## _cr0503 ## Source details **Canonical URL:** [_cr0503](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr0503.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr0503.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr0503.pdf.json) --- ### Executive summary — challenges, program objectives, and status - Key challenges: economy little diversified, heavily dependent on oil production on a downward trend; high debt burden; weak social indicators. - Program: 14-month Stand‑By Arrangement (SBA) aims to promote non-oil GDP growth through structural reforms, sustain fiscal adjustment, and improve public expenditure management. - Fiscal target: reduce non-oil primary deficit from 8.2 percent of non-oil GDP in 2003 to 7.5 percent in 2004 and 5.7 percent in 2005. - Structural reform priorities: forestry sector; economic and social infrastructure; efficiency of the public investment program; financial sector; governance; private sector development. - SBA financing and status: - SBA approved: SDR 69.44 million (45 percent of quota). - Outstanding use of Fund resources at end-July 2004: SDR 43.3 million, or 28.07 percent of quota. - Performance: all performance criteria and indicative targets for end-June 2004 observed except small slippage in indicative target for non-oil revenue; expected that all structural performance criteria and almost all structural benchmarks for the rest of the year will be met. ### Macroeconomic developments and short-term projections - Growth and sectoral outlook: - Overall GDP growth 2004: revised 1.5 percent (program 2.0). - Non-oil real GDP 2004: revised 2.3 percent (program 3.0). - Oil production 2004 expected: 13.3 million tons (program envisaged same). - Prices and external: - CPI June 2004: 1.7 percent year-on-year (program envisaged 2 percent). - External current account: much more favorable than expected due to higher oil export values and higher manganese volume and value. - Brent crude oil prices 2004–05 projected to exceed program projections by over US$7 a barrel; staff projects world Brent oil prices (U.S. dollar per barrel): 2004 37.3; 2005 37.5. - Key headline indicators (selected 2004–05 revisions): - Real GDP growth (2004): program 2.0; revised 1.5. - Oil (2004 growth): program -0.6; revised -0.5. - Non-oil (2004 growth): program 3.0; revised 2.3. - Nominal GDP (CFAF billions): 2004 program 3,382.3; 2004 revised 3,667.1. - Oil (CFAF billions): 2004 program 1,242.4; 2004 revised 1,543.8. - Non-oil primary deficit (percent of non-oil GDP): 2004 program -7.5; 2004 revised -7.6. ### Oil revenue windfall — projections and intended uses (2004–05) - Windfall projections: - Staff projects oil revenue could exceed original program projections by CFAF 110 billion (3 percent of GDP) in 2004, including CFAF 73 billion during H2 2004. - At Paris Club meeting, excess oil revenue for 2004 projected at CFAF 70 billion, based on Brent US$34/barrel average. - Projected windfall for 2005: CFAF 190 billion (5.3 percent of GDP). - Main intended uses of windfalls: - (i) Repay external debt in excess of program projections (in line with June 2004 Paris Club agreement) to reduce high debt burden and contain 2005 external financing gap. - (ii) Reduce government overdue obligations to private sector, including float at the treasury. - (iii) Increase allocations to the Fund for Future Generations (FFG). - Detailed projections (selected lines, CFAF billions unless indicated): - World oil price (U.S. dollars per barrel): 2004 Prog. 30.0 Revised 37.3; 2005 Prog. 27.0 Revised 37.3. - Oil production (million tons): 2004 Prog. 13.3 Revised 13.3; 2005 Prog. 11.5 Revised 12.3. - Oil government revenue: 2004 Prog. 508.1 Revised 618.2; 2005 Prog. 412.7 Revised 603.3. - Projected oil revenue windfall: 2004 Prog. 0.0 Revised 110.1; 2005 Prog. 0.0 Revised 190.6. - Projected uses (2004 revised 110.1; 2005 revised 190.6) include: - Deposits in the FFG: 2004 Revised 50.0; 2005 Revised 44.2. - Financing gap1/: 2004 Revised 43.1; 2005 Revised 83.8. - Reduction of the float at the treasury: 2004 Revised 17.0; 2005 Revised 13.4. - Clearance of FER arrears: 2005 Revised 25.0. - Repayment of BEAC's statutory advances: 2005 Revised 24.2. - Note: New deposits in the FFG in 2004 will amount to CFAF 101 billion (statutory CFAF 51 billion + windfall CFAF 50 billion); projected deposits in FFG in 2005 CFAF 96 billion. 1/ Essentially cash payments on external debt in excess of original program projections. ### Fiscal policy and public expenditure management (H2 2004 and 2005 preparations) - Authorities’ stance: - High petroleum price period considered likely short-lived; windfalls to be used for fiscal consolidation and deepening reforms to improve transparency and efficiency. - Request to modify non-oil primary deficit by CFAF 1 billion (0.03 percent of GDP) to carry out transparency-enhancing audits; staff concurs. - Fiscal outturns and controls: - Oil revenue exceeded program projections by one percentage point of GDP; excess used to increase government deposits and accelerate repayment of the treasury float. - Non-oil budget deficit at end-June 2004 smaller than programmed due to lower-than-projected investment spending. - Wage bill containment: expected within program limit of CFAF 226 billion due to April measures (limits on ministers’ cabinets; monitoring contractual staff; controlling allowances; enforcing retirement age). - Public expenditure management reforms and actions: - Directorate General of Public Procurement reviewing contracts above CFAF 30 million and blocking noncompliant contracts. - PER of key sectors to start in October with World Bank and donor assistance to analyze costs and financing of PRSP-priority programs. - Revenue-side measures: focus on company income taxes and VAT arrears; acceleration of forestry tax collections (including back taxes for 2002–03); decree establishing Large Enterprise Directorate (DGE) prepared and expected to be adopted in September; land registry preparation for Libreville and Port‑Gentil expected before end-December 2004. ### Monetary and financial sector developments and policies - Monetary aggregates and credit: - Broad money increased by 5.0 percent year-on-year (H1 2004); broad money envisaged to grow about 4.4 percent during 2004. - Credit to the economy declined by 12.6 percent year-on-year due to repayment of bank credit following government payment of arrears and banks’ caution in lending to foresters. - NPLs increased to 17.6 percent of total loans from 13.8 percent at end-2003 after COBAC reclassification; COBAC views provisioning as adequate and system as sufficiently capitalized. - BEAC and reserves: - Net foreign assets of Gabon’s contribution to BEAC nearly doubled between end-2003 and end-June 2004. - Accumulation of NFA attributable to Gabon projected higher than programmed by 1.8 percent of GDP. - Microfinance and housing finance: - Authorities studying revision of FODEX statutes to enable microfinance activity in line with COBAC directives. - Financing arrangements being finalized with domestic and foreign private banks to support new housing developments; procedures for issuing land titles being speeded up. ### Debt, arrears, and Paris/London Club negotiations - Paris Club (June 11, 2004): - Rescheduling of external arrears at end-April 2004 provided on terms: repayment period 14 years, three years of grace; half rescheduled on these terms, other half deferred to March 1, 2005 conditional on completion of second SBA review. - Amount rescheduled lower than program envisaged by CFAF 45 billion because of higher oil revenues and lower interest obligations. - London Club and other creditors: - Rescheduling negotiations initiated with non-Paris Club bilateral creditors. - Advanced discussions with London Club banks to reschedule arrears and current maturities totaling CFAF 19 billion (1 percent of total external debt) on terms comparable to Paris Club. - DSA and financing gaps: - Financing gap for 2004 fully covered by Paris Club rescheduling; for 2005 originally projected CFAF 163 billion, reduced to about CFAF 10 billion due to rescheduling and windfall. - International reserves projected to rise by CFAF 85 billions (over 2.4 percent of GDP) more than envisaged under the program. ### Debt sustainability analysis (DSA) — baseline and sensitivity - Baseline public/ external debt paths: - Public debt-to-GDP ratio: 2003 67.6 percent → 2004 59.3 → 2005 53.6 → 2006 47.6 → 2007 44.7 → 2013 30.1 (baseline assumption: non-oil GDP growth averages 3.4 percent in 2003-10). - External debt-to-GDP ratios projected to steadily decline; public debt-to-GDP ratio expected to decrease faster because primary surplus used to retire domestic debt up to 2007. - Sensitivity and stress-test outcomes (selected): - External debt becomes unsustainable under scenario setting variables at their 1993-2003 average during 2004-08. - Long-term shock to non-oil real growth and long-term shock to oil price would cause external debt-to-GDP ratio to rise continuously and become unsustainable. - One-time 30 percent depreciation of the CFA franc in 2004 raises debt-to-GDP by 5 percentage points by 2005; debt ratio declines thereafter. - Combined shocks can cause sharp increases (e.g., deflator shock raises debt ratio sharply by 25.2 percentage points by 2006 in one test). - Policy implications from DSA: - Critical importance of diversifying Gabon’s economic base by boosting non-oil growth. - Need for prudent fiscal policies given volatility of oil prices; further debt reschedulings may be required despite projected improvements under baseline. ### Structural reform progress and priorities - Forestry sector: - Letter of development policy adopted mid-May 2004; decree implementing moratorium on new forestry concessions and launching pilot auction project signed August 9, 2004. - Study to redefine role of SNBG progressing; time-bound action plan to follow. - Privatization and public enterprises: - Gabon Télécom privatization near conclusion; authorities considering increasing share offered above initial 35 percent, selection of winner expected by end-January 2005 (delay ~4 months). - Air Gabon: decision to privatize or consider regional airline; cost-cutting measures implemented; 2004 operating surplus target appears difficult. - Ports of Owendo and Port‑Gentil concessioned to SIGEPRAG for 25 years from April 2004. - Governance and transparency: - National Commission Against Illicit Enrichment preparing action plan; first annual report to be issued before end-year. - Gabon became an associate member of EITI in May 2004; templates transmitted for completion. - PRSP and civil society: - PRSP process accelerating; seminars with civil society; quantitative survey launched end-August; master plans for health and education to inform 2005 investment budget and PIP 2005-07. - PRSP expected to be finalized in early 2005. ### Program conditionality, performance criteria modifications, and staff recommendations - Authorities requested, and staff support, modifications to: - Performance criterion for end-December 2004 on the primary budget balance to reflect higher spending by CFAF 1 billion (0.03 percent of GDP). - Performance criteria for end-September and end-December 2004 on net bank credit to government and on the stock of domestic arrears due to use of oil windfall revenue. - Staff recommendation: - Complete the first review of the SBA given satisfactory H1 2004 performance and progress on structural criteria. - Ensure 2005 budget is consistent with fiscal adjustment envisaged under the program. - Staff cautions against complacency and stresses use of favorable commodity prices to pursue fiscal consolidation and structural reforms. ### Selected quantitative highlights and time-bound actions (selected items extracted) - SBA purchases and schedule: second purchase SDR 13.89 million (9 percent of quota); subsequent purchases contingent on reviews (tabled milestones for Dec 2004, Mar 2005, Jun 2005 each SDR 13.89 million). - Non-oil primary deficit as share of non-oil GDP (2004 revised): -7.6 percent (0.1 percentage point above original target). - Wage bill program limit: CFAF 226 billion. - CNGS deficit 2004: about CFAF 1.5 billion; government subsidy increase by CFAF 1.5 billion in supplementary budget for H2 2004; performance contract to be finalized by end-September. - DGE turnover threshold: CFAF 1.5 billion to cover ~310 enterprises; DGE expected operational early 2005. - VAT on luxury goods: 2004 rate 25 percent; authorities will consider reducing to 18 percent in 2005 budget after impact analysis. - Forestry decree: moratorium and pilot auction decree dated August 9, 2004. - Mining code implementing regulations: approval by end-December 2004. - Gabon Télécom privatization: initial 35 percent offer; authorities considering >50 percent; bidder selection delayed to January 2005. - Air Gabon expression of interest: call launched July 19. - Petroleum price automatic adjustment mechanism to be reinstated by end-March 2005. *Source: IMF staff report and government letter summarized in _cr0503.* ### Executive Summary ...................................................................................................... ### Executive Summary ### Key challenges and program objectives - Owing to weak economic and financial management in the past, despite abundant oil resources, Gabon’s economy faces difficult challenges: the economy is little diversified and heavily dependent on oil production, which is on a downward trend, the debt burden is high, and social indicators are weak. - The program supported by the 14-month Stand-By Arrangement (SBA) aims at promoting non-oil GDP growth through wide-ranging structural reforms, while sustaining fiscal adjustment and improving public expenditure management. - Target reduction in non-oil primary deficit: from 8.2 percent of non-oil GDP in 2003 to 7.5 percent in 2004 and 5.7 percent in 2005. - Structural reform agenda centers on: forestry sector; economic and social infrastructure; efficiency of the public investment program; financial sector; governance; and private sector development. ### Program financing and status - SBA approved: SDR 69.44 million (45 percent of quota). - Outstanding use of Fund resources at end-July 2004: SDR 43.3 million, or 28.07 percent of quota. - Performance under the SBA has been satisfactory overall: all performance criteria and indicative targets for end-June 2004 were observed except a small slippage in the indicative target for non-oil revenue. - It is expected that all structural performance criteria and almost all structural benchmarks for the rest of the year will be met. ### Macroeconomic developments and projections - Overall GDP growth in 2004 is now expected to be 1.5 percent compared with 2 percent envisaged in the program. - Non-oil real GDP: projected growth for 2004 is 2.3 percent, compared with 3 percent under the program. - Oil production for 2004 is likely to reach 13.3 million tons envisaged under the program. - Inflation: consumer prices in June 2004 rose by 1.7 percent year-on-year, lower than the 2 percent envisaged under the program. - External current account: much more favorable than expected because of higher exports of oil in value terms and manganese in both volume and value. - Oil prices for Brent crude in 2004–05 are currently projected to exceed program projections by over US$7 a barrel. - Authorities intend to use excess oil revenue associated with higher oil prices to: lower external debt; reduce the float at the treasury; and increase savings in the Fund for Future Generations (FFG). - Authorities requested, and staff support, related modifications to the performance criteria on net bank credit to government and the reduction of domestic arrears of the central government. - Authorities requested, and staff support, an upward modification of the performance criterion for the primary budget balance to reflect higher spending by CFAF 1 billion (0.03 percent of GDP). ### Real-sector and sectoral notes - Non-oil activity: during H1 2004 non-oil real GDP growth picked up in some sectors but overall remains below program expectations; strongest performance: mining and timber processing. - Manganese extraction rose by 31 percent in the first half of 2004 compared with the same period in 2003. - Forestry: volume of okoumé cut and exported declined sharply but was offset by higher logging of other species; timber production projected to remain at the same level as in 2003; timber processing activity continued to grow. - Other sectors (electricity, cement, consumer-goods production) remained sluggish reflecting relatively weak private consumption and employment. ### Fiscal developments - Oil revenue exceeded program projections by one percentage point of GDP; excess was used to increase government deposits in the banking system and to accelerate repayment of the treasury float. - Non-oil budget deficit at end-June 2004 was smaller than programmed, as investment spending was lower than projected. - Wage bill was kept within the indicative target following measures taken in April (limiting size of ministers’ cabinets; monitoring contractual staff; controlling allowances; limiting air service allowances; cutting special foreign exchange allowances for training abroad; enforcing retirement age). - Collection of forestry taxes was lower than expected but accelerated in July when payments of back taxes for 2002–03 began. ### Monetary and financial sector developments - Broad money increased by 5.0 percent year-on-year, in line with expected nominal growth of non-oil GDP. - Credit to the economy declined by 12.6 percent year-on-year, as government’s payment of domestic arrears led to repayment of bank credit and banks remained cautious about lending to foresters. - Net foreign assets (NFA) of Gabon’s contribution to BEAC nearly doubled between end-2003 and end-June 2004. - Nonperforming loans (NPL) increased to 17.6 percent of total loans from 13.8 percent at end-2003, reflecting reclassification of loans by COBAC; COBAC views provisioning as adequate and the banking system as sufficiently capitalized. ### Debt and external debt restructuring - At the Paris Club meeting on June 11, 2004, creditors provided rescheduling of external arrears at end-April 2004 of an amount lower than envisaged under the program (by CFAF 45 billion), because of higher oil revenues collected during the first six months of the year (about CFAF 37 billion) and lower-than-programmed interest obligations. - Paris Club rescheduling provides for a repayment period of 14 years, with three years of grace; half of the arrears eligible for rescheduling was rescheduled on these terms, while the other half was deferred to March 1, 2005; their rescheduling will enter into effect only if the second review of the SBA is completed before this date. - Rescheduling negotiations have been initiated with non-Paris Club bilateral creditors. - Authorities at an advanced stage of discussions with the London Club banks to reschedule arrears and current maturities totaling CFAF 19 billion or 1 percent of the total external debt, on terms comparable to those granted by the Paris Club. ### Structural reform progress - Forestry sector: letter of development policy adopted by the council of ministers in mid-May 2004 incorporating key principles agreed with the World Bank (moratorium on granting new forestry concessions; launch of a pilot project for auctioning new concessions); a decree to implement these provisions was signed on August 9. - Study to redefine the role of the timber marketing board, SNBG, is progressing on schedule. - Progress in privatization, budgetary management, and other structural areas is satisfactory; most structural performance criteria and benchmarks for the rest of the year are expected to be met, with possible exception of two benchmarks in enterprise restructuring and privatization. ### Key macroeconomic indicators (2004–05, as presented) - Real GDP growth: program 2.0; revised 1.5 (2004). - Oil: program -0.6; revised -0.5 (2004). - Non-oil: program 3.0; revised 2.3 (2004). - Nominal GDP (in CFAF billions): 2004 program 3,382.3; 2004 revised 3,667.1. 2005 program 3,300.5; 2005 revised 3,597.9. - Oil (CFAF billions): 2004 program 1,242.4; 2004 revised 1,543.8. 2005 program 1,047.9; 2005 revised 1,358.4. - Non-oil (CFAF billions): 2004 program 2,139.9; 2004 revised 2,123.3. 2005 program 2,252.6; 2005 revised 2,239.5. - CPI (annual average): program 2.0; revised 2.0. - Current account balance (in percent of GDP): 2004 program 5.8; 2004 revised 11.6. 2005 program 1.5; 2005 revised 10.9. - Non-oil budgetary primary deficit (in percent of non-oil GDP): 2004 program -7.5; 2004 revised -7.6. 2005 program -5.7; 2005 revised -5.7. *Executive Summary, _cr0503 - Executive Summary.* ### 7. The authorities concurred with the staff that the period of high petroleum prices ### _cr0503 - 7. The authorities concurred with the staff that the period of high petroleum prices ### Oil revenue windfall and projected uses (2004-05) - Staff projects oil revenue could exceed original program projections by CFAF 110 billion (3 percent of GDP) in 2004, including CFAF 73 billion during the second half of the year. - At the time of the Paris Club meeting, the excess oil revenue for 2004 was projected at CFAF 70 billion, based on a price for the Brent crude of US$34 a barrel on average for the year. - Projected windfall for 2005 is CFAF 190 billion (5.3 percent of GDP). - Principal intended uses of windfalls: - (i) Repaying external debt in excess of program projections (in line with June 2004 Paris Club agreement) to reduce high debt burden and contain the external financing gap in 2005. - (ii) Reducing government overdue obligations to the private sector, including the float at the treasury, to improve government credibility and provide resources for private sector development. - (iii) Increasing allocations to the Fund for Future Generations (FFG) to preserve assets for the future. - Gabon: Projected Uses of Oil Revenue Windfall, 2004-05 (In billions of CFA francs, unless otherwise indicated) - World oil price (U.S. dollars per barrel): 2004 Prog. 30.0 Revised 37.3; 2005 Prog. 27.0 Revised 37.3 - Oil production (in million tons): 2004 Prog. 13.3 Revised 13.3; 2005 Prog. 11.5 Revised 12.3 - Oil government revenue: 2004 Prog. 508.1 Revised 618.2; 2005 Prog. 412.7 Revised 603.3 - Projected oil revenue windfall: 2004 Prog. 0.0 Revised 110.1; 2005 Prog. 0.0 Revised 190.6 - Projected uses: 2004 Prog. 0.0 Revised 110.1; 2005 Prog. 0.0 Revised 190.6 - Deposits in the Fund for Future Generations: 2004 Prog. 0.0 Revised 50.0; 2005 Prog. 0.0 Revised 44.2 - Financing gap 1/: 2004 Prog. 0.0 Revised 43.1; 2005 Prog. 0.0 Revised 83.8 - Reduction of the float at the treasury: 2004 Prog. 0.0 Revised 17.0; 2005 Prog. 0.0 Revised 13.4 - Clearance of FER arrears: 2004 Prog. 0.0 Revised 0.0; 2005 Prog. 0.0 Revised 25.0 - Repayment of BEAC's statutory advances: 2004 Prog. 0.0 Revised 0.0; 2005 Prog. 0.0 Revised 24.2 - Sources: Authorities and staff estimates. - 1/ Essentially cash payments on external debt in excess of original program projections. - Note: New deposits in the FFG in 2004 will amount to CFAF 101 billion, comprised of (i) the statutory requirement of depositing 10 percent of the budgeted revenue (CFAF 51 billion); and (ii) the share of the windfall in oil revenue (CFAF 50 billion). In 2005 projected deposits in the FFG (CFAF 96 billion) would exceed the required 10 percent of projected oil revenue to make up for withdrawals from the FFG in 2003 used to repay external arrears. ### Fiscal policy and public expenditure management (remainder of 2004 and 2005 preparations) - Authorities agree the high petroleum price period is likely short-lived and should be used for fiscal consolidation and deepening reforms to improve transparency and efficiency of public spending. - Authorities request a modification of the non-oil primary deficit by CFAF 1 billion (0.03 percent of GDP) to carry out transparency-enhancing audits of Road Fund arrears and regional investment expenditures and to revise budget nomenclatures; staff concurs. - With downward revision of projected nominal non-oil GDP in 2004, the non-oil primary deficit as a share of non-oil GDP is likely to reach 7.6 percent of non-oil GDP, 0.1 percentage point above the original program target. - Expenditure containment: - Authorities committed to maintaining expenditures within program limits, except for the CFAF 1 billion adjustment. - Wage bill containment expected within program limit of CFAF 226 billion due to measures adopted in April (LOI, paragraph 20). - University scholarship program efficiency study to be completed before end-October 2004 and submitted to the World Bank. - Public expenditure management improvements underway: - Directorate General of Public Procurement reviewing contracts above CFAF 30 million and blocking noncompliant contracts. - Measures to ensure budget execution starts at beginning of year (LOI, paragraph 30). - Public Expenditure Review (PER) of key sectors to start in October with World Bank and other donor assistance. - PER will analyze cost of priority programs likely included in the PRSP and financing options; authorities noted potential need to widen somewhat the non-oil primary budget deficit in 2005 relative to original target to address significant needs in health and education. - Revenue-side efforts: - Focus on collection of company income taxes and VAT arrears; acceleration of forestry tax collections, particularly back taxes for 2003. - Structural reforms: decree establishing Large Enterprise Directorate (DGE) prepared and expected to be adopted in September (performance criterion) so DGE can be operational in early 2005; land registry preparation for Libreville and Port-Gentil under way with establishment of taxable base for real estate taxation expected before end-December 2004. - Tax administration strengthening: enhanced training, streamlined collection procedures, strict enforcement of joint liability for forestry taxes, reinforced collaboration between tax department, Ministry of Forestry, and customs; improved area tax and stumpage fee performance could allow further reduction in export tax for logs in 2005. - VAT on luxury goods: - Mission urged rescinding the 25 percent VAT rate on luxury goods introduced in 2004. - Authorities agreed such a high rate could be detrimental; will consider reducing the higher rate to 18 percent in the 2005 budget after an impact analysis. - Civil service reform: - Harmonization of civil service and payroll rosters well advanced and should be completed before year-end. - Computerized civil service management project (ANITA) operational only in 2005 (LOI, paragraph 23). - Draft laws on government services and general civil servants’ statutes with the National Assembly and expected to be approved during the September-December 2004 session. - Audit of stock-of-wage arrears under way and should be completed before end-September. - Local authorities and social security: - Commission on financial viability of local authorities expected to report before end-October. - Actions to address financial difficulties of National Social Insurance Fund (CNGS): (i) budgetary support in revised 2004 budget; (ii) performance contract expected to be signed by end-September; (iii) study before year-end on revising payroll tax and applicable salary base. - CNGS accounts to be presented in an annex to government budget as of FY 2005. - Actuarial study for National Social Security Fund (CNSS) by ILO expected to be completed in first quarter of 2005. ### Monetary and financial sector policies - Monetary policy conducted at regional level by BEAC, consistent with fixed exchange rate regime. - Rapid expansion of NFA expected to be offset by sharp decline in net credit to the government; broad money envisaged to grow by about 4.4 percent during 2004. - Slowdown in credit to the economy observed in first half of 2004 expected to reverse in second half as activity picks up. - Microfinance: authorities studying revision of status of Development and Expansion Fund (FODEX) in line with regional banking commission directives to allow engagement in microfinance activities. - Housing finance: - Priority given to address serious shortage of residential housing in main cities. - Financing arrangements being finalized with domestic and foreign private banks to support new housing developments and subsequent household purchases. - Ample liquidity of banking system and existence of adequate and collectible collateral cited as supportive. - Procedures for issuing land titles being speeded up (LOI, paragraph 15). ### External sector outlook and debt sustainability analysis (DSA) - External financial position expected to improve significantly in 2004 and 2005 mainly due to higher-than-expected oil prices. - Financing gap for 2004 fully covered by Paris Club rescheduling; accumulation of NFA projected to be higher than programmed by 1.8 percent of GDP. - For 2005, originally projected financing gap of CFAF 163 billion is reduced to about CFAF 10 billion due to debt rescheduling obtained up to end-June 2005 and oil revenue windfall. - International reserves projected to rise by substantially more (CFAF 85 billions, or over 2.4 percent of GDP) than envisaged under the program. - Medium-term external outlook improved also by stronger expected oil and non-oil export performance: - Investments to improve oil recovery (including Rabi) leading to upward revision in projected oil production over next few years, though maintaining a downward trend. - Manganese exports expected to increase substantially due to new foreign investment. - These developments contribute to higher-than-envisaged accumulation of international reserves attributable to Gabon in the regional central bank and to lower financing gaps that could be covered by additional debt rescheduling of relatively small magnitude in 2006-10. - DSA new baseline scenario indicates public debt-to-GDP and external public debt-to-GDP ratios would steadily decline over the medium term; public debt-to-GDP ratio expected to decrease faster than external public debt-to-GDP ratio because budgetary primary surplus will be used up to 2007 to retire domestic debt. - External debt-service ratios (exports and government revenue) would rise until 2009 before declining as non-oil sector weight increases. - Sensitivity analyses highlight substantial risks: - External debt becomes unsustainable under a scenario setting variables at their 1993-2003 average during 2004-08. - Stress tests based on past current account deficits and exchange rate depreciations result in debt ratios peaking in 2005-06 but declining thereafter. - Two sensitivity tests — (i) long-term shock to non-oil real growth and (ii) long-term shock to the price of oil — would cause the external debt-to-GDP ratio to rise continuously and become unsustainable. - Implications: - Critical importance of diversifying Gabon’s economic base by boosting non-oil growth for program success. - Strong dependence of baseline scenario results on higher oil prices presently projected by the staff. - Trade and price liberalization commitments: - Government committed to price and trade liberalization; General Directorate of Competition established early 2004 to ensure market competition and protect consumer rights. - Authorities committed to reinstating mechanism of automatic adjustment of domestic retail prices for petroleum products in line with international oil prices (LOI, paragraph 43). - Authorities determined to remove import surcharges on eggs and cigarettes before end-December 2004. - Authorities aware of need to open sugar sector and plan regional consultations with other CEMAC members to coordinate liberalization. ### Other structural reforms - Progress on structural reforms to promote diversification and non-oil growth: improving investment climate, reforming forestry sector, restructuring and privatizing public enterprises, improving governance. - Privatizations underway, particularly in telecommunication sector, and reforms in forestry, mining, and housing sectors expected to contribute to growth acceleration in later 2004 and 2005. - Staff stressed that sustained structural reform efforts and fiscal consolidation are required for growth pickup. - World Bank conducted first phase of diagnostic study on investment climate in May 2004; report to be circulated to authorities and an action plan for implementation to be finalized in consultation with Fund staff. *Source: _cr0503 - 7. The authorities concurred with the staff that the period of high petroleum prices* ### 30. A comprehensive reform of the forestry sector is under way. The authorities have ### _cr0503 - 30. A comprehensive reform of the forestry sector is under way. The authorities have ### Forestry sector reform - Authorities committed to implementing key recommendations of the letter of development policy (LOI, paragraph 38), including: - establishment of a pilot auction system to allocate forestry concessions; - publication of a list of the existing forestry permits. - World Bank is in close consultation with the authorities to ensure appropriate implementation. - Study to redefine the role of the timber marketing board (SNBG) scheduled to be concluded in October, to be followed by adoption of a time-bound action plan based on the study recommendations. - Staff appraisal: reforms in the forestry sector are essential to attain sustainable development principles; policies in the letter of development for the forestry sector (adopted in mid-May) should be implemented in close cooperation with the World Bank. - Presidential decree of August 9 starts the process of implementation of envisaged forestry reforms and is a positive first step that needs follow-up actions. ### Privatizations and state enterprises - Gabon Telecom: - Privatization in its final phase. - Authorities considering reopening the list of prequalified bidders (LOI, paragraph 40) and increasing the share offered for sale from the initial 35 percent to more than 50 percent. - World Bank staff expects strategy will improve sale prospects and that winner of the tender can be selected by end-January 2005, with a delay of about four months relative to the original target. - Air Gabon: - Authorities announced intention to privatize Air Gabon; contacts initiated with potential investors, including Royal Air Maroc. - Alternative under study: establishment of a regional airline with participation of all CEMAC countries, which would entail liquidation of Air Gabon. - Final decision between privatization and regional airline will require a few months. - New director general (appointed in May) implemented cost-cutting measures, including fleet redeployment, which improved monthly cash flow and reduced somewhat short-term debts to suppliers; debts remain large after disappointing operating results in 2003 (LOI, paragraph 41). - Target for operating surplus (before depreciation) in 2004 appears difficult to achieve; achieving such a surplus in 2005 should still be possible. ### Governance, transparency, and anti-corruption - National Commission Against Illicit Enrichment: - Preparing an action plan to initiate investigative and educational activity. - First annual report to be issued before end-year. - Continues to benefit from technical assistance from the Legal Department of the Fund. - Extractive Industry Transparency Initiative (EITI): - Country became an associate member in May 2004. - Staff transmitted a full set of templates to be completed in the coming months; technical assistance needs to be determined during this exercise. - Upon completion of these steps, authorities will proceed to the next stage to become eligible for full membership, entailing compliance with a comprehensive set of transparency requirements. - Staff appraisal: efforts to strengthen governance at all levels must be pursued without wavering; National Commission needs full support of government branches. ### PRSP preparation and civil society participation - PRSP process gaining speed (See LOI, paragraphs 26-27). - Seminars with civil society participation have taken place; more scheduled in all provinces. - Quantitative survey to update poverty and social indicators launched at end-August, with donor support. - Health and education ministries made substantial progress identifying areas of acute need, facilitating finalization of master plans for these sectors. - Master plans will form basis for the 2005 investment budget and the public investment program for 2005-07 to be presented to parliament in October. - Civil society views PRSP as key to increasing role in identifying public spending priorities and monitoring budget execution, enhancing government accountability. - Footnote: As Gabon is not a PRGF country, a PRSP is not a formal requirement. However, the authorities decided in 2000 to prepare such a document, recognizing the benefit of the process and the documentation. ### Macroeconomic performance and program implementation (Staff appraisal) - First half of 2004 under the program supported by the SBA: - Performance satisfactory. - Non–oil sector showed signs of acceleration. - Budgetary performance in line with program objectives. - All quantitative performance criteria for end-June were met. - Quantitative indicative targets were met except for a very small slippage on non-oil revenue. - Structural fiscal reforms that began in second half of 2002 continued at a satisfactory pace. - Staff cautions against complacency and stresses the need to use favorable commodity prices, including petroleum, to pursue fiscal consolidation and structural reforms aimed at promoting economic diversification. - Oil revenue windfall in first half of 2004 was used as envisaged under the program: domestic debt repayment and reducing bank credit to the government. - Understandings reached on use of the oil windfall in the second half of the year balance: reduction in external arrears, further reduction in government domestic arrears, and accumulation of deposits in the FFG at the regional central bank. - Debt rescheduling: - Following the June 11, 2004 Paris Club agreement, rescheduling negotiations on comparable terms with the London Club banks are at an advanced stage. - Progress being made in obtaining rescheduling from non-Paris Club bilateral creditors on comparable terms with Paris Club creditors. ### Public finance, fiscal policy, and structural measures - Government wage bill containment measures are being implemented; staff encourages further progress, notably: - Implementation of the merit-based promotion system. - Rationalization of statutes of contractual workers. - Tax administration reforms progressing; establishment of new large enterprise tax unit noted. - Staff recommendation: eliminate the highest VAT rate of 25 percent, which is likely to discourage development of key economic sectors. - Budget target adjustment request: - Staff concurs with authorities’ request to increase the target for the non-oil primary budget deficit by CFAF 1 billion (0.03 percent of GDP) to permit outlays to conduct priority audits and complete work on the budget nomenclature; these actions promote transparency in budget execution. - Social security: - Strengthening social security for contractual government employees administered by the CNGS is essential to ensure contractual obligations are respected and system viability. - Analysis of needed reforms of the payroll tax scheme should be undertaken without delay. - Investment budget execution: - Further improvement in monitoring is needed to strengthen public resource management and prepare the budget in a medium-term framework. - Planning ministry efforts to review status of investment execution are welcome but should be regular. - Understandings reached between the planning ministry, the World Bank and other donors for a public expenditure review in priority sectors to be conducted in the coming months. ### Structural reforms, investment climate, and privatization process - World Bank Foreign Investment Advisory Service diagnostic study: - First phase completed; report to be issued soon. - Will enable in-depth analysis and preparation of an action plan for reforms. - Privatization of Gabon Télécom and interest from potential investors are positive signs; staff emphasizes need to conclude sale with appropriate speed and transparency. - Government decision to seek private sector participation in Air Gabon is appropriate; new measures to improve operating results must be carried out with determination and rigor to ensure financial viability. ### Debt sustainability and risks - Upward revision in oil price projections and improved oil production prospects led to a debt sustainability analysis revision. - Under the new baseline scenario the debt-GDP ratio is now declining quickly to below 40 percent by 2009. - Large uncertainty surrounds this scenario; it hinges critically on the oil price projections. - If oil price declines rapidly to below US$30 per barrel, the debt burden would remain very worrisome. - Staff recommendation: ensure the 2005 budget (to be discussed during the next review) is consistent with fiscal adjustment envisaged under the program. *IMF staff appraisal and program summary as presented in the source content.* ### 49. In view of the satisfactory performance in the first half of 2004, and observance of all ### 49. In view of the satisfactory performance in the first half of 2004, and observance of all ### Staff recommendation and authorities’ requests - Staff recommends that the first review of the SBA be completed, given satisfactory performance in the first half of 2004 and observance of all quantitative performance criteria, and progress on structural performance criteria envisaged for the remainder of the year. - Staff concurs with the authorities’ request to modify: - the performance criterion for end-December 2004 on the primary budget balance, adjusted for excess oil revenue; - the performance criteria for end-September and end-December 2004 on net bank credit to the government and the stock of domestic arrears of the central government, resulting from use of oil windfall revenue. ### Selected economic indicators (highlights, 2000–06) - GDP at constant prices: -1.9 (2000); 2.0 (2001); 0.0 (2002); 2.8 (2003); 2.0 (2004 est.); 1.5 (2005 prog.); 0.7 (2006 proj.); 0.9 (2006 rev. — table layout preserves original numbers). - Oil sector growth: -10.2 (2000); -5.7 (2001); -1.4 (2002); 7.6 (2003); -0.6 (2004 est.); -0.5 (2005 prog.); -6.7 (2006 proj.); -7.3 (2006 rev.). - Non-oil GDP growth: 2.1 (2000); 5.3 (2001); 0.6 (2002); 1.0 (2003); 3.0 (2004 est.); 2.3 (2005 prog.); 3.5 (2006 proj.); 3.8 (2006 rev.). - Consumer prices (yearly average): 0.4 (2000); 2.1 (2001); 0.2 (2002); 2.1 (2003); 2.0 (2004 est.); 2.0 (2005 prog.); 2.0 (2006 proj.). - Exports, f.o.b. (CFA francs): 53.7 (2000); -19.0 (2001); -5.7 (2002); 4.2 (2003); -4.3 (2004 est.). - Net domestic assets (percent of beginning-of-period broad money): -31.5 (2000); 42.6 (2001); -2.1 (2002); -8.8 (2003); -4.2 (2004 est.); -16.2 (2005 prog.); -16.0 (2006 proj.); -8.3 (2006 rev.). - Net credit to the central government (in percent of beginning-of-period broad money): -39.6 (2000); 27.7 (2001); -9.1 (2002); 2.0 (2003); -8.2 (2004 est.); -16.7 (2005 prog.); -20.4 (2006 proj.); -13.6 (2006 rev.). - Broad money annual percent change: 18.0 (2000); 7.5 (2001); 5.7 (2002); -1.2 (2003); 5.3 (2004 est.); 4.4 (2005 prog.); 5.5 (2006 proj.); 5.5 (2006 rev.). - Nominal GDP (in billions of CFA francs): 3,618.3 (2000); 3,448.5 (2001); 3,448.9 (2002); 3,520.5 (2003); 3,382.3 (2004 est.); 3,667.1 (2005 prog.); 3,597.9 (2006 proj.); 3,511.8 (2006 rev.). - Primary budget balance (payments order basis, central government): 17.5 (2000); 12.0 (2001); 7.9 (2002); 11.4 (2003); 10.3 (2004 est.); 12.5 (2005 prog.); 13.2 (2006 proj.); 11.2 (2006 rev.). - Overall balance (payments order basis, incl. grants): 11.6 (2000); 3.2 (2001); 3.5 (2002); 7.4 (2003); 5.4 (2004 est.); 8.2 (2005 prog.); 9.8 (2006 proj.); 8.0 (2006 rev.). - External current account balance (including official transfers, percent of GDP): 19.7 (2000); 11.0 (2001); 5.2 (2002); 9.6 (2003); 5.8 (2004 est.); 11.6 (2005 prog.); 10.9 (2006 proj.); 7.8 (2006 rev.). - External public debt (including the Fund and gap financing, percent of GDP): 57.1 (2000); 63.1 (2001); 62.8 (2002); 55.9 (2003); 58.6 (2004 est.); 52.1 (2005 prog.); 50.8 (2006 proj.); 48.1 (2006 rev.). - Total public debt (including the Fund and gap financing, percent of GDP): 65.8 (2000); 74.8 (2001); 76.1 (2002); 67.6 (2003); 67.9 (2004 est.); 59.3 (2005 prog.); 53.6 (2006 proj.); 48.1 (2006 rev.). ### Fiscal operations (central government, selected figures, 2002–04) - Total revenue and grants (2002): 999.6; (2003): 1,089.9; (2004 est./prog/rev entries preserved in table: 1,034.1; 1,050.3; 1,029.4; 1,139.5). - Revenue (2002): 997.7; (2003): 1,088.0; oil revenue (2002): 510.0; (2003): 609.0; oil revenue components across 2004 quarters and projections preserved in table (e.g., Dec. 2004 proj. 618.2). - Non-oil revenue (2002): 487.7; (2003): 479.0; non-oil revenue Dec. 2004 proj.: 513.4. - Total expenditure and net lending (2002): 843.2; (2003): 969.2; (Dec. 2004 proj. entries preserved: 845.6; 837.9). - Interest payments (2002): 157.8; (2003): 151.3; domestic interest (2002): 29.3; external interest (2002): 128.5. - Capital expenditure (2002): 161.9; (2003): 136.6; Dec. 2004 proj. 162.5. - Overall balance (on a cash basis) (2002): 80.0; (2003): 121.8; (Dec. 2004 proj. 103.5). - Financing (net) (2002): -270.0; (2003): -121.8; composition includes external (net) and domestic (net) breakdowns (e.g., external net 2002: -219.4; domestic net 2002: -50.6). - Change in payments arrears (2002): -76.4; (2003): 1.1; Dec. 2004 proj. -198.1. - Memorandum: Primary fiscal balance incl. grants (in percent of GDP) (2002): 9.5; (2003): 7.9; Dec. 2004 proj. 12.5. ### Fiscal operations, medium-term (2001–06 summary highlights) - Total revenue and grants: 1,173.6 (2001); 1,089.9 (2002); 1,050.3 (2003); 1,029.4 (2004 proj.); 1,139.5 (2005 rev.). - Oil revenue: 752.9 (2001); 609.0 (2002); 570.2 (2003); 508.1 (2004 proj.); 618.2 (2005 rev.). - Total expenditure (including net lending): 1,061.9 (2001); 969.2 (2002); 789.0 (2003); 845.6 (2004 proj.); 817.3 (2005 rev.). - Interest payments (total): 303.7 (2001); 151.3 (2002); 141.5 (2003); 137.1 (2004 proj.); 141.5 (2005 rev.). - Primary balance incl. grants (payments order basis): 41.5 (2001); 27.2 (2002); 40.2 (2003); 34.7 (2004 proj.); 45.6 (2005 rev.). - Financing gap during program period expected to be covered by debt rescheduling (table notes). ### Monetary indicators and monetary survey (selected) - Net foreign assets (in billions of CFAF): 177.2 (2000); -8.1 (2001); 36.1 (2002); 81.6 (2003); 137.7 (2004 est.); 203.5 (2005 proj.); 336.4 (2006 proj.); 426.0 (2006 rev.). - Net domestic assets (in billions): 350.1 (2000); 574.8 (2001); 562.9 (2002); 510.2 (2003); 485.2 (2004 est.); 414.5 (2005 proj.). - Net domestic credit (in billions): 455.6 (2000); 660.2 (2001); 652.3 (2002); 623.0 (2003); 603.6 (2004 est.); 436.2 (2005 proj.); 384.6 (2006 proj.). - Credit to the economy (in billions): 356.9 (2000); 419.2 (2001); 455.6 (2002); 412.8 (2003); 442.0 (2004 est.); 453.9 (2005 proj.); 491.3 (2006 proj.). - Broad money (stocks, in billions): 527.3 (2000); 566.7 (2001); 599.0 (2002); 591.8 (2003); 622.8 (2004 est.); 618.0 (2005 proj.); 651.8 (2006 proj.); 687.5 (2006 rev.). - Broad money changes (percent of beginning-of-period broad money): Net domestic assets -31.5 (2000); 42.6 (2001); -2.1 (2002); -8.8 (2003); -4.2 (2004 est.); -16.2 (2005 prog.); -16.0 (2006 proj.); -8.3 (2006 rev.). ### Balance of payments and external sector (selected, 2001–06) - Current account (including transfers, in billions CFAF): 379.3 (2001); 178.3 (2002); 336.9 (2003); 194.8 (2004 est.); 426.1 (2005 proj.); 50.5 (2006 proj. — table entries preserved). - Exports, f.o.b. (in billions): 1,916.0 (2001); 1,806.5 (2002); 1,881.7 (2003); 1,800.6 (2004 est.); 2,241.6 (2005 proj.); 1,527.7 (2006 proj.). - Oil sector exports: 1,535.9 (2001); 1,430.1 (2002); 1,498.8 (2003); 1,442.3 (2004 est.); 1,810.6 (2005 proj.); 1,138.4 (2006 proj.). - Imports, f.o.b.: -621.2 (2001); -665.1 (2002); -629.1 (2003); -658.3 (2004 est.); -692.0 (2005 proj.); -659.6 (2006 proj.). - Trade balance: 1,294.8 (2001); 1,141.4 (2002); 1,252.6 (2003); 1,142.2 (2004 est.); 1,549.7 (2005 proj.); 868.1 (2006 proj.). - Capital account: -576.3 (2001); -316.8 (2002); -373.7 (2003); -282.8 (2004 est.); -399.3 (2005 proj.); -167.1 (2006 proj.). - Overall balance (in billions): -197.0 (2001); -138.5 (2002); -36.9 (2003); -88.0 (2004 est.); 26.8 (2005 proj.); -116.7 (2006 proj.). - Gross official reserves (in billions of CFAF): 9.9 (2001); 90.1 (2002); 104.9 (2003); 181.3 (2004 est.); 246.3 (2005 proj.); 235.6 (2006 proj.); memorandum months of imports: 0.1 (2001); 0.9 (2002); 1.0 (2003); 1.9 (2004 est.); 2.2 (2005 proj.); 2.6 (2006 proj.). ### External debt and debt service (selected, 2000–06) - Total medium- and long-term debt (end-of-period): 2,065.4 (2000); 2,176.2 (2001); 2,164.8 (2002); 1,967.1 (2003); 1,911.9 (2004 est.); 1,827.4 (2005 proj.); 1,687.7 (2006 proj.). - Debt outstanding (as of December 2003): 2,065.4 (2000); 2,176.2 (2001); 2,164.8 (2002); 1,967.1 (2003); 1,394.7 (2004 est.); 1,176.5 (2005 proj.); 963.7 (2006 proj.). - Total debt service due (including IMF, in billions): 424.4 (2000); 548.4 (2001); 403.2 (2002); 318.8 (2003); 348.8 (2004 est.); 337.2 (2005 proj.); 319.0 (2006 proj.). - Memorandum ratios: - External public debt/GDP (including IMF): 57.1 percent (2000); 63.1 (2001); 62.8 (2002); 55.9 (2003); 58.6 (2004 est.); 52.1 (2005 proj.); 50.8 (2006 proj.); 48.1 (2006 rev.). - Debt-service ratio (due, before relief): 17.0 (2000); 26.9 (2001); 20.9 (2002); 15.9 (2003); 14.7 (2004 est.); 14.8 (2005 proj.); 15.5 (2006 proj.). - Debt service/government revenue (due, before relief): 35.1 (2000); 46.7 (2001); 37.1 (2002); 30.4 (2003); 34.1 (2004 est.); 29.8 (2005 proj.); 33.0 (2006 proj.). ### Structural performance criteria and benchmarks under the Stand-By Arrangement, 2004–05 (status) - Structural performance criteria (selected): - Adoption of a decree establishing the large enterprise tax unit (covering enterprises with annual turnover over CFAF 1 billion): End-September 2004 — Expected to be met (draft decree prepared). - Adoption of time-bound action plan to streamline SNBG (forestry), based on World Bank–financed study: End-November 2004 — Expected to be met (study underway). - Structural benchmarks (selected): - Harmonization of civil service and payroll rosters based on ANITA: End-December 2004 — Expected to be met. - Adoption of implementing decrees on new wage structure and promotion system (new law on general civil service statute): End-December 2004 — Expected to be met (draft law with National Assembly). - Integration of all special funds in the 2005 government budget: End-December 2004 — Expected to be met. - No granting of exemptions beyond those in mining, forestry, and investment code; no renewal of existing exemptions: Continuous benchmark — Met. - Completion of assessment of stock of wage arrears: End-September 2004 — Expected to be met. - Finalization of taxable base for local real estate taxation for Libreville and Port-Gentil: End-December 2004 — Expected to be met. - Establishment of detailed budgetary appropriations for investment expenditures in 2005 Budget Law: End-December 2004 — Expected to be met. - Entry into effectiveness of budgetary credits for the 2005 budget before end-February 2005: End-February 2005 — Expected to be met. - Establishment of performance contract with National Social Guarantee Fund, CNGS: End-September 2004 — Expected to be met. - Issuance of interministerial report on local authorities’ finances: End-October 2004 — Expected to be met. - Preparation of study to prioritize the university scholarship system: End-October 2004 — Expected to be met. - Preparation of first report on operations of the Commission Against Illicit Enrichment: End-December 2004 — Expected to be met. - Inclusion in 2005 budget of adequate operational budget for the National Commission Against Illicit Enrichment: End-December 2004 — Expected to be met. - Selection of successful bidder for Gabon Télécom: End-September 2004 — Will be delayed to accommodate newly interested investors. - Adoption of implementation regulations for the mining code: End-December 2004 — Expected to be met. - No recourse to price control measures and no widening of list of products subject to price surveillance: Continuous benchmark — Met. - Achievement of a surplus in 2004 in Air Gabon operational results, before depreciation: End-December 2004 — Operational results will improve, but surplus cannot be reached. - Removal of import surcharges on poultry and cigarettes: End-December 2004 — Expected to be met. ### External financing requirements and sources, 2003–06 (selected) - Gross financing requirements and components (in billions of CFAF, table preserves entries): - External current account deficit (exc. official transfers): 335.7 (2003 est.); 418.2 (2004 proj.); 386.9 (2005 proj.); 268.9 (2006 proj.). - Debt amortization: -198.6 (2003 est.); -207.5 (2004 proj.); -214.9 (2005 proj.); -214.1 (2006 proj.). - Repayment of arrears: 47.8 (2003 est.); -326.0 (2004 est.); 0.0 (2005 proj.); 0.0 (2006 proj.). - Gross reserves accumulation: -14.8 (2003 est.); -141.4 (2004 proj.); -141.3 (2005 proj.); -86.0 (2006 proj.). - IMF repurchases and repayments: -6.1 (2003 est.); -13.2 (2004 proj.); -13.2 (2005 proj.); -3.6 (2006 proj.). - Available financing (selected): - Foreign direct investment (net): 51.4 (2003 est.); 164.0 (2004 proj.); 183.4 (2005 proj.); 163.7 (2006 proj.). - Debt financing from private creditors (net): -241.9 (2003 est.); -420.7 (2004 proj.); -349.8 (2005 proj.); -211.9 (2006 proj.). - Official creditors (multilateral and bilateral combined): 16.6 (2003 est.); 72.9 (2004 proj.); 40.0 (2005 proj.); 43.0 (2006 proj.). - IMF financing: 0.0 (2003 est.); 32.2 (2004 proj.); 21.5 (2005 proj.); 0.0 (2006 proj.). - Accumulation of arrears (incl. debt rescheduling/deferral/cancellation): 10.0 (2003 est.); 421.6 (2004 proj.); 77.4 (2005 proj.); 0.0 (2006 proj.). - Financing gap (table): 0.0 (2003 est.); 0.0 (2004 proj.); 9.9 (2005 proj.); 40.0 (2006 proj.). - Memorandum: Total balance of payments financing: 17.8 (2003 est.); 506.7 (2004 proj.); 113.8 (2005 proj.); 45.0 (2006 proj.). ### Sources of growth (2003–08, sectoral projections) - Real GDP growth: 2.8 (2003 est.); 1.5 (2004 proj.); 0.7 (2005 proj.); 0.9 (2006 proj.); 1.8 (2007 proj.); 2.1 (2008 proj.). - Oil sector growth: 7.6 (2003 est.); -0.5 (2004 proj.); -6.7 (2005 proj.); -7.3 (2006 proj.); -4.7 (2007 proj.); -4.1 (2008 proj.). - Non-oil sector growth: 1.0 (2003 est.); 2.3 (2004 proj.); 3.5 (2005 proj.); 3.8 (2006 proj.); 3.8 (2007 proj.); 3.8 (2008 proj.). - Contributions to non-oil GDP growth (selected sectors, percent contributions preserved): - Agriculture, fishing, agro-industry: contribution series 0.2; 0.2; 0.4; 0.5; 0.5; 0.5. - Logging and wood industry: contribution series 0.2; 0.2; 0.5; 0.5; 0.4; 0.5. - Services, transport, commerce: contribution series 0.4; 0.7; 1.3; 2.1; 2.1; 1.9. ### Indicators of external vulnerability (1999–2003) - Exports (percent change, 12-month basis in U.S. dollars): 31.2 (1999); 33.1 (2000); -21.4 (2001); -0.7 (2002); 24.8 (2003). - Imports (percent change, 12-month basis in U.S. dollars): -21.6 (1999); -12.2 (2000); 6.0 (2001); 12.8 (2002); 13.4 (2003). - Terms of trade (percent change, 12-month basis): 37.9 (1999); -1.6 (2000); -10.6 (2001); -1.5 (2002); 24.7 (2003). - Current account balance incl. grants (percent of GDP): 8.4 (1999); 19.7 (2000); 11.0 (2001); 5.2 (2002); 9.6 (2003). - Gross official reserves (in millions of U.S. dollars): 22.8 (1999); 191.2 (2000); 13.8 (2001); 136.9 (2002); 194.1 (2003). - Official reserves/broad money (M2) (percent): 3.2 (1999); 25.9 (2000); 1.8 (2001); 15.0 (2002); 17.7 (2003). - Total external public and publicly guaranteed debt (in millions of U.S. dollars): 3,717.1 (1999); 2,894.7 (2000); 3,029.2 (2001); 3,290.0 (2002); 3,639.7 (2003). - Exchange rate (period average CFAF per U.S. dollar): 614.9 (1999); 710.0 (2000); 732.4 (2001); 695.4 (2002); 580.1 (2003). ### Fund position and purchase schedule under the proposed SBA (2004–07) - Outstanding use of Fund credit (in millions of SDRs): 68.4 (2000); 59.6 (2001); 49.5 (2002); 39.4 (2003); 64.4 (2004 proj.); 75.4 (2005 proj.); 70.8 (2006 proj.); 64.2 (2007 proj.); 34.7 (2008 proj.); 5.2 (2009 proj.). - Outstanding use of Fund credit (in billions of CFAF): 63.6 (2000); 53.8 (2001); 44.3 (2002); 31.7 (2003); 51.4 (2004 proj.); 60.2 (2005 proj.); 56.5 (2006 proj.); 51.2 (2007 proj.); 27.6 (2008 proj.); 4.2 (2009 proj.). - Purchases (GRA) under SBA: 27.8 (second purchase, 2004 as per table); repurchases schedule and charges details preserved in Table 12. *Sources: Gabonese authorities; and Fund staff estimates and projections.* ### conclusion of the first review under the ### _cr0503 - conclusion of the first review under the Stand‑By Arrangement ### Review milestones and purchases - December 2004 — Third purchase: Executive Board conclusion of the second review under the Stand‑By Arrangement, on the basis of quantitative and structural performance criteria at end‑September 2004. SDR 13.89 million (9 percent of quota). - March 2005 — Fourth purchase: Executive Board conclusion of the third review under the Stand‑By Arrangement, on the basis of quantitative and structural performance criteria at end‑December 2004. SDR 13.89 million (9 percent of quota). - June 2005 — Fifth purchase: Executive Board conclusion of the fourth review under the Stand‑By Arrangement, on the basis of quantitative and structural performance criteria at end‑March 2005. SDR 13.89 million (9 percent of quota). ### Economic and financial developments (first half of 2004) - General assessment: - Developments during the first half of 2004 were generally in line with program objectives; all end‑June performance criteria were met, and all indicative targets except a small shortfall in non‑oil revenues. - Production and growth: - Oil production expected to decrease by only 1.5 percent to 13.3 million metric tons for the full year. - Non‑oil real growth expected not to exceed about 2.3 percent (program target: 3 percent). - Manganese extraction could rise by 20 percent over the year. - Logging of secondary species rose by over 10 percent; logging of okoumé fell so total timber cutting expected to be stable. - Wood‑processing industry value added: 15 percent on an annual basis. - Value‑added in other industries and trade expected to rise by less than 2 percent. - Prices and money: - 12‑month rate of increase in the consumer price index at end‑June: 1.7 percent (program target for 2004: 2 percent year‑on‑year). - Money supply rose 5.6 percent during first six months of 2004 (5 percent in the 12 months to end‑June 2004); money supply had fallen 1.2 percent in 2003. - Credit to the economy decreased by 12.6 percent, reflecting high repayment of treasury float and domestic arrears. ### External sector and debt developments - Current account and reserves: - Current account surplus for the year expected to reach the equivalent of 11.6 percent of GDP (initial forecast: 5.8 percent). - Increase in BEAC net foreign assets attributable to Gabon of about CFAF 122 billion (3.3 percent of GDP). - Debt rescheduling and arrears: - Of CFAF 342 billion of arrears as at end‑April 2004, CFAF 45 billion to be repaid in two equal tranches before mid‑September and mid‑December 2004. - Oil revenues surplus in first half of 2004: CFAF 37 billion. - Rescheduling agreement with South Korea signed in July; agreement with London Club creditors under negotiation. - No external payment arrears during the program period. ### Fiscal performance and public finance (first half of 2004) - Fiscal balances and revenues: - Primary fiscal surplus target (excluding grants and foreign‑financed capital expenditures, adjusted for oil revenue surplus) met with a comfortable margin. - Non‑oil revenues broadly in line with program; direct tax revenue lower than target by about CFAF 5 billion (0.1 percent of GDP). - Strong performance: nontax revenues and IRVM (tax on income from financial assets). - Forestry taxation (area tax and stumpage fee) revenues well below target; collections accelerated in July and August including back taxes for 2002 and 2003. - Expenditures and treasury management: - Current expenditures within program limits; transfers and subsidies slightly above estimates. - Capital expenditures less than programmed by about CFAF 10.3 billion (0.3 percent of GDP). - Treasury float reduced by CFAF 39.9 billion (programmed: CFAF 12 billion). - Libreville Club: claims presented CFAF 38.9 billion (including about CFAF 30 billion previously in the treasury float); repayment schedule CFAF 2.2 billion a month (including CFAF 1.6 billion related to the treasury float). - Domestic debt arrears reduced from CFAF 21.2 billion at end‑2003 to CFAF 5.5 billion at end‑June 2004. ### Policy stance and planned use of higher oil revenues - Additional oil revenue and allocations: - Excess oil revenue now estimated at CFAF 110 billion for the year, equivalent to 3.3 percent of GDP. - Planned allocation: CFAF 50 billion to the Fund for Future Generations (equivalent to 1.4 percent of GDP); remainder to reduce the treasury float and domestic debt arrears beyond original program targets. - Government requests modification of performance criteria on net credit to government by the banking system and on the stock of arrears on domestic debt of the central government for end‑September and end‑December 2004 (as per attached Table 1). - Wage bill and constraints: - Wage bill expected to remain within program limits: CFAF 226 billion, or 6.2 percent of GDP. - Measures to contain the wage bill include strict observance of retirement age, audit of contractual staff, audit of managerial allowances, compression of managerial allowance ranges, limits on ministerial cabinet size, and restriction of air service allowance. ### Revenue administration and tax reforms - Main measures being implemented: - Establishing the Large Enterprise Directorate (DGE). - Updating the taxpayer roster and strengthening collection of back taxes (notably from mobile telephone companies and forestry industry). - Establishing an updated land registry to increase real estate tax yield. - Securing forestry revenues; strict application of permit withdrawal for noncompliance and joint liability for stumpage fee payment. - DGE and thresholds: - Draft decree establishing the DGE prepared; turnover threshold for DGE coverage set at CFAF 1.5 billion to cover about 310 enterprises. - DGE expected to be operational from the beginning of 2005. - VAT and excise considerations: - Higher VAT rate (25 percent) introduced in 2004 budget law applied to key services and luxury goods may hinder development. - Government to examine possibility of reducing higher rate to 18 percent in the 2005 budget law after an impact analysis. - Real estate taxation timetable: - Legal provisions on real estate taxes to be amended by end‑December 2004. - Assessment lists for Libreville and Port‑Gentil to be issued by end‑December 2004. - Procedures for automatic registration of land developed for housing to be accelerated during 2005. ### Expenditure management, public investment, and PRSP preparation - Improvements and audits: - Audit mission in June 2004 assessed execution of a sample of priority investment projects and identified weaknesses in preparation, implementation, and tracking. - Audits to be conducted: FER arrears audit (invitations to bid launched early September; expected completion end‑February) and regional investment expenditures relating to independence celebrations (invitations to bid to be launched early October; expected completion end‑March). - Road Maintenance Fund (FER): - FER 2004 budget envisages total outlays of CFAF 24 billion (CFAF 18 billion related to current budget year; CFAF 6 billion for work undertaken in 2003 and not yet paid). Treasury will settle CFAF 6 billion within float reduction allocation. - Investment programming and PRSP alignment: - Projects included in the 2005 investment budget and the PIP for 2005−07 to be consistent with PRSP priority sectors (health and education needs to be reflected). - Assistance from the World Bank for medium‑term expenditure frameworks planned; Bank mission planned for end‑September/early October. - Government allocated resources for a rapid survey (CWIQ) to update poverty and social indicators: survey started in August and expected to be completed by year‑end. - PRSP expected to be finalized in early 2005. - Budget execution measures: - Detailed breakdown of appropriations to be attached to the draft 2005 budget submitted to parliament to ensure rapid execution. - Functional classification of budget expenditures to be finalized during 2005 for use in the 2006 budget. ### Local government, civil service, and procurement - Local government finances: - Government commission (with Senate and Audit Office) reviewing local government finances to ensure viability; measures may include strengthened real estate taxation and greater rigor in personnel management. Commission report to be finalized and presented by end‑October. - Civil service reforms and payroll harmonization: - Draft laws on organization of government services and civil servants’ statutes expected to be approved during the September−December 2004 parliamentary session. - New civil service organizational chart preparation to be completed by end‑December 2004. - Harmonization of civil service rosters and the payroll office expected to be completed by end‑December 2004. - Computerized civil service management project (ANITA) prepared; implementation to occur in 2005 due to technical complexities. - Procurement oversight: - General Directorate of Government Procurement (DGMP) monitoring contract conformity with the public procurement code; projects over CFAF 30 million must be approved by DGMP. General Budget Directorate instructed not to issue payment orders for non‑compliant projects. *Source: Letter from the Government of Gabon to the Managing Director, Libreville, September 8, 2004 (Appendix I).* ### 32. The government has started introducing corrective measures for the National Social ### The government has started introducing corrective measures for the National Social Guarantee Fund (CNGS) ### CNGS corrective measures and fiscal support - The CNGS provides old age and medical insurance and family allowances to government contractual staff and self-employed individuals. - The CNGS budget presents a structural deficit because the payroll tax paid by the government as employer, together with a government annual budgetary subsidy, are insufficient to cover the costs of the benefits and of the funds’ operations. - The deficit will amount to about CFAF 1.5 billion in 2004. - To cover this deficit during the second semester the government will increase its subsidy to the fund by CFAF 1.5 billion through a corresponding appropriation in the supplementary budget for 2004. - A draft performance contract to reduce operating costs and to improve the fund’s efficiency is being prepared and will be finalized by end-September. - The CNGS accounts will be presented in an annex to the government budget starting with the 2005 budget. - The salary base for the payroll tax and the 7 percent tax rate will have to be revised upward to achieve equilibrium in the insurance scheme; a study will be launched by year-end. ### National Social Security Fund (CNSS) actions - Updating of CNSS database of insured workers and their employers was completed in August. - Using this database, the actuarial study carried out by the ILO will be completed in the first quarter of 2005. - A specialized private operator has been managing the CNSS hospitals since March to increase their efficiency. ### Investment climate, housing, and microfinance - Improving the investment climate to foster diversification is a main program objective. - The IFC foreign investment advisory unit conducted an initial mission in May and will present a report to the government in September to provide the basis for establishing a plan of reforms. - Further studies may be conducted in the first quarter of 2005 on administrative barriers and on the tax and incentive system. - Procedures for allocating lots for housing will be simplified; land development methods will be reviewed to give a greater role to the private sector. - Land registry staffing will be reinforced to speed up land registration. - The government is considering revising the Development and Expansion Fund (FODEX) statutes to enable it to operate in microfinance in conformity with prudential regulations established by the Central African Banking Commission (COBAC). ### Forestry sector developments and policy actions - The national forestry company (SNBG) has continued its program of cost reduction. - Okoumé exports fell by 28 percent in the first semester from one year before; exports of other types of timber rose by 13 percent by volume. - SNBG decided to cut wages in a 5 to 15 percent range according to wage levels. - A study on the role of the SNBG by an internationally recognized consultant is under way and expected to be completed by end-October, as scheduled in the program. - The government adopted the letter of development policy for the forestry, fishery, and environmental sector on May 18; actions include launching a pilot test for allocation of forestry concessions by auction and publication of the list of all forestry permits. - A decree establishing a moratorium on the allocation of new forestry permits and introducing the pilot auction project was issued on August 9, 2004. ### Mining sector actions - Implementing regulations of the mining code will be approved by end-December 2004. - The standard concession agreement defining taxation applicable to investors is under preparation and will be submitted to the Fund Fiscal Affairs Department for review. ### Public enterprises and privatization progress - Privatization program for Gabon Telecom is near conclusion; the government intends to increase the amount offered for sale from the 35 percent initially envisaged; this could delay selection of the successful bidder to January 2005. - In the postal sector, a consulting firm preparing a plan to restructure Gabon Poste is expected to submit its report by end-October 2004. - Air Gabon: new director general appointed in May; provisional accounts for 2003 show a higher-than-expected operating loss. - New management adopted cost-cutting measures (fleet redeployment to increase load factors and achieve fuel savings). - Cash flow improved in recent months and debts to suppliers were reduced. - The 2004 target of a balanced operating result before depreciation appears out of reach. - The government decided to start partial privatization; a call for expressions of interest was launched on July 19. - CEMAC study to create a regional airline (Air CEMAC) may affect Air Gabon’s future. - Ports of Owendo and Port-Gentil were placed under concession with SIGEPRAG for a 25-year period starting from April 2004; this has led to major rehabilitation work and improved service quality. ### Price liberalization and trade policy - Government remains committed to price deregulation; the General Directorate of Competition and Consumption is defining its work program. - For petroleum product prices, the government is determined to restore, at the latest by end-March 2005, the automatic price adjustment mechanism to reflect changes in international prices. - Retail prices have remained unchanged since August 2002 despite an increase in the CFA franc crude oil price of about 6 percent. - Reintroduction of the price formula is not expected to necessarily lead to a rise in retail prices because the initial price structure included a large margin for the refinery intended to be temporary to enable plant rehabilitation. - Government determined to eliminate tariff surtaxes on eggs and cigarettes by end-2004. - Regarding sugar, following expiration in June 2004 of the agreement with SUCAF (monopoly status since 1998), the government will propose at the next interministerial meeting of CEMAC to start consultations on adopting a common policy to promote regional competition. ### Good governance measures - Decree setting procedures for wealth declaration by government officials was adopted in April 2004; the Constitutional Court on May 4, 2004 decided various provisions were unconstitutional. - Government drafted a new version addressing the court's concerns. - Government will continue to rely on Fund technical assistance to assist the work of the National Commission Against Illicit Enrichment. - Government indicated to the World Bank it wishes to comply with the Extractive Industries Transparency Initiative; received relevant questionnaires for 2003 and will complete them speedily; may request assistance from the Fund Fiscal Affairs Department if necessary. ### Program commitments and conditionality highlights - Government affirms policies in the letter are adequate to achieve the program’s objectives and stands ready, in consultation with the Fund, to take additional measures if necessary. - Until external arrears towards the banks of the London Club have been rescheduled or paid, each purchase under the arrangement will be subject to a financing assurances review in accordance with the Fund’s lending into arrears policy. ### Selected quantitative and structural targets (as reported) - Deficit to be covered for CNGS in 2004: about CFAF 1.5 billion. - CNGS performance contract finalization: by end-September. - CNGS accounts to be annexed to government budget starting with the 2005 budget. - Payroll tax rate referenced: 7 percent. - CNSS actuarial study completion: first quarter of 2005. - IFC mission initial visit: May; report to government in September. - SNBG wage cuts range: 5 to 15 percent. - Decree issued establishing forestry moratorium and pilot auction: August 9, 2004. - Mining code implementing regulations approval: end-December 2004. - Gabon Telecom privatization: initial offer was 35 percent; selection of successful bidder possibly delayed to January 2005. - Air Gabon call for expressions of interest launched: July 19. - Ports concession period with SIGEPRAG: 25-year period starting April 2004. - Petroleum price formula to be restored by: end-March 2005. - Tariff surtaxes on eggs and cigarettes elimination target: end-2004. - SUCAF agreement expired: June 2004. *Source: Excerpt from IMF staff report and program documents (Gabon) included in the document provided.* ### 26. The main assumptions of the program are the following: ### 26. The main assumptions of the program are the following: ### Main program assumptions (key numerical inputs) - World Brent oil prices (U.S. dollar per barrel): 2004 37.3; 2005 37.5 - Gabonese export oil prices (U.S. dollar per barrel): 2004 36.1; 2005 36.1 - Oil output (in millions of metric tons): 2004 13.3; 2005 12.3 - Exchange rate (CFA francs per US$1, annual average): 2004 536.2; 2005 537.2 - Government oil revenue (in billions of CFAF): 2004 618.2; 2005 603.3 - Conversion note: The average conversion rate is 7.3 barrels per metric ton. ### Relations with the Fund (institutional and financial facts) - Membership: Joined September 10, 1963; Article VIII. - Quota and holdings (SDR Million / %Quota): - Quota: 154.30 / 100.00 - Fund holdings of currency: 197.42 / 127.95 - Reserve position in Fund: 0.18 / 0.12 - SDR Department (SDR Million / %Allocation): - Net cumulative allocation: 14.09 / 100.00 - Holdings: 0.03 / 2.71 - Outstanding Purchases and Loans (SDR Million / %Quota): - Extended arrangements: 21.14 / 13.70 - Stand-by arrangements: 22.15 / 14.36 - Latest financial arrangements (Approval Date / Expiration Date / Amount Approved (SDR Million) / Amount Drawn (SDR Million)): - Stand-by: May 28, 2004 – June 30, 2005; 69.44; 0.00 - Stand-by: Oct 23, 2000 – Apr 22, 2002; 92.58; 13.22 - EFF: Nov 8, 1995 – Mar 7, 1999; 110.30; 60.67 - Projected payments to Fund (SDR Million; forthcoming): - Principal (2004–2008): 2004 6.71; 2005 16.72; 2006 4.60; 2007 4.85; 2008 6.94 - Charges/Interest (2004–2008): 2004 0.75; 2005 1.24; 2006 0.83; 2007 0.69; 2008 0.51 - Total (2004–2008): 2004 7.46; 2005 17.96; 2006 5.43; 2007 5.55; 2008 7.46 - HIPC Initiative: Not Applicable. - Safeguards assessments: Full safeguards assessment of the Bank of Central African States (BEAC) completed on July 20, 2001; subsequent safeguards assessment completed on August 30, 2004 (summary of recommendations in Appendix V). - Exchange rate arrangement: CFA franc pegged to the euro at a fixed rate of CFAF 655.957 = €1. - Last Article IV Consultation: 24-month cycle; last consultation discussions initiated in Libreville in March 2004; concluded by the Executive Board on May 28, 2004. - FSAP participation: Gabon participated; joint Fund/World Bank mission visited Libreville in June and July 2001; FSSA report discussed by the Executive Board in March 2002. - Technical assistance (selected deliveries and timing): - FAD: Budget management — March 2004 - FAD: Tax policy and administration — November 2003 - LEG: Law against illicit enrichment — June, July, and October 2003 - FAD: Budgetary procedures and expenditure control — November 2000 - STA: Multisector statistics mission — May 1998 - FAD: Value-added tax administration issues — August 1997 - Resident representative: Office in Libreville; Mr. Richard Randriamaholy assumed post in October 2003. ### Relations with the World Bank (strategy, collaboration, and operations) - Context and priorities: - Gabon’s GDP per capita estimated at US$4,675 in 2003. - Bank support focuses on structural measures to improve the environment for private and forestry sectors and development of the local private sector in urban areas. - Bank assistance to be further defined in a new Country Assistance Strategy (CAS) to be presented in FY2005. - Recent and pipeline operations: - As of July 1, 2004, all Bank projects were completed. - Projects under preparation: Forestry and Environment Sector development; follow-up to the Pilot Community Infrastructure Project. - Closed projects (closed June 30, 2004): - US$5 million urban learning and innovation loan (LIL). - US$10 million privatization and regulatory capacity-building technical assistance loan. - IMF–World Bank collaboration: - Close collaboration to support reforms for economic diversification. - Tabled areas of structural reform with lead institutions (highlights): - Fiscal area: Civil service reform — IMF; Expenditure monitoring and control — IMF; Priority Expenditure Tracking under PRSP — World Bank; Medium-term public expenditure review — World Bank; Tax administration — IMF. - Governance: Anticorruption law implementation — IMF; Code of ethics for government officials — IMF; Extractive Industries Transparency Initiative (EITI) — World Bank/IMF. - Private sector development: FIAS study of the business climate — World Bank/IFC; Diversification and non-oil sector development — World Bank. - Other: Forestry and environment — World Bank; PRSP — World Bank/IMF; Transport — World Bank; Urban development — World Bank. - Bank-led initiatives informing IMF work: - Poverty Assessment finalized in March 1997 highlighted inefficiency and low quality of public expenditures in social sectors. - Bank supporting preparation of government’s poverty reduction strategy and statistical capacity building (NSO, CWIQ-type household surveys). - US$22.5 million ten-year forestry/environment project completed June 2002; new program being prepared for Board presentation in FY2005. - FIAS providing advisory services: three studies to identify constraints to private investment; diagnostic to be presented in September (2004); subsequent studies contingent on action. - Infrastructure Framework Report (IFR) being prepared to present opportunities and an action plan for private participation in transport, telecommunications, water, and power. - Starting October 2004, Bank assistance to carry out a public expenditure review focused on expenditure effectiveness in social sectors. - Areas of shared responsibility and delineation: - IMF focus: macroeconomic perspective, good governance (fiscal area), transparency, fiscal envelope for public expenditures, wage bill and public investment ceilings, monetary policy, interest rates, exchange rate, balance of payments, statistics. - Bank focus: efficiency of market structures, enterprise operation, privatization, business climate, poverty reduction, infrastructure, forestry/environment, transport, urban development. - Joint FSAP prepared in 2002: financial sector overall profitable and stable but with structural weaknesses (lack of bank portfolio diversification, underdevelopment of nonbank financial institutions). ### Assessing external and public sector debt sustainability (baseline findings, stress tests, and implications) - Analytical scope: - Framework applied to staff’s updated baseline scenario, which includes the impact of the higher-than-expected oil prices. - Considered standard stress tests and three additional shocks: lower growth in non-oil GDP, lower oil price, lower growth in wood-related exports. - Baseline external sustainability (2004–2013) — key projections and outcomes: - Over the medium term (2004-2006), external debt-to-GDP ratios projected to decrease by 7.8 percentage points to 48.1 percent of GDP. - Financing gaps: approximately CFAF 10 billion for 2005 and CFAF 40 billion in 2006 (assumed to be covered on commercial terms). - After 2006, baseline projects improvement in external debt-to-GDP ratio to 30.1 percent in 2013 due to (i) continued growth of non-oil real GDP and (ii) amortization in excess of new borrowings. - Debt-service ratios peak in 2009: debt service-to-exports ratio 21.1 percent; debt service-to-revenue ratio 35.1 percent. - Debt-service ratios peak again in 2012: debt service-to-exports ratio 20.6 percent; debt service-to-revenue ratio 32.3 percent. - Conclusion: Further reschedulings may be required, since financing gaps in both the balance of payments and the budget remain positive, though decreasing. - External vulnerability and sensitivity tests (summary of stress-test outcomes): - Interest rate shock: smallest initial rise in debt-to-GDP ratio in 2004-05; trend similar to baseline. - Temporary shock to the U.S. dollar deflator: debt ratio rises sharply by 25.2 percentage points by 2006; decreases slowly thereafter to approximately 69 percent of GDP by 2013. - Long-term shock to the non-interest current account balance (historical minus one-standard deviation for 2004-05): debt ratio increases to 70.7 percent by 2005, then decreases to 55 percent by 2013. - One-time 30 percent depreciation of the CFA franc vis-à-vis the U.S. dollar in 2004: rise in debt-to-GDP ratio of 5 percentage points by 2005; after peaking in 2005, debt ratio decreases steadily thereafter. (Note: U.S. dollar denominated debt ≈ 15 percent of total external debt at end-2003; euro-denominated debt ≈ 70 percent of external debt at end-2003, implying depreciation against the euro would have a much stronger effect.) - Combined shocks: sharp increase in external debt ratio by 63.5 percentage points by 2013, dominated by the deflator shock. - Additional sensitivity tests (long-term shocks): - Long-term shock to non-oil real growth: leads to deterioration of external current account through lower non-oil exports; can produce unsustainable debt ratios. - Long-term shock to wood-related exports: leads to a smaller decline of debt-to-GDP ratio which would stabilize after 2009 at around 40 percent. - Long-term shock to the price of oil: negative effect leads to a sustained increase in the debt ratio, stronger in the short term, which dampens after a number of years as the share of oil in GDP decreases. - Key analytical conclusions and policy implications: - Gabon’s debt sustainability is extremely sensitive to shocks to non-oil real growth and to changes in the price of oil. - Results underscore: - The importance of adopting macroeconomic policies that promote economic diversification and non-oil growth. - The need for prudent fiscal policies given highly volatile oil prices. - The potential requirement for further debt reschedulings to cover financing gaps despite projected improvements under the baseline. *Source: _cr0503 - 26. The main assumptions of the program are the following:* ### 4. Under the baseline projections, Gabon’s total public sector-to-GDP ratio is projected ### _cr0503 - 4. Under the baseline projections, Gabon’s total public sector-to-GDP ratio is projected ### Baseline projections and key assumption - Public sector debt-to-GDP ratio: - 2003: 67.6 percent - 2004: 59.3 percent - 2005: 53.6 percent - 2006: 47.6 percent - 2007: 44.7 percent (when domestic debt is assumed to be fully repaid) - 2008: 41.4 percent - 2009: 37.4 percent - 2010: 36.1 percent - 2013: 30.1 percent - Key assumption underlying baseline: growth of non-oil GDP is projected to average 3.4 percent in 2003-10. ### Stress tests and sensitivity analysis — public debt vulnerabilities - Primary-balance shock: - A one-standard deviation shock to the primary balance in 2004-05 leads to a public debt-to-GDP ratio approximately unchanged by 2013, at 65 percent. - Table 2 (scenario 3) shows the public debt path under this shock with a 2013 outcome of 65.5 percent. - Combination shocks: - The stress test combining shocks to all relevant parameters produces a strong temporary increase in the public debt ratio, followed by a gradual decline; for the public debt ratio the profile remains below that of external debt under the combined shock because the shock to the GDP deflator is absent. - Table 2 (scenario 4) shows the public debt ratio under combined one-standard deviation shocks with a 2013 outcome of 83.5 percent. - Other sensitivity tests (selected outcomes): - Real interest rate shock (historical average plus one standard deviation in 2004 and 2005): scenario exhibits elevated debt ratios (scenario 1 shows 2013 outcome 55.5 percent in the table excerpt). - Real GDP growth shock (historical average minus one standard deviation in 2004 and 2005): scenario 2 yields a declining path with 2013 outcome 29.2 percent. - One-time 30 percent real depreciation in 2004: scenario 5 yields 2013 outcome 42.0 percent. - 10 percent of GDP increase in other debt-creating flows in 2004: scenario 6 yields 2013 outcome 46.5 percent. - Non-oil real growth 2 percentage points lower than baseline: scenario 7 yields a rising debt path (2013 outcome 58.2 percent). - Oil price 15 percent lower than baseline: scenario 8 yields a markedly worsening path (2013 outcome 83.2 percent). - Wood-related exports 2 percentage points lower than baseline: scenario 9 yields elevated but lower path (2013 outcome 39.4 percent). ### Aggregate debt mechanics and fiscal indicators (selected figures from Table 2) - Change in public sector debt (annual change in percent of GDP): - 2003: -8.6 - 2004: -8.2 - 2005: -5.8 - 2006: -6.0 - 2007: -2.8 - Identified debt-creating flows (4+7+12): - 2003: -13.5 - 2004: -12.4 - 2005: -6.7 - 2006: -5.9 - 2007: -7.8 - Primary deficit (percent of GDP): - 2003: -13.0 - 2004: -13.0 - 2005: -11.0 - 2006: -10.4 - 2007: -10.4 - Revenue and grants (percent of GDP): - 2003: 32.4 - 2004: 31.7 - 2005: 30.0 - 2006: 29.9 - 2007: 29.3 - Non-oil revenue (percent of GDP): - 2003: 14.6 - 2004: 15.1 - 2005: 16.2 - 2006: 17.5 - 2007: 18.6 - Automatic debt dynamics contribution (percent of GDP): - 2003: -0.2 - 2004: 0.8 - 2005: 4.3 - 2006: 4.5 - 2007: 2.7 ### Principal findings and policy implications - Debt reduction under the baseline is driven importantly by the projected repayment of domestic debt and the assumed steady non-oil growth trajectory. - Vulnerabilities: - Public debt sustainability is sensitive to shocks in the primary balance, real growth, oil prices, and non-oil tradable-sector performance. - Lower oil prices and lower growth in the tradable non-oil sector can lead to unsustainable increases in debt ratios. - Policy recommendations emphasized by the analysis: - Sustain steady growth in the non-oil sector through diversification. - Continue fiscal consolidation and maintain prudent policies, given high volatility in international oil markets. *Sources: Gabonese authorities; and Fund staff estimates.* ### 1. Real sectorReal GDP growth rate ### _cr0503 - 1. Real sectorReal GDP growth rate ### Real sector — key series and aggregates - Real GDP growth rate (series): 2.8; 1.5; 0.7; 0.9; 1.8; 2.1; 2.3; 2.4; 2.6; 2.7; 2.8; 3.4; 1.8; 3.1; 2.6 - Of which: Non-oil GDP growth (series): 1.0; 2.3; 3.5; 3.8; 3.8; 3.8; 4.0; 3.9; 4.0; 4.0; 4.0; 4.0; 3.3; 4.0; 3.7 - Nominal GDP growth rate (series): 2.1; 4.2; -1.9; -2.4; 0.7; 1.2; 1.9; -1.1; 2.9; 3.1; 3.3; 4.3; 0.6; 3.7; 2.5 ### Nominal GDP levels (CFAF billions unless otherwise specified) - Nominal GDP levels (series): 3,520.5; 3,667.1; 3,597.9; 3,511.8; 3,536.2; 3,580.3; 3,646.6; 3,608.3; 3,714.4; 3,829.8; 3,954.4; 5,796.5; 3,583.6; 4,632.1; 4,232.6 - Of which: oil GDP (series): 1,487.3; 1,543.7; 1,358.4; 1,149.8; 1,055.5; 972.0; 905.5; 733.2; 697.8; 664.1; 632.2; 389.9; 1,150.7; 529.1; 765.9 - Of which: non-oil GDP (series): 2,033.1; 2,123.3; 2,239.5; 2,362.0; 2,480.7; 2,608.2; 2,741.1; 2,875.1; 3,016.7; 3,165.7; 3,322.1; 5,406.6; 2,432.9; 4,102.9; 3,466.7 ### Oil-specific indicators - Oil production (million tons) (series): 13.5; 13.3; 12.3; 11.0; 9.9; 8.6; 8.0; 7.3; 6.7; 6.2; 5.7; 2.5; 10.5; 4.3; 6.6 - WEO oil prices (US dollar/barrel) (series): 28.9; 37.3; 37.3; 35.3; 34.5; 33.8; 33.3; 30.0; 28.0; 26.0; 25.0; 20.0; 33.8; 21.8; 26.4 ### Notable real-sector points (as presented) - Non-oil GDP growth generally outpaces headline real GDP growth in most observations (see series above). - Oil GDP and oil production decline across the series, with oil GDP falling from 1,487.3 to 389.9 in one portion of the series, and oil production from 13.5 million tons to 2.5 million tons in corresponding entries. ### Sources attribution - Sources: Gabonese authorities; and Fund staff estimates. ### Balance of Payments — headline aggregates - Current account (including transfers) (series): 336.9; 426.1; 391.9; 273.9; 218.4; 151.3; 160.8; 109.2; 69.8; 39.7; 30.8; 3.8; 258.6; 3.5; 100.7 - Current account in % of GDP (series): 9.6; 11.6; 10.9; 7.8; 6.2; 4.2; 4.4; 3.0; 1.9; 1.0; 0.8; 0.1; 7.2; 0.1; 2.8 ### External trade (f.o.b.) — exports and imports - Exports, f.o.b. (series): 1,881.7; 2,241.6; 2,160.7; 1,936.2; 1,808.7; 1,659.5; 1,595.2; 1,461.3; 1,379.8; 1,311.6; 1,275.3; 1,308.9; 1,843.1; 1,251.5; 1,476.9 - Oil sector exports (series): 1,498.8; 1,810.6; 1,673.5; 1,412.5; 1,241.4; 1,060.0; 961.9; 795.4; 680.8; 579.8; 511.5; 173.6; 1,306.8; 346.2; 712.1 - Other sectors exports (series): 382.9; 431.0; 487.1; 523.7; 567.3; 599.5; 633.3; 665.9; 699.1; 731.8; 763.8; 1,135.2; 536.3; 905.3; 764.8 - Imports, f.o.b. (series): -629.1; -692.0; -727.3; -737.4; -750.6; -750.8; -747.5; -743.2; -759.6; -759.9; -760.9; -867.6; -722.3; -796.4; -768.2 - Oil sector imports (series): -202.7; -245.1; -256.8; -243.8; -235.4; -215.5; -193.1; -172.0; -173.8; -159.0; -144.6; -71.5; -220.6; -110.5; -152.4 - Government imports (series): -0.1; -0.1; -0.1; -0.1; -0.1; -0.1; -0.1; -0.1; -0.1; -0.1; -0.1; -0.2; -0.1; -0.2; -0.1 - Non-oil sector imports (series): -426.3; -446.8; -470.4; -493.5; -515.1; -535.2; -554.3; -571.1; -585.7; -600.7; -616.2; -795.9; -501.6; -685.8; -615.6 - Trade balance (series): 1,252.6; 1,549.7; 1,433.3; 1,198.8; 1,058.1; 908.7; 847.6; 718.0; 620.2; 551.7; 514.4; 441.3; 1,120.9; 455.1; 708.7 ### Services, transfers, and income - Services (net) (series): -862.3; -1,077.0; -992.1; -875.6; -790.6; -708.3; -637.9; -560.0; -501.6; -463.4; -435.0; -389.9; -813.0; -403.4; -559.4 - Interest on external debt (series): -112.0; -128.1; -109.1; -101.3; -93.4; -87.3; -80.1; -73.5; -69.8; -66.1; -63.6; -56.5; -98.1; -61.3; -75.3 - Profits (net) (series): -225.5; -325.3; -294.9; -246.2; -221.8; -189.7; -171.5; -145.3; -127.8; -111.0; -99.8; -68.9; -227.5; -82.3; -137.6 - Transfers (net) (series): -53.4; -46.6; -49.4; -49.3; -49.2; -49.1; -49.0; -48.9; -48.8; -48.7; -48.6; -47.6; -49.3; -48.2; -48.6 ### Capital account and financing - Capital account (series): -373.7; -399.3; -346.3; -224.3; -212.0; -190.5; -199.3; -111.0; -110.4; -116.7; -22.4; -50.9; -257.1; -53.0; -130.8 - Transfers (net) in capital account (series): 26.3; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 3.3; 0.0; 1.3 - Medium and long term (series): -119.0; 50.6; 35.6; 26.4; 21.4; -8.5; -36.8; 37.4; 10.6; -11.8; 78.2; 32.5; 0.9; 39.4; 24.7 - Of which: Government drawings (series): 15.4; 65.0; 35.0; 38.0; 50.0; 50.0; 50.0; 50.0; 50.0; 50.0; 50.0; 50.0; 44.2; 50.0; 47.8 - Amortization (series): -224.9; -207.5; -214.9; -214.1; -219.3; -236.8; -259.9; -172.9; -201.4; -215.3; -121.7; -110.7; -218.8; -127.9; -162.5 - Foreign direct investment (series): 51.4; 164.0; 183.4; 163.7; 151.9; 136.1; 127.4; 109.6; 106.3; 97.9; 99.2; 86.5; 136.0; 90.3; 107.7 - Other private medium and long term (series): 39.1; 29.1; 32.1; 38.8; 38.8; 42.2; 45.7; 50.7; 55.7; 55.7; 50.7; 6.7; 39.5; 26.9; 31.7 - Short-term flows (including E&O) (series): -281.0; -449.8; -381.8; -250.7; -233.4; -182.0; -162.4; -148.4; -121.0; -104.9; -100.6; -83.4; -261.2; -92.4; -156.7 ### Overall balance - Overall balance (series): -36.9; 26.8; 45.6; 49.6; 6.4; -39.2; -38.5; -1.8; -40.6; -77.0; 8.4; -47.2; 1.5; -49.5; -30.1 ### Memorandum items (selected) - Net IMF purchases (+ = net drawing) (series): -8.2; 19.1; 8.4; -3.6; -5.1; -25.5; -22.8; -1.3; 0.0; 0.0; 0.0; 0.0; -4.9; 0.0; -1.9 - Fiscal revenues excluding grants (series): 1,049.1; 1,131.6; 1,156.5; 1,075.8; 1,043.6; 1,029.9; 1,034.9; 988.3; 943.2; 913.3; 958.9; 1,120.4; 1,063.7; 997.2; 1,022.6 - Exports of GNFS (series): 2,006.4; 2,366.3; 2,285.4; 2,060.9; 1,933.4; 1,784.2; 1,719.8; 1,585.9; 1,504.5; 1,436.3; 1,400.0; 1,433.5; 1,967.8; 1,376.2; 1,601.5 - Of which: non-oil (series): 488.9; 537.0; 593.1; 629.7; 673.3; 705.4; 739.2; 771.8; 805.0; 837.8; 869.7; 1,241.2; 642.3; 1,011.3; 870.7 - Imports of GNFS (series): -1,218.3; -1,367.5; -1,372.1; -1,331.8; -1,298.4; -1,261.1; -1,216.0; -1,172.5; -1,155.6; -1,141.4; -1,130.3; -1,242.2; -1,279.7; -1,160.7; -1,206.0 - Of which: non-oil (series): -752.0; -808.3; -823.1; -844.5; -860.9; -879.0; -888.1; -892.7; -893.2; -908.9; -924.9; -1,138.3; -843.6; -1,003.7; -942.7 ### Growth rates (selected) - Exports of GNFS growth rates (series): 3.8; 17.9; -3.4; -9.8; -6.2; -7.7; -3.6; -7.8; -5.1; -4.5; -2.5; 2.0; -2.1; -0.7; -1.3 - Of which non-oil growth rates (series): 1.9; 9.8; 10.5; 6.2; 6.9; 4.8; 4.8; 4.4; 4.3; 4.1; 3.8; 3.7; 6.2; 3.7; 4.6 - Imports of GNFS growth rates (series): -2.7; 12.2; 0.3; -2.9; -2.5; -2.9; -3.6; -3.6; -1.4; -1.2; -1.0; 1.7; -0.7; 0.5; 0.0 - Of which non-oil growth rates (series): -4.8; 7.5; 1.8; 2.6; 1.9; 2.1; 1.0; 0.5; 0.1; 1.8; 1.8; 2.4; 1.6; 1.9; 1.8 - Exports growth rates (series): 4.2; 19.1; -3.6; -10.4; -6.6; -8.2; -3.9; -8.4; -5.6; -4.9; -2.8; 2.2; -2.2; -0.8; -1.3 - Of which non-oil growth rates (series): 1.7; 12.6; 13.0; 7.5; 8.3; 5.7; 5.6; 5.1; 5.0; 4.7; 4.4; 4.0; 7.5; 4.2; 5.4 - Imports growth rates (series): -5.4; 10.0; 5.1; 1.4; 1.8; 0.0; -0.4; -0.6; 2.2; 0.0; 0.1; 1.9; 1.5; 1.2; 1.3 - Of which non-oil growth rates (series): -10.6; 4.8; 5.3; 4.9; 4.4; 3.9; 3.6; 3.0; 2.6; 2.6; 2.6; 2.6; 2.4; 2.6; 2.5 ### Notable balance-of-payments points (as presented) - Trade balance remains strongly positive across the series, driven by oil exports, but services, interest, and profits generate large net outflows. - Current account in percent of GDP declines over the series from double-digit percentages to near 0.1 percent and 0.8 percent in selected entries. ### Sources attribution - Sources: Gabonese authorities; and Fund staff estimates. ### Debt sustainability figures and scenario notes (figures and scenario descriptions from charts) - Figures describe External Public Debt Sustainability, 2003–11 (In percent of GDP) and Total Public Sector Debt Sustainability, 2003–11 (In percent of GDP), with baseline debt/GDP and shock scenarios depicted for 2003–2011. - Scenario descriptions (verbatim items listed in the figures and notes): 1. Nominal interest rate is at historical average plus one-standard deviation in 2004 and 2005. 2. Real GDP growth is at historical average minus one-standard deviation in 2004 and 2005. 3. Change in US dollar GDP deflator is at historical average minus one-standard deviation in 2004 and 2005. 4. Noninterest current account is at historical average minus one-standard deviation in 2004 and 2005. 5. Combination of 1-4 using one standard deviation shocks. 6. One time 30 percent nominal depreciation in 2004. 7. Non-oil real growth is 2 percentage points lower than in baseline. 8. Oil price is 15 percent lower than in baseline. 9. Wood-related exports are 2 percentage points lower than in baseline. - Additional scenario notes for total public sector debt figure (verbatim): 1. Real interest rate is at historical average plus one-standard deviation in 2004 and 2005. 2. Real GDP growth is at historical average minus one-standard deviation in 2004 and 2005. 3. Primary balance is at historical average minus one-standard deviation in 2004 and 2005. 4. Combination of 1-3 using one-standard deviation shocks. 5. One time 30 percent real depreciation in 2004. 6. 10 percent of GDP increase in other debt-creating flows in 2004. 7. Non-oil real growth is 2 percentage points lower than in baseline. 8. Oil price is 15 percent lower than in baseline. 9. Wood-related exports are 2 percentage points lower than in baseline. ### Sources attribution - Source: IMF staff estimates and projections. ### Bank of Central African States (BEAC) — safeguards assessment (selected recommendations and findings) - Dates and assessments: - First on-site safeguards assessment completed on June 20, 2001. - Subsequent safeguards assessment completed on August 30, 2004. - Main institutional recommendations (verbatim list): - Preparation of financial statements in full accordance with an internationally recognized accounting framework, initially the ECB guidelines. - Publication of its full financial statements, together with the auditor’s report, starting with the 2003 financial statements. - Formulation of Board-approved formal guidelines under which the BEAC Governor is authorized to make exceptional advances to BEAC member countries. - Annual review by the BEAC internal audit department of the process of program data reporting of member countries to the IMF. - Implementation of a risk-based audit approach, and finalization of a charter, for the internal audit function. - Systematic follow up of all recommendations pertaining to the BEAC’s system of internal controls to be coordinated by the internal audit department, with regular reporting to the Audit Committee and the BEAC Governor. - Other priority, country-specific recommendations (verbatim list): - The BEAC should clarify with its member countries that hold foreign reserves outside the BEAC the statutory basis and circumstances for doing so, to avoid an apparent conflict with the BEAC statutes and to ensure full transparency of reporting of reserves by the member country. - The BEAC and its member states are encouraged to establish a mechanism to prevent IMF overdues and facilitate timely payments through advance acquisitions of SDRs and an authorization to debit the SDR account of the member. - The BEAC should cooperate with its members to reconcile and confirm the treasury balances to ensure that the balances reported by the BEAC in respect of credit to government as reflected in the accounts of the Treasuries are in agreement with the BEAC. ### Sources attribution - (BEAC safeguards assessment text provided in the source content.) ### Statistical issues — summary of data strengths and weaknesses - General data environment: - Gabon’s economic database is fairly comprehensive. - Data are generally compiled in accordance with international standards, but consistency between sectors is poor. - Metadata and reporting: - Gabon is a participant in the General Data Dissemination System (GDDS); metadata were first posted on September 20, 2002, but have not been updated. - The authorities do not report any real sector statistics for publication in IFS, nor fiscal data for publication in the IFS or GFS Yearbook. - National accounts: - Annual national accounts data were revised and updated for 1985–96; base for constant price aggregates changed from 1989 to 1991. - Provisional estimates for 1997–98 prepared but not finalized. - Coverage of oil and key export sectors may not fully capture profits generated by these sectors. - Significant inconsistencies remain between national accounts and balance of payments statistics. - More frequent household surveys are required. - Employment and unemployment: - Detailed annual employment data available until 1997; unemployment and total labor force data not systematically available. - Prices: - Monthly CPI for low- and middle-income households available only for Libreville, based on family expenditure survey of 1975. - New household budget survey of 1993 should allow development of a more representative index when introduced. - Government accounts: - Missions in 1995, 1999, and 2000 recommended reforms; many measures are being implemented. - Main deficiencies related to lack of comprehensive coverage (special treasury accounts, ministries’ own expenditures outside budget, social security operations); corrections made after 1999 audit for 1997–99 estimates, though social security operations remain excluded. - Other needed improvements: statistical treatment of oil companies’ tax advances; recording in budget accounts of government investment financed by oil companies; recording of government domestic payment arrears. - Monetary statistics: - Monthly monetary data reported regularly (with delays) by BEAC and published in IFS. - Institutional coverage comprehensive; accuracy affected by cross-border currency movements among CEMAC members. - About 94 percent of notes in Gabon are nationally issued; Gabon exports about 18 percent of its notes (13 percent to Cameroon; 3 percent to the Republic of Congo). - Technical assistance and implementation of the Monetary and Financial Statistics Manual (MFSM) have been advanced since 2001; new area-wide page for CEMAC published in January 2003 issue of IFS. - External public debt: - Comprehensive data on outstanding stock and composition and detailed projections on debt service are available and provided by the General Directorate of Public Debt and Accounting. - Comprehensive data for period prior to 1994 are not available. - Balance of payments and trade statistics: - Compiled and disseminated by national BEAC agency in cooperation with BEAC headquarters. - Annual data produced along BPM4 recommendations; dissemination since 1995 in BPM5 presentation. - Source data shortcomings: enterprise surveys for goods; trade data for oil, wood, manganese derived from volumes and adjusted by average market tariffs; customs data not used for exports due to reliability and delays; import data derived from customs. - External trade sources largely estimate-based and not cross-checked with customs. - Low response rate to enterprise surveys undermines reliability of current account items. - Foreign direct investment in financial accounts likely underestimated due to insufficient detail in oil sector survey. - Private capital flows, particularly short-term, lack comprehensiveness. - Balance of payments data disseminated with considerable delays; most recent data in source refer to 2001. - Multisector mission recommendations from May 1998 have not had reported progress on implementation. ### Sources attribution - Sources: Gabonese authorities; and Fund staff estimates. ### 16. While a fairly good database exists on the operations of public enterprises, ### _cr0503 - 16. While a fairly good database exists on the operations of public enterprises, ### Database coverage and reporting on public enterprises - Current data provided cover only the wholly owned and mixed enterprises in which government equity participation is at least 25 percent. - Information is communicated to staff on an ad hoc basis, notably during Fund missions. ### Core statistical indicators (selected metadata) - As of August 23, 2004: Exchange Rates — Date of latest observation 08/16/04; Date received 08/17/04; Frequency D; Frequency of reporting D; Source N; Mode of reporting O 2/; Confidentiality C; Frequency of publication D. - International Reserves — Date of latest observation 06/30/04; Date received 08/05/04; Frequency M; Frequency of reporting M; Source A; Mode of reporting E; Confidentiality A; Frequency of publication M. - Reserve/Base Money — Date of latest observation 06/30/04; Date received 08/05/04; Frequency M; Frequency of reporting M; Source A; Mode of reporting E; Confidentiality A; Frequency of publication M. - Central Bank Balance Sheet — Date of latest observation 06/30/04; Date received 08/05/04; Frequency M; Frequency of reporting M; Source A; Mode of reporting E; Confidentiality A; Frequency of publication M. - Broad Money — Date of latest observation 06/30/04; Date received 08/05/04; Frequency M; Frequency of reporting M; Source A; Mode of reporting E; Confidentiality A; Frequency of publication M. - Interest Rates — Date of latest observation 06/30/04; Date received 07/23/04; Frequency M 1/; Frequency of reporting V 1/; Source A; Mode of reporting E; Confidentiality C; Frequency of publication M. - Consumer Price Index — Date of latest observation 06/30/04; Date received 08/05/04; Frequency M; Frequency of reporting M; Source A; Mode of reporting V; Confidentiality A; Frequency of publication A. - Exports and Imports — Date of latest observation 06/30/04; Date received 07/26/04; Frequency M; Frequency of reporting A; Source A; Mode of reporting V; Confidentiality A; Frequency of publication A. - Current Account Balance — Date of latest observation 06/30/04; Date received 03/01/04; Frequency A; Frequency of reporting V; Source A; Mode of reporting C; Confidentiality A; Frequency of publication Q. - Overall Government Balance — Date of latest observation 12/31/03; Date received 07/26/04; Frequency M; Frequency of reporting M; Source A; Mode of reporting V; Confidentiality A; Frequency of publication A. - National Accounts — Date of latest observation 06/30/04; Date received 03/01/04; Frequency A; Frequency of reporting V; Source A; Mode of reporting E; Confidentiality A; Frequency of publication A. - External Debt — Date of latest observation 2003; Date received 07/26/04; Frequency M; Frequency of reporting M; Source A; Mode of reporting A; Confidentiality A; Frequency of publication A. - Notes and code keys as reported in the appendix: 1 As reported in the daily Morning Press (euro exchange rate). 2 Information communicated to staff as interest rates are adjusted. 3 D = daily; M = monthly; Q = quarterly; A = annually; V = staff visits. 4 N = none; A = direct reporting by central bank, Ministry of Finance, or other official agency. 5 O = official; E = electronic data transfer; C = cable or facsimile; V = staff visits. 6 A = For use by staff only; B = for use by the staff and the Executive Board; C = unrestricted use. ### IMF press release — First review under Gabon's Stand-By Arrangement (Press Release No. 04/197, September 20, 2004) - The Executive Board completed the first review of Gabon's program under a 14-month Stand-By Arrangement. - Completion of the review enables the release of a further SDR13.9 million (about US$20 million), bringing total amount drawn under the arrangement to SDR 27.8 (about US$41 million). - Agustín Carstens, Deputy Managing Director and Chair, highlighted: - Budgetary performance in the first half of 2004 was in line with program objectives. - Progress in implementation of structural reforms, particularly in the fiscal area. - Positive outlook because of favorable oil prices, improved prospects for oil production, and authorities’ commitment to adjustment and reform. - Persistent vulnerabilities: oil price risk, heavy debt burden, and weak social indicators. - Policy priorities: sustained fiscal adjustment, structural reforms, placing debt on a sustainable path, freeing resources for non-oil private sector growth, and increasing priority spending to reduce poverty while containing the wage bill and controlling expenditures. - Authorities’ use of oil revenue windfall: repay public debt, strengthen the government’s position in the banking system, and accumulate deposits in the Fund for Future Generations. - Need to avoid embarking on unsustainable spending programs. - Progress on transparency and efficiency of budgetary management; importance of accelerating these efforts and of the forthcoming public expenditure review. - PRSP completion expected in early 2005 to set medium-term priorities for tackling poverty. - Key structural reforms: privatization of Gabon Télécom, restructuring and partial privatization of Air Gabon, admitting private capital in enterprises, improving investment climate and regulatory framework, reform of the forestry sector, and strengthening governance. - Definition provided: A Stand-By Arrangement assures a member it can make purchases from the General Resources Account up to a specified amount during a specified period, normally between 12 and 18 months, provided the member observes the terms. ### Statement by Damian Ondo Mañe, Executive Director for Gabon (September 20, 2004) Recent economic developments and performance under the SBA - First half 2004 macroeconomic performance improved; performance under the SBA satisfactory. - Non-oil GDP growth picked up, especially in mining and forestry. - In the oil sector, higher world oil prices and higher investment led to oil production at end-June 2004 being quasi-identical to that in 2003 for the same period (contrary to projected decline). - Inflation remained under 2 percent as projected. Fiscal sector - Non-oil revenues broadly in line with program; expenditures lower than expected. - Wage bill remained under agreed limits due to measures applied since April 2004. - Strong performance in non-tax revenues and taxes on income and financial assets. - Revenues from forestry taxation were below target due to late publication of the 2004 Budget law; collections have since been accelerated, including on tax arrears. - Higher oil export revenue enabled a budget surplus; surplus used to increase government deposits in the banking system and accelerate repayment of the treasury float, including reduction of domestic debt. External sector and banking - Higher oil prices and increased manganese exports led to better-than-expected external balances in first six months of 2004. - Sharp increase in net foreign assets of the banking system and Gabon’s contributions to the BEAC led to a 5.0 percent increase in money supply, following a fall of 1.2 percent in 2003. - Credit to the economy decreased by 9.8 percent as high domestic debt payments strengthened private sector liquidity. - The banking system remains sound. Debt rescheduling and reform progress - Paris Club agreement on June 11, 2004 on rescheduling external arrears at end-2004 and current maturities for May 2004 – June 2005 of an amount of FCFA 472 billion, lower by FCFA 45 billion than envisaged under the program. - Two-phase agreement: part of reschedulable amounts contingent on completion of the second review of the SBA before March 1, 2004. - Ongoing discussions with London Club banks and other bilateral creditors for comparable rescheduling terms. - Council of Ministers adopted mid-May 2004 the letter of development policy in forestry, fishery and environmental sectors; decree issued on August 9, 2004 implementing main actions including a moratorium on allocation of forestry permits and launching a pilot auction allocation. - Privatization acceleration: Gabon Telecom shares for sale increased from 35 percent to at least 50 percent; selection of successful bidder delayed from October 2004 to January 2005. Air Gabon: decision to privatize partially and call for expressions of interest launched on July 19. - Governance: Constitutional Court found provisions of wealth declaration bill unconstitutional; government drafted a new version and will reissue a decree setting procedures for wealth declaration. - Public procurement: Directorate General of Public Procurement reviewing contracts above CFAF 30 million (and not billion as stated in the report) and has blocked noncompliant contracts. - Audit mission identified weaknesses in preparation, implementation and tracking of priority investment projects as main reasons for poor public investment execution rate. Program performance and requests - At end-June 2004, all performance criteria and indicative targets observed except the target related to non-oil revenues. - Authorities request completion of the first review under the SBA. Economic outlook and policies for H2 2004 and medium term - Oil world prices projected to remain above levels originally retained in the program. - Program GDP growth for 2004 revised downward from 3 percent to 2.3 percent due to slower-than-expected non-oil activity. - End-year inflation projected to remain below 2 percent. - Fiscal measures to be implemented by year-end: - (i) Establishment of the Large Enterprise Directorate (DGE) — decree adopted on September 9. - (ii) Update of taxpayer rosters — review of taxpayers’ registration system started. - (iii) Strengthening collection of back taxes, particularly in forestry — permits withdrawn for noncompliance. - (iv) Establishment of an updated land registry to increase real estate tax yield. - VAT: government to examine possibility of reducing higher rate from 25 percent to 18 percent for telecommunications services, banking services and luxury goods in the 2005 budget law, after impact analysis. - If oil prices remain high, oil revenue surplus will amount to CFAF 110 billion. - After repaying external debt arrears as agreed with the Paris Club, authorities intend to use excess oil revenue to increase Fund for Future Generations by around CFAF 50 billion and reduce domestic debt in excess of original program targets. - Authorities request modification of performance criteria on net credit to government and on the stock of domestic arrears for end-September and end-December 2004 accordingly (as indicated in table 1 attached to the staff report). - Authorities will contain expenditures including the wage bill within program limits, except an allocation of CFAF 1 billion for: - (i) Audit of Road Maintenance Fund (FER) arrears and regional investment expenditures timed with independence day celebrations. - (ii) Technical assistance for applying the new budgetary classification to the investment budget. - Request to revise the performance criterion for end-December 2004 on the primary balance to account for this spending increase and higher oil revenue (as indicated in table 1 attached to the staff report). - A public expenditure review (PER) of key sectors will start in October with World Bank and donor assistance to analyze costs of priority programs likely in the PRSP and possible financing. - A commission including the Senate and Cour des Comptes is reviewing local government finances; report to be finalized and presented by end-October. - Efforts to improve financial situation of social security funds progressing; measures being identified to ensure financial viability of the CNGS. - Draft 2005 budget law prepared to strengthen consistency with PRSP guidelines; integration of priority social projects into the 2005 investment budget may imply higher spending financed by projected excess oil revenues and could require slight revision of 2005 macroeconomic framework. - Monetary policy conducted regionally by BEAC consistent with the fixed exchange rate regime. - Financial sector policies: measures to strengthen microfinance and housing finance; feasibility study to revise FODEX statutes to enable microfinance operations in line with regional banking commission directives. - Housing: simplify procedures for lot allocation; finalize financing arrangements with domestic and foreign private banks to support new housing developments. - Structural measures: improve investment climate, promote non-oil activity (forestry and mining), accelerate privatization, and improve transparency. - FIAS mission report on business climate due this month to establish reform plan. - Study on role of SNBG by international consultant underway, expected by end-October. - Implementing regulations of the mining code expected to be approved by end-December 2004; standard concession agreement under preparation. - Consulting firm preparing plan to restructure Gabon Poste expected to submit report by end-October 2004. - Progress in implementation of the Extractive Industry Transparency Initiative (EITI); Gabon became an associate member in May 2004. - Civil service reform: two draft laws at Parliament for September-December 2004 session; another draft expected by end-December 2004. Harmonization of civil service rosters and payroll office should be completed by year-end. - Price policy: authorities intend to reintroduce, at the latest by end-March 2005, the automatic price adjustment mechanism for petroleum products to reflect changes in international prices. - Tariff surtaxes: elimination of surtaxes on eggs and cigarettes by end-2004; proposal at CEMAC interministerial meeting to start consultations on common sugar policy to promote regional competition and elimination of surtaxes in all CEMAC countries. Debt sustainability and PRSP - Better prospects in oil and mining expected to improve external balances and debt sustainability. - Debt Sustainability Analysis (DSA) sensitivity tests show continued vulnerability to shocks on non-oil growth and oil prices, underscoring need for diversification and prudent financial management. - PRSP preparation accelerated; expected finalization in early 2005. - Poverty and social indicators survey started in August, expected completion by year-end. - Wide consultative process began in July; line ministries increasingly involved. Conclusion and request - Continued good performance under the SBA, implementation of macroeconomic and structural measures, and achievement of performance criteria and benchmarks demonstrate authorities’ commitment to adjustment. - Authorities reaffirm determination to maintain reform efforts and request continued international support (technical and financial) and the support of Executive Board colleagues for the proposed decision. *Italic: IMF staff report content and statements as provided in the supplied document._* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr0503.pdf_