## 1gnqea2024002 ## Source details **Canonical URL:** [1gnqea2024002](https://www.imf.org/-/media/files/publications/cr/2024/english/1gnqea2024002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1gnqea2024002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1gnqea2024002.pdf.json) --- ### Executive summary and context - Hydrocarbon production represents 42 percent of the country’s output; has fallen by 56 percent since its peak in 2008; expected to drop by an additional 32 percent by 2029. - An Extended Fund Facility (EFF) arrangement (approved in 2019) expired in December 2022 without the completion of a single review. - Authorities requested a Staff‑Monitored Program (SMP) to establish a reform track record; SMP covers 12 months from IMF Management’s approval. - Overarching SMP objective: deliver stronger, sustainable, and more inclusive private sector‑led growth amid a contracting hydrocarbon sector. - SMP key pillars: - (i) ensuring fiscal sustainability; - (ii) restoring the soundness of the banking sector; - (iii) structural reforms to facilitate economic diversification; - (iv) improving social outcomes; - (v) promoting governance and fighting corruption. ### Recent developments and macroeconomic performance - Growth and output - Real GDP growth: 3.7 percent in 2022; estimated contraction of 5.8 percent in 2023. - Hydrocarbon real GDP: collapsed by 15.4 percent in 2023 due to permanent dismantling of a production platform in the Zafiro field. - Alternative estimate: economy contracted by 5.9 percent in 2023 (document excerpt). - Inflation - Year‑on‑year overall inflation: 2.6 percent in March 2024 (down from 4.2 percent in March 2023). - Year‑on‑year food inflation: 2.2 percent in March 2024 (down from 4.1 percent in March 2023). - Inflation fell from 4.9 percent in 2022 to 2.5 percent in 2023 (below CEMAC benchmark). - Fiscal and external accounts - Overall fiscal surplus: 11.9 percent of GDP in 2022 falling to 2.5 percent of GDP in 2023. - Non‑hydrocarbon primary balance (NHPB): deteriorated from -21.5 percent of NHGDP in 2022 to -24.3 in 2023. - Current account: surplus of 2.1 percent of GDP in 2022 shifted to a deficit of -0.7 percent of GDP in 2023. - FDI: decreased to 1.2 percent of GDP in 2023 from 10.3 percent in 2022. - Government social spending: 2.3 percent of GDP (3.6 percent of NHGDP) in 2023; Sub‑Saharan Africa average: 7.8 percent of GDP; other CEMAC countries average: 4.8 percent of GDP. - Banking sector - Non‑performing loans (NPLs): 31 percent of total loans at end‑December 2023, down from 55 percent a year earlier. - Several private banks remain undercapitalized; liquidity ratios improved since 2022 due to increased government deposits and government support to a systemic bank. ### Outlook and balance of risks - Growth projections - 2024 growth rebound to 5.1 percent driven by hydrocarbon growth of 6.4 percent (operationalization of a new natural gas field). - Medium‑term average growth projected at 0.1 percent per year from 2024 to 2029. - Sector projections (annual percentage change): - Real GDP: 3.7 (2022), -5.8 (2023), 5.1 (2024), -4.8 (2025), 1.2 (2026), 0.5 (2027), -4.0 (2028), 2.9 (2029). - Hydrocarbon GDP: 1.5 (2022), -15.4 (2023), 6.4 (2024), -14.0 (2025), -2.0 (2026), -3.8 (2027), -16.0 (2028), 1.8 (2029). - Non‑hydrocarbon GDP: 6.1 (2022), 4.0 (2023), 4.0 (2024), 3.0 (2025), 3.5 (2026), 3.5 (2027), 3.5 (2028), 3.5 (2029). - Fiscal and external projections - NHPB set to stabilize around -18.6 percent of NHGDP over the medium term. - Current account deficit expected to rise to almost 4 percent of GDP in projections. - Total public debt projected: 37.3 (2023), 35.3 (2024), 34.4 (2025), 33.7 (2026), 32.7 (2027), 36.1 (2028), 37.8 (2029) (Percent of GDP). - Imputed Foreign Reserves (net), US$billion: 1.1 (2023), 1.2 (2024), 1.2 (2025), 1.1 (2026), 1.0 (2027), 0.8 (2028), 0.5 (2029), 0.3 (2030). - Oil price (U.S. dollars a barrel): 99.0 (2022), 82.3 (2023), 80.6 (2024), 75.6 (2025), 72.6 (2026), 70.8 (2027), 69.9 (2028), 69.7 (2029). - Balance of risks - Downside: accelerated hydrocarbon depletion, delays in addressing banking weaknesses, slower reforms, lower hydrocarbon prices, another food price shock. - Upside: stronger structural reform implementation attenuating stagnation. ### Fiscal sustainability and resource mobilization (strategy and 2024 adjustment) - Strategy: Operationally target the nonhydrocarbon primary balance (NHPB) to avoid procyclicality and compensate for permanently lower hydrocarbon revenues. - 2024 fiscal adjustment - Authorities target an adjustment to the NHPB of 3.1 percentage points of NHGDP in 2024. - Two thirds of the adjustment rely on compression of non‑hydrocarbon capital expenditure; remainder from restraint in current non‑hydrocarbon expenditure (notably goods and services). - Adjustment modestly lower than the 3.8 percentage points of NHGDP envisioned when the 2024 budget was approved due to later implementation of new tax law (now expected in 2025) and more gradual fuel subsidy removal. - SMP will set fiscal quantitative targets on the floor on both the NHPB and non‑hydrocarbon revenue to monitor 2024 adjustment. - Domestic arrears - By end‑2023 authorities cleared CFAF 799.7 billion through offsetting tax arrears, securitization, and negotiated write‑offs—over half of an initial end‑2019 stock of CFAF 1,382.5 billion (20.8 percent of GDP). - A comprehensive and time‑bound medium‑term plan to clear remaining domestic arrears will be developed (structural benchmark); SMP indicative target: zero net accumulation of domestic arrears. - Medium‑term fiscal path (selected entries from Text Table 1, percent of non‑hydrocarbon GDP unless otherwise specified) - Hydrocarbon revenue: 29.9 (2023) | 28.6 (2024) | 24.0 (2025) - Non‑hydrocarbon primary revenue: 4.5 (2023) | 4.4 (2024) | 4.8 (2025) - Non‑hydrocarbon tax revenue: 3.1 (2023) | 3.1 (2024) | 3.6 (2025) - Non‑hydrocarbon current primary expenditure: 18.3 (2023) | 17.1 (2024) | 16.1 (2025) - Non‑hydrocarbon capital expenditure: 10.5 (2023) | 8.4 (2024) | 8.2 (2025) - Adjustment: Non‑hydrocarbon primary balance: -24.3 (2023) | -21.2 (2024) | -19.5 (2025) - Overall fiscal balance (commitment basis, percent of total GDP): 2.5 (2023) | 3.1 (2024) | 1.3 (2025) - Total public debt (percent of total GDP): 37.3 (2023) | 35.3 (2024) | 34.4 (2025) - Planned structural fiscal reforms and PFM - New tax law expected to be approved in 2024 and implemented in 2025; IMF Capacity Development (CD) to estimate yields and identify reforms. - Revenue administration: nationwide ASYCUDA implementation including the port of Bata by end‑2024 (structural benchmark); cooperation with AfDB; IMF CD for large taxpayer unit operations. - Fuel subsidy reform: develop policy options and mitigation measures (structural benchmark). - PFM: IMF CD to diagnose PFM practices; steps underway to implement a treasury single account. ### Banking sector soundness and measures - Recent actions for systemic public bank - Government cleared all arrears linked to the bank’s loans. - Government accelerated repayment schedule of some public debt held by the bank. - Substantial portion of the bank’s NPLs exchanged for a government loan as part of COBAC‑approved plan. - Measures and safeguards: - End‑2023 accounts of the systemic public bank to be audited by an international audit firm (structural benchmark, end‑July 2024). - High‑level commission established to recover distressed assets acquired by the state. - Bank prohibited from distributing dividends to boost capital. - Authorities preparing sale of the bank to a strategic partner including market valuation. - Medium‑term objectives - Ensure full compliance with capital adequacy requirements and profitability to generate internal capital for credit growth. - Implement National Financial Inclusion Strategy and expand commercial and mobile banking services. ### Diversification, business environment, and digital agenda - Hydrocarbon outlook and urgency - Hydrocarbon production has fallen by 56 percent since 2008 peak and expected to drop an additional 32 percent between 2024–29. - Main constraints to diversification: difficult business environment, lack of financing, high informality, low human capital accumulation. - 2024 targeted interventions - Reactivate agricultural extension program to raise productivity and food security. - Build food processing and inspection facilities to prepare and certify agricultural products for export. - Establish digitization strategy led by Ministry of Telecommunications to improve internet infrastructure and information access. - Recently decreased end‑user internet price by 50 percent; working to further reduce price and increase quality and reliability. - Business environment and human capital - Address operational issues of the single point business registration window; develop technological interconnection of Malabo and Bata commercial registries. - April publication of a business survey; diversification agenda to include education spending to increase domestic skilled workers. ### Social outcomes and safety nets - Social spending and priorities - Total government social spending: 2.3 percent of GDP (3.6 percent of NHGDP) in 2023. - SMP sets a floor on current social expenditure (indicative target) with priority for health and education. - Government restarted stalled health and education projects in 2023, contributing to higher current and capital expenditure. - Ministry of Education identified priority schools in urban and peri‑urban areas for rehabilitation and construction. - Government plans second national Demography and Health Survey (DHS); forthcoming household survey results to inform poverty and human capital outcomes. - Social safety net options - Authorities considering a flagship social safety net (SSN) over the longer term; piloting options with development partners. - Interim measures: expand free health services for low‑income patients; gradually introduce free meal program for students in higher‑poverty areas. ### Governance, transparency, and AML/CFT measures - SMP governance measures and timelines (selected structural benchmarks) - Publish licenses and contracts in the extractive sector on a governmental website (Target Date: End‑July 2024). - Publish the audit of Bata related expenditures on a governmental website (Target Date: End‑August 2024). - Develop a comprehensive and time‑bound plan to clear domestic arrears (Target Date: End‑August 2024). - Adopt implementing regulation for Anti‑Corruption Commission (ACC) functioning (Target Date: End‑September 2024). - Deploy ASYCUDA in Bata (Target Date: End‑December 2024). - Prepare and publish a comprehensive AML/CFT national strategy (Target Date: End‑December 2024). - ACC begins publishing asset declarations collected from senior public officials on a publicly accessible website (Target Date: End‑March, 2025). - Audit of the systemic public bank’s accounts as of December 31, 2023 to be conducted by an international auditing firm and report shared with IMF (Target Date: End‑July 2024). - Governance vulnerabilities highlighted (Box 1) - Implementation, transparency, and capacity gaps; poor timeliness of fiscal data on National Summary Data Page; WGI scores below global mean (Rule of Law: 1.2 standard deviations below world mean; Regulatory Quality: 1.7 standard deviations below global mean; Control of Corruption: 1.6 standard deviations below global mean). - Authorities preparing new EITI application and training population on resource wealth management. ### Program modalities, conditionality, monitoring, and safeguards - SMP modality: twelve‑month program to build a policy implementation track record for possible future IMF financing. - Monitoring - SMP monitored through two reviews based on semiannual test dates with 5 quantitative targets, 3 indicative targets, and 10 structural benchmarks (SBs). - First test date: June 30, 2024; first review expected by end‑November 2024. - Second test date: December 31, 2024; second review expected by end‑May 2025. - Key quantitative and indicative target examples (Table 1 excerpts, cumulative values in CFAF billions) - Floor on non‑hydrocarbon revenue of the central government: values listed for End‑June 2024 / End‑Sept. 2024 / End‑Dec. 2024. - Floor on non‑hydrocarbon primary balance of the central government: values listed with cumulative application. - Ceiling on external debt arrears accumulation: 0 continuously. - Ceiling on contracting and guaranteeing new external debt by the central government: 177 (sample entries). - Floor on social spending (cumulative figures shown). - Safeguards assessment and monitoring - 2022 safeguards assessment: BEAC maintained strong governance and external audit arrangements; internal audit and risk management practices needed strengthening. - Safeguards monitoring mission at end‑2023 followed up outstanding 2022 recommendations and external quality assessment of internal audit. - Preliminary recommendations: onboarding for new senior management and Board members; enhanced delegation framework for executive decision‑making. ### Technical Memorandum of Understanding (TMU) — reporting and valuation rules - Valuation rule: All foreign exchange assets, liabilities, and flows valued at "program exchange rates" (except items affecting government fiscal balances, valued at current exchange rate). - Program exchange rates as of March 28th, 2024: - CFAF 606.75 to USD 1; - CFAF 655.96 to EUR 1; - CFAF 83.96 to CNY 1; - CFAF 481.07 to GBP 1; - CFAF 802.99 to SDR 1. - Reporting timelines: data on variables subject to quantitative targets reported per timetable; QTs data to IMF no later than 75 days after assessment date; periodic monthly and quarterly reporting requirements specified for BEAC, MFB, INEGE, MMH and others (selected items summarized in TMU excerpt). - Definitions (selected) - Government: central government per GFSM 2001. - Fiscal year: January 1 to December 31. - Non‑hydrocarbon revenue: total government revenue (GFSM 2001, cash basis) less revenue from hydrocarbons. - Hydrocarbon revenue: sum of hydrocarbon tax and hydrocarbon non‑tax revenue (detailed components listed in TMU). - Non‑hydrocarbon primary balance: non‑hydrocarbon revenue (not including interest income on government assets) less non‑hydrocarbon primary government expenditure. - Adjustors - Upward adjustor for additional external grants: NHPB floor adjusted upward by full amount of grant. - Hydrocarbon revenue adjustor (if revenues exceed program expectations): 50 percent to increase deposits at BEAC or face domestic arrears; 50 percent to increase social and other priority spending. - Hydrocarbon revenue shortfall adjustor: ceiling on net commercial bank credit to government adjusted upward by 50 percent of shortfall; floor for NHPB adjusted upward by at least 50 percent of shortfall; social spending indicative target protected. ### External sector assessment (2023) and balance‑of‑payments outlook - Overall assessment: 2023 external position assessed as substantially weaker than level implied by medium‑term fundamentals and desirable policies (consistent with 2022, 2021, 2019). - External position and reserves - Net foreign assets (NFA) as percent of GDP: 9.9 (2022) rising to 12.9 (2023). - Reserves held at BEAC: 9.7 percent of GDP in 2023. - International reserves accumulation: US$1,391 million in 2022 to US$36 million in 2023. - Projection for reserves (2024–29): average decrease of 1.0 percent of GDP from 2024 to 2029. - 2024 projected as last year of accumulating reserves, estimated at around 0.6 percent of GDP. - Current account and CA gap (selected) - Current account balance: -0.7 (2023), -0.9 (2024), -2.5 (2025), -2.5 (2026), -2.6 (2027), -3.9 (2028), -3.9 (2029) (Percent of GDP). - EBA‑lite model 2023 results (percent of GDP): CA‑Actual: -0.7; Cyclical contributions: 0.6; Adjusted CA: -1.3; CA Norm: 4.3; Adjusted CA Norm: 4.3; CA Gap: -5.5. - REER Gap: 21.2 (CA model) and 11.5 (REER model); REER assessed as overvalued in 2023. - Capital and financial accounts - FDI: 1.2 percent of GDP in 2023; 10.3 percent in 2022; expectation: FDI into hydrocarbon sector will diminish over coming decade. - Projection: successive current account deficits and decline in hydrocarbon sector FDI would drain BEAC’s reserves, offsetting most of its substantial 2022 contribution by 2029. ### Policy recommendations and program objectives (selected) - Fiscal policy - Operationally target NHPB; mobilize non‑hydrocarbon revenue; rationalize expenditure while protecting priority social spending. - Phase out fuel subsidies with mitigation for vulnerable groups (policy options and implementation timetable included as structural benchmarks). - Prepare 2025 budget consistent with medium‑term adjustment (structural benchmark, end‑December 2024). - Financial sector - Expedite settlement of domestic arrears; audit systemic public bank accounts (structural benchmark, end‑July 2024); strengthen undercapitalized private banks. - Ensure compliance with capital adequacy and expand financial inclusion/mobile banking. - Structural reforms and diversification - Improve business environment, reduce internet costs and improve quality, interconnect commercial registries, support agricultural extension and agro‑industrialization. - Governance and AML/CFT - Operationalize Anti‑Corruption Commission; publish asset declarations; publish extractive contracts and licenses; prepare and publish AML/CFT strategy (structural benchmarks with target dates). - Program modality and monitoring - SMP of 12 months to build reform track record for possible IMF financing; monitored via semiannual reviews and specified QTs, ITs, and SBs. - Authorities pledge to provide IMF staff relevant information per TMU; IMF authorized to publish the letter, MEFP, and staff report. *IMF staff report and Memorandum on Economic and Financial Policies excerpts: Republic of Equatorial Guinea (content unit).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context - A decade of steady decline in hydrocarbon production has strained Equatorial Guinea’s fiscal and external accounts and elevated the need for economic diversification. - Hydrocarbon production represents 42 percent of the country’s output, has fallen by 56 percent since its peak in 2008, and is expected to drop by an additional 32 percent by 2029. - An Extended Fund Facility (EFF) arrangement (approved in 2019) expired in December 2022 without the completion of a single review. - The authorities requested a Staff-Monitored Program (SMP) to establish a requisite reform track record for a financing arrangement with the IMF; the SMP will cover 12 months from the date of IMF Management’s approval. ### Recent developments and macroeconomic performance - Growth and output - Real GDP growth: 3.7 percent in 2022; estimated contraction of 5.8 percent in 2023. - Hydrocarbon real GDP collapsed by 15.4 percent in 2023 due to the permanent dismantling of a production platform in the Zafiro field. - Inflation - Year-on-year overall inflation: 2.6 percent in March 2024 (down from 4.2 percent in March 2023). - Year-on-year food inflation: 2.2 percent in March 2024 (down from 4.1 percent in March 2023). - Fiscal and external accounts - Overall fiscal surplus: 11.9 percent of GDP in 2022 falling to 2.5 percent of GDP in 2023 (driven by lower hydrocarbon revenue and higher current and capital expenditure). - Non-hydrocarbon primary balance (NHPB): deteriorated from -21.5 percent of non-hydrocarbon GDP (NHGDP) in 2022 to -24.3 in 2023. - Current account: surplus of 2.1 percent of GDP in 2022 shifted to a deficit of -0.7 percent of GDP in 2023. - FDI: decreased to 1.2 percent of GDP in 2023 from 10.3 percent in 2022. - The country recorded a slight foreign reserve accumulation in 2023 despite worsened trade and FDI outturns. - Banking sector - Non-performing loans (NPLs): 31 percent of total loans at end-December 2023, down from 55 percent a year earlier. - A number of banks remain undercapitalized; liquidity ratios have improved since 2022 due to increased government deposits and recent government support to a systemic bank. ### Outlook and risks - Growth projections - 2024 growth rebound to 5.1 percent, driven by hydrocarbon growth of 6.4 percent due to operationalization of a new natural gas field. - Medium-term average growth projected at 0.1 percent per year from 2024 to 2029. - Fiscal and external projections - NHPB set to stabilize around -18.6 percent of NHGDP over the medium term. - Current account deficit expected to rise to almost 4 percent of GDP. - Public debt projected to temporarily decline as a share of GDP from 2024 to 2027 before returning closer to end-2023 levels by end-2029 at 37.8 percent of GDP. - Balance of risks - Downside risks: accelerated depletion of hydrocarbon reserves, delays in addressing banking sector weaknesses, slower implementation of key reforms, lower hydrocarbon prices, and another food price shock. - Upside scenario: stronger implementation of structural reforms could attenuate stagnation caused by hydrocarbon contraction. - External position - Successive projected current account deficits and decline in hydrocarbon sector FDI would drain BEAC’s reserves, offsetting most of its substantial 2022 contribution by 2029. ### Program objectives and policy pillars - Overarching objective: deliver stronger, sustainable, and more inclusive private sector-led growth amid a contracting hydrocarbon sector. - Key pillars: - (i) ensuring fiscal sustainability; - (ii) restoring the soundness of the banking sector; - (iii) structural reforms to facilitate economic diversification; - (iv) improving social outcomes; and - (v) promoting governance and fighting corruption. - SMP focus over 12 months: substantial fiscal consolidation supported by fiscal structural reforms; actions to ensure health of a systemic public bank; diversification policies centered on improving access to internet and boosting the agricultural sector; operationalizing the anticorruption commission; publishing asset declarations of senior public officials; and boosting transparency in the hydrocarbon sector. ### A. Ensuring Fiscal Sustainability and Resource Mobilization - Strategy - Fiscal policy should operationally target the nonhydrocarbon primary balance (NHPB) to avoid procyclicality and compensate for permanently lower hydrocarbon revenues. - Sufficient fiscal adjustment requires mobilizing nonhydrocarbon revenue and rationalizing expenditure while creating space for additional social spending. - 2024 fiscal adjustment - Authorities target an adjustment to the NHPB of 3.1 percentage points of NHGDP in 2024. - Two thirds of the adjustment rely on compression of non-hydrocarbon capital expenditure; the remainder from restraint in current nonhydrocarbon expenditure (notably goods and services). - The adjustment is modestly lower than the 3.8 percentage points of NHGDP envisioned when the 2024 budget was approved, driven mainly by later implementation of the new tax law (now expected in 2025) and a more gradual pace of fuel subsidy removal. - The program will set fiscal quantitative targets on the floor on both the NHPB and nonhydrocarbon revenue to monitor 2024 adjustment. - Domestic arrears - By end-2023 the authorities cleared CFAF 799.7 billion through offsetting tax arrears, securitization, and negotiated write-offs—over half of an initial end-2019 stock of CFAF 1,382.5 billion (20.8 percent of GDP). - A comprehensive and time-bound medium-term plan to clear remaining domestic arrears will be developed (structural benchmark) with assistance from an international consulting firm; the plan will consider impacts on undercapitalized commercial banks. - The SMP will set an indicative target on zero net accumulation of domestic arrears. - Medium-term fiscal measures - Fiscal adjustment beyond 2024 will require additional measures in 2025 and beyond: rationalization of expenditures (including phasing out fuel subsidies and optimizing public investment while protecting essential projects and social spending) and higher nonhydrocarbon revenues. - A 2025 budget (structural benchmark) consistent with the medium-term adjustment path will be prepared. - Key structural fiscal reforms under implementation or planned - Tax policy: A new tax law seeking to increase the base and modernize the system is expected to be approved in 2024 and implemented in 2025; IMF Capacity Development (CD) will better estimate yields and identify additional tax policy reforms. - Revenue administration: Continued implementation of the ASYCUDA system nationwide, including the port of Bata by the end of 2024 (structural benchmark); cooperation with AfDB to improve revenue mobilization capacity; IMF CD requested to improve large taxpayer unit operations. - Fuel subsidy reform: Authorities are developing policy options for phasing out fuel subsidies with mitigation measures for the vulnerable (structural benchmark). - Public financial management (PFM): Upcoming IMF CD will diagnose PFM practices and recommend measures, including on multi-annual capital expenditure; steps underway to implement a treasury single account. - Text Table 1. Equatorial Guinea: Summary of Fiscal Path (Percent of non-hydrocarbon GDP, unless otherwise specified) - 2023 | 2024 | 2025 - Hydrocarbon revenue: 29.9 | 28.6 | 24.0 - Non-hydrocarbon primary revenue: 4.5 | 4.4 | 4.8 - of which, non-hydrocarbon tax revenue: 3.1 | 3.1 | 3.6 - Hydrocarbon expenditure: 0.2 | 1.4 | 1.3 - Non-hydrocarbon primary expenditure: 28.8 | 25.5 | 24.3 - Non-hydrocarbon current primary expenditure: 18.3 | 17.1 | 16.1 - of which, compensation of employees: 4.9 | 4.7 | 4.6 - of which, goods and services: 8.5 | 7.6 | 7.5 - of which, fuel subsidies: 1.9 | 1.4 | 0.8 - Non-hydrocarbon capital expenditure: 10.5 | 8.4 | 8.2 - Adjustment: Non-hydrocarbon primary balance (in percent of non-hydrocarbon GDP): -24.3 | -21.2 | -19.5 - Overall fiscal balance (commitment basis, in percent of total GDP): 2.5 | 3.1 | 1.3 - Total public debt (in percent of total GDP): 37.3 | 35.3 | 34.4 ### B. Restoring the Soundness of the Banking Sector - The SMP includes actions to address banking sector weaknesses, recognizing remaining undercapitalization in a number of banks and the need to assess impacts of arrears clearance on bank balance sheets. - Recent improvement: NPLs fell to 31 percent at end-December 2023 from 55 percent a year earlier; liquidity ratios have improved since 2022. ### C. Diversifying the Economy - Program will emphasize structural reforms to facilitate economic diversification, focused on: - Improving access to internet; - Boosting the agricultural sector; - Promoting private sector-led non-hydrocarbon growth. ### D. Sharing the Prosperity (Social outcomes) - The fiscal consolidation strategy aims to protect social spending while creating fiscal space through rationalization of nonessential goods and services and optimized capital spending. - The authorities restarted stalled health and education projects in 2023, contributing to higher current and capital expenditure. ### E. Improving Governance and Transparency - Program actions include: - Operationalizing the anticorruption commission and subsequently publishing asset declarations of senior public officials; - Boosting transparency in the hydrocarbon sector. - Governance reforms are part of the SMP’s structural benchmarks and reform track record-building for a future financing arrangement. *IMF staff report: EXECUTIVE SUMMARY, Republic of Equatorial Guinea, July 1, 2024.* ### 14. The authorities have taken important steps to improve the health of the financial ### 14. The authorities have taken important steps to improve the health of the financial ### Financial sector health and near-term actions - Recent efforts focused on improving liquidity and solvency of a systemic public bank: - The government has cleared all of its arrears linked to the bank’s loans. - The government accelerated the repayment schedule of some of the public debt held by the bank. - A substantial portion of the bank’s NPLs was exchanged for a government loan as part of a plan approved by the regional supervisor COBAC. - Several private banks with a large stock of NPLs related to government arrears in the construction sector remain undercapitalized. - Program measures and safeguards: - End-2023 accounts of the systemic public bank will be audited by an international audit firm (structural benchmark). - A high-level commission established to recover distressed assets that the state acquired from the bank. - The bank is not allowed to distribute dividends, enabling it to boost its capital. - Authorities are preparing the sale of the bank to a strategic partner, including preparation of its market valuation. - The arrears clearance plan being prepared presents an opportunity to strengthen the financial position of undercapitalized privately-owned banks. ### Medium-term banking sector objectives and financial inclusion - Beyond 2024 priorities: - Ensure health of the entire banking sector and implement the National Financial Inclusion Strategy. - Achieve full compliance with capital adequacy requirements combined with profitability to generate internal capital capable of sustaining credit growth in the medium term. - Enable expanded offering of commercial and easily accessible banking services. - Collaborate closely with banks to facilitate access to mobile banking platforms and electronic payment systems. ### Diversifying the Economy - Hydrocarbon outlook and urgency: - Hydrocarbon production has fallen by 56 percent since its peak in 2008 and is expected to drop an additional 32 percent between 2024–29. - Hydrocarbon production decline creates urgency to reduce reliance on hydrocarbons; main constraints to diversification include a difficult business environment, lack of financing, high levels of informality, and low human capital accumulation. - 2024 targeted interventions: - Reactivate an agricultural extension program to facilitate knowledge sharing among small-scale farmers to increase agricultural productivity and food security and reduce reliance on food imports. - Enable industrialization in the agricultural sector by building food processing and inspection facilities to prepare and certify agricultural products for export. - Establish a digitization strategy led by the Ministry of Telecommunications to improve internet infrastructure and information access. - Recently decreased the end-user price of internet by 50 percent and are working to identify measures to further reduce price and increase quality and reliability of internet infrastructure. - Business environment and human capital: - Short-run measures include addressing operational issues of the single point window for business registration and developing a technological solution to interconnect the two commercial registries (Malabo and Bata) to facilitate real-time information sharing. - April publication of a recent business survey. - Diversification agenda should include education spending measures to increase domestic skilled workers for long-term private sector growth. ### Sharing the Prosperity — social spending and safety nets - Social spending trends and gaps: - Total government social spending was 2.3 percent of GDP (3.6 percent of NHGDP) in 2023, up from previous year but below peers: - Sub-Saharan Africa average: 7.8 percent of GDP. - Other CEMAC countries average: 4.8 percent of GDP. - Recent increases driven by construction of the new university campus in Malabo and increases to the wage bill for doctors and teachers. - SMP social spending priorities: - Increase current spending, build social infrastructures, and improve socio-economic data collection. - The program sets a floor on current social expenditure (indicative target), with priority in health and education sectors. - Lack of pharmaceuticals and equipment limit district-level care; public schools face shortages of trained teachers and classroom equipment. - Ministry of Education identified priority schools in large urban and growing peri-urban areas requiring rehabilitation and construction to address rising pupil-teacher ratios. - Government plans to conduct the second national Demography and Health Survey (DHS); forthcoming household survey results will be crucial to understand national poverty and human capital outcomes. - Social safety net options: - Authorities are weighing options for establishing a flagship social safety net (SSN) in the longer term, working closely with development partners to explore pilot schemes for eventual scale-up. - Interim measures could include expanding free health services for low-income patients or gradually introducing a free meal program for students in higher-poverty areas. ### Improving Governance and Transparency - Governance overview: - Equatorial Guinea faces serious macro critical governance vulnerabilities; authorities are committed to improving governance, increasing transparency and fighting corruption to create an enabling environment for private investment and business creation. - SMP governance reform focus areas and measures: - Operationalization of the anti-corruption commission (ACC) and asset declaration regime: - Authorities will approve the implementing regulation of the ACC in line with earlier IMF Capacity Development (CD) (structural benchmark) and provide financial and material resources for its functioning. - The ACC will be staffed and trained, including a division mandated to oversee the asset declaration regime, with IMF CD assistance. - The ACC will take over collecting asset declarations from the Ministry of Finance and begin publishing them by the end of the SMP (structural benchmark). - Fiscal governance: - Continue implementing the customs ASYCUDA IT system and a treasury single account. - Transparency in extractive sector: - During the SMP, authorities will publish contracts and licenses in the extractive industry (structural benchmark) and a report on the extractive sector including data on production and exports. - Authorities will publish the Bata expenditures audit (structural benchmark) and the list of final beneficiaries of the COVID and Bata spending. - Rule of Law: - All laws and decrees issued since 2022 published on the Official State Gazette website; authorities will update the website periodically and endeavor to gradually publish laws and decrees issued before 2022. - AML/CFT: - Prepare and publish on a government website a comprehensive national AML/CFT strategy following international best practices (structural benchmark). - Strategy will build on existing national risk assessment and outcome of the ongoing evaluation by GABAC (on-site mission took place in April). ### Governance vulnerabilities (Box 1 highlights) - Persistent vulnerabilities from the 2019 Governance Diagnostic: implementation, transparency, and capacity gaps leading to normalized discretionary actions, inadequate information recording/dissemination, loss of institutional memory, mismatched skills, and lack of know-how. - Specific dimensions: - Transparency and Accountability: - National Summary Data Page coverage remains incomplete with poor timeliness and periodicity; Ministry of Finance publishes fiscal data with a lag. - Authorities preparing for a new application to the EITI and training the population on resource wealth management and transparency. - Parliament considering a bill for a special corps of public accountants and tax inspectors. - Rule of Law: - WGI Rule of Law score for Equatorial Guinea and the rest of CEMAC is 1.2 standard deviations below the world mean for 2021. - Deficits in accessibility to laws and judicial decisions and in court administration and efficiency. - Regulatory Framework: - WGI Regulatory Quality score in 2021 was 1.7 standard deviations below the global standardized mean score of 0, lower than CEMAC average (-1.2). - Recent focus on ensuring full operation of the single window for business registration to reduce the process to an average of 5 days. - AML Framework: - Limited number of investigations; deficiencies include lack of information on ultimate beneficiaries of legal entities. - ANIF working on guidance for background verifications and submitted an application to the Egmont Group; received a mutual evaluation mission from GABAC. - Anti-Corruption: - Weakest control of corruption score in the CEMAC region, 1.6 standard deviations below the global mean in 2021 (1.3 for CEMAC). - New anti-corruption framework not fully operational, but government active in pursuing corruption cases. - Fiscal Governance: - WGI Government Effectiveness score in 2021 was 1.2 standard deviations below the global mean of 0, equivalent to the CEMAC average. - Recent reforms include procedures to track and control expenditures, a committee overseeing alignment of spending with priorities, approval of a decree establishing a Treasury Single Account, and launch of an online customs system in two ports (Malabo and Luba). ### Program issues, modalities, and safeguards - SMP modalities: - A twelve-month SMP is proposed to establish a policy implementation track record for a potential IMF financing arrangement. - Medium-term macroeconomic framework indicates balance of payments gaps from 2025 onwards, with the country projected to be a drain on BEAC’s reserves while the overall level of those reserves is already expected to be below the adequacy level of five months of imports. - Conditionality and monitoring: - SMP will be monitored through two reviews based on semiannual test dates for 5 quantitative targets and 3 indicative targets as well as 10 SBs. - First test date: June 30, 2024; review expected to be completed by end-November 2024. - Second test date: December 31, 2024; review expected to be completed by end-May 2025. - Implementation risks: - SMP implementation risks are manageable; authorities’ active reform agenda during 2023 in the absence of an IMF-supported program indicates increased support for reforms and ownership. - Authorities recognize the end of large oil windfalls and the urgency of deep structural reforms to improve the business environment and diversify the economy. - Safeguards assessment: - 2022 safeguards assessment found BEAC maintained strong governance and external audit arrangements but internal audit and risk management practices needed strengthening. - A safeguards monitoring mission took place at end-2023 to follow up on outstanding 2022 recommendations, an external quality assessment of internal audit, and implementation of the governance framework. - Preliminary recommendations include onboarding for new members of senior management and the Board and an enhanced delegation framework for executive decision-making. - Capacity Development and statistics: - Authorities requested CD on fiscal topics; a PFM diagnostic mission and a comprehensive tax policy diagnosis are scheduled later this year. - Additional CD requests being considered for the large taxpayer unit. - Anticorruption commission expected to use IMF CD for operationalization and preparation for publication of asset declarations. - In 2024 authorities are using IMF CD to improve external sector statistics, including closing discrepancies in exports and imports statistics between INEGE and BEAC due to differing methodologies. ### Staff appraisal — macroeconomic outlook and policy priorities - Hydrocarbon-driven growth era ending: - Over 2014–21, real GDP fell by an average rate of -5 percent per year. - 2023 real GDP decline: 5.8 percent. - Despite a projected increase in hydrocarbon production of 6.4 percent in 2024, a decline in hydrocarbon production of 32 percent is expected from 2024–29. - Long-lasting contraction and drop in hydrocarbon revenues have created structural macroeconomic imbalances, strained fiscal and external accounts, and contributed to accumulation of domestic arrears, translating into weakness in the financial sector. - Policy imperatives: - The authorities’ reform strategy requires steadfast implementation to deliver strong inclusive nonhydrocarbon growth. - Without resolute policy responses, gains in per capita income achieved over the last two decades are expected to fully unravel in the medium term. - Nonhydrocarbon growth must be private sector-led and more inclusive while ensuring fiscal sustainability, health of the financial sector, and fundamentally improved governance. *Source: IMF staff report content provided in the chapter excerpt.* ### 33. Fiscal consolidation needs to compensate for the decline in hydrocarbon revenues to ### 33. Fiscal consolidation needs to compensate for the decline in hydrocarbon revenues to ### Fiscal adjustment and revenue outlook - The envisaged fiscal adjustment in 2024 is presented as a first step to rationalize expenditure and create room for higher social spending. - A new tax law will be implemented in 2024 to boost nonhydrocarbon revenues and replace diminishing hydrocarbon-related revenues. - Key aggregate indicators (estimates/projections): - Revenue: 22.3 (2023), 21.8 (2024), 20.0 (2025), 18.8 (2026), 17.4 (2027), 15.3 (2028), 15.1 (2029) (Percent of GDP). - Hydrocarbon revenue: 19.3 (2023), 18.8 (2024), 16.5 (2025), 13.7 (2026), 11.4 (2027), 11.4 (2028), 11.2 (2029) (Percent of GDP). - Non-hydrocarbon revenue: 3.0 (2023), 3.0 (2024), 3.5 (2025), 3.6 (2026), 3.7 (2027), 3.9 (2028), 3.9 (2029) (Percent of GDP). - Overall fiscal balance (Commitment basis): 2.5 (2023), 3.1 (2024), 1.3 (2025), 0.1 (2026), -1.5 (2027), -4.6 (2028), -5.1 (2029) (Percent of GDP). - Overall fiscal balance (Cash basis): 0.4 (2023), 0.8 (2024), 2.7 (2025), 0.9 (2026), -0.3 (2027), -1.8 (2028), -5.0 (2029) (Percent of GDP). - Non-hydrocarbon primary balance: -11.4 (2023), -15.7 (2024), -13.9 (2025), -13.4 (2026), -13.3 (2027), -13.4 (2028), -14.4 (2029) (Percent of GDP). - Non-hydrocarbon primary balance (as percent of non-hydrocarbon GDP): -21.5 (2023), -24.3 (2024), -21.2 (2025), -19.5 (2026), -18.9 (2027), -18.6 (2028), -18.6 (2029). ### Planned fiscal structural measures and public financial management - Authorities’ planned measures under the SMP aim to improve fiscal sustainability, fiscal governance, and revenue administration. - Specific actions described: - Phase out fuel subsidies after evaluating population and vulnerable impacts. - Execute a systematic plan to clear accumulated domestic arrears (plan currently being prepared). - Revenue administration measures, including implementation of the ASYCUDA customs IT system in Bata, to mobilize higher revenues. - Conduct a comprehensive diagnostic to identify and implement better PFM practices. - Authorities commit to increase priority social spending. ### Financial sector stability - Significant steps already taken to improve liquidity and solvency at a systemic public bank. - Going forward, authorities will need to: - Ensure the bank’s compliance with prudential requirements. - Facilitate strengthening of balance sheets of undercapitalized private banks. ### Economic diversification and business environment - Focused interventions prioritized to advance diversification: - Improve the business environment to spur private sector-led growth. - Improve functioning of the single point business registration window and interconnect two separate commercial registries. - Improve quality and lower the cost of internet to boost private sector efficiency and public sector digitalization. - Vertical support policies focus on the agricultural sector to support equitable job creation and improve the nonhydrocarbon trade balance. - Selected sectoral growth indicators: - Real GDP: 3.7 (2022), -5.8 (2023), 5.1 (2024), -4.8 (2025), 1.2 (2026), 0.5 (2027), -4.0 (2028), 2.9 (2029) (Annual percentage change). - Hydrocarbon GDP: 1.5 (2022), -15.4 (2023), 6.4 (2024), -14.0 (2025), -2.0 (2026), -3.8 (2027), -16.0 (2028), 1.8 (2029) (Annual percentage change). - Non-hydrocarbon GDP: 6.1 (2022), 4.0 (2023), 4.0 (2024), 3.0 (2025), 3.5 (2026), 3.5 (2027), 3.5 (2028), 3.5 (2029) (Annual percentage change). ### Governance, transparency, and AML/CFT - Addressing a large governance deficit is deemed paramount to boost nonhydrocarbon growth. - Authorities’ planned governance measures during the SMP: - Operationalize the anti-corruption commission. - Start publishing asset declarations by senior public officials. - Improve transparency in the hydrocarbon sector and in the fiscal accounts. - Prepare an AML/CFT strategy to reinforce confidence in the banking sector. ### IMF capacity development and program support - Staff supports authorities’ requests for IMF CD to strengthen: - Tax policy and administration. - Public financial management. - Preparation of external sector statistics. - Anticorruption commission capacity to prepare for publication of asset declarations. - Staff supports a 12-month SMP to anchor reforms and establish a policy implementation track record. ### Key external and balance sheet indicators - Current account balance (including official transfers; - = deficit): -0.7 (2023), -0.9 (2024), -2.5 (2025), -2.5 (2026), -2.6 (2027), -3.9 (2028), -3.9 (2029) (Percent of GDP). - Imputed Foreign Reserves (net), US$billion: 1.1 (2023), 1.2 (2024), 1.2 (2025), 1.1 (2026), 1.0 (2027), 0.8 (2028), 0.5 (2029), 0.3 (2030) as shown in table. - Total public debt: 30.2 (2022), 37.3 (2023), 35.3 (2024), 34.4 (2025), 33.7 (2026), 32.7 (2027), 36.1 (2028), 37.8 (2029) (Percent of GDP). - Government deposits (in percent of GDP): 18.6 (2022), 19.3 (2023), 19.4 (2024), 19.4 (2025), 18.9 (2026), 17.4 (2027), 16.5 (2028), 14.7 (2029). - Oil price (U.S. dollars a barrel): 99.0 (2022), 82.3 (2023), 80.6 (2024), 75.6 (2025), 72.6 (2026), 70.8 (2027), 69.9 (2028), 69.7 (2029). *Source: Excerpt from IMF staff report (Equatorial Guinea) as provided in the content unit.* ### 1. Total financing requirements ### 1. Total financing requirements ### Financing requirements and components - Total financing requirements (row label): 255385423361373528569 - Current account deficit: 90116324334361533564 - Debt amortization: 155191176201211236239 - Net change in external arrears (increase = -): 0400000 - Net change in government deposits abroad (increase=+): -25000000 - Net change in net reserves (increase=+): 3674-77-173-198-241-234 ### Total financing sources and components - Total financing sources (row label): 255385423361373528569 - Capital transfers: 0000000 - Foreign direct investment (net): 14212810185262299335 - Portfolio investment (net): 61-906064676772 - Debt financing: 224386 382332165285285 - Commercial banks' capital flows: -249-80-120-120-120-120-120 - Other net capital inflows: 7840000-2-2 - Errors and omissions: 0 000000 - Source attribution in table: IMF staff estimates - Table context: EstimatesProjections ### Banking sector financial soundness indicators (2018–23, percent unless otherwise indicated) - Total bank regulatory capital to risk-weighted assets1: 29.5-2.8-1.6-6.20.6-1.5-18.9 - Total capital (net worth) to assets: 12.8-0.7-0.2-1.31.20.0-6.4 - Total assets (growth): 3.4-10.3-0.153.2-30.27.93.8 - Non-performing loans (gross) to total loans (gross): 36.949.152.255.155.456.031.1 - Return on equity2: 3.7-0.6-3.9-3.9-2.03.3-9.2 - Return on assets: 0.90.1-0.6-0.5-0.20.5-1.2 - Non interest expense to gross income: 67.881.7115.1106.397.291.9151.2 - Liquid assets to total assets: 30.320.219.912.721.932.136.3 - Liquid assets to short-term liabilities: 170.1120.7131.5130.3152.1204.0199.1 - Total deposits to total (noninterbank) loans: 98.1104.098.5102.6115.9136.3153.1 - Gross loan (banks' book) - bn FCFA: 12831021102810599889921006 - Gross loan - annualized growth rate: 1.2-20.50.73.0-6.72.21.8 - Foreign-currency-denominated loans to total loans: 0.10.50.40.30.20.10.1 - Foreign-currency-denominated liabilities to total liabilities: ............1.51.71.2 - Data source: Banking Commission of Central Africa (COBAC). - Notes: 1. Calculated according to the Basel I guidance. 2. Return in ROE is calculated based on annualized net profit before tax. ### External sector assessment (2023) — key findings and projections ### Overall assessment - 2023 external position: assessed as substantially weaker than the level implied by medium-term fundamentals and desirable policies. - Comparison with prior assessments: remains evaluated as substantially weaker as in 2022, 2021 and 2019. ### Foreign assets and liabilities: position and trajectory - Net foreign assets (NFA) as a percentage of GDP: rose from 9.9 percent in 2022 to an estimated 12.9 percent in 2023. - Reserves held at BEAC: accounting for 9.7 percent of GDP in 2023. - International reserves accumulation: US$1,391 million in 2022 to US$36 million in 2023. - Hydrocarbon exports: declined from 48.1 percent to 29.4 percent of GDP (contextual phrasing present in source). - FDI in hydrocarbon sector: 1.2 percent in 2023, compared to 10.3 percent of GDP in 2022. - Projection for reserves (2024–29): average decrease of 1.0 percent of GDP from 2024 to 2029. - 2024 projection: last year of accumulating reserves, estimated at around 0.6 percent of GDP. - From 2025 onward: NFA dynamics expected to reflect anticipated decline in hydrocarbon production and exports, and decreased inflows of FDI. ### Current account - 2023 current account balance: estimated deficit of -0.7 percent of GDP. - 2022 current account: surplus of 2.1 percent of GDP. - Hydrocarbon exports: 47 percent of GDP in 2022; 28.1 percent of GDP in 2023. - Trade balance surplus: 17 percent of GDP in 2023 (35 percent in 2022). - Historical current account deficits: averaged -12.4 percent of GDP between 2015–19. - Projected current account deficits (2024–29): average 2.7 percent of GDP, with a projected deficit of -3.9 percent of GDP in 2029. - Primary driver of projected deficits: diminishing production and exports of hydrocarbons. ### EBA-lite model results and CA gap (2023, in percent of GDP) - CA-Actual: -0.7 - Cyclical contributions (from model) (-): 0.6 - Natural disasters and conflicts (-): -0.1 - Adjusted CA: -1.3 - CA Norm (from model)2/: 4.3 - Adjustments to the norm (+): 0.0 - Adjusted CA Norm: 4.3 - CA Gap: -5.5 - REER Gap (in percent): 21.2 (CA model) and 11.5 (REER model) - o/w Relative policy gap: 9.1 - Elasticity: -0.3 - Note: 1/ Based on the EBA-lite 3.0 methodology. 2/ Cyclically adjusted, including multilateral consistency adjustments. ### Real and Nominal Effective Exchange Rate (2023) - REER: appreciation of 0.6 percent in 2023 (compared to -6.5 percent depreciation in 2022). - NEER: appreciation of 3.9 percent in 2023 (compared to 4.4 percent depreciation in 2022). - Assessment: REER assessed as overvalued in 2023; EBA-lite CA gap implies REER overvaluation of 21.2 percent (higher than 16.7 percent estimated in 2022); EBA-lite REER model estimates overvaluation of 11.5 percent. ### Capital and financial accounts: flows and expectations - FDI in 2023: 1.2 percent of GDP (driven by hydrocarbon projects). - FDI in 2022: 10.3 percent of GDP. - Expectation: FDI inflows into the hydrocarbon sector will diminish over the coming decade due to depletion of resources and potential price declines. - Assessment: Medium-term Balance of Payments financing needs anticipated to persist at elevated levels, requiring strong commitment to implement structural and fiscal reforms. ### Policy recommendations and program objectives ### Potential policy responses (external sector) - Structural and fiscal reforms aimed at bolstering national savings and stimulating productive private investment. - Priorities: enhancing public savings; fostering medium-term competitiveness by increasing non-hydrocarbon productivity and promoting economic diversification. - Reforms across sectors: business environment, governance, financial sector, and human capital. - Ensure efficient allocation of government expenditures. ### Risk Assessment Matrix — recommended policy responses to identified risks - For intensification of regional conflict(s) (High likelihood, High impact, ST): - Save windfall hydrocarbon earnings to rebuild macroeconomic buffers. - Adopt temporary fiscal measures to protect food security for vulnerable population. - Diversify non-traditional sectors. - Vigilantly monitor financial sector developments in coordination with CEMAC. - For commodity price volatility (High likelihood, High impact, ST): - Save windfall hydrocarbon earnings to rebuild macroeconomic buffers. - Provide temporary and targeted transfers to the vulnerable. - Allow gradual pass-through of international prices phasing out generalized subsidies. - For abrupt global slowdown or recession (Medium likelihood, High impact, ST, MT): - Enhance competitiveness to support economic recovery. - Diversify nontraditional revenues. - Vigilantly monitor the financial sector in coordination with CEMAC. - For weak governance and capacity (High likelihood, High impact, ST, MT): - Press ahead with governance and PFM reforms; request technical assistance and training to raise capacity. - For banking sector weaknesses (High likelihood, High impact, ST): - Expedite settlement of domestic arrears and take actions to restructure the largest systemic bank. ### Program objectives and government commitments (from Letter of Intent, June 27, 2024) - Main objective: further adjust the economy to the effects of the secular decline in hydrocarbon production. - Specific objectives: - (i) Foster economic diversification through additional structural policies to improve the business environment and reduce governance vulnerabilities to encourage private investment and generate stronger non-hydrocarbon growth. - (ii) Ensure long-term fiscal sustainability in the face of structurally lower hydrocarbon revenues. - (iii) Restore the soundness of the banking sector so it can fully support private sector activity. - (iv) Further improve social development indicators. - Program modality: staff-monitored program (SMP) with a duration of 12 months to build a track record for future IMF financing possibility. - Monitoring: program implementation to be monitored through reviews based on semi-annual test dates, with first review scheduled by end-November 2024. - Government pledge: provide IMF staff with relevant information as established in the Technical Memorandum of Understanding; IMF authorized to publish the letter, MEFP, and related staff report. *Source: IMF staff estimates and associated IMF staff report excerpts in the provided content.* ### 1. After briefly exiting recession in 2022, the Equatoguinean economy is estimated to ### 1gnqea2024002 - 1. After briefly exiting recession in 2022, the Equatoguinean economy is estimated to ### Recent economic performance and macro indicators - Economy contracted by 5.9 percent in 2023. - Fiscal surplus of 13.6 percent of GDP in 2022; revenues fell considerably in 2023 due to lower global oil prices and the permanent closure of a major oil production platform in the Zafiro field. - Current account surplus in 2022 was reversed in 2023 due to a sharp decline in the international price of oil. - Inflation fell from 4.9 percent in 2022 to 2.5 percent in 2023, below the benchmark established by CEMAC. - Windfall hydrocarbon revenues in 2022 followed seven consecutive years of recession. ### Medium-term outlook and strategic priorities - Secular decline in hydrocarbon production will increase pressure on fiscal and external balances and affect ability to support inclusive growth. - Fundamental shifts and investment in human capital are required to reduce reliance on hydrocarbons through private sector-led non-hydrocarbon growth. - Achieving objectives will require additional policy effort and commitment to the reform agenda. ### Recent reform achievements - EFF program signed in December of 2019; implementation continued despite COVID-19, March 2021 Bata explosions, and the Russia-Ukraine invasion. - Public financial management and tax/customs administration improvements: - Executed a 2023 budget that increased spending efficiency and prioritized health and education. - Advanced a new digital debt management system. - Used the 2021 RFI disbursement to increase reserves at BEAC. - Paid CFAF 79.329 million to reduce domestic arrears in 2022 and CFAF 104.852 million in 2023, prioritizing banking sector debt. - Adopted a law in 2023 providing legal framework for the Treasury Single Account. - Installed ASYCUDA in Luba and Malabo. - Issued Decree Number 9/2024 on February 7 with measures to improve public finance management and health. - Financial system stability measures: - Eliminated debt arrears related to loans issued by the large systemic bank. - Accelerated payments of government bonds on the bank’s balance sheet to improve liquidity. - Absorbed a significant part of the bank’s non-performing loans in exchange for a loan from the bank to the government. - Progress by ANIF on AML/CFT. - Governance and transparency: - Approved Anti-Corruption law in May 2021 with provisions for asset declarations, a National Commission for Preventing and Fighting Corruption (Anti-Corruption Commission–ACC), norms for public servants, and whistleblower protection. - Continued progress in 2023 on regulations for the asset declaration system and the ACC; approved a budget allocation for ACC in 2024. - Audits of COVID and Bata emergency spending: COVID audit finalized and published; Bata audit in final stages with independent auditor. - Published procurement contracts and beneficial ownership information for COVID expenditures; procurement publication for Bata pending final auditor clearance. - Published independent audits of GEPETROL and SONAGAS on the Ministry of Finance and Budget website in September 2022. - Reactivated national preparatory group for EITI in 2023; held informational sessions in early 2024 with private companies, civil society, local officials, and students. ### Social measures and human capital - Support to vulnerable populations following Bata explosions and food subsidy measures in response to high global prices. - Continued construction, equipping, and commissioning of new hospitals and implementation of Distritos Sanitarios to increase healthcare coverage. - Expanded education access with new infrastructure; over 2,000 children in private schools from vulnerable families receive scholarships. - Draft social protection law produced to expand social protection programs. - Improved reporting of social spending data and finalizing a household survey with World Bank support. ### SMP objectives and strategy - Full commitment to structural reform agenda recognizing the end of windfall hydrocarbon revenues. - SMP priorities: (i) ensuring fiscal sustainability; (ii) restoring banking sector soundness; (iii) fostering non-hydrocarbon growth and improving social outcomes; (iv) improving governance. - 2024 program focuses on public financial management, fiscal infrastructure, financial sector strengthening, transparency, and governance to stimulate private sector-led non-hydrocarbon growth. ### Fiscal policy commitments and targets - Deliver fiscal adjustment in line with the 2024 budget. - Operational target: improve the non-hydrocarbon primary balance (NHPB) by 3.1 percentage points of non-hydrocarbon GDP relative to last year (quantitative target). - Non-hydrocarbon revenues as a share of NHGDP expected to remain at the level of last year (quantitative target); measures to save on spending across goods and services, capital, and subsidies will be implemented. - Phase out fuel subsidies gradually with protection for vulnerable households; develop policy options for phasing out fuel subsidies (structural benchmark, end-July 2024) and begin implementing the selected option in 2024. - Finalize a comprehensive and time-bound plan to clear audited domestic arrears amounting to CFAF 582.8 billion (structural benchmark, end-August 2024); commit to zero net accumulation of domestic arrears (indicative target). - Under 2019 EFF, cleared almost half of initial stock of domestic arrears amounting to CFAF 572.2 billion (9.5 percentage points of GDP). - Commit to approve a new tax law in 2024 expected to substantially increase non-hydrocarbon revenue starting in 2025; submit to Parliament a 2025 budget consistent with program objectives (structural benchmark, end-December 2024). ### Structural fiscal reforms (expenditures, revenues, customs, social spending) - Expenditures: - Adopt a new public procurement code in line with international practices. - Connect all ministries through IT systems for expenditure tracking and treasury operations during this year. - Ensure investment spending is included in spending tracking and approved by the Ministry of Finance and Budget. - Continue implementing Treasury Single Account and identify all government accounts. - Plan to receive diagnostic CD on public financial management this year. - Revenues: - Implement measures to increase non-hydrocarbon revenues via the new tax law under Parliament’s consideration. - Promote effective tax collection and increase number of private businesses registered with the tax office. - Verify stock of tax arrears and develop a plan to reduce it; compile and quantify an inventory of tax exemptions and launch an inventory of public real estate. - Work with African Development Bank to modernize tax administration focusing on digitalization and HR training; strengthen the large taxpayer unit with possible IMF CD. - Customs Administration: - Finish deploying ASYCUDA in Bata by the end of the year (structural benchmark, end-December 2024) and gradually introduce it in all entry points with UNCTAD technical support. - Control and rationalize customs exemptions in line with CEMAC’s customs code. - Social Spending: - Publish household survey results this year to inform poverty targeting. - Adopt social protection law and operationalize social protection policies with development partners; gradually increase social spending (indicative target). - Prioritize construction and remodeling of schools in urban and peri-urban areas. - Start the second Demographic and Health Survey in 2024 to inform the National Plan of Public Health Development 2026–30. ### Financial sector stability and action plan for the large systemic bank - Continue strengthening the banking sector to prevent vulnerabilities and restore confidence. - Recovery plan steps for large systemic bank: i. Conduct an audit of the bank’s accounts as of December 31st, 2023 by an international audit firm and share report with the IMF (structural benchmark, end-July 2024). ii. Continue recovery efforts via the high-level commission. iii. Freeze distribution of dividends to strengthen own funds. iv. Take actions to facilitate selection of a strategic partner, including preparing an assessment of the bank’s market value. - Beyond 2024: ensure health of entire financial system, implement National Financial Inclusion Strategy, ensure private banks respect capital requirements, expand commercial banking services, facilitate access to mobile banking and electronic payments. ### Governance, transparency, AML/CFT, and hydrocarbon sector measures - Five governance reform pillars: - Transparency and Accountability: - Finalize and publish audit of Bata-related expenditures (structural benchmark, end-August 2024). - Publish final beneficiaries of COVID and Bata emergency spending on the Ministry of Finance website. - Rule of Law: - Published all laws and decrees issued since 2022 on Official Gazette website and will update periodically; will work to progressively publish laws and decrees issued prior to 2022. - Regulatory Framework: - Improve private sector data availability and interconnect Malabo and Bata commercial registries to exchange real-time private sector information. - AML/CFT: - ANIF to prepare and publish a comprehensive AML/CFT national strategy in line with international best practices (structural benchmark, end-December 2024). - Continue capacity strengthening pending Egmont Group application outcome (expected July 2024); ANIF to provide AML/CFT guidance and preparatory work for a mutual evaluation with GABAC under FATF guidelines; in-situ mission received in April 2024. - Anti-corruption: - Adopt implementing regulation for functioning of Anti-Corruption Commission consistent with past Fund TA advice (structural benchmark, end-September 2024); provide financing and resources for operations. - Commission to request TA from IMF to operationalize asset declaration framework. - Asset declarations from senior public officials to begin being published on a publicly accessible website pursuant to the anticorruption law (structural benchmark, end-March 2025). - Update Good Governance and Anti-Corruption Action Plan. - Hydrocarbon Sector Transparency: - Publish contracts and licenses in the extractive industry on a governmental website (structural benchmark, end-July 2024). - Publish a report on the extractive sector including production and exports data based on 2023 information. - Develop a plan to implement recommendations of GEPetrol and SONAGAS audits with focus on corporate governance, internal controls, and anti-corruption measures. *Republic of Equatorial Guinea — International Monetary Fund content unit.* ### 19. With hydrocarbon production in secular decline, we are at a critical turning point which ### 19. With hydrocarbon production in secular decline, we are at a critical turning point which ### Diversification strategy and business environment - Under the 2019 EFF program the authorities adopted a diversification strategy and initiated several reforms to reduce hydrocarbon dependency. - Established a single point window for business registration to reduce time to register a business, reduce informality, and increase the tax base; the window’s operation was recently reviewed to identify efficiency improvements. - Planned 2024 measures to continue improving the business environment and facilitate private sector–led growth: - Commitment to continue implementation of the digital development plan to reduce costs of internet access and improve quality to the end user. - Noted that internet prices have been reduced by 50 percent but that cost remains high. - Publication of findings of business surveys begun under the previous program to increase quality of data on the private sector. ### Agriculture as a pillar of diversification - Agricultural development seen as key to employment creation, more inclusive growth, reduced import reliance, and rural-sector progress. - Short-run plan: reactivate previous agricultural extension program to provide CD and support to farmers on how to improve production. - Will request CD from international partners, including the World Bank, for plan formulation and financing of implementation. - Medium-term potential: cocoa and coffee production (traditionally grown in Equatorial Guinea), conditional on: - Building an inspection facility to certify these products for export, preserve food products, and position exports in international markets. - Medium- to long-term commitment: form a plan for long-term development and future industrialization of the agricultural sector as a cornerstone of diversification and rural social outcomes. - First step: request CD on agriculture-supportive expenditure policy. ### Statistics and capacity development - 2024 statistical priorities: - Improve external sector statistics, including closing discrepancies in exports and imports statistics between INEGE and BEAC due to differing methodologies. - Seek additional CD to identify short-term actions to improve compilation of balance-of-payments data. - Capacity Development (CD) commitments: - Continue collaboration with the IMF and other international partners on CD efforts. - Continue discussions with IMF staff on CD needs to support timely implementation of the reform program under the SMP and to identify reform priorities. ### Program monitoring, governance, and institutional arrangements - Program review schedule: - Semiannual reviews monitored by quantitative targets, indicative targets, and structural benchmarks (summarized in Tables 1 and 2). - First review based on a test date of end-June 2024 to be completed by end-November 2024. - Second review based on a test date of end-December 2024 to be completed by end-May 2025. - Authorities will provide detailed information and data necessary for program monitoring as stated in the Technical Memorandum of Understanding (TMU); TMU includes agreed definitions and reporting procedures. - Oversight and coordination: - Establish a high-level committee, supported by the Minister of Finance and Budget, to monitor the SMP. - Committee will meet at least once per month to review SMP implementation and compliance with policy initiatives and program commitments. ### Key quantitative targets and indicative targets (as presented) - Table 1 excerpts (Billions CFA Francs, cumulative for each fiscal year): - End-June 2024 / End-Sept. 2024 / End-Dec. 2024 — QT/IT IT QT/IT - A. Quantitative targets (QTs) - Floor on non-hydrocarbon revenue of the central government - 1 - 89 - 134224 - Floor on non-hydrocarbon primary balance of the central government - 1 - -651-922 - -1,084 - Ceiling on external debt arrears accumulation by the central government - 2 - 00 - 0 - Ceiling on contracting and guaranteeing new external debt by the central government - 177177 - 177 - Ceiling on net BEAC credit to the central government - 6969 - 69 - B. Indicative targets (IT) - Ceiling on net accumulation of domestic arrears by the central government - 000 - Ceiling on net commercial bank credit to the central government - -134 - -134-134 - Floor on social spending - 5379132 - Sources indicated in the document: Equatorial Guinea authorities; and IMF staff estimates and projections. - Notes from Table 1: - 1 This quantitative target will apply cumulatively. - 2 This quantitative target will apply continuously. ### Structural benchmarks, 2024–25 (Table 2, measures, purposes, target dates) - Publish on a governmental website the licenses and contracts in the extractive sector - Purpose: Increase transparency and public accountability. - Target Date: End-July 2024 - Publish on a governmental website the audit of Bata related expenditures - Purpose: Increase transparency and public accountability. - Target Date: End-August 2024 - Develop a comprehensive and time-bound plan to clear domestic arrears - Purpose: Support the government in its financial soundness and debt management strategy geared towards medium-term growth sustainability. - Target Date: End-August 2024 - Adopt the implementing regulation for the functioning of the Anti-Corruption Commission, consistent with past Fund TA advice from 2022 - Purpose: Enhance the regulatory framework - Target Date: End-September 2024 - Deploy ASYCUDA in Bata - Purpose: Improve fiscal governance and revenue administration - Target Date: End-December 2024 - Prepare and publish on a governmental website a comprehensive AML/CFT national strategy in line with international best practices that enhances the understanding of key money laundering and terrorism financing risks in Equatorial Guinea and addresses them - Purpose: Fight corruption and improve AML/CFT. - Target Date: End-December 2024 - The Anti-Corruption Commission begins publishing asset declarations collected from senior public officials on a publicly accessible website pursuant to the anticorruption law, if needed with human and technological support from the Ministry of Finance and Budget - Purpose: Increase transparency and public accountability. - Target Date: End March, 2025 - Develop policy options for phasing out fuel subsidies that evaluate and mitigate the impact on the population and especially the vulnerable - Purpose: Ensure fiscal sustainability - Target Date: End-July 2024 - Submit to Parliament a 2025 budget consistent with program objectives. - Purpose: Ensure fiscal sustainability - Target Date: End-December 2024 - Conduct an audit of the systemic public bank's accounts as of December 31, 2023 by an international auditing firm whose report will be shared with the IMF - Purpose: Ensure financial soundness - Target Date: End-July 2024 ### Technical Memorandum of Understanding (TMU): reporting and valuation highlights - TMU describes reporting procedures; definitions and calculation methods; quantitative and indicative targets; adjustors for QTs and ITs; structural benchmarks; and other commitments under the MEFP. - Valuation rule: - All foreign exchange assets, liabilities, and flows valued at "program exchange rates" (except items that affect government's fiscal balances, which are valued at the current exchange rate). - Program exchange rates in effect as March 28th, 2024, namely: - CFAF 606.75 to USD 1; - CFAF 655.96 to EUR 1; - CFAF 83.96 to CNY 1; - CFAF 481.07 to GBP 1; - CFAF 802.99 to SDR 1. - Program exchange rates for any currency not mentioned will be computed based on the official rates used by the IMF for March 28th, 2024. - Reporting timelines: - Data on variables subject to quantitative targets to be transmitted periodically to the IMF per the timetable in Annex 1; updates to be reported within one week. - For the QTs listed, data shall be reported to the IMF no later than 75 days after the assessment date (specific QTs and reporting references repeated across sections). - Definitions and adjustments: - Government defined as central government per GFSM 2001 (paragraphs 2.48-2.50). - Fiscal year: January 1 to December 31. - Non-hydrocarbon revenue: total government revenue (GFSM 2001, Chapter 5, recorded on a cash basis) less revenue from hydrocarbons. - Hydrocarbon revenue: sum of hydrocarbon tax and hydrocarbon non-tax revenue; detailed definitions provided (corporate taxes on contractors/subcontractors, personal income tax, royalties on gross production, premiums or fees for surface rights, transfer and sales taxes on capital gains not invested in Equatorial Guinea, discovery/production/marketing bonuses, income from export duties, net equity income from oil and gas, income from shareholders' interests and other income flows paid by oil and gas companies; excluding indirect and special taxes). - Non-hydrocarbon primary balance defined as non-hydrocarbon revenue (not including interest income on government assets) less non-hydrocarbon primary government expenditure. - Adjuster: any additional external grant for budget support relative to the reference projection will adjust the non-hydrocarbon primary balance floor upward by the full amount of the grant. - External debt definitions and ceilings: - External debt defined as debt borrowed or serviced in a currency other than the CFA franc; converted at program exchange rate. - Ceiling on contracting/guaranteeing new external debt applies when all conditions for the debt to take effect have been met. - Definition of "debt" follows the program guidance and includes loans, suppliers’ credits, leases (present value at inception), and penalties/judicially awarded damages arising from contractual obligations that qualify as debt. - Arrears reporting: - External arrears defined; authorities to report any external payment arrears immediately when they arise (the performance measure is applied continuously). *Source: Republic of Equatorial Guinea; International Monetary Fund (Memorandum on Economic and Financial Policies and Technical Memorandum of Understanding).* ### 28. Coverage. This quantitative performance target covers external arrears resulting from debt ### 28. Coverage. This quantitative performance target covers external arrears resulting from debt contracted or guaranteed by the central government. The QT excludes arrears on external financial obligations of the government subject to debt rescheduling. ### Coverage and Monitoring - Coverage: External arrears resulting from debt contracted or guaranteed by the central government. - Exclusion: Arrears on external financial obligations of the government subject to debt rescheduling are excluded. - Monitoring: This performance criterion is applied on a continuous basis. ### III.F. Net Accumulation of Domestic Arrears by the Central Government — Definition - Domestic arrears definition: Commitments owed to residents under contractual obligations, which are still unpaid 90 days after the due date. - Interpretation of due date: The deadline by which payment must be made under the applicable contract, bearing in mind contractual grace periods. - Scope: Domestic arrears of the central government include direct arrears on central government debt, including to suppliers, recurring payments, and capital expenditure. - Exclusion: The definition does not include changes in domestic arrears that may arise from the ongoing audit review. ### III.F. Reporting - Reporting deadline: Data shall be reported to the IMF no later than 75 days after the assessment date. ### III.G. Ceiling on Net Commercial Bank Credit to the Central Government — Definition - Definition: Net commercial bank credit to the central government is defined as the change in the government's net position vis-a-vis the local banking system since the end of the previous year, plus the net issuances of bonds (i.e., issuances minus amortizations) during the current year in the sub-regional market (CEMAC). - Not applicable: The ceiling on net domestic financing is not applicable to new agreements on domestic debt restructuring and securitization of domestic arrears. ### III.G. Reporting - Reporting deadline: Data shall be reported to the IMF no later than 75 days after the assessment date. ### III.G. Adjuster (Ceiling on Net Commercial Bank Credit) - Upward adjustment: The ceiling on net commercial bank credit to the central government shall be adjusted upward, relative to program projections, by the shortfall in net BEAC credit to the central government (Table 3). - Downward adjustment: The ceiling on net commercial bank credit to the central government shall be adjusted downwards, relative to program projections, by the excess in net BEAC credit to the central government (Table 3). - Table 3 (Baseline Projection) — Net BEAC Credit to Central Government - Cumulative flows from the beginning of the fiscal year (in CFAF billions) - End-June 2024 69 - End-September 2024 69 - End-December 2024 69 ### III.H. Floor for Social Spending by the Central Government — Definition - Scope for SMP purposes: The floor for social spending includes current expenditures in education, health, social protection, and water and sanitation. - Included current expenditures: - (i) funding, maintenance and rehabilitation in education, health, social protection, and water and sanitation; - (ii) technical assistance in education and sanitation; - (iii) wage bill for education and sanitation; - (iv) social sector institutional projects; - (v) goods and services purchases; - (vi) subsidies and transfers to social sectors; - (vii) other subsidies. - Exclusion: The definition excludes scholarships and incentives for tertiary education. ### III.I. Adjustor for Hydrocarbon Revenues — If revenues exceed program expectations (Table 4) - Allocation of excess hydrocarbon revenues: - 50 percent to increase its deposits at BEAC or to face payments of domestic arrears; - 50 percent to increase social and other priority spending. ### III.I. Adjustor for Hydrocarbon Revenues — If revenues are below program expectations (Table 4) - Actions if hydrocarbon revenues are less than expected: - Adjust upward the ceiling for net commercial bank credit to the government by 50 percent of the shortfall. - Adjust upward the floor for the non-hydrocarbon primary balance by an amount equal to at least 50 percent of the shortfall. - Constraint: The expenditure cuts that might be needed will not affect the indicative target on social spending under the program. - Table 4 (Baseline Projection) — Central Government Hydrocarbon Revenues - Cumulative flows from the beginning of the fiscal year (in CFAF billions) - End-June 2024 732 - End-September 2024 1,097 - End-December 2024 1,463 ### IV. Information Requirements — Reporting Timelines and Data Items (Table 5 summary) - General instruction: The government of Equatorial Guinea will prepare and send by email to the IMF data for the items shown in table 5 within 75 days after the end of the month (unless specified otherwise). - Selected data items, providers, and frequency/target date: - Monetary survey. Provider: BEAC. Frequency: Monthly, within 45 days from the end of the month. - BEAC loans to central government. Provider: BEAC. Frequency: Monthly, within 45 days from the end of the month. - Government deposits at the BEAC. Provider: BEAC. Frequency: Monthly, within 45 days from the end of the month. - Central government position with commercial banks: (i) loans to central government and (ii) deposits by central government. Provider: BEAC. Frequency: Monthly, within 45 days from the end of the month. - Other sources of financing not specified above (including INSESO, bonds, Treasury notes and bills issued in CFAF). Provider: Ministry of Finance and Budget (MFB). Frequency: Monthly, within 75 days from the end of the month. - Foreign deposits by the central government, by type of foreign currency and bank. Provider: MFB. Frequency: Monthly, within 75 days from the end of the month. - External financing: detailed information on disbursements, amortization, interest, exceptional financing, zero coupon bonds, and accumulation of arrears. Provider: MFB. Frequency: Monthly, within 75 days from the end of the month. - Acquisition of financial interests in hydrocarbons sector projects. Provider: MFEP. Frequency: Monthly, within 75 days from the end of the month. - Central government budget execution, broken down by category (revenues, current and capital expenditures). Provider: MFB. Frequency: Quarterly, within 75 days from the end of the month. - Breakdown of tax revenue by type of tax. Provider: MFB. Frequency: Quarterly, within 75 days from the end of the month. - Total income, broken down by category. Provider: MFB. Frequency: Quarterly, within 75 days from the end of the month. - Income from hydrocarbons, broken down by type (tax or nontax). Provider: MFB. Frequency: Quarterly, within 75 days from the end of the month. - Social spending (broken down by program, capital expenditure, and current expenditure). Provider: MFB. Frequency: Quarterly, within 75 days from the end of the month. - Subsidies and transfers broken down by category. Provider: MFB. Frequency: Quarterly, within 75 days from the end of the month. - Domestic debt reporting: - Stock of domestic debt by category. Provider: MFB. Frequency: Monthly, within 45 days from the end of the month. - Disbursements, bond issuances and services of domestic debt (interest and principal) by category. Provider: MFB. Frequency: Monthly, within 45 days from the end of the month. - Stock of domestic arrears (including arrears on interest payments). Provider: MFB. Frequency: Quarterly, within 75 days from the end of the quarter. - External debt reporting: - Stock of external debt. Include values for each type of foreign currency and the exchange rates used. Provider: MFB. Frequency: Monthly, within 45 days from the end of the month. - Loan-by-loan accounting of all new loans contracted or guaranteed by the public sector, including detailed information on amounts, currency, and conditions, and the relevant supporting documents. Provider: MFB. Frequency: Monthly, within 45 days from the end of the month. - Accounting of arrears on the external debt by creditor (if any), with detailed explanations. Provider: MFB. Frequency: Monthly, within 45 days from the end of the month. - External sector and real sector data: - Provisional balance of payments statistics. Provider: BEAC. Frequency: Annually, within three months from the end of the year. - Oil and gas exports (values, volumes, and prices) broken down by product and oilfield. Provider: MMH. Frequency: Monthly, within 45 days from the end of the month. - Provisional national accounts (from the supply side and the expense side). Provider: INEGE. Frequency: Annually, within three months from the end of the year. - Consumer price index. Provider: INEGE. Frequency: Monthly, within 45 days from the end of the month. *Source: Excerpt from IMF document "28. Coverage. This quantitative performance target covers external arrears resulting from debt contracted or guaranteed by the central government. The QT excludes arrears on external financial obligations of the government subject to debt rescheduling."* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1gnqea2024002.pdf_