metadata present in source - Includes the SDR allocation - Reference years appearing in table: 2020202120222023 --- ### Annex I. Implementation of Past IMF Advice (Article IV 2016) ### A. Fiscal Policy and Public Financial Management - Ensure continued fiscal consolidation with a revised 2016 budget — Partly implemented - Comment: In 2018 the authorities adopted a staff-monitored program as a precursor to an EFF-supported reform program that was approved by the Board in December 2019. - Implement priority non-hydrocarbon revenue mobilization measures — Partly implemented - Comment: Implemented measures include: (i) large taxpayer unit constituted but not working; (ii) single taxpayer identification number; and (iii) implementation of ASYCUDA is ongoing. Single window for vehicle registration/payments established. Joined the World Customs Organization in December 2021. - Embark on a comprehensive review of tax policy, including non-resource tax revenues — Partly implemented - Comment: IMF TA in 2017; some tax policy measures implemented (excise taxes, change to tax amnesty law, changes to some income tax rates). - Accelerate public financial management (PFM) reforms focusing on the public investment program (PIP) — Partly implemented - Comment: Started expenditure tracking system, established certifications committee, capital spending reduced by more than half since 2016. - Conduct an audit of the stock of arrears and prepare a clearance strategy — Partly implemented - Comment: Independent audit of domestic arrears conducted in 2019; authorities working on a domestic arrears’ clearance strategy. - Develop debt management capacity — Not implemented - Comment: TA received but slow progress; Caja Autonoma focused on back-office tasks. - Advocate for a tighter region wide (CEMAC) policy stance — Partly implemented - Comment: Adopted an EFF-supported reform program aimed at reducing macroeconomic imbalances and rebuilding buffers. ### B. Structural Policies to Promote inclusive Non-oil Growth - Increase the share of spending on social programs and public service delivery — Partly implemented - Comment: Floor on social spending adopted; targeted social assistance program implemented; strategy for expanding basic public health programs underway. - Improve the business climate and efficiency of public services — Partly implemented - Comment: Single Window to register enterprises in Malabo opened; national committee for business climate constituted; foreign investment law amended to eliminate local partner requirement in non-hydrocarbon sector. - Address current real exchange rate overvaluation — Partly implemented - Comment: Reforms to improve competitiveness and macro-critical governance issues being rolled out. - Lower trade policy barriers with CEMAC countries — Partly implemented - Comment: Signed AfCFTA; new commission established to improve port operations and reduce port tariffs. - Promote tourism by leveraging existing infrastructure — Not implemented - Comment: Initial efforts stymied by COVID-19; efforts recently restarted. ### C. Macro-financial Policies - Maintain adequate financial buffers in the banking sector — Partly implemented - Comment: COBAC monitoring continues; alignment with Basel II showed banking sector deeply undercapitalized. - Advocate a coordinated regional approach for developing bank supervision on a consolidated basis — Partly implemented - Comment: COBAC improved quality and timeliness of financial sector data. - Implement crosscutting financial sector structural reforms to close the financial development gap — Partly implemented - Comment: CEMAC-level credit registry (Central Risks) exists; financial inclusion project coordinated by BEAC. - Strengthen the AML/CFT regime in line with the 2012 FATF standard — Partly implemented - Comment: Limited steps taken; need for capacity building in financial investigative techniques. Upcoming GABAC evaluation expected for September 2023. ### D. Statistical Development Reforms - Accelerate the INEGE capacity-building program — Partly implemented - Comment: IMF continues to provide substantial TA on key macroeconomic accounts. - Address capacity weaknesses in IIP compilation/reporting — Partly implemented - Comment: TA received; preliminary NIIP data compiled but not disseminated. - Create metadata for each type of data currently being produced — Implemented - Comment: INEGE created a national summary data page (NSDP). - Undertake economic and socio-demographic surveys, prioritize integrated household survey — Partly implemented - Comment: Economic census launched March 2021; HCES launched October 2021. - Establish statistical units in each government ministry — Implemented - Comment: Units established in all government ministries. - Step up deployment of ASYCUDA World software at customs — Partly implemented - Comment: Implementation ongoing; started with Malabo airport and expected to roll out in 2022. --- ### Annex II. External Sector Assessment ### Overall assessment and policy response - Overall Assessment: The external position of Equatorial Guinea in 2021 is assessed as substantially weaker than the level implied by medium-term fundamentals and desirable policies. - Potential Policy Responses: Structural and fiscal reforms to boost the non-hydrocarbon sector’s output and productivity, including reforms to the business environment, governance, financial sector, human capital, and more efficient allocation of government expenditures. ### A. Foreign Assets and Liabilities: Position and Trajectory - 2021 BEAC net foreign assets: -2.7 percent of GDP (improved from -4.6 percent of GDP in 2020) - Gross foreign assets: 0.4 percent of GDP in December 2021 - Gross foreign liabilities with BEAC: 3.1 percent of GDP - Public debt with the IMF: 0.9 percent of GDP from RFI and EFF disbursements - SDRs usage: 1.8 percent of GDP - External debt composition note: External debt reached 30 percent of total debt in 2021; most existing foreign debt owed to bilateral creditors and secured by foreign deposits. - Reserve target: Staff estimates reserves need to reach EUR 655 million by 2027 to cover 3 months of prospective imports of goods and services. - Baseline medium-term gross asset projection: EUR 341 million (falls short of EUR 655 million target) - BEAC estimate: reserve position reached EUR 310 million in April 2022 - Over last four years: BEAC net foreign liability position increased by 2.3 percentage points of GDP - Footnote: Authorities plan to withdraw most of the SDR allocation in 2022 to regularize domestic arrears. ### B. Current Account - Current account balance (CA) in 2021: -3.4 of GDP (up from -4.2 percent in 2020; -0.9 percent in 2019) - Non-hydrocarbon CA improvement: from over -26 percent of GDP in 2015 to an estimated -13 percent in 2021 - Projection: Non-hydrocarbon CA expected to reach -8 percent of GDP in 2027 - Projection: Total CA projected to be close to -7 percent of GDP by 2027 - Assessment: External position in 2021 substantially weaker than fundamentals; EBA-Lite estimated CA gap: -5.7 percent of GDP Equatorial Guinea: EBA-lite Model Estimates for 2021 (Percent of GDP) - CA-Actual: -3.4 - Cyclical contributions (from model) (-): 1.7 - COVID-19 adjustor (+) 1/: 0.0 - Additional temporary/statistical factors (+): 0.0 - Natural disasters and conflicts (-): -0.2 - Adjusted CA: -4.9 - CA Norm (from model) 2/: 0.8 - Adjustments to the norm (+): 0.0 - Adjusted CA Norm: 0.8 - CA Gap: -5.7 - o/w Relative policy gap: 4.0 - Elasticity: -0.3 - REER Gap (in percent): 20.5 Notes from source about model caveats: - Two factors could reduce the CA norm: (i) scaling for hydrocarbon sector employment share (staff estimates factor 0.6/0.98 reducing norm by 1.1 percent); (ii) using non-hydro average growth of 2.4 percent over 2022–27 and scaling by 0.6 would reduce the norm by 2.3 percent. ### C. Real Exchange Rate - REER dynamics: Average REER depreciated by -4.5 percent in 2021 compared to 2020 - NEER: appreciated by 1.5 percent in 2021 due to higher relative (imported) inflation - Assessment: REER assessed as overvalued in 2021; EBA-Lite CA gap and elasticity -0.28 suggest REER gap (overvaluation) of 21 percent (estimated 2021 REER gap of 21 percent vs 54 percent in December 2019) ### D. Capital and Financial Accounts: Flows and Policy Measures - Dominant flows: Sovereign foreign borrowing and FDIs towards hydrocarbon projects - Expectation: FDI flows expected to decrease over next decade as hydrocarbon resources are depleted - Regional policy (starting October 2022) for CEMAC companies: - (i) repatriate 35 percent of their foreign sales to a BEAC account - (ii) pay foreign subcontracting firms and vendors in local currency - Assessment: BoP financing needs expected to remain elevated; strong commitment to structural and fiscal reforms required --- ### Annex III. Risk Assessment Matrix (selected risks, likelihood, impacts, recommended policy responses) - Matrix context: Shows events that could materially alter the baseline path; likelihood categories defined by staff (low <10%, medium 10–30%, high 30–50%). Focus on risks that could materialize within 1 to 3 years. Domestic Risks - Financial sector exposure to affected sectors in the non-hydrocarbon economy - Relative Likelihood: High - Impact if Realized: High. Further increases in NPLs and weakening of other financial soundness indicators. - Recommended Policy Responses: Enforce prudential rules. Take actions to restructure weak banks, and settle domestic public payment arrears. - Weak governance and weak capacity - Relative Likelihood: High - Impact if Realized: High. Slow or stalled implementation of policy reforms, affecting business environment, investment, productivity, and inclusion. - Recommended Policy Responses: Press ahead with governance and PFM reforms; request technical assistance and training to raise capacity. - Outbreaks of lethal and highly contagious COVID-19 variants - Relative Likelihood: Medium - Impact if Realized: Medium. Quarantine and containment measures would adversely impact economic activity. - Recommended Policy Responses: Ramp-up national inoculation program and COVID monitoring program. Enhance testing and address vaccine hesitancy with education campaigns. External Risks - Russia’s invasion of Ukraine leads to escalation of sanctions and other disruptions - Relative Likelihood: High - Impact if Realized: Medium. Higher food prices could increase food insecurity; tighter financial conditions could impact investment flows. Higher hydrocarbon prices could offset adverse impacts by increasing export earnings. - Recommended Policy Responses: Use windfall hydrocarbon earnings to rebuild macroeconomic buffers. Adopt temporary fiscal measures to protect food security for vulnerable population. - Rising and volatile food and energy prices - Relative Likelihood: High - Impact if Realized: High. Higher hydrocarbon export earnings increase government revenues; lower oil exports have opposite effect. Higher food prices increase risk of food insecurity. - Recommended Policy Responses: Save at least a portion of any additional revenue relative to the price assumption in the budget to rebuild macroeconomic buffers. Identify contingency fiscal adjustment measures and financing. Adopt temporary fiscal measures to protect food security for vulnerable population. - Abrupt growth slowdown in China - Relative Likelihood: Medium - Impact if Realized: Medium. Likely lower hydrocarbon prices, lower export earnings and government revenues, increasing financing gap. - Recommended Policy Responses: Take measures to support the non-hydrocarbon sector, including by facilitating trade with the CEMAC region and with other AfCFTA countries. Implement the AfCFTA agreement. - De-anchoring of inflation expectations in the U.S. and/or advanced European economies - Relative Likelihood: Medium - Impact if Realized: Medium. Could lead to higher interest rates and higher cost of financing. - Recommended Policy Responses: Prioritize spending and financing. Identify contingency fiscal adjustment measures while protecting food security and the vulnerable population. - Geopolitical tensions and deglobalization - Relative Likelihood: High - Impact if Realized: Medium. Regional political instability would affect economic activity and limit potential to expand the non-hydrocarbon sector; piracy in the Gulf of Guinea could threaten offshore activity. - Recommended Policy Responses: Enhance trade relations in the CEMAC and harmonize policies and regional cooperation on security. *Source: IMF staff estimates* ### Annex IV. Piracy Risk in Equatorial Guinea ### Annex IV. Piracy Risk in Equatorial Guinea ### Overview - Piracy remains an important security and economic challenge in the Gulf of Guinea (GoG), which encompasses seventeen African countries, including Equatorial Guinea (EG). - The GoG covers an area of 2.35 million square kilometers and links Africa with Europe and Asia. - The GoG is described as the most important offshore oil field in Africa accounting for two-thirds of hydrocarbon production in the region, 25 percent of Africa’s maritime traffic, and 35 percent of global petroleum reserves. - GoG consists of four main islands (Sao Tome, Principe, Bioko, and Annobon) and other smaller islands. Bioko Island, the largest of the four islands, belongs to EG as well as the islands of Annobon, Corisco, Elobey Grande, and Elobey Chico. - Piracy activities in GoG have evolved over the years from cargo hijacking to kidnapping for ransom. - In 2020, over 95 percent of kidnapping at sea incidents globally occurred at GoG. ### Incidence and trends - Among GoG countries, EG ranks third, after Nigeria and Cameroon, with worst conditions on the issue of piracy and armed robbery at sea. - Actual and attempted piracy attacks in EG and GoG have increased over the last two decades. - Example incident: in 2020, crew members kidnapped from EG-owned vessels were held hostage for up to 150 days with about $200,000 paid in ransom in one of the kidnapping incidents. ### Direct and indirect economic costs - Direct costs to GoG nations: - Estimated between $1 million and $4 million yearly (UNODC and Stable Seas) as direct costs of piracy. - Counterpiracy activities costs GoG governments approximately $524 million a year. - The economic impact is estimated at $800 million. - Indirect costs include: - Discouragement of foreign investment. - Decrease in trade along piracy-affected shipping routes. - Supply chain disruptions. - Human costs to seafarers. - Foregone resources spent on counterpiracy efforts. - Studies by the World Bank and UNCTAD indicate: - Piracy causes economic losses equivalent to about 1 percent ad valorem increase in trade costs. - Piracy fosters rerouting of ships to alternative shipping routes leading to a loss in foreign investment. - Piracy affects oil production and investment, and decreases resources available for economic development stemming from revenue losses. - Sources cited in the assessment include: International Maritime Bureau, Stable Seas, International Maritime Organization, UNODC, World Bank, and UNCTAD. ### Drivers and underlying factors - Key exacerbating factors: - Regional poverty. - Underdevelopment. - Weak governance and corruption. - These factors increase both the incidence of piracy and its economic impact. ### National and regional responses and recommendations - Ongoing regional efforts to address maritime security in GoG countries include: - The Deep Blue Project in Nigeria. - The Joint Force of Cameroon, EG, and Sao Tome and Principe established in 2009. - Policy implications highlighted: - National and international economic and security coordination efforts can help contain piracy risks. - Regional economic development and prosperity that increase opportunities for lower income groups would help disincentivize crime in general, and piracy in particular. *Prepared by Ruth Akor (AFR).* ### 13. Strong reform efforts remain necessary to mitigate fiscal slippage. In line with the ### 13. Strong reform efforts remain necessary to mitigate fiscal slippage. In line with the ### Fiscal position and baseline DSA findings - Expected continued projected decline in hydrocarbon revenues over the medium term increases reliance on domestic and external creditors. - Nominal gross public debt (percent of GDP) projections and historical points as shown: - 2011–2019: 25.2 - 2020: 48.4 - 2021: 42.8 - 2022: 27.0 - 2023: 26.4 - 2024: 28.3 - 2025: 26.0 - 2026: 23.9 - 2027: 20.9 - Public gross financing needs (percent of GDP) by year: - 2011–2019: 6.1 - 2020: 4.0 - 2021: -0.7 - 2022: 8.0 - 2023: 1.8 - 2024: 3.3 - 2025: 5.7 - 2026: 5.3 - 2027: 6.2 - Real GDP growth (percent) trajectory (selected): - 2011–2019: -2.7 - 2020: -4.2 - 2021: -3.2 - 2022: 5.8 - 2023: -3.1 - 2024: -12.3 - 2025: -2.6 - 2026: -4.7 - 2027: -1.1 - Inflation (GDP deflator, percent) by year (selected): - 2011–2019: 1.4 - 2020: -8.8 - 2021: 20.9 - 2022: 36.4 - 2023: -6.0 - 2024: -0.7 - 2025: 2.1 - 2026: 3.8 - 2027: 3.5 - Effective interest rate (percent, defined as interest payments divided by debt stock at the end of previous year): - 2011–2019: 3.2 - 2020: 2.7 - 2021: 2.5 - 2022: 3.9 - 2023: 3.9 - 2024: 3.9 - 2025: 3.8 - 2026: 3.8 - 2027: 3.8 - Change in gross public sector debt (percent of GDP, cumulative and yearly shown in table): - 2011–2019: 3.9 - 2020: 5.2 - 2021: -5.6 - 2022: -15.8 - 2023: -0.6 - 2024: 2.0 - 2025: -2.3 - 2026: -2.1 - 2027: -3.0 - Cumulative: -21.9 then 2.7 (as presented) - Identified debt-creating flows (percent of GDP) highlights: - Identified debt-creating flows total: 7.1 (2011–2019), 8.5 (2020), -11.6 (2021), -17.5 (2022), -3.4 (2023), 0.9 (2024), 0.2 (2025), 2.1 (2026), 1.8 (2027), cumulative -15.9 then 2.2. - Primary deficit contributions, automatic debt dynamics, interest rate/growth differential, real interest rate and real GDP growth contributions are detailed in the DSA tables. - Debt-stabilizing primary balance and residuals are reported in the staff DSA projections. ### Risk assessment and stress tests - Heat-map risk indicators include shocks and benchmarks: - Bond spread over U.S. Bonds (EMBIG): displayed; average over last 3 months, 14-Feb-22 through 15-May-22 used for calculations. - External financing requirement benchmarks: 5 and 15 percent of GDP. - Bond spread benchmarks: 200 and 600 basis points. - Change in share of short-term debt benchmarks: 0.5 and 1 percent. - Public debt held by non-residents benchmarks: 15 and 45 percent. - Share of foreign-currency denominated debt benchmarks: 20 and 60 percent. - Evolution of predictive densities of gross nominal public debt (percent of GDP) presented with percentiles (10th-25th, 25th-75th, 75th-90th) for 2021–2027 under symmetric and restricted (asymmetric) distributions. - Stress-test scenarios and key assumptions (selected): - Real GDP growth shock: lower growth scenario depicts a permanent negative shock of -2 percent to the baseline projection for growth and non-interest revenues to GDP; other shocks are temporary. - Oil price shock: assumes a persistent 10% decline in the price of oil, impacting growth, GDP deflator, primary balance and exchange rate. - Results under stress tests (selected indicators shown in figures): - Gross Nominal Public Debt (percent of GDP) and Public Gross Financing Needs (percent of GDP) are graphed under baseline and various shocks (Primary Balance Shock, Real GDP Growth Shock, Real Interest Rate Shock, Real Exchange Rate Shock, Combined Shock, Oil price shock) for 2022–2027. - Example parameter changes under shocks (selected rows from stress tables): - Real GDP growth under Real GDP Growth Shock: 5.8, -8.2, -17.4, -2.6, -4.7, -1.1 (2022–2027). - Inflation under Real GDP Growth Shock: 36.4, -7.2, -1.9, 2.1, 3.8, 3.5 (2022–2027). - Effective interest rate under Combined Shock: 3.9, 4.0, 4.3, 4.9, 5.7, 6.4 (2022–2027). ### Long-term hydrocarbon resources and debt sustainability (Annex VI) — findings and scenarios - Hydrocarbon resource and export levels (2020 and 2021 data): - Proven liquid hydrocarbon reserves: 1.1 billion (barrels implied; text: "1.1 billion of proven liquid hydrocarbon reserves"). - Proven gas reserves: 0.26 billion barrels of oil equivalent. - Hydrocarbon exports in 2020: $1.9 billion of oil and $0.8 billion of natural gas. - Using 2021 prices ($70 barrel of crude oil and $110 barrel of oil equivalent of natural gas), total hydrocarbon wealth estimated at $105.6 billion or CFAF 60.8 trillion. - Commercial viability and supply-curve observations: - Only 75 percent of proven resources would be commercially viable for production at projected medium-term prices of $70. - Between 2015 and 2019, cost of production declined, increasing resilience to low-price environment but associated with a decline in total size of available resources as more expensive prospects were abandoned. - Comparison across countries suggests resource reallocation to fewer, more developed producers through early 2022. - Long-term debt implications under scenarios: - Debt level remained relatively stable at about 43 percent of GDP in 2021 thanks to hydrocarbon revenues. - "No-reforms scenario": if non-hydrocarbon revenues do not increase and hydrocarbon reserves deplete, debt would rise to over 100 percent of GDP by 2036, with GFN-to-GDP ratio reaching above 25 percent of GDP. - Footnote assumptions: This debt level is a lower bound since it does not incorporate the impact of depleting hydrocarbon resources across the region on reserve accumulation. - Financing assumptions: Assuming financing needs are met with domestic currency bond issuance at a maturity of 7 years and a 7.8 percent interest rate. - "Reform scenario": increasing non-hydrocarbon revenues by 5 percentage points to 11 percent of non-hydrocarbon GDP and reducing expenditures by 5 percentage points to 23 percent of non-hydrocarbon GDP would maintain a similar debt-to-GDP ratio observed today (at 42 percent of GDP); under this scenario long-term GFN level would be around 6 percent of GDP. - Policy implication: - The severity of the "no-reforms scenario" implies that reforms to government finances are essential over the next 15 years to maintain long-term debt sustainability. ### Public investment program (Annex VII) — 2008–17 review and implications - Investment surge and capital stock accumulation: - During 2008–17, the government spent about $41 billion (with $32 billion budgeted) on acquisition of non-financial assets. - Resulted in the highest public capital stock (relative to GDP and per capita) among CEMAC countries and capital spending above all AFR countries. - Consequences and policy direction: - The surge produced an extremely large capital stock, spending inefficiencies, and possibly considerable misallocation of resources. - Authorities contemplate reforms to enhance productive uses of the installed capital stock and increase allocation of public spending to health, education, and other social sectors to improve future sustainable and equitable economic growth and outcomes. - Methodology notes (capital stock measurement): - "Nominal" public and PPP capital stock refers to capital at “current cost” and not at historical cost. - "Real" capital refers to capital stock in 2011 constant local currency prices. - "2011 PPP$-adjusted" capital refers to capital stock in 2011 constant international dollars. - Perpetual inventory method used to construct capital stocks series for 170 countries with real cost transformed to constant 2017 U.S. dollars using purchasing power parities from the International Comparison Program (ICP). Depreciation rates are time varying and depend on country income grouping. *Source: IMF staff (as presented in the IMF country report material).* ### 2. Over 40 percent of total acquisition of non-financial assets was spent on infrastructure ### 2. Over 40 percent of total acquisition of non-financial assets was spent on infrastructure ### Summary of Public Investment Program, 2008–17 - Total Investment, USD: - Budgeted USD31bn (183% of GDP) - spent USD41bn (234% of GDP) - Key infrastructure outputs: - Roads: 2,530 km paved, and 1,441 km graveled - Electricity generation: Installed 847,969 MW - Social housing: 10,477 units built, 7,842 distributed/awarded - Ports: 6 newly built, 3 rehabilitated - Airports: 5 newly built - Telecommunications: National network of 208 GB fiber optic of 1,724 Km that connect 95% of the Municipalities of the Country - Promenades: Bata (15 km), Malabo (3 km) and Kogo (970 m) - Sports stadiums: Bata (35,700 capacity) and Malabo (15,250 capacity) - Malabo national park: 87 hectares - Public administrative buildings: 90 percent of ministerial and 40 percent of autonomous entity buildings modernized; 36 City Council headquarters and 39 Government delegation headquarters built and modernized; around 30 security and defense infrastructures built/modernized (barracks and police headquarters) - Other urban infrastructure: Improvement of the streets in the main cities; urbanization of 53 Town Councils promoted to Urban Districts - New Cities: The new city of Sipopo was completed and work also begun on construction of Ciudad de la Paz in the administrative province of Djibloho - Health, water, and education outputs: - Health: Construction of the “La PAZ” Hospitals in Sipopo and Bata; Rehabilitation of Regional Hospitals of Malabo and Bata, and four provincial hospitals; rehabilitation and extension of other District Hospitals - Water & Sanitation: - Access to sanitation rose from 60% in 2006 to 63.34% in 2014 for the urban population, and from 46% in 2006 to 48% in 2014 for the rural pouplation - Access to drinking water increased for the urban population from from 59.4% in 2009 to 67.73% in 2014 ### Efficiency of Capital Allocation - Public capital stock: - Equatorial Guinea has a public capital stock triple the size of that for SSA, but efficiency is low. - Physical infrastructure and social outcomes: - Equatorial Guinea is far from the physical infrastructure frontier; inputs translate poorly into outputs as measured by efficiency scores that lag most comparators. - Public education infrastructure access is below all comparators. - Access to basic drinking water lags Sub-Sahara Africa. - Policy direction from authorities: - Contemplating reforms to refocus future investments on health and other social sectors, and to increase spending on education and training, to boost human capital and growth. ### Annex VIII — Mobile Cash Transfers in Equatorial Guinea to Improve Social Welfare - Context and pilot: - Following the Bata explosion of March 7, 2021, the 300 most impacted families received financial aid using mobile payments through a UNICEF- and government-led initiative coordinated with NGOs. - The initiative was successful but resource intensive. - Lessons and operational details from the Bata initiative: - Three phases: (i) identification of beneficiaries, (ii) coordination with NGOs and authorities, and (iii) phone distribution and payment. - Collected recipient data are now part of the Single Social Registry (RUS), an open database maintained by UNICEF. - Payments and cashpoint withdrawals were conducted via Muni Dinero and cashpoints after distribution of phones and access codes. - The initiative addressed low financial inclusion and low digital inclusion but phase I (recipients’ identification) was resource intensive and may not have targeted the most vulnerable. - Recommendations to scale mobile-based payments: - Promote mobile payments and bank-telecom partnerships and mobile payment offerings. - Rapid development of a payment acceptance network, including for payment of tax and utility bills to the government. - Strengthen and streamline public finance management to allow roll-out of safe and fast initiatives in future emergencies. - Develop adequate oversight for mobile payments to protect consumers. - Building a Single Registry of Beneficiaries (RUB) and links to the RUS: - Once a basic but comprehensive RUB is completed, it becomes a critical instrument of social protection. - Progressive initiatives, in cooperation with international institutions and NGOs, will deliver a RUB as a sub-module of the RUS centered on economic criteria. - Suggested operational design if national targeting is required: identify and register beneficiaries, pay on e-wallets cashable at cashpoints, give phones to those who need one, use broad communication and simple targeting criteria (e.g., exclusion of (i) formal sector employees, (ii) high phone consumption, (iii) home and car owners). - Benefits to the government: opportunity to increase formality and the tax base by requesting ID as part of registration and to better target social protection over time. ### Annex IX — Considerations for Mitigating Surging Food Prices - Macro context and vulnerability: - Consumer price index (based on the 2006 basket) is projected to increase to 6.0 percent in 2022 (with over half of the increase caused by rising food prices). - Poor people (estimated at over 40 percent of the urban population) spend a larger proportion of income on food; food and non-alcoholic beverages account for 48 percent of the overall 2006 CPI basket. - 80 percent of food is imported (largely from Europe and Central Asia), including staple items such as wheat products, rice, meat, fish, and eggs. - Short-term policy options (time-limited, with sunset clauses recommended): - System of vouchers distributed to consumers to buy food in supermarkets and shops, with government compensation to supermarkets/shops; fiscal cost could be estimated assuming full food price pass-through and a 50–75 percent population uptake. - Temporary subsidies to food distributors applied to staple foods (e.g., wheat products, eggs, and meat) with distributor commitments on retail prices for the subsidy period. - Reduction or suspension of import taxes and customs service charges on critical food imports. - Temporary reduction in consumption taxes (VAT and excise duties), with clear sunset clauses. - Coordination of food imports with other countries in the region to reduce costs. - Medium-term measures: - Enhance incentives to increase domestic production of food (and possibly fertilizer). - Increase the number of food importers to strengthen market competition. - Strengthen the SSN system: create a nation-wide register of beneficiaries and mainstream mobile transfer capabilities; reform strategy should address SSN inefficiencies. ### Governance — Anti-Corruption, Rule of Law, and AML/CFT Frameworks (update) - Improving governance and fighting corruption are major development challenges. - Corruption is perceived as affecting most government functions and may undermine the development agenda outlined in the government’s National Strategy for Sustainable Development. *Prepared from text in the IMF chapter titled "2. Over 40 percent of total acquisition of non-financial assets was spent on infrastructure".* ### 2035. During the period 2010-20, the Worldwide Governance Indicators (WGI) for rule of law ### 1gnqea2022001 - 2035. During the period 2010-20, the Worldwide Governance Indicators (WGI) for rule of law ### Major findings on governance and indicators - During the period 2010-20, the Worldwide Governance Indicators (WGI) for: - rule of law stagnated at approximately 7/100. - control of corruption stagnated at approximately 0.7/100. - Equatorial Guinea underperformed the Sub-Saharan Africa (SSA) regional average over the past 10 years: - rule of law: approximately 29/100 (regional average for SSA). - control of corruption: approximately 30/100 (regional average for SSA). - The Ibrahim Index of African Governance (IIAG) shows the member underperformed the SSA regional average over the past 10 years for Overall Governance. - The 2019 IMF Governance Diagnostic Report formed the basis for the 2019 Good Governance and Anti-Corruption Action Plan; this annex updates progress on anti-corruption, rule of law, and AML/CFT. ### Progress under the 2019 EFF extended arrangement and 2021 RFI (summary of commitments and results) - Overall program execution: - The 2019 Good Governance and Anti-Corruption Action Plan was to be implemented during the 2019–22 extended arrangement. - With no reviews completed, few measures were put in place; some measures were recalibrated for the 2021 RFI. - During 2019–22, authorities prioritized implementation of governance measures that formed part of the initial set of structural benchmarks under the EFF-supported reform program. - Select commitments and results (as reported): - Publish the governance diagnostic report and a governance strategy (Prior Action) — By Board meeting (December 2019): Met. - Submit a membership application to the EITI (Prior Action) — By Board meeting (December 2019): Met. (Authorities withdrew application after EITI feedback; plan to resubmit during 2022.) - Congressional approval of an anti-corruption law in line with UNCAC (Structural Benchmark) — End-March 2020: Implemented with delay (decree law signed July 2020; amended law passed April 2021). - Set up a website for the Official Gazette and publish all laws, orders and decrees applicable in EG since 2000 (Structural Benchmark) — End-June 2020: Not met. In progress. (A website was launched but is still incomplete.) - ANIF to apply for Egmont membership — end-March 2020: Met. (Egmont membership still pending.) - ANIF to develop guidance to assist financial institutions in identifying domestic PEPs and beneficial owners — End-Sept. 2021: Not met. - ANIF to develop and implement arrangements to facilitate cooperation and exchange of information between ANIF and COBAC — End-Sept. 2021: Not met. In progress. (Authorities reported cooperation with COBAC has improved.) - Update decree on asset declarations for senior public officials in line with law and international best practice — June 2021: Not met. In progress. (On March 31 2022 government published an asset declaration form; form not in line with 2021 Anti-Corruption law but being amended with IMF assistance.) - Set up a website for each court and publish staffing/vacancies — End-2020: Not met. - Publish all Supreme Court decisions and corruption/commercial decisions on courts’ website from December 2019 — End-2020: Not met. - Publish on Ministry of Finance website court case statistics (corruption, AML/CFT, insolvency, foreclosure, land) — End-2020: Not met. - ANIF to publish an annual report (activities, budget, resources, typology studies) — End-Sept. 2021: Not met. (ANIF updating its website.) - Publish a comprehensive hydrocarbon data and information report for 2019 — End-Sept. 2020: Implemented with delay (Report published in March 2022). - Under the 2021 RFI: Parliamentary approval and publication of an anti-corruption law in line with UNCAC — By Board meeting (September 2021): Met. - Issue implementation decree(s) related to asset declaration regime and governance of Anti-Corruption Commission within 60 days specified in anti-corruption law — Not met. In progress. - Adopt Presidential decree requiring key high-level public officials to submit asset declarations for publication prior to first review — Not met. In progress. - Require beneficial ownership information of awarded companies in procurement contracts — By end-August 2021: Met (Decree 141/2021; issued December 9, 2021). - Publish all procurement contracts related to Bata emergency and COVID-19 responses and beneficial ownership info on Ministry of Finance website — By end-September 2021 and regularly thereafter: Not met. In progress. (Beneficial ownership declaration published for four entities.) - Conduct Bata audit by end-April 2022 and COVID-related spending audit by end-September 2021 and publish results — Not met. In progress. (Audits ongoing; draft COVID audit report received.) ### Institutional weaknesses and enforcement - Key institutional shortcomings: - Existing anti-corruption institutions are highly vulnerable to political interference, have limited resources, and some have not been established as prescribed in law. - The Anti-Corruption Commission had not been established for multiple statutory deadlines; President and Vice-President of the Commission were named on June 2, 2022. - Other institutions (Anti-Corruption Prosecutor, ANIF, courts) remain severely underfunded, capacity-constrained, and are not perceived as independent. - Enforcement and prosecution: - Since the Anti-Corruption law entered into effect in May 2021, the Anti-Corruption Prosecutor investigated 18 cases of corruption, of which 7 were directed at senior public officials. - These cases include directors of SOEs and military personnel; government officials are treated as de facto immune from prosecution. - One of these cases reached final judgment with the defendant acquitted. - The Anti-Corruption Prosecutor lacks a sufficiently clear legal mandate arising from a law or regulation, preventing it from managing its own resources and operational decisions. - The Special Office for the administration of confiscated goods (stipulated in the Anti-Corruption Law) has not been established. - Delays in adjudication and no publication of judicial decisions persist. - Asset declaration regime: - Implementation remains pending; Anti-Corruption Law required regulations within six months, but over a year lapsed. - Slow progress on regulations limits the law’s implementation and the country’s capacity to fight corruption. ### Rule of law weaknesses - Cross-cutting weaknesses affecting all sectors: - Implementation deficit and allegations of lack of even-handedness and fairness in application of law. - Transparency deficit: comprehensive absence of transparency and public data reporting. - Capacity constraints and absence of a professional career for judges, prosecutors, or notaries; no clear term limits or destitution for cause. - Planned reforms: - Reform of the Organic Law of the Judiciary (referenced in 2019 Diagnostic Report) foresees creation of a professional track for judges and is expected to come into force by the end of this year. - National Strategy for Sustainable Development 2035 includes objectives to: - restructure, modernize and strengthen the judicial administrative system. - consolidate the independence of the judicial system. - improve the qualification of human resources, including judges. - The objectives are far-reaching; more concrete actions and aggressive implementation are needed. ### AML/CFT framework and priorities - Recent ANIF actions and pending items: - Authorities reported updating the decree regulating ANIF to support application to the Egmont Group. - Updates included internal regulations, an ethics code for staff, and security measures at ANIF offices. - A money laundering and terrorist financing national risk assessment is underway. - A National Committee for AML/CFT policy and coordination has been created. - ANIF is improving reporting of suspicious transactions through enhanced customer due diligence and focus on origin of funds. - ANIF’s publication of an annual report (budget, activities, resources, milestones, AML/CFT typologies based on corruption) is still pending. - Upcoming evaluation: - GABAC evaluation expected for September 2023 will assess effectiveness and provide recommendations. In 2016, GABAC highlighted significant deficiencies, many of which remain unaddressed. ### Prioritized recommendations - Anti-Corruption regime: - Update anti-corruption strategy building on the 2019 Action Plan and National Strategy for Sustainable Development 2035, covering prevention, investigation, prosecution, national/international cooperation, and public/civil sector partnership. - Implement the Anti-Corruption law by establishing a well-funded and independent Anti-Corruption Commission with capacity to design and apply Commission Regulations and Asset Declaration Regulations. - Draft Anti-Corruption Commission Regulations to limit potential jurisdictional overlap with the Anti-Corruption Prosecutor. - Enforce asset declaration regime for senior public officials in line with AC law and AD regulations: - Prioritize adoption of regulations and an asset declaration form as established in the Anti-Corruption Law and international good practices. - Promptly require submission and publication of declarations by high-level public officials on a government website. - Enhance independence, governance and capacity of the Anti-Corruption Prosecutor and the Ministry of Justice through increased financial and human resources and stepped-up education and expertise for investigators, prosecutors, and judges. - Provide Anti-Corruption Prosecutor a clear legal mandate arising from law or regulation, with independence and resources enshrined; establish the Special Office for administration of confiscated goods. - Ensure any regulation for the Anti-Corruption Prosecutor distinguishes its functions from those of the Anti-Corruption Commission to limit jurisdictional overlap. - Rule of law: - Strengthen judicial and prosecutorial independence via professional exams, clear term limits, termination only for cause with due publication and dissemination. - Ensure effective implementation of existing laws. - Enhance public data access to laws, orders, judicial decisions, and court administration/efficiency metrics. - Subject notaries to a professional career track accessible to any Equatoguinean person. - AML tools to tackle corruption: - Strengthen legal framework and effective implementation of requirements related to politically exposed persons and beneficial ownership to meet international standards. - Ensure banks and other financial institutions apply AML/CFT preventive measures proportionate to corruption risks, and coordinate regionally with COBAC. - Extend AML/CFT regulation and supervision to designated non-financial businesses and professions (e.g., lawyers, accountants, real estate agents). - Ensure ANIF and the Anti-Corruption Prosecutor have adequate staff, resources, and independence for detection, investigation and prosecution of corruption and financial crimes. - Implement measures to: - ensure transparency, accuracy, and accessibility of beneficial ownership information; - enhance use of financial intelligence related to corruption and money laundering for investigations; - improve detection capabilities against money laundering, corruption, and other financial crimes; - enhance scope of AML/CFT risk-based supervision and cooperation between ANIF and COBAC. *Source: 1gnqea2022001 - 2035. During the period 2010-20, the Worldwide Governance Indicators (WGI) for rule of law* ### Annex XI. National Strategy for Sustainable Development ### Annex XI. National Strategy for Sustainable Development ### Overview - In April 2021, through presidential decree, the government officially adopted the Equatorial Guinea’s National Development Strategy for 2021–35 (PLAN-35) as the framework to transform the country over the next fifteen years. - PLAN-35 was built on national aspirations from the Third National Economic Conference held in 2019 and is aligned with the Sustainable Development Goals of the United Nations and with the Agenda 2063 of the African Union. ### Strategic objectives - Eradicate poverty: "Sustainably improve the living conditions of the population, with active intervention of the population in the process of development." - Promote social inclusion and sustainable peace: "Turn Equatorial Guinea into a modern, efficient, and socio-strategic State, with a central role in promoting development and strengthening civil society and national private initiative." - Promote productivity and industrialization: "Promote macroeconomic stability, economic and social development, and a balanced distribution of equitable development through the fair and effective allocation of public resources." - Promote environmental sustainability and territorial development: "Ensure the existence and maintain the quality of nature's resources, ensuring their healthy use for present and future generations through an appropriate legal and institutional framework and adequate management." ### Guiding principles - (i) Promote equitable human development and the well-being of Equatorial Guineans, eradicating hunger and poverty and promoting educational and health development. - (ii) Guarantee national unity and cohesion, promote peace and national identity, build a democratic, inclusive, and participatory society, guarantee fundamental freedoms and rights and the development of civil society. - (iii) Guarantee a high rate of economic development, with macroeconomic stability, structural diversity, and a fair distribution of national income; ensure competitive insertion of Equatorial Guinea in the world and continental economy, guaranteeing a position of reference in the CEMAC and the region of the Gulf of Guinea. - (iv) Promote sustainable development that guarantees an effective use of natural resources and a harmonious occupation of the national territory, stimulate territorial competitiveness, and promote development of the most disadvantaged regions. ### Required reforms (institutional and sectoral) - Reforms applying to different institutional levels: State, public administration, and judicial system. - Social-level reforms: health system, security, and social protection. - Macroeconomic planning and management reforms: macroeconomic planning and management, public finances, and national statistical system. - Production and private activity support reforms: agrarian restructuring and land reorganization, the financial system, competition, and markets. - Territorial organization reforms. ### Implementation and governance structure - Four-tier monitoring and evaluation structure: - Level 1: National Council for Sustainable Development, chaired by the President. - Level 2: National Planning Council, responsible for planning, chaired by the Prime Minister. - Level 3: Equatorial Guinea 2035 Observatory, facilitates participation of other political and social actors and integrates inputs into the National Planning Council. - Level 4: National Development Agency of Equatorial Guinea, a technical entity led by a General Director. ### Phasing of implementation - Three phases, each lasting five years: - Phase 1 (launch): 2021–25. - Phase 2 (development): 2026–30. - Phase 3 (consolidation): 2031–35. ### Economic diversification pillar (focus and priority areas) - Focus: led by the private sector, implemented during 2021–25, emphasis on import substitution and promotion of exports under PRODECO (support for economic diversification program). - Six broad priority production areas: - (i) Agribusiness and fishing - (2) mineral resources and hydrocarbons - (3) industry and energy - (4) hospitality and tourism - (5) logistics, transportation, telecommunications, and technology - (6) financial services, consulting, and auditing - Additional planned initiatives: set up special economic zones to promote industry; establish an innovation hub; establish an international logistics and transportation center; promote energy diversification; improve banking and insurance services; create areas (sectors) of excellence. ### Instruments to support economic diversification - Creation of a coordination mechanism in the office of the head of government. - Re-creation of the sovereign fund of Equatorial Guinea to preserve wealth for future generations. - Privatization and restructuring of state assets. - Creation of a council for economic diplomacy and a public agency for the promotion of foreign trade and foreign investment. *Source: Annex XI. National Strategy for Sustainable Development — “Equatorial Guinea Agenda 2035.”* ### Annex XIV. Technical Assistance Priorities, 2022–24 ### Annex XIV. Technical Assistance Priorities, 2022–24 ### Technical assistance priorities (Top programs and objectives) - Tax Policy and Revenue Administration - Raise non-hydrocarbon and hydrocarbon revenues; strengthen tax and customs administration and improve core functions. - Public Financial Management - Improve budget preparation, execution, control and reporting and strengthen treasury management. Improve coordination across ministries; redefine the architecture of the internal audit system and establish a mechanism to coordinate internal and external control and audit institutions; enhance fiscal transparency. - Expenditure Policy - Enhance efficiency of public spending; shift allocation of spending to underpin human capital formation and social programs, including mobile transfers, that serve the needs of the vulnerable segments of the population; strengthen procurement processes. Increase the fiscal space. - Banking Sector - Reduce high NPLs. Improve the governance framework for government owned banks. - Legal Framework - Strengthening the framework for good governance, enhanced transparency and fighting corruption. - Real Sector Statistics - Update the base year of the national accounts using the results of a new household survey, further develop quarterly GDP data; improve timeliness of definitive annual national accounts data release. - Government Financial Statistics - Improve the timeliness, quality and coverage of fiscal data, including full recording of off-budget capital expenditures and government domestic arrears. More detailed budget execution data is needed, including, a proper delineation between capital and current spending and functional classification. Implementation of TOFE Directive 5/11 of the CEMAC based on the 2001/2014 Government Finance Statistics Manual (GFSM 2001/2014) to update fiscal statistics. - External Sector Statistics - Produce and disseminate up-to-date balance of payments and net international investment position data, including quarterly series. Support the Ministry of Finance and Budget to accelerate the use and expansion of the ASYCUDA software (trade flow statistics) and the DMFAS software (external public debt statistics). ### Financial position in the Fund (selected figures as of May 31, 2022) - I. Membership Status: Joined: December 22, 1969 Article VIII - II. General Resources Account (SDR Million; %Quota) - Quota 157.50 100.00 - IMF's Holdings of Currency (Holdings Rate) 229.11 145.46 - Reserve Tranche Position 4.94 3.14 - III. SDR Department (SDR Million; %Allocation) - Net cumulative allocation 182.25 100.00 - Holdings 20.63 11.32 - IV. Outstanding Purchases and Loans (SDR Million; %Quota) - Emergency Assistance1/ 47.25 30.00 - Extended Arrangements 29.29 18.59 - 1/ Emergency Assistance may include ENDA, EPCA, and RFI. - V. Latest Financial Commitments (Arrangements) - EFF: Date of Arrangement Dec 18, 2019 — Expiration Date Dec 17, 2022 — Amount Approved (SDR Million) 205.01 — Amount Drawn (SDR Million) 29.29 - ECF1: Feb 03, 1993 — Feb 02, 1996 — Amount Approved (SDR Million) 12.88 — Amount Drawn (SDR Million) 4.60 - SAF: Dec 07, 1988 — Dec 06, 1991 — Amount Approved (SDR Million) 12.88 — Amount Drawn (SDR Million) 9.20 - 1/ Formerly PRGF. - Outright Loans - RFI: Date of Commitment Sep 15, 2021 — Date Drawn/Expired Sep 17, 2021 — Amount Approved (SDR Million) 47.25 — Amount Drawn (SDR Million) 47.25 - VI. Overdue Obligations and Projected Payments to Fund (SDR Million; forthcoming) - 2022: Charges/Interest 1.12; Total 1.12 - 2023: Charges/Interest 2.26; Total 2.26 - 2024: Principal 10.79; Charges/Interest 2.85; Total 13.04 - 2025: Principal 28.51; Charges/Interest 1,98; Total 30.49 - 2026: Principal 22.60; Charges/Interest 1.52; Total 24.12 - 2/ When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section. ### Technical assistance delivery and IMF presence - Recent technical assistance and missions (selected) - 2022: May STA mission on balance of payments; April AFRITAC mission on GFS and PSDS; April AFRITAC mission on implementing CEMAC directives. - 2021: September AFRITAC training on GFS and PSDS; September LEG desk-based review FY21; August AFRITAC mission on real sector and national accounts; March STA mission on external sector statistics; March AFRITAC mission on GFS. - 2020: June AFRITAC mission on national accounts; June FAD mission on revenue administration FY 2021; May MCM mission on remote debt management; February LEG mission on legislative drafting on anti-corruption law. - 2019: October FAD mission on assessment of revenue administration; October MCM mission on debt management diagnostic; September STA mission on external sector statistics; July AFRITAC mission on national accounts; July AFRITAC mission on GFS — implementation of the TOFE directive; April FAD mission on capital expenditure budgeting; February STA mission on external sector statistics; January STA mission on data dissemination standards. - 2018: October AFRITAC mission on GFS. - Resident Representative - The post of IMF Resident Representative in Malabo was established in 2019. The post has been vacant since October 2021. ### Work program with partner institutions - World Bank and African Development Bank work programs are noted as available on their respective websites. ### Statistical issues — assessment and priorities (As of June 24, 2022) - General - Data provision has serious shortcomings that significantly hamper surveillance; shortcomings in national accounts, monetary, fiscal, and external sector statistics. Significant scope for improvements in quality, timing, and coverage. - Real sector statistics - INEGE publishes national accounts series according to the System of National Accounts, 1993 (1993 SNA). - Quarterly GDP estimates compiled by the production approach were developed by INEGE (still pending publication) and would benefit from further coordination to facilitate data sharing. - INEGE has launched benchmark surveys needed for a GDP rebasing exercise, including an economic census of enterprises and a household consumption and expenditure survey. - CPI compilation resumed in January 2009 with data collected in five major cities; deficiencies include outdated weights and composition and gaps corresponding to periods when data was not collected. Authorities are working on a new household expenditure survey to update CPI weights and base year. - Government finance statistics - Authorities provide budget execution data to the Fund, including annual data to STA’s GFS database, albeit with delays. - Data on transactions in financial assets and liabilities (below-the-line transactions) is limited and not fully reconciled with monetary accounts. - Internal verification processes are weak. Authorities should advance work on functional classification of spending, improve reporting of below-the-line transactions, and extend fiscal statistics beyond the budgetary central government to include local governments and other general government subsectors. - Monetary and financial statistics (MFS) - Monetary statistics are reported to the Fund by the BEAC monthly in SRFs, for central bank and other depository corporations but with significant delays. - The last MFS data submitted to STA referred to November 2020, while the last submission of monthly balance sheet data from BEAC was for January 2022. - The depository corporation survey does not include data from deposit-taking microfinance institutions. - BEAC reports data for Equatorial Guinea on several FAS indicators including commercial bank branches per 100,000 adults and ATMs per 100,000 adults adopted by the UN to monitor Target 8.10 of the SDGs. - Financial sector surveillance - COBAC reports monthly nine core and four additional FSIs for deposit-takers and two FSIs on Real Estate Markets, and semi-annually four core and two additional FSIs for DTs to STA for dissemination. The last FSI data submitted to STA referred to August 2021. - External sector statistics - The National Directorate of BEAC compiles balance of payments statistics; BEAC’s balance of payments data largely rely on estimations. - Trade transactions processing and data compilation are complicated by customs authorities not yet fully implementing a computerized system. Data are disseminated with substantial lag. - Annual balance of payments and IIP statistics for 2016–17 expected to be disseminated by August 2022, and quarterly data for 2018–19 by October 2022. Staff capacity remains a concern and is being addressed through training. - Data standards and quality - Participant in the IMF Enhanced General Data Dissemination System (e-GDDS); National Summary Data Page launched in May 2019 but data not updated regularly. Metadata posted on the DSBB. No data ROSC has been conducted. ### Table of Common Indicators Required for Surveillance (selected entries, As of June 1, 2022) - Exchange rates: Date of latest observation May 2022; Data received May 2022; Frequency of data D; Frequency of reporting D; Frequency of publication D. - International reserve assets and liabilities1: Date of latest observation Jan 2022; Data received Apr 2022; Frequency M M M. - Reserve/Base money: Jan 2022; Data received Apr 2022; Frequency M M M. - Broad money: Jan 2022; Data received Apr 2022; Frequency M M M. - Central bank balance sheet: Jan 2022; Data received Apr 2022; Frequency M M M. - Consolidated balance sheet of the banking system: Jan 2022; Data received Apr 2022; Frequency M M M. - Interest rates2: Jan 2022; Data received Apr 2022; Frequency M M I. - Consumer price index: Mar 2022; Data received Apr 2022; Frequency M Q Q. - Revenue, Expenditure, Balance and Composition of Financing – Central government: 2021; Data received Apr 2022; Frequency M Q I. - Stocks of debt contracted or guaranteed by the central government5,6: 2021; Data received Apr 2022; Frequency A A I. - External current account balance: 2016; Data received Jun 2021; Frequency A A I. - Exports and imports of goods and services: 2016; Data received Jun 2021; Frequency A A I. - GDP/GNP: 2021; Data received May 2022; Frequency A A I. - Gross external debt: 2021; Frequency A A I. - International Investment Position7: NA NA NA NA NA. - (Legend) Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA). ### Supplementary information and recent developments (July 2022 updates) - Transparency and governance developments - Publication of asset declarations of senior members of government began. As of July 19, 2022, asset declarations for twelve senior officials (including the Prime Minister, the Second Vice Prime Minister, and nine Ministers) were published on the Ministry of Finance, Economic and Planning website. A few use the final template form from June 2022, while most use a first template form issued in March 2022 which was later amended to ensure compliance with the 2021 anti-corruption law. - Authorities have published more details on beneficial ownership information of companies that do business with the government for certain public procurement contracts (COVID and Bata-related spending). As of July 19, 2022 this information was provided for seven declared relevant transactions. Authorities have not yet published the actual awarded contracts. - Authorities published the preliminary audit report on COVID-related spending (covering February 2020 to September 2021). The audit report states that—with the exception of two reservations—no material misstatements were identified that may call into question the accuracy and eligibility of the expenditure appearing on the Statement of Expenditure. The auditor’s reservations relate to spending for construction work of yet-unfinished hospitals and for the lack of supporting documents in some transactions — with reservations amounting to about 30 percent of the amount audited. - Recent macroeconomic indicators and staff observations - Quarterly index of economic activity indicates real output grew by 3.2 percent (year-on-year) in Q1 2022, led by growth in hydrocarbon output and recovery of public investment. - Hydrocarbon output in the first half of 2022 expanded by 3.3 percent (year-on-year), with dry gas increasing by 10 percent. - Headline inflation stood at 5.1 percent (year-on-year) in May, the highest since September 2020, primarily driven by fuel and food prices. - Equatorial Guinea’s NFA at BEAC remained positive from January to April 2022. In April, NFA at BEAC was CFA 126 billion, after falling from a high of CFA 278 billion in February. - Government deposits at BEAC accumulated over CFA 100 billion between end-2021 and end-April 2022 — compared with an accumulation of CFA 43 billion in the same period a year earlier. - Authorities’ macroeconomic outlook and recent policy commentary (as presented by authorities) - Real GDP is expected to grow by 5.8 percent in 2022 compared to negative 3.2 percent in 2021. - Inflation is estimated to have risen to 6 percent in 2022. - The non-hydrocarbon primary fiscal balance is estimated to have improved by 2.4 percentage points of GDP in 2021, led by a decline in capital spending and purchases of goods and services. - The improvement in the external and fiscal sectors in 2022 is led by higher hydrocarbon prices, which should strengthen the balance of goods trade and reduce the current account deficit in 2022 by 1.6 percent of GDP. *Prepared by the African Department (in consultation with other departments); Annex XIV. Technical Assistance Priorities, 2022–24 — Staff Report for the 2022 Article IV Consultation (July 11, 2022 and supplement dated July 19 and July 25, 2022).* ### 3.7 percent of GDP is expected in 2022. ### 1gnqea2022001 - 3.7 percent of GDP is expected in 2022. ### III. Outlook and Risks - 3.7 percent of GDP is expected in 2022. - The outlook is expected to remain challenging amid continued depletion of hydrocarbon output linked to mature fields and a lack of new investments in the sector. - Overall GDP is projected to contract in 2023 and through the medium term, dragged by: - continued declining hydrocarbon yield, - stalled structural reforms, - subdued business confidence, - a fragile banking sector. - Authorities’ responses and expectations: - enhance efforts to accelerate implementation of their 2035 development plan and related reforms to diversify the economy away from oil and gas sectors and boost inclusive growth; - intensify work to improve governance and the banking sector; - non-hydrocarbon sector expected to recover gradually with enactment of the online tourist visa and other measures to strengthen private sector confidence and enhance the business climate; - continue to address structural rigidities to unleash supplemental sources of revenue. - Downside risks: - risks to the outlook are tilted to the downside; - authorities will diversify sources of imports of basic goods to mitigate risks amid increased domestic inflation; - health authorities remain attentive to any resurgence of the pandemic and are committed to act swiftly with targeted measures; - structural reforms remain a top priority to improve the health of the financial sector, and authorities will continue to work closely with development partners to boost capacity, enhance governance, and further improve non-hydrocarbon growth. ### IV. Fiscal Policy - Near-term fiscal objectives: - stabilize the economy while providing support to vulnerable populations, - repay domestic arrears, - rehabilitate Bata’s critical infrastructure. - Use of hydrocarbon revenue windfall: - part will be used to rebuild macroeconomic buffers and protect the economy from future adverse shocks, - protect the most vulnerable population from the increase in food prices with targeted measures. - Fiscal sustainability and revenue measures: - authorities reiterate their resolve to maintaining fiscal sustainability by reducing the non-hydrocarbon primary deficit; - adopting measures to increase revenue collection from VAT, customs, and other sources; - advancing goals to boost domestic food production and expand social safety net programs implemented during the COVID-19 pandemic to a wider set of vulnerable population, working closely with UNICEF and other international financial institutions to progressively make such spending sustainable and cost-effective. - Public financial management and spending control: - committed to containing spending, strengthening PFM while preserving debt sustainability; - a system to track capital expenditures on a timely basis has been put in place; - authorities are working to improve the monitoring of current expenditure to enhance overall public spending efficiency and accountability; - envision room for fiscal saving by reducing further the still high fuel subsidies through enhanced targeting; - technical assistance from the Fund might be necessary to implement a more comprehensive reform on fuel subsidies, to ultimately incorporate an automatic pricing mechanism while protecting low-income households with targeted measures. - Public debt assessment: - Equatorial Guinea’s debt remains low and is assessed to be sustainable over the medium term; - subject to substantial risks stemming from the volatility of international oil prices and the path of the authorities' reform agenda. - Tax reform and revenue measures: - tax reform targets an efficient and broad-based tax system that applies equitably to all; - adopted measures to improve tax administration, modernize the PFM framework, increase transparency, and improve the business climate for non-oil investment, including on tourism, farming, and fishing industries; - enacted excise taxes on imported beverages, tobacco, luxury vehicles to help generate additional non-hydrocarbon revenues; - will uphold a higher personal income tax rate for non-residents, introduced in early 2019. ### V. Financial Sector - Key banking sector challenges: - addressing high nonperforming loans (NPLs), undercapitalization, and low liquidity at some banks. - Measures taken: - financed part of domestic arrears’ repayments with 90 percent of the 2021 SDR allocation as well as government bonds under their strategy of domestic arrears clearance and recapitalization, consistent with COBAC prudential regulations and governance norms; - second phase of the strategy should be completed in the coming months since the hiring of a new broker has recently been finalized, and the process of bonds issuance and treasury bills administration should be accelerated; - authorities have taken robust actions to fully capitalize a major troubled bank with the support of COBAC. - Financial inclusion and payments modernization: - working towards implementation of the regional financial inclusion strategy; - started developing the national financial inclusion strategy with the TA of the World Bank; - will continue to enhance financial access and inclusion, including by working with BEAC, to develop and promote mobile payments, complemented with adequate oversight and regulations; - plan to pass relevant legislation by end-2022 as a first step towards establishing a specialized commercial court; - plan to incentivize the adoption of mobile payments to make it a central and affordable instrument of payments. ### VI. Structural Reforms and Governance - Economic diversification and development planning: - promoting economic diversification to boost non-hydrocarbon growth; - diversification strategy based on the Third National Economic Conference in April 2019; revised and updated development plan to 2035 following the conference. - Implemented and planned actions: - establishment of a one-stop shop for investment to boost the business environment; - removal of the domestic partner requirement for foreign investors; - efforts to reduce costs for businesses, including telecommunication prices; - new commission to improve port operations and reduce tariffs; - in April 2022, authorities published a list of state assets for privatization through outright sale or through management contracts. - Environmental and land use initiatives: - ratified the United Nations Framework Convention on Climate Change in 2018; - launched the REDD+ program (Reducing Emissions from Deforestation and forest Degradation) with roles for conservation, sustainable management of forests, and enhancement of forest carbon stocks; - first step is developing a Land Use Plan with FAO. - Privatization, skills, and transparency: - view privatization strategy as key to leverage existing assets to develop a dynamic non-hydrocarbon sector; - plans to enhance skills of the local workforce, including through health and education; - support a structured and transparent framework for the sale and/or privatization of public assets; - intend to secure a financial return from environmental services provided by protected forests and biodiversity program. - Governance and anti-corruption: - government devised a strategy to improve governance, transparency, and the fight against corruption; objectives outlined in Action Plan published in 2019; - starting in September 2022, plan to begin publication of semi-annual reports on implementation progress of the Good Governance and Anti-Corruption Action Plan; - recently adopted an anti-corruption law, and an anti-corruption commission and asset declaration regime are being implemented; - production of preliminary reports by ongoing audits of COVID and Bata spending, GEPetrol and SONAGAS; - making good progress on ongoing work to update EITI membership application. ### VII. Conclusion - Authorities’ commitments: - reiterate strong commitment to remain closely engaged with the Fund to address the country’s macroeconomic imbalances as well as the region’s; - will continue to enhance their fiscal position, improve governance, and protect the most vulnerable populations from the adverse impact of fiscal adjustment and elevated inflation; - will continue to work with the Fund and their development partners to address the daunting challenges they face. *1gnqea2022001 - 3.7 percent of GDP is expected in 2022.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1gnqea2022001.pdf_