## _cr1383 ## Source details **Canonical URL:** [_cr1383](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1383.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1383.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1383.pdf.json) --- ### Capital expenditure, 2008–12 — context and recent developments - Massive scaling up of public investment under first phase of the National Development Plan (NDP) transformed roads, sea and air ports, power generation, urban housing, a new center for public administration on Bioko, and a new city on the mainland, Rio Muni. - Hydrocarbon sector accounted for about three-quarters of estimated GDP. - Expanding output of gas derivatives rose to an equivalent of about 200 thousand barrels of oil per day (bpd) in 2011; primary oil production appears to have peaked in 2008 at 350 thousand bpd. - Annual government capital spending has doubled in real terms since 2007 and currently accounts for about 35 percent of the estimated level of domestic demand. - Much contracting, materials and labor for infrastructure spending have been sourced overseas; rapid expansion provided a sizeable boost to domestic construction and utility output. - 2013 budget: - Scales down public investment to about 20 percent of GDP (76 percent of non-hydrocarbon GDP). - Proposes a small overall fiscal surplus on the basis of global oil prices below $90 a barrel. - Staff projections assume cash payments in 2012 and 2013 will be about 34 percent and 45 percent, respectively, above the original levels of provision because of the underlying strength of work under way. ### Key statistics and fiscal balances (select figures) - Non-resource primary fiscal deficit: 130 percent of non-hydrocarbon GDP (current level described as not sustainable over the medium term). - Government revenue from hydrocarbons: exports averaged US$12 billion during 2007–11, generating annual government revenues of US$5 billion. - External borrowing limited to drawings of about US$1 billion from a US$2 billion credit line with China Eximbank. - Budget and fiscal figures (Equatorial Guinea: Government Budget, 2011, percent of non-hydrocarbon GDP): - Revenue (2011 outturn): 148.0 - Revenue (2012 budget): 128.8 - Revenue (2013 projection): 143.2 - Resource revenue (2011 outturn): 134.3 - Resource revenue (2012 budget): 115.2 - Resource revenue (2013 projection): 127.1 - Non-resource revenue (2011 outturn): 13.7 - Non-resource revenue (2012 budget): 13.6 - Non-resource revenue (2013 projection): 16.1 - Expenditure (2011 outturn): 143.7 - Expenditure (2012 budget): 121.0 - Expenditure (2013 projection): 153.6 - Net acquisition of non-financial assets (2011 outturn): 117.7 - Net acquisition of non-financial assets (2012 budget): 96.9 - Net acquisition of non-financial assets (2013 projection): 130.2 - Net lending/borrowing (overall fiscal balance) (2011 outturn): 4.3 - Net lending/borrowing (2012 budget): 7.8 - Net lending/borrowing (2013 projection): -10.4 - Non-resource primary balance (2011 outturn): -128.6 - Non-resource primary balance (2012 budget): -104.5 - Non-resource primary balance (2013 projection): -137.4 - Government net savings (deposits less debt) rose rapidly up to 2008, but have since declined by more than 30 percent. - Usable external resources (BEAC official reserves + government offshore deposits) are more than 8 months of imports, but have been declining since 2008–09. ### Assessments of the public investment program (PIP) - Authorities’ positive achievements cited: - Upgraded infrastructure generated new opportunities for private sector activity and raised living standards. - Infrastructure improvements reduced bottlenecks, improved access to facilities, and lowered costs for business. - External borrowing was limited; fiscal accounts returned to surplus in 2011 in line with CEMAC convergence criteria. - Staff concerns and costs: - Many PIP elements, particularly prestige projects, involve substantial continuing outlays unlikely to yield equivalent economic returns; no evidence of objective project appraisal provided. - Scale and pace of the investment program exposed the budget to high opportunity and legacy costs and increased vulnerability to external shocks; execution of government capital spending differed from plans by an average of 20 percent over the last five years. - Although external borrowing was limited and public debt low, maintaining recent levels of public investment would erode fiscal buffers. ### Staff proposals and policy recommendations — fiscal anchor and composition - Anchor fiscal policy on a target path for the non-resource primary balance to establish and maintain adequate fiscal buffers and spread the use of hydrocarbon wealth over time. - Representative target path assumptions (underpinning staff’s medium-term projections): - Substantial scaling down of government capital spending over the rest of this decade, although less front-loaded than the draft 2013 budget. - Current spending rising over time as a share of non-hydrocarbon GDP, primarily to improve provision of education, health, and other pro-poor services. - Non-resource revenue eventually rising to international ratios, building on initiatives to improve customs collection and inhibit tax exemptions, broaden income tax base, and tighten enforcement. - To provide space for additional pro-poor current spending and ensure medium-term sustainability: - Investment will need to be cut and non-resource revenue must rise. ### Fiscal framework and projections — staff highlights - On current oil price projections, the framework would produce a small positive overall fiscal balance over the next three years, consistent with the mandatory CEMAC surveillance criterion on the basic fiscal balance. - External stability would be reinforced by commitment to a prudent medium-term fiscal framework on the lines proposed. - If government spending, particularly capital investment, more closely reflected absorption and financing capacity: - Current account imbalances and inflationary pressures would ease. - Adverse shocks could be readily accommodated. ### Capital expenditure, totals and composition (2008–12) - First NDP phase capital spending scaled up rapidly to about US$23 billion during 2008–12. - Capital spending over 2008–12 amounted to: - US$23 billion total during 2008–12. - Equivalent to 165 percent of annual GDP. - Equivalent to 650 percent of non-hydrocarbon GDP. - Execution was roughly double amounts originally envisioned in the NDP. - Capital spending exceeded 80 percent of total government expenditure in the period. - 2011 (preliminary) composition: - Physical infrastructure: nearly 50 percent of capital spending. - Public administration: around 22 percent of total capital expenditure. - Productive sectors: about 18 percent. - Education and health: about 3 percent of total capital spending. ### External sector vulnerabilities and real exchange rate - Overall assessment: an unsustainable external position in the long run, but not urgent. - Main drivers of current account deficits: investment-related imports and profit repatriation by hydrocarbon extraction companies. - Using Bems and Carvalho (2009) approach, estimate that the real exchange rate is overvalued by about 60 percent (methodology and data shortcomings limit accuracy). - Large FDI inflows have financed current account deficits; expected to be stable in medium term but gradually shrink as resources deplete. - Usable external resources (BEAC official reserves + government offshore savings) are about 8 months of imports. - External debt is small (about 9 percent of GDP), more than 90 percent of which is public; government has no plans to take on additional external debt. ### Fuel subsidies (Box 3) - Retail prices of refined fuel products fixed since February 2007; all refined products are imported. - Government built facilities for GEPetrol to distribute refined products as a competitor to Total Oil. - Total cost of fuel subsidies: CFAF 104 billion in 2011 (1.3 percent of GDP). - Current consumption breakdown: - Commercial users: about 60 percent of total fuel consumption. - Private users of gasoline, diesel, and kerosene: 25 percent. - Foreign and domestic companies for aviation jet fuel: 15 percent. - Authorities considering elimination of the subsidy for commercial users. ### Public financial management (PFM) weaknesses and TA - Staff-identified PFM deficiencies: - Limited integration of the PIP into budgeting; project appraisal limited; monitoring stretched; little formal provision for consequential recurrent spending. - Payments to contractors often long delayed (no arrears recorded in government accounts). - Absence of detailed budget execution information confirms weaknesses in monitoring and control. - Authorities’ response: - Refuted implications of poor project selection/implementation. - New budget decree to involve finance ministry more closely in planning and execution; tighten procedures for depositing revenue with the treasury. - Technical assistance from the African Development Bank to accelerate computerization of public financial management. - Recent TA: - AFRITAC (central) missions in May 2011 and September 2012; IMF FAD diagnostic mission planned in early 2013. ### Encouraging inclusive growth and diversification — staff priorities - Diversification and addressing poverty are core motivations of the NDP; inclusive growth requires: - Addressing social needs and developing human capital. - Improving the business climate to create jobs. - Resuscitating subsistence and commercial agriculture to raise household living standards and generate employment. - Staff emphasized: - Ensuring adequate competition in product markets. - Encouraging a deeper financial sector. - Opening access to opportunities and information. - Addressing broader governance concerns. - Government should not crowd out private sector by engaging in new commercial activities; adopt rules-based regulatory approach. - Adherence to regional initiatives on labor mobility and trade barriers would help. ### Private sector finance and banking sector (selected indicators) - Banking sector structure: - Four banks currently; three with foreign parents; Banco Nacional de Guinea Ecuatorial (BANGE) government-owned. - A fifth bank (Ecobank group) poised to start operations. - CCEI accounts for about 70 percent of total credits and 45 percent of total bank assets. - Societe Generale and BGFI bank share about 13 and 11 percent of total credits, respectively. - Microfinance is insignificant. - Financial depth and lending: - Ratio of bank credit to the private sector to non-hydrocarbon GDP: about 35 percent in 2011. - Density of borrowers from commercial banks: about one tenth of the SSA average. - Construction sector accounts for more than 60 percent of bank credits. - Private companies are primary source of bank funds (about 60 percent of total bank deposits). - Financial soundness indicators (end of period, percent) — 2009, 2010, 2011: - Ratio capital / Assets: 10.4, 10.9, 12.9 - Ratio capital / Risk-weighted assets: 31.5, 26.6, 24.2 - Capital / Risk-weighted assets: 23.3, 20.2, 18.2 - Non-performing loans / Total loans: 11.8, 7.2, 5.5 - Provisions / Non-performing loans: 64.4, 88.6, 101.7 - Average return on assets: 1.3, 1.5, 0.6 - Return on average equity: 18.5, 14.9, 5.4 - Liquid assets / Total assets: 44.0, 45.4, 37.4 - Liquid assets / Current liabilities: 192.9, 220.5, 185.7 - Staff noted scope for expansion of financial sector lending to the private sector; government developing a loan guarantee scheme for small businesses but cautioned about contingent liabilities and discretion risks. ### Transparency, governance, and data deficiencies - Major effort required to address international concerns regarding use of public resources, independence of civil society, human rights, and labor restrictions. - Ongoing/planned actions: - Action plan to reactivate Equatorial Guinea’s candidacy in the Extractive Industries Transparency Initiative (EITI): update legislation, training, information center. - Work with CEMAC financial authorities on anti–money-laundering and counter-terrorism financing mechanisms. - Regional obligations: - Large proportion of external financial assets held in foreign commercial banks contravenes CEMAC foreign currency surrender requirements. - Government held over CFAF 2140 billion in foreign currency deposits in overseas banks at end-2011, compared with CFAF 800 billion at the BEAC. - Authorities transferred CFAF 474 billion to the BEAC in 2011. - Staff recommendation: foreign currency deposits should be held in the BEAC rather than in commercial banks to strengthen Equatorial Guinea’s position in reserves framework discussions. - Statistical deficiencies impeding surveillance and MDG monitoring: - National accounts very poorly grounded (using a 1985 base year); lack minimum indicators to track annual developments in the non-hydrocarbon economy. - Price statistics reliability unclear; CPI compilation resumed in January 2009 but has deficiencies. - Fiscal data available only on a cash basis; no functional breakdown; no full reconciliation with financial data. - Balance of payments data do not reflect transactions recorded by customs or banking sector. - Staff suggestions: - Adopt clear publication timetable for critical macroeconomic and socio-demographic data. - Implement decree establishing an autonomous national statistics institute. - Consider GDDS participation; authorities had not responded to encouragement to join. - Authorities’ planned actions: - Ministry of Planning undertaking exercise to rebase national accounts. - World Bank posted a long-term statistics expert. - Nearly-completed demography and health survey and four major surveys planned for 2013, including population and housing censuses. ### Staff appraisal — policy priorities and recommendations (selected) - Fiscal policy: - Need a clear fiscal anchor: target path for the non-resource primary balance to establish fiscal buffers and reflect hydrocarbon revenue profile, investment efficiency, poverty needs, and absorption constraints. - First step: recast 2013 budget proposals to highlight the non-resource primary balance and implications of alternative hydrocarbon production and price profiles. - Public spending and revenue mobilization: - Reduce government capital spending; rebalance expenditure toward higher real current spending on education and health. - Enhance revenue by improving customs collection, broadening income tax base, and limiting tax holidays and exemptions. - Business climate, social services, human capital: - Next NDP phase should prioritize improving business climate and social services. - Measures to enhance business opportunities: streamline bureaucratic procedures, curtail political intervention, implement one-stop shop for investment. - Address loan availability for small enterprises via training and business services. - Avoid regulations restricting recruitment; avoid direct public sector involvement in commercial activities. - Education: - Consider fast-track approach to high-quality universal primary education with ambitious teacher targets and financial resources. - Data and transparency: - Develop and publish evidence-based annual national accounts and balance of payments; report government expenditure commitments and arrears and all financial assets and liabilities. - Conduct 2013 population and agricultural censuses and household and enterprise surveys; set clear publication timetable. - Regular publication of oil revenue reports to demonstrate EITI principles. ### Risk Assessment Matrix — key risks, likelihood, and impact - Substantial decline in hydrocarbon prices: - Likelihood: Low - Impact if realized: Medium - Hydrocarbons account for about 75 percent of GDP, 98 percent of goods exports, and 90 percent of fiscal revenue. - Large international reserves could support spending for up to three years if used. - Continuous loose fiscal policy: - Likelihood: High - Impact if realized: High - Capital spending on unsustainable trajectory; consequence: strains on administrative and absorptive capacity, inflation, competitiveness loss, erosion of fiscal buffers. - Policy implication: anchor fiscal framework on non-resource fiscal balance. - Widening inequalities in income and job opportunities: - Likelihood: Medium - Impact if realized: Medium - Consequence: political unrest risk; reduced human capital. - Policy implication: revitalize non-resource sector, better governance, direct resources to primary education. - Unchanged data quality: - Likelihood: Medium - Impact if realized: Medium - Consequence: inaccurate understanding of the economy; ineffective economic policies. ### Selected economic and financial indicators (highlights) - Real GDP (annual % change): 2009: 0.8; 2010: -1.7; 2011: 4.9; 2012: 2.5; 2013: -1.7; 2014: -0.3; 2015: -6.8; 2016: 2.8; 2017: -4.4. - Hydrocarbons share/dynamics: hydrocarbons account for about 75 percent of GDP, 98 percent of goods exports, and 90 percent of fiscal revenue. - Oil price (U.S. dollars a barrel, average): 2009: 58.0; 2010: 75.3; 2011: 100.3; 2012: 102.4; 2013: 101.3; 2014: 96.9; 2015: 92.7; 2016: 89.0; 2017: 85.2. - Consumer prices (annual average): 2009: 5.7; 2010: 5.3; 2011: 4.8; 2012: 5.5; 2013: 5.0; 2014: 5.4; 2015: 5.2; 2016: 5.0; 2017: 4.7. - Non-resource primary balance (percent of non-hydrocarbon GDP): 2009: -164.4; 2010: -130.9; 2011: -128.6; 2012: -137.4; 2013: -118.5; 2014: -105.6; 2015: -89.2; 2016: -81.2; 2017: -66.4. - Usable external resources (millions of U.S. dollars): 2009: 8,519; 2010: 8,288; 2011: 7,280; 2012: 6,577; 2013: 6,373; 2014: 6,004; 2015: 5,615; 2016: 5,273; 2017: 5,159. - Gross government deposits (billions of CFAF): 2009: 3,368; 2010: 3,262; 2011: 2,961; 2012: 2,834; 2013: 2,731; 2014: 2,571; 2015: 2,422; 2016: 2,255; 2017: 2,206. ### Annex I — Anchoring fiscal policy: curbing expenditure (method and projections) - Objective: balance near-term development needs against finite hydrocarbon resources while maintaining macro stability and improving financial management. - Stabilization buffer sizing: oil price simulated 5,000 times using AR(1) in logs: log(Pt) = α + β log(Pt-1) + εt, where α = 0.058, β = 0.90, and ε ~ N(0,0.29) (estimated using BP Statistical Review 2011, 1969–2010, controlling for 1974 regime change). - Illustrative fiscal consolidation assumptions: - Level of capital spending will halve relative to non-hydrocarbon GDP over the next four years. - Reduce NRPD from 135 percent of non-hydrocarbon GDP in 2013 to 36 percent in 2020, keeping net financial assets positive and securing external stability. - Real non-hydrocarbon growth assumed to rise to a peak of 5.0 percent in 2023 and then slow to long-term 3.0 percent. - After 2020, NRPD assumed to decline gradually to just over 1 percent of non-hydrocarbon GDP, consistent with maintaining total net wealth at about 100 percent of non-hydrocarbon GDP in 2030. - Interest rates assumed to average 6.5 percent, 1 percent above long-run nominal GDP growth. - Fiscal composition calibrated: capital declines to around 5 percent of non-hydrocarbon GDP; primary current expenditure increases to around 25 percent of non-resource GDP; non-resource revenue must rise from 15 to 30 percent of non-hydrocarbon GDP. - Key projected macro indicators (selected, Table I.1): - Real non-hydrocarbon GDP: 2012: 11.7; 2013: 2.8; 2016: 2.4; 2020: 4.4; 2025: 4.0; 2030: 3.2. - Oil price (U.S. dollars a barrel): 2012: 102; 2013: 101; 2016: 89; 2020: 85; 2025: 85; 2030: 85. - Remaining reserves (million Bbls.): 2012: 829; 2013: 734; 2016: 472; 2020: 251; 2025: 113; 2030: 60. - Fiscal and financial projections (Table I.2, selected): - Non-hydrocarbon revenue (percent of non-resource GDP): 2011: 13.7; 2012: 16.5; 2013: 16.3; 2016: 14.3; 2020: 13.4; 2025: 19.5; 2030: 29.9. - Capital (percent of non-resource GDP): 2011: 117.7; 2012: 129.3; 2013: 109.7; 2016: 69.0; 2020: 23.4; 2025: 5.9; 2030: 5.5. - Non-hydrocarbon primary balance (NRPB) (percent of non-resource GDP): 2011: -128.6; 2012: -134.8; 2013: -116.1; 2016: -79.2; 2020: -35.7; 2025: -12.2; 2030: -1.1. - Net financial assets (percent of non-resource GDP): 2011: 139.7; 2012: 121.4; 2013: 126.7; 2016: 126.3; 2020: 111.8; 2025: 95.4; 2030: 95.4. - Total wealth (percent of non-resource GDP): 2011: 930.0; 2012: 829.3; 2013: 719.0; 2016: 451.2; 2020: 239.1; 2025: 131.7; 2030: 109.2. - Main conclusions: - Gradual consolidation of capital expenditure that allows completion of the NDP can be consistent with fiscal sustainability, but would entail drawing down a majority of the public sector’s existing wealth. - Coupling consolidation with PFM and transparency reforms could transform financial wealth into growth-enhancing physical and social infrastructure. - Long-run fiscal sustainability will require a pronounced increase in non-oil revenues. ### Downside scenario — "Lower global growth" (Annex II) - By 2016 under the "lower global growth" scenario, global oil prices would be 30 percent below baseline levels. - Implications under unchanged spending: - Substantial drain on government savings and official reserves within five years, both falling to about 20 percent of their 2012 levels. - Impact on GDP relatively small provided confidence is maintained. - With policy reaction (expenditure reduced but less than proportionately): - Drain on savings and reserves considerably reduced. - Government savings would maintain about 70 percent of 2012 levels without substantial decline of real GDP growth. ### Data, statistics, and IMF work program (selected TA and timetable) - Resident TA extended to November 2013 for national accounts; 2006 and 2007 national accounts scheduled for January and March 2013; enterprise census November 2013. - Balance of payments statistics mission scheduled in March 2013. - IMF work program includes diagnostic mission and continued TA for PFM and statistics. ### Executive Board and authorities’ perspectives (selected) - IMF staff recommends next Article IV consultation on the standard 12-month cycle. - Directors encouraged improved policy frameworks to promote inclusive growth and bolster business environment. - Authorities emphasized use of oil revenue to build infrastructure, planned scaling down of public investment in 2013 budget, and commitment to stronger diversification and fiscal management. - Authorities’ planned measures: broaden tax base, strengthen customs administration, computerization, taxpayer identification number, single unit for large taxpayers, and capacity building with Fund, World Bank, and AfDB support. ### Conclusion — progress and remaining challenges - Considerable progress in physical infrastructure and development. - Lack of readily available statistics is a key challenge preventing full appraisal of progress. - Downside risks due to hydrocarbon dependency, but upside opportunities exist. - Top authorities’ objectives: strengthening human capital; developing non-hydrocarbon sector; creating conducive private sector environment. - Institutional actions: National Statistics Institute established; planned 2013 censuses and surveys. - Public finance measures: "Strengthening Public Finances" project with AfDB; stepped-up IMF technical assistance; faculty of Public Financial Administration with World Bank support. - Regional/CEMAC compliance: authorities requested BEAC proposal to resolve reserves and surrender issues. - Government response: defends investments in PNDES first phase; established independent entity to evaluate, design, monitor, and inspect public works. *Source: Excerpt from IMF staff report content provided in the content unit.* ### 1. Capital Expenditure, 2008–12 __________________________________________________________________ 12 ### 1. Capital Expenditure, 2008–12 ### Context and recent developments - Equatorial Guinea experienced a massive scaling up of public investment under the first phase of the National Development Plan (NDP), transforming roads, sea and air ports, power generation, urban housing, a new center for public administration on Bioko, and a new city on the mainland, Rio Muni. - Hydrocarbon sector remained the main driver of the economy, accounting for about three-quarters of estimated GDP. - Expanding output of gas derivatives rose to an equivalent of about 200 thousand barrels of oil per day (bpd) in 2011; primary oil production appears to have peaked in 2008 at 350 thousand bpd. - Annual government capital spending has doubled in real terms since 2007 and currently accounts for about 35 percent of the estimated level of domestic demand. - Much contracting, materials and labor for infrastructure spending have been sourced overseas; the rapid expansion of public investment provided a sizeable boost to domestic construction and utility output. - The 2013 budget scales down public investment to about 20 percent of GDP (76 percent of non-hydrocarbon GDP) and proposes a small overall fiscal surplus on the basis of global oil prices below $90 a barrel. - Staff projections assume that cash payments in 2012 and 2013 will be about 34 percent and 45 percent, respectively, above the original levels of provision because of the underlying strength of work under way. ### Key statistics and fiscal balances - Non-resource primary fiscal deficit: 130 percent of non-hydrocarbon GDP (current level described as not sustainable over the medium term). - Government revenue from hydrocarbons: exports averaged US$12 billion during 2007–11, generating annual government revenues of US$5 billion. - External borrowing limited to drawings of about US$1 billion from a US$2 billion credit line with China Eximbank. - Budget and fiscal figures (Equatorial Guinea: Government Budget, 2011, percent of non-hydrocarbon GDP): - Revenue (2011 outturn): 148.0 - Revenue (2012 budget): 128.8 - Revenue (2013 projection): 143.2 - Resource revenue (2011 outturn): 134.3 - Resource revenue (2012 budget): 115.2 - Resource revenue (2013 projection): 127.1 - Non-resource revenue (2011 outturn): 13.7 - Non-resource revenue (2012 budget): 13.6 - Non-resource revenue (2013 projection): 16.1 - Expenditure (2011 outturn): 143.7 - Expenditure (2012 budget): 121.0 - Expenditure (2013 projection): 153.6 - Net acquisition of non-financial assets (2011 outturn): 117.7 - Net acquisition of non-financial assets (2012 budget): 96.9 - Net acquisition of non-financial assets (2013 projection): 130.2 - Net lending/borrowing (overall fiscal balance) (2011 outturn): 4.3 - Net lending/borrowing (2012 budget): 7.8 - Net lending/borrowing (2013 projection): -10.4 - Non-resource primary balance (2011 outturn): -128.6 - Non-resource primary balance (2012 budget): -104.5 - Non-resource primary balance (2013 projection): -137.4 - Government net savings (deposits less debt) rose rapidly up to 2008, but have since declined by more than 30 percent. - Usable external resources (BEAC official reserves + government offshore deposits) are healthy at more than 8 months of imports, but have been declining since 2008-09. ### Assessments of the public investment program (PIP) - Positive achievements cited by authorities: - Upgraded infrastructure generated new opportunities for private sector activity and raised living standards. - Infrastructure improvements reduced bottlenecks, improved access to facilities, and lowered costs for business. - External borrowing was limited; fiscal accounts returned to surplus in 2011 in line with CEMAC convergence criteria. - Staff concerns and costs: - Many PIP elements, particularly prestige projects, involve substantial continuing outlays unlikely to yield equivalent economic returns; no evidence of objective project appraisal was provided. - The scale and pace of the investment program exposed the budget to high opportunity and legacy costs and increased vulnerability to external shocks; execution of government capital spending differed from plans by an average of 20 percent over the last five years. - Although external borrowing was limited and public debt low, maintaining recent levels of public investment would erode fiscal buffers. ### Staff proposals and policy recommendations - Anchor fiscal policy on a target path for the non-resource primary balance to establish and maintain adequate fiscal buffers and spread the use of hydrocarbon wealth over time (framework described more fully in Annex I). - Representative target path (underpinning staff’s medium-term projections) assumes: - A substantial scaling down of government capital spending over the rest of this decade, although less front-loaded than the draft 2013 budget. - Current spending rising over time as a share of non-hydrocarbon GDP, primarily to improve provision of education, health, and other pro-poor services. - Non-resource revenue eventually rising to international ratios, building on recent initiatives to improve customs collection and inhibit tax exemptions, as well as a broader income tax base combined with tighter enforcement mechanisms. - To provide space for additional pro-poor current spending and ensure medium-term sustainability: - Investment will need to be cut and non-resource revenue must rise. *Source: Republic of Equatorial Guinea — IMF staff report (excerpts). * ### 18. Staff highlighted that, on current oil price projections, the framework would produce ### _cr1383 - 18. Staff highlighted that, on current oil price projections, the framework would produce ### Fiscal framework and projections - On current oil price projections, the framework would produce a small positive overall fiscal balance over the next three years, consistent with the mandatory CEMAC surveillance criterion on the basic fiscal balance. - Authorities emphasized no decisions on medium-term spending issues until completion of the review on the first phase of the NDP. - Authorities reiterated their objective to achieve a surplus of non-resource revenue over current spending. ### External stability and medium-term adjustment - Staff: external stability would be reinforced by commitment to a prudent medium-term fiscal framework on the lines proposed (Box 2). - If government spending, particularly capital investment, more closely reflected absorption and financing capacity: - Current account imbalances and inflationary pressures would ease. - Adverse shocks (e.g., the “lower global growth scenario” in the October 2012 WEO) could be readily accommodated (Annex 2). - Over the medium term, fiscal adjustment would be crucial in restoring the external current account to a sustainable level. ### Impact of scaled-up investment on current spending (perceptions and findings) - Authorities’ view: - Spending on health services had recently risen. - Social security system increased coverage for disadvantaged families. - All children required to attend primary school; enrolment rates for 7-year olds had risen substantially. - Staff’s view: - The ratio of government current spending to GDP remained much lower than in countries with similar per capita income, or elsewhere in SSA, with limited budget provisions for education and health. - A firm political commitment to implementing universal primary education might mobilize resources critical for social policy and future labor force needs. - Some current spending has been poorly directed: - Fuel subsidies used to keep pump prices for gasoline and aircraft fuel fixed at 2007 levels cost, in 2011, over 1 percent of GDP (Box 3). - Additional government resources committed by building retail outlets for the national oil company GEPetrol. - Staff welcomed authorities’ studies to phase out fuel subsidies for commercial users and encouraged a more general unwinding of government involvement in petroleum distribution. ### Capital expenditure (Box 1) — 2008–12 - First phase of the NDP “Guinea Equatorial 2020” focused on basic infrastructure; capital spending scaled up rapidly to about US$23 billion during 2008–12. - Capital spending over 2008–12 amounted to: - US$23 billion total during 2008–12. - Equivalent to 165 percent of annual GDP. - Equivalent to 650 percent of non-hydrocarbon GDP. - Execution was roughly double amounts originally envisioned in the NDP. - Capital spending exceeded 80 percent of total government expenditure in the period. - In 2011 (preliminary): - Physical infrastructure accounted for nearly 50 percent of capital spending. - Public administration absorbed around 22 percent of total capital expenditure. - About 18 percent was on behalf of “productive sectors.” - Education and health accounted for about 3 percent of total capital spending. - Staff projection is reported for 2012 instead of actual. ### External sector vulnerabilities (Box 2) - Overall assessment: an unsustainable external position in the long run, but not an urgent issue. - Background: steady accumulation of current account deficits since 2006, despite large hydrocarbon exports; external position supported by ample official reserves and steady FDI inflows. - Current account vulnerabilities: - Main drivers: investment-related imports and profit repatriation by hydrocarbon extraction companies. - Deficits are tightly related to fiscal expansion composition and ownership structure of resource production; current hydrocarbon-related FDI finances deficits but will shrink as resources deplete. - Real exchange rate: - Using Bems and Carvalho (2009) approach, estimate that the real exchange rate is overvalued by about 60 percent, but methodology and data shortcomings limit accuracy. - Capital and financial account: - Large FDI inflows have financed current account deficits; expected to be stable in medium term but gradually shrink as resources deplete. - Foreign exchange reserves: - Amount of usable external resources (BEAC official reserves + government offshore savings) is about 8 months of imports. - Foreign assets and liabilities: - External debt is small (about 9 percent of GDP), more than 90 percent of which is public; government has no plans to take on additional external debt. ### Fuel subsidies (Box 3) - Retail prices of refined fuel products fixed since February 2007; all refined products are imported. - Government built facilities for GEPetrol to distribute refined products as a competitor to Total Oil. - Total cost of fuel subsidies was CFAF 104 billion in 2011 (1.3 percent of GDP). - Current consumption breakdown: - Commercial users account for about 60 percent of total fuel consumption. - Sales to private users of gasoline, diesel, and kerosene account for 25 percent. - Sales to foreign and domestic companies for aviation jet fuel account for 15 percent. - Authorities considering elimination of the subsidy for commercial users. ### Public financial management weaknesses - Staff: deep-seated PFM deficiencies impede better allocation and use of government resources. - Limited integration of the PIP into budgeting complicates aligning outlays with plans. - Project appraisal limited; monitoring stretched; little formal provision for consequential recurrent spending. - Payments to contractors often long delayed (no arrears recorded in government accounts). - Absence of detailed budget execution information (functional/administrative breakdown) confirms weaknesses in monitoring and control. - Authorities’ response: - Refuted implications of poor project selection/implementation. - New budget decree to involve finance ministry more closely in planning and execution; tighten procedures for depositing revenue with the treasury. - Technical assistance from the African Development Bank to accelerate computerization of public financial management. ### Recent technical assistance for PFM (Box 4) - AFRITAC (central) missions in May 2011 and September 2012 discussed legal/regulatory framework and public accounting practices; recommended budget and project monitoring systems; two follow-up TA missions scheduled. - IMF FAD planning a diagnostic mission in early 2013 following a request for renewal of backstopping arrangements for resident fiscal advisers. ### Encouraging inclusive growth and diversification - Diversification and addressing poverty are core motivations of the NDP, but many policy issues remain unaddressed. - Inclusive growth requires addressing social needs, developing human capital, and improving the business climate to create jobs. - Resuscitating subsistence and commercial agriculture could raise household living standards and generate employment. - Staff emphasized: - Ensuring adequate competition in product markets. - Encouraging a deeper financial sector. - Opening access to opportunities and information. - Addressing broader governance concerns. - Government should not crowd out private sector by engaging in new commercial activities; a rules-based regulatory approach is preferred. - Adherence to regional initiatives on labor mobility and trade barriers would help. ### Private sector finance and banking sector (Box 5) - Financial sector composition: - Four banks currently; three with foreign parents; Banco Nacional de Guinea Ecuatorial (BANGE) government-owned. - A fifth bank (Ecobank group) poised to start operations. - CCEI (Afriland First bank subsidiary) accounts for about 70 percent of total credits and 45 percent of total bank assets. - Societe Generale and BGFI bank share about 13 and 11 percent of total credits, respectively. - Microfinance is insignificant. - Financial depth and lending: - Ratio of bank credit to the private sector to non-hydrocarbon GDP was about 35 percent in 2011. - Density of borrowers from commercial banks is about one tenth of the SSA average. - Construction sector accounts for more than 60 percent of bank credits. - Private companies are primary source of bank funds (about 60 percent of total bank deposits). - Financial soundness indicators (end of period, percent) — 2009, 2010, 2011: - Ratio capital / Assets: 10.4, 10.9, 12.9 - Ratio capital / Risk-weighted assets: 31.5, 26.6, 24.2 - Capital / Risk-weighted assets: 23.3, 20.2, 18.2 - Non-performing loans / Total loans: 11.8, 7.2, 5.5 - Provisions / Non-performing loans: 64.4, 88.6, 101.7 - Average return on assets: 1.3, 1.5, 0.6 - Return on average equity: 18.5, 14.9, 5.4 - Liquid assets / Total assets: 44.0, 45.4, 37.4 - Liquid assets / Current liabilities: 192.9, 220.5, 185.7 - Staff noted scope for expansion of financial sector lending to the private sector; government developing a loan guarantee scheme for small businesses, but cautioned that guarantees can create contingent liabilities and official discretion risks. *Source: Excerpt from IMF staff report content provided in the content unit.* ### 27. Staff also highlighted the importance of transparency, accountability, and the ### 27. Staff also highlighted the importance of transparency, accountability, and the enforcement of law as preconditions for a vibrant private sector. ### Transparency, civil society, and anti-corruption initiatives - Major effort across all levels of government is required to address international concerns regarding: - use of public resources, - independence of civil society, - human rights and open access, - labor restrictions and hold-ups to business operations. - Authorities’ view: - external observers underweighted national values and expectations underpinning methods of operation and progress already made. - Ongoing and planned actions: - An action plan is under way to reactivate Equatorial Guinea’s candidacy in the Extractive Industries Transparency Initiative (EITI). - To facilitate civil society involvement in monitoring hydrocarbon activities and revenues, consultants would advise on updating legislation, training programs are being provided, and an information center is planned. - Authorities noted that regular reports of resource revenue had not yet been considered in the absence of engagement with the EITI. - Extensive work with CEMAC financial authorities to set up and enforce mechanisms to prevent money laundering and counter the financing of terrorism. - Priority implementation areas include international standards on politically exposed persons, cross-border transportation of currency and bearer bonds, and an operational finance intelligence unit. ### Meeting regional obligations - A large proportion of Equatorial Guinea’s external financial assets is still held in foreign commercial banks rather than the BEAC, contravening CEMAC foreign currency surrender requirements and reserve-pooling arrangements. - Government held the equivalent of over CFAF 2140 billion in foreign currency deposits in overseas banks at end-2011, compared with holdings of CFAF 800 billion at the BEAC. - Authorities noted that Equatorial Guinea transferred CFAF 474 billion to the BEAC in 2011 (bringing BEAC deposits close to the level of M2 deposits). - Authorities also noted that other oil-producing countries in the region held assets outside the BEAC. - Staff-identified adverse consequences of deposits outside the BEAC: - Overseas deposits are not reported in budget documentation (and neither is the Chinese Eximbank loan), so fiscal and financial accounts are not fully reconciled. - Equatorial Guinea’s potential leadership in attempts to reform the BEAC reserves framework (particularly remuneration of long-term savings) is compromised by not following current obligations. - Recommendation: - Equatorial Guinea should meet its obligations to the BEAC; foreign currency deposits should be held in the BEAC rather than in commercial banks to strengthen its position in discussions about the reserves framework. ### Compiling and publishing reliable data - Staff observations on statistical deficiencies impeding surveillance and monitoring of Millennium Development Goals: - National accounts statistics: - very poorly grounded (using a 1985 base year), - lack minimum indicators necessary to track annual developments in the non-hydrocarbon economy, - official data for economic growth are based on computations and projections rather than survey evidence. - Price statistics: - reliability unclear in the absence of an up-to-date household survey and adequate capacity to monitor price changes across the country. - Fiscal data: - available only on a cash basis; - no functional breakdown; - no full reconciliation with financial data. - Balance of payments data do not reflect transactions actually recorded by customs or the banking sector. - Several planned surveys have been delayed; poverty and population data have been challenged. - Staff suggestions to improve transparency and statistical capacity: - Adopt a clear publication timetable for critical macroeconomic and socio-demographic data to assist transparency and incentivize statistical capacity improvements. - Implement the decree establishing an autonomous national statistics institute. - Technical support and administration assistance would be available under the General Data Dissemination System (GDDS); authorities had not responded to encouragement to join. - Authorities’ planned actions: - Ministry of Planning, Economic Development and Public Investment undertaking an exercise to rebase the national accounts and improve coordination of economic data within government. - World Bank has posted a long-term statistics expert to provide assistance and training. - Nearly-completed demography and health survey and four major surveys planned for 2013 (including the population and housing censuses) would provide additional source data. ### Staff appraisal — macroeconomic framework, governance, and policy priorities - Physical infrastructure and development: - Important physical foundations laid: upgraded national road network, new ports, enhanced power infrastructure, modern public buildings and housing. - Costs and wastage have been high because of limitations in oversight and pressure for prestige projects. - Fiscal policy and external stability: - Need a clear fiscal anchor to insulate from oil price volatility and improve allocation and efficiency of expenditure. - Fiscal policy should be guided by a medium-term target path for the non-resource primary balance that establishes fiscal buffers sufficient to maintain expenditure commitments when oil prices fluctuate. - The target path should reflect: - expected future profile of hydrocarbon revenue, - likely efficiency of domestic investment, - immediate poverty and development needs, - short-term absorption and financing considerations. - First step: recast the 2013 budget proposals to highlight the non-resource primary balance and implications for the overall fiscal balance of alternative hydrocarbon production and price profiles. - Analysis shows the real effective exchange rate is above its equilibrium level (magnitude uncertain), indicating an erosion in external competitiveness. - Lower levels of government capital spending, together with improvements to the business climate, are critical to address competitiveness. - Public spending composition and revenue mobilization: - Broad guidelines under the NDP should set spending and revenue composition to underpin the target path for the non-resource primary balance. - Both expenditure rationalization and non-resource revenue mobilization required over the medium term. - Expenditure should be rebalanced to allow a higher level of real current spending. - Revenue might be enhanced by improving customs collection and broadening the base and efficiency of income tax (including limiting tax holidays and other exemptions). - Business climate, social services, and human capital: - Next NDP phase should prioritize improving the business climate and enhancing social services; decisive and sustained government action needed to overcome negative governance reputation and overhaul weak infrastructure for education, health and personal services. - Priorities in capital spending should switch from infrastructure toward education and health. - To enhance business opportunities: - streamline bureaucratic procedures, - curtail scope for political intervention, - implement a proposed one-stop shop for investment to reduce costs and delays. - Address loan availability problems for small enterprises via enhanced training and business services. - Avoid regulations that restrict local or foreign companies from recruiting adequate personnel. - Avoid direct public sector involvement in commercial activities; governments should not be “picking winners.” - Government comparative advantages lie in establishing infrastructure, ensuring a welcoming and predictable business climate, and supporting labor force enhancement. - Education recommendation: - Consider a fast-track approach to making high-quality primary education available to all with ambitious targets for number and quality of teachers, adequate financial resources, and programs to encourage student enrollment and attendance. - Data and transparency priorities: - Strong political commitment to transparency could accelerate production of basic economic and social statistics. - Priority actions: - develop and publish evidence-based annual national accounts and balance of payments statements; - report government expenditure commitments and arrears and all financial assets and liabilities; - conduct, in 2013, population and agricultural censuses and household and enterprise surveys; - reinforce these with a clear publication timetable for economic data. - Regular publication of reports on oil revenues would demonstrate continued commitment to EITI principles. *IMF staff report excerpt (chapter section).* ### 43. IMF staff recommends that the next Article IV consultation take place on the standard ### _cr1383 - 43. IMF staff recommends that the next Article IV consultation take place on the standard ### IMF staff recommendation - IMF staff recommends that the next Article IV consultation take place on the standard 12-month cycle. ### Risk Assessment Matrix — key risks, likelihood, and impact - A substantial decline in hydrocarbon prices stemming from a sustained global slowdown - Likelihood: Low - Impact if realized: Medium - Context and channels: - Spillovers from Europe and/or unresolved US fiscal issues could lead to global slowdown and sustained lower hydrocarbon prices. - Hydrocarbons account for about 75 percent of GDP, 98 percent of goods exports, and 90 percent of fiscal revenue. - Authorities may prune capital spending sharply, impacting the construction sector. - Large international reserves could support spending for up to three years if used. - Continuous loose fiscal policy - Likelihood: High - Impact if realized: High - Context and channels: - Capital spending on an unsustainable trajectory; authorities aim to keep an overall fiscal balance and staff expects capital spending to turn down. - Since 2009, the government has failed to increase fiscal buffers despite vast hydrocarbon revenues. - Consequences: strains on administrative and absorptive capacity; impacts on project selection, inflation, competitiveness, imports, and corruption; erosion of fiscal buffers; worsening competitiveness inhibiting non-hydrocarbon development. - Policy implication: introducing a fiscal framework anchored on the non-resource fiscal balance would discipline expenditure practice and reduce risks. - Widening inequalities in income and job opportunities - Likelihood: Medium - Impact if realized: Medium - Context and channels: - Poverty, governance, and business indicators suggest growth has not been inclusive. - Non-hydrocarbon sectors remain rudimentary and offer few opportunities to the local population. - Consequences: heightened risk of political unrest; reduced human capital and impeded sustainable development. - Policy implication: strategies to revitalize the non-resource sector, including better governance and business climate; direct resources particularly to primary education. - Unchanged data quality - Likelihood: Medium - Impact if realized: Medium - Context and channels: - Despite several efforts, improvement of data quality and dissemination of official data are limited. - Consequences: inaccurate understanding of the economy; ineffective economic policies, particularly inappropriate reallocation of hydrocarbon wealth. *Italic classification note from the matrix: events classified as high, medium/high, medium, low/medium, or low; relative likelihood reflects staff’s subjective assessment at the time of discussions.* ### Selected Economic and Financial Indicators (highlights from Table 1, 2009–17) - Real GDP (annual % change): - 2009: 0.8 - 2010: -1.7 - 2011: 4.9 - 2012: 2.5 - 2013: -1.7 - 2014: -0.3 - 2015: -6.8 - 2016: 2.8 - 2017: -4.4 - Hydrocarbons share and dynamics: - Hydrocarbons account for about 75 percent of GDP, 98 percent of goods exports, and 90 percent of fiscal revenue (from Risk Assessment). - Oil price (U.S. dollars a barrel, average of three spot prices with discount): 2009: 58.0; 2010: 75.3; 2011: 100.3; 2012: 102.4; 2013: 101.3; 2014: 96.9; 2015: 92.7; 2016: 89.0; 2017: 85.2. - Consumer prices (annual average): 2009: 5.7; 2010: 5.3; 2011: 4.8; 2012: 5.5; 2013: 5.0; 2014: 5.4; 2015: 5.2; 2016: 5.0; 2017: 4.7. - Broad money (annual % change): 2009: 18.8; 2010: 48.9; 2011: 6.1; 2012: 4.7; 2013: 7.1; 2014: 6.1; 2015: 10.6; 2016: 4.5; 2017: 5.7. - Government finance (percent of GDP): - Revenue: 2009: 48.4; 2010: 35.4; 2011: 35.9; 2012: 31.1; 2013: 34.6; 2014: 26.3; 2015: 35.7; 2016: 34.5; 2017: 34.4. - Expenditure: 2009: 57.8; 2010: 41.4; 2011: 34.9; 2012: 37.1; 2013: 37.1; 2014: 34.0; 2015: 34.0; 2016: 32.1; 2017: 30.3. - Overall fiscal balance after grants (percent of GDP): 2009: -9.4; 2010: -6.0; 2011: 1.0; 2012: -2.5; 2013: 1.0; 2014: 0.6; 2015: 0.4; 2016: -2.1; 2017: -0.7. - Non-resource primary balance (percent of non-hydrocarbon GDP): - 2009: -164.4 - 2010: -130.9 - 2011: -128.6 - 2012: -137.4 - 2013: -118.5 - 2014: -105.6 - 2015: -89.2 - 2016: -81.2 - 2017: -66.4 - Gross government deposits (billions of CFAF): 2009: 3,368; 2010: 3,262; 2011: 2,961; 2012: 2,834; 2013: 2,731; 2014: 2,571; 2015: 2,422; 2016: 2,255; 2017: 2,206. - Usable external resources (millions of U.S. dollars): 2009: 8,519; 2010: 8,288; 2011: 7,280; 2012: 6,577; 2013: 6,373; 2014: 6,004; 2015: 5,615; 2016: 5,273; 2017: 5,159. - Usable external resources (months of next year's imports): 2009: 13.4; 2010: 10.2; 2011: 8.3; 2012: 8.3; 2013: 8.3; 2014: 8.6; 2015: 8.3; 2016: 8.6; 2017: n.a. - Nominal GDP (billions of CFA francs): 2009: 4,890; 2010: 6,073; 2011: 7,931; 2012: 9,035; 2013: 8,965; 2014: 8,785; 2015: 7,978; 2016: 8,172; 2017: 7,743. - Nominal non-hydrocarbon GDP (billions of CFA francs): 2009: 1,578; 2010: 1,705; 2011: 1,925; 2012: 2,180; 2013: 2,319; 2014: 2,470; 2015: 2,622; 2016: 2,789; 2017: 2,978. ### Balance of Payments (highlights from Table 2, 2009–17; millions of U.S. dollars) - Current account balance (including official transfers; - = deficit): - 2009: -2,170 - 2010: -2,793 - 2011: -1,565 - 2012: -2,622 - 2013: -1,774 - 2014: -1,932 - 2015: -1,898 - 2016: -2,092 - 2017: -1,798 - Exports of goods, f.o.b.: - 2009: 8,526 - 2010: 10,332 - 2011: 14,306 - 2012: 14,838 - 2013: 14,104 - 2014: 13,515 - 2015: 11,649 - 2016: 11,537 - 2017: 10,464 - Hydrocarbon exports (millions of U.S. dollars): 2009: 8,413; 2010: 10,145; 2011: 14,103; 2012: 14,640; 2013: 13,898; 2014: 13,301; 2015: 11,419; 2016: 11,277; 2017: 10,156. - Imports of goods, f.o.b.: - 2009: -5,597 - 2010: -5,485 - 2011: -6,972 - 2012: -7,813 - 2013: -7,034 - 2014: -6,837 - 2015: -6,190 - 2016: -5,967 - 2017: -5,375 - Overall balance (millions of U.S. dollars): - 2009: -1,328 - 2010: -660 - 2011: 838 - 2012: -382 - 2013: 137 - 2014: 34 - 2015: -26 - 2016: -263 - 2017: -77 - Reserve assets at the BEAC (millions of U.S. dollars): 2009: 3,252; 2010: 2,354; 2011: 3,054; 2012: 2,550; 2013: 2,683; 2014: 2,707; 2015: 2,669; 2016: 2,396; 2017: 2,309. - Government bank deposits outside BEAC (millions of U.S. dollars): 2009: 5,267; 2010: 5,935; 2011: 4,227; 2012: 4,027; 2013: 3,690; 2014: 3,296; 2015: 2,945; 2016: 2,877; 2017: 2,850. ### Central Government Financial Operations (highlights from Tables 3a–3c, 2009–17) - Summary (billions of CFA francs): - Revenue (2009–2017): 2009: 2,368; 2010: 2,151; 2011: 2,849; 2012: 2,808; 2013: 3,122; 2014: 2,361; 2015: 3,202; 2016: 3,035; 2017: 2,744. - Resource revenue (2009–2017): 2009: 2,139; 2010: 1,884; 2011: 2,585; 2012: 2,513; 2013: 2,770; 2014: 2,040; 2015: 2,834; 2016: 2,656; 2017: 2,368. - Expenditure (2009–2017): 2009: 2,828; 2010: 2,517; 2011: 2,767; 2012: 2,638; 2013: 3,349; 2014: 2,355; 2015: 3,114; 2016: 2,985; 2017: 2,711. - Net acquisition of non-financial assets (2009–2017): 2009: 2,482; 2010: 2,063; 2011: 2,266; 2012: 2,112; 2013: 2,838; 2014: 1,762; 2015: 2,559; 2016: 2,383; 2017: 2,071. - Overall fiscal balance (billions of CFA francs): 2009: -459; 2010: -366; 2011: 82; 2012: 170; 2013: -228; 2014: 688; 2015: 50; 2016: 33; 2017: -174; 2017 (Proj. table shows -55 as overall fiscal balance in another column — source tables present overall fiscal balance and memorandum items consistently). - Percent of GDP (2009–2017): - Revenue: 2009: 48.4; 2010: 35.4; 2011: 35.9; 2012: 31.1; 2013: 34.6; 2014: 26.3; 2015: 35.7; 2016: 34.5; 2017: 34.4. - Expenditure: 2009: 57.8; 2010: 41.4; 2011: 34.9; 2012: 37.1; 2013: 37.1; 2014: 34.0; 2015: 34.0; 2016: 32.1; 2017: 30.3. - Overall fiscal balance (percent of GDP): 2009: -9.4; 2010: -6.0; 2011: 1.0; 2012: 1.9; 2013: -2.5; 2014: 0.1; 2015: 1.0; 2016: 0.6; 2017: 0.4 (mem. items provide specific percent series). - Non-resource primary balance (percent of non-hydrocarbon GDP): - 2009: -164.4; 2010: -130.9; 2011: -128.6; 2012: -104.5; 2013: -137.4; 2014: -85.0; 2015: -118.5; 2016: -105.6; 2017: -89.2 (Table 3c presents additional percent-of-non-hydrocarbon-GDP series). ### Depository Corporation and Central Bank Surveys (highlights from Tables 4a–4b, 2009–17) - Depository corporations survey (end of period, billions of CFA francs): - Net foreign assets: 2009: 1,561; 2010: 1,157; 2011: 1,588; 2012: 1,374; 2013: 1,444; 2014: 1,457; 2015: 1,451; 2016: 1,310; 2017: 1,270. - Broad money liabilities: 2009: 695; 2010: 1,035; 2011: 1,098; 2012: 1,150; 2013: 1,232; 2014: 1,307; 2015: 1,446; 2016: 1,510; 2017: 1,596. - Currency outside depository corporations: 2009: 127; 2010: 169; 2011: 225; 2012: 236; 2013: 253; 2014: 268; 2015: 296; 2016: 309; 2017: 327. - Central bank survey (end of period, billions of CFA francs): - Net foreign assets: 2009: 145; 2010: 511; 2011: 281; 2012: 524; 2013: 132; 2014: 613; 2015: 981; 2016: 416; 2017: 140. - Monetary base (currency in circulation + liabilities to other depository corporations + deposits): Monetary base totals in table: 2009: 485; 2010: 583; 2011: 670; 2012: 617; 2013: 616; 2014: 590; 2015: 546; 2016: 541; 2017: 546. - Memorandum monetary items: - CPI inflation (average annual): 2009: 5.7; 2010: 5.3; 2011: 4.8; 2012: 5.5; 2013: 5.0; 2014: 5.4; 2015: 5.2; 2016: 5.0; 2017: 4.7. - Credit to the private sector (percent of non-hydrocarbon GDP): 2009: 25.5; 2010: 31.5; 2011: 36.5; 2012: 36.7; 2013: 36.8; 2014: 36.9; 2015: 37.2; 2016: 37.4; 2017: 37.4. - Broad money (percent of overall GDP): 2009: 14.2; 2010: 17.0; 2011: 13.8; 2012: 12.7; 2013: 13.7; 2014: 14.9; 2015: 18.1; 2016: 18.5; 2017: 20.6. ### Financial Soundness Indicators for the Banking Sector (highlights from Table 5, 2006–11) - Regulatory capital to risk-weighted assets: - 2006: 13.0 - 2007: 8.6 - 2008: 5.3 - 2009: 9.3 - 2010: 6.6 - 2011: 7.4 - Tier 1 capital to risk-weighted assets: - 2006: 11.8 - 2007: 7.4 - 2008: 4.0 - 2009: 8.0 - 2010: 5.4 - 2011: 6.2 - Non-performing loans (gross) to total loans (gross): - 2006: 14.3 - 2007: 11.3 - 2008: 9.9 - 2009: 11.8 - 2010: 7.2 - 2011: 5.5 - Loan loss provisions to non-performing loans: - 2006: 84.8 - 2007: 94.0 - 2008: 76.9 - 2009: 64.4 - 2010: 88.6 - 2011: 101.7 - Return on assets (after-tax): - 2006: 1.2 - 2007: 1.0 - 2008: 1.7 - 2009: 1.3 - 2010: 1.5 - 2011: 0.6 - Return on equity (after-tax): - 2006: 17.7 - 2007: 13.9 - 2008: 23.9 - 2009: 18.5 - 2010: 14.9 - 2011: 5.4 - Ratio of net loans to total deposits: - 2006: 66.8 - 2007: 64.5 - 2008: 47.0 - 2009: 44.0 - 2010: 45.4 - 2011: 37.4 *Sources: Equatoguinean authorities; BEAC; and IMF staff estimates and projections.* *Italic — Content unit: _cr1383 - 43. IMF staff recommends that the next Article IV consultation take place on the standard* ### Annex I. Anchoring Fiscal Policy: Curbing Expenditure ### Annex I. Anchoring Fiscal Policy: Curbing Expenditure ### Overview and policy context - With limited proven hydrocarbon reserves, the authorities need to adopt a fiscal strategy that balances near-term development needs against finite resources, while maintaining macroeconomic stability and boosting financial management performance. - Past mechanisms considered: using cautious oil price projections in budget planning; financing current expenditure only with non-hydrocarbon taxes; permanent income framework; establishment of a sovereign wealth fund. These have not yielded a firm multi-year framework. - Two guiding principles have underpinned recent budget proposals: - Desire to follow spending imperatives set out in the National Development Plan 2008–20 and meet construction deadlines for major international events. - Budget proposals have sought to deliver at least an overall fiscal surplus, in line with CEMAC convergence commitments on the basic fiscal balance. ### Fiscal buffers and volatility management - To insulate public spending from volatility in oil revenue requires fiscal mechanisms that can: - establish and maintain strong fiscal buffers, and - effectively manage oil revenues over time. - Without fiscal buffers, government spending is likely to rise and fall with global price developments, amplifying economic cycles and impeding inclusive growth. - Current assessment: Equatorial Guinea currently has fiscal buffers sufficient to protect the budget from oil price volatility over a three-year horizon, provided the fiscal consolidation projected in the report’s baseline framework is undertaken. - Evidence: Staff estimates based on value-at-risk analysis suggest that resources at the BEAC, together with the government’s foreign currency deposits in commercial banks, provide sufficient liquidity to offset the impact of most conceivable fluctuations in oil prices for this period. - Stabilization buffer sizing: estimated by stochastically simulating the impact of different oil prices on the fiscal accounts using a specified framework of the oil production profile and fiscal regime. The oil price is simulated 5,000 times. ### Oil price stochastic model (specification) - Oil prices are modeled using an AR(1) process in logarithms: - log(Pt) = α + β log(Pt-1) + εt, where α = 0.058, β = 0.90, and ε ~ N(0,0.29). - These parameters were estimated using data from the BP Statistical Review 2011 covering 1969–2010 controlling for a possible regime change in the oil market in 1974. ### Fiscal sustainability analysis: framework and key assumptions - The analysis follows recent IMF work on resource–rich developing countries and these steps: - Establish a medium-term path for spending consistent with a declining path for the non-resource primary fiscal deficit (NRPD). - Having completed the first phase of the NDP aimed at building up basic infrastructure, the authorities can accommodate a significant scaling-down in capital spending in 2012–20. - Illustrative assumption: level of capital spending will halve relative to non-hydrocarbon GDP over the next four years, establishing a baseline permitting phased fiscal consolidation during the second half of the NDP. - Result: reduce the NRPD from 135 percent of non-hydrocarbon GDP in 2013 to 36 percent in 2020, while keeping net financial assets positive and helping to secure external stability. - Determine the impact of both investment scaling-up and subsequent consolidation on real growth. - Expected that scaling up of investment in 2008–12 will boost private sector productivity and short-run growth, limiting the direct negative impact of subsequent consolidation. - Much public investment construction has been undertaken by foreign companies and labor, limiting domestic activity impact. - Real non-hydrocarbon growth assumed to rise to a peak of 5.0 percent in 2023 and then slow down to a long-term growth of 3.0 percent. - Estimate the long-run NRPD needed to maintain a given level of wealth. - After 2020, NRPD assumed to decline gradually to reach a level of just over 1 percent of non-hydrocarbon GDP, consistent with maintaining total net wealth at about 100 percent of non-hydrocarbon GDP in 2030. - Interest rates assumed to average 6.5 percent, 1 percent above the long-run growth of nominal GDP. - Net wealth definition: sum of the present value of future oil revenue plus net financial assets. - Calibrate fiscal policy composition consistent with the sustainability framework. - Reflecting lower long-term revenues due to hydrocarbon depletion, government capital spending declines to around 5 percent of non-hydrocarbon GDP. - Primary current expenditure expected to increase to around 25 percent of non-resource GDP. - Non-resource revenue mobilization must increase substantially (almost doubling from 15 to 30 percent of non-hydrocarbon GDP) requiring comprehensive reforms: tax administration and enforcement, centralization of tax authority and collection, curtailment of tax exemptions (in line with the 2013 budget decree), and broadening the income tax base. ### Key projected macroeconomic indicators (Table I.1: Selected Economic Indicators, 2012–30) - Years: 2012, 2013, 2016, 2020, 2025, 2030 - Real non-hydrocarbon GDP: - 2012: 11.7 - 2013: 2.8 - 2016: 2.4 - 2020: 4.4 - 2025: 4.0 - 2030: 3.2 - Real hydrocarbon GDP: - 2012: -1.8 - 2013: -4.2 - 2016: 3.1 - 2020: -15.9 - 2025: -16.5 - 2030: -16.6 - Real GDP: - 2012: 2.7 - 2013: -1.7 - 2016: 2.8 - 2020: -4.8 - 2025: -0.9 - 2030: 1.6 - Oil price (U.S. dollars a barrel): - 2012: 102 - 2013: 101 - 2016: 89 - 2020: 85 - 2025: 85 - 2030: 85 - Remaining reserves (million Bbls.): - 2012: 829 - 2013: 734 - 2016: 472 - 2020: 251 - 2025: 113 - 2030: 60 - Consumer prices (annual average): - 2012: 5.5 - 2013: 5.0 - 2016: 5.0 - 2020: 3.2 - 2025: 2.8 - 2030: 2.5 - Note: (Annual percent change, unless otherwise indicated) ### Fiscal and financial indicator projections (Table I.2: Selected Fiscal and Financial Indicators 2011–2030) - Years shown: 2011, 2012, 2013, 2016, 2020, 2025, 2030 - Non-hydrocarbon revenue (percent of non-resource GDP): - 2011: 13.7 - 2012: 16.5 - 2013: 16.3 - 2016: 14.3 - 2020: 13.4 - 2025: 19.5 - 2030: 29.9 - Primary expenditure (percent of non-resource GDP): - 2011: 142.3 - 2012: 151.3 - 2013: 132.4 - 2016: 93.5 - 2020: 49.1 - 2025: 31.7 - 2030: 30.9 - Capital (percent of non-resource GDP): - 2011: 117.7 - 2012: 129.3 - 2013: 109.7 - 2016: 69.0 - 2020: 23.4 - 2025: 5.9 - 2030: 5.5 - Primary current (percent of non-resource GDP): - 2011: 24.6 - 2012: 22.0 - 2013: 22.7 - 2016: 24.5 - 2020: 25.7 - 2025: 25.8 - 2030: 25.4 - Non-hydrocarbon primary balance (NRPB) (percent of non-resource GDP): - 2011: -128.6 - 2012: -134.8 - 2013: -116.1 - 2016: -79.2 - 2020: -35.7 - 2025: -12.2 - 2030: -1.1 - Hydrocarbon revenue (percent of non-resource GDP): - 2011: 134.3 - 2012: 126.0 - 2013: 121.2 - 2016: 73.5 - 2020: 33.1 - 2025: 10.2 - 2030: 2.5 - Net financial assets (percent of non-resource GDP): - 2011: 139.7 - 2012: 121.4 - 2013: 126.7 - 2016: 126.3 - 2020: 111.8 - 2025: 95.4 - 2030: 95.4 - Natural hydrocarbon wealth (percent of non-resource GDP): - 2011: 0.0 - 2012: 712.4 - 2013: 592.3 - 2016: 324.9 - 2020: 127.3 - 2025: 36.3 - 2030: 13.8 - Total wealth (percent of non-resource GDP): - 2011: 930.0 - 2012: 829.3 - 2013: 719.0 - 2016: 451.2 - 2020: 239.1 - 2025: 131.7 - 2030: 109.2 ### Main conclusions from the baseline exercise - Gradual consolidation of capital expenditure that allows completion of the NDP can be consistent with fiscal sustainability, but would entail drawing down a majority of the public sector’s existing wealth. - Coupling consolidation with reforms to strengthen public financial management and transparency could transform financial wealth into growth-enhancing physical and social infrastructure. - Long-run fiscal sustainability will require a pronounced increase in non-oil revenues. ### Downside scenario analysis (Annex II): "Lower global growth" scenario - Context: Main projections assume oil prices decline only modestly over the medium term (consistent with WEO baseline, October 2012). The WEO identifies a "lower global growth" scenario that would depress commodity demand and lead to substantially lower commodity prices, particularly energy. - By 2016 under the "lower global growth" scenario, global oil prices would be 30 percent below baseline levels. - Implications for Equatorial Guinea under unchanged spending path: - Substantial drain on government savings and official reserves within five years, with both falling to about 20 percent of their 2012 levels. - Impact on GDP would be relatively small provided confidence is maintained, because the non-hydrocarbon part of the economy is not directly dependent to any significant extent on world demand, investment, or transfers; lower energy prices could buttress investment and consumption. - Alternative with policy reaction (expenditure reduced in response to lower oil revenue, but less than proportionately): - Drain on savings and reserves considerably reduced. - Government savings would maintain about 70 percent of its 2012 levels without a substantial decline of real GDP growth. - Graphical indicators presented (IMF staff calculations) compare baseline and alternative scenario for: - Oil price assumptions (U.S. dollars a barrel) - Real GDP growth (Percent) - Overall fiscal balance (Percent of GDP) - Current account (Percent of GDP) - Official Reserve in BEAC (Millions of U.S. dollars) - Government Savings (Billions of CFAF) *Source: IMF staff calculations and projections as presented in Annex I. Anchoring Fiscal Policy: Curbing Expenditure.* ### 2. Technical assistance to ### _cr1383 - 2. Technical assistance to ### Technical assistance to statistics office (national accounts) - Resident technical assistance extended to November 2013 - January 2013: 2006 National Accounts - March 2013: 2007 National Accounts - November 2013: Enterprise Census ### Investment climate survey - TBD ### Growth analysis - January 2013 (Presentation of preliminary results and diversification conference) - February 2013 ### Debt management diagnostic and reform - October 2012 (Debt Management Analysis) - ~February 2013 (Debt Management Reform Plan) - August 2013 ### Additional activities and timing - October 2012 (EITI workshop), March 2013 (Presentation of civil society legislation review) - August 2013 ### The IMF work program in the next 12 months - The IMF work program in the next 12 months *Source: _cr1383 - 2. Technical assistance to* ### 1. Article IV consultation October 2012 mission January 2013 IMF ### 1. Article IV consultation October 2012 mission January 2013 IMF ### Statistical Issues — Assessment of Data Adequacy for Surveillance (As of December 12, 2012) - General: Data provision has serious shortcomings that significantly hamper surveillance. National accounts, government finance statistics, and balance of payments data are all deficient in quality, timing, and coverage. A decree to establish an autonomous National Statistics Institute has not been followed through and staff vacancies in the General Directorate of Statistics have not been filled. Poor centralization of information between the island and continental regions is also an issue. Limited use has been made of technical assistance. - National Accounts: - National accounts are constructed by the Bank of Central African States (BEAC) as part of their regular Monetary Programming exercise. - They are based largely on estimates, without the benefit of survey information except in the hydrocarbon sector. - The current base year is 1985. - An exercise by the General Directorate of Statistics, supported by the World Bank resident adviser, is under way to compile complete accounts for 2006 and 2007. The initial outcomes are expected to be available in early 2013. - A demographic and health survey was conducted in 2011 and is currently being processed. - Planned for 2013: a population and housing survey, a household survey, an employment survey, and an agricultural survey. - Price statistics: - Official CPI compilation resumed in January 2009, with data collected in five major cities. - Deficiencies include outdated weights and composition of the basket, gaps in time series for June 2005 – February 2006, and 2008. - Imputations for missing data do not always reflect underlying trends. - In general, the CPI tends to underestimate inflation. - Government finance statistics: - Authorities provide budget execution data to the African Department, but these are limited in detail (poor delineation between capital and current spending and no functional classification) and are not fully reconciled with monetary accounts. - Fiscal data are not subject to any internal process of verification because internal and external audit capability remains weak. - Authorities are discussing with IMF FAD their request for TA contracts covering recruitment and backstopping for three residential advisors for public finance, budgeting, and accounting. - Gains in transparency were made temporarily through the Extractive Industries Transparency Initiative process, with a reconciliation report posted on the World Bank website in March 2010 that included information on state owned oil companies. - Monetary statistics: - Accuracy may be affected by large cross-border movements of BEAC-issued banknotes among CEMAC member countries. - About 60 percent of banknotes issued in Equatorial Guinea by the BEAC national directorate circulate in Cameroon and only 26 percent remain in the country, while currency in circulation in Equatorial Guinea includes some 18 percent of banknotes from Cameroon and as much from Gabon. - Balance of payments: - BEAC produces balance of payments data for monetary programming, but they are generally not derived from records of current stocks or flows and are not fully consistent with other datasets. - Statistics are largely constructed from estimates rather than actual financial and customs records, even though information on the hydrocarbons sector is available to some parts of the government and customs data have improved since the implementation of the Central African Customs and Economic Union reform and the deployment of customs brigades. - A balance of payments statistics mission is scheduled in March 2013. ### Data Standards and Reporting - Equatorial Guinea does not participate in the GDDS. - Equatorial Guinea has not yet received a mission to produce the data module of the Reports on the Observance of Standards and Codes (data ROSC). - Reporting to STA (Optional): - Real sector statistics reported to STA for IFS publication are limited to GDP (without breakdown by sector or expenditure category), exports, and imports. - The November 2012 issue of the IFS included data for GDP through 2009 and exports and imports through 2010. - Authorities agreed to submit CPI data for IFS publication and STA is communicating with the authorities regarding the procedure. - BEAC reports monetary, interest rates, and exchange rate statistics for IFS, but delays are persistent (currently the lag is about three months). - Balance of payments data are not submitted to STA for IFS or the Balance of Payments Statistics Yearbook. The latest year for which balance of payments data are available is 1996. - Equatorial Guinea does not report fiscal data to STA for IFS or the Government Finance Statistics Yearbook. ### Table of Common Indicators Required for Surveillance (As of December 12, 2011) — Availability Snapshot - Exchange Rates: Latest Observation 11/29/12; Date Received 11/29/12; Frequency of Data D; Frequency of Reporting D; Frequency of Publication D - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Latest Observation June 2012; Date Received 10/17/12; Frequency of Data M; Frequency of Reporting M; Frequency of Publication I - Reserve/Base Money: Latest Observation Sept 2012; Date Received 12/5/12; Frequency M / Reporting M / Publication M - Broad Money: Latest Observation Sept 2012; Date Received 12/5/12; Frequency M / Reporting M / Publication M - Central Bank Balance Sheet: Latest Observation Sept 2012; Date Received 12/5/12; Frequency M / Reporting M / Publication M - Consolidated Balance Sheet of the Banking System: Latest Observation Sept 2012; Date Received 12/5/12; Frequency M / Reporting M / Publication M - Interest Rates: Latest Observation Nov 2012; Date Received 12/4/12; Frequency M / Reporting M / Publication I - Consumer Price Index: Latest Observation Apr 2012; Date Received 11/19/12; Frequency M / Reporting M / Publication M - Revenue, Expenditure, Balance and Composition of Financing—General Government: Latest Observation June 2012; Date Received 10/17/12; Frequency Q / Reporting Q / Publication I - Stocks of Central Government and Central Government-Guaranteed Debt: Latest Observation July 2012; Date Received 10/17/12; Frequency A / Reporting A / Publication I - External Current Account Balance: Latest Observation 2011; Date Received 10/17/12; Frequency A / Reporting A / Publication I - Exports and Imports of Goods and Services: Latest Observation 2011; Date Received 10/17/12; Frequency A / Reporting A / Publication I - GDP/GNP: Latest Observation 2011; Date Received 10/17/12; Frequency A / Reporting A / Publication I - Gross External Debt: Latest Observation July 2012; Date Received 10/17/12; Frequency M / Reporting M / Publication I - International Investment Position: NA / NA / NA - Frequency code legend: Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA). ### Public Information Notice — Executive Board Conclusions (Public Information Notice No. 13/37, March 28, 2013) - Background and recent developments: - Hydrocarbon extraction accounts for about three-quarters of estimated GDP. - Equatorial Guinea has the highest level of per capita income in sub-Saharan Africa. - Over the last five years, a burst in public investment under the 2008–20 National Development Plan (NDP), largely financed by hydrocarbon revenue, upgraded transport and power infrastructure and established several national prestige facilities. - Stimulus to construction estimated to have helped raise average growth rates in the non-hydrocarbon sector to about 15 percent. - Most recent poverty estimates suggest that three-quarters of the population were living below the national poverty line in 2006. - Inflation has remained above the regional convergence criterion (3 percent), eroding external competitiveness. - Fiscal and external position: - Higher oil prices restored the overall fiscal balance to a small surplus in 2011 despite government capital spending levels that continued to exceed non-hydrocarbon GDP. - The external current account improved but remained in deficit because of high imports of capital goods and hydrocarbon earnings to overseas parent companies. - The external deficit was largely financed by foreign direct investment. - The government deposited CFAF 474 billion at the Bank of Central African States (BEAC) and other government foreign currency deposits, held at commercial banks in contravention of regional surrender requirements, fell sharply. - Governance, business climate, and data: - Perceptions of an unwelcoming business climate continue to deter non-hydrocarbon investment. - Limitations on civil society participation undermined Equatorial Guinea’s unsuccessful candidacy in the Extractive Industries Transparency Initiative (EITI). - Macroeconomic and socio-demographic data are deficient in quality, timing, and coverage, and basic data are hard for the public to access. - Medium-term outlook and fiscal policy needs: - With hydrocarbon production past its peak according to official projections, the outlook for GDP is slow or negative growth over the medium term. - To address fiscal and external sustainability concerns, fiscal policy will need to target a declining path for the non-resource primary fiscal deficit, which stood at 130 percent of non-hydrocarbon GDP in 2011. - There should be room for higher pro-poor current spending because government investment is expected to be significantly lower in the next phase of the NDP. ### Executive Board Assessment — Key Recommendations and Observations - Directors encouraged authorities to improve policy frameworks and undertake further reforms to promote inclusive growth and bolster the business environment. - Fiscal policy: - Adoption of a transparent medium-term fiscal framework would anchor spending decisions amid oil price volatility and expected decline in hydrocarbon production. - Recommended targeting a path for the non-resource primary balance that would establish fiscal buffers and reflect financing and absorption constraints. - Need to reduce public investment levels, rebalance public spending toward social programs, better target subsidies, broaden the revenue base, and enhance tax collection. - Strengthen public financial management. - External stability and competitiveness: - Scaling down public works after the recent surge would safeguard external stability; infrastructure-related imports are a major factor in the high external current account deficit. - Pressure on domestic demand has kept inflation rates above those in other CEMAC member countries, leading to a substantial appreciation of the real effective exchange rate and a loss of external competitiveness. - Directors welcomed recent contributions to the regional pool of official foreign exchange reserves but urged authorities to hold the bulk of government foreign currency deposits at the BEAC to comply with monetary union surrender obligations. - Structural and governance reforms: - Improving the business climate is critical to fostering private sector participation and broad-based growth. - Call for stepped up efforts to strengthen governance and improve workers’ skills and health. - Promote greater access to credit for small- and medium-sized enterprises. - Encouraged reinvigorated efforts to participate in the EITI. - Data and transparency: - Noting persistent inadequacy of economic statistics, Directors encouraged participation in the General Data Dissemination System and establishment of a publication timetable for macroeconomic data. ### Selected Economic and Financial Indicators, 2009–13 (Estimates and Projections) - Production, prices, and money (annual growth / levels as shown) - Real GDP: 2009 0.8; 2010 -1.7; 2011 4.9; 2012 2.5; 2013 -1.7 - Hydrocarbon sectors: 2009 -10.8; 2010 -3.9; 2011 4.7; 2012 -1.8; 2013 -4.2 - Oil and gas primary production: 2009 -18.9; 2010 -2.3; 2011 2.1; 2012 -0.6; 2013 -6.1 - Hydrocarbon secondary production (including LNG, LPG, butane, propane, and methanol): 2009 10.8; 2010 -6.9; 2011 10.0; 2012 -4.1; 2013 -0.6 - Non-hydrocarbon sectors: 2009 40.9; 2010 3.0; 2011 5.5; 2012 11.1; 2013 2.8 - Oil price (U.S. dollars a barrel): 2009 58.0; 2010 75.3; 2011 100.3; 2012 102.4; 2013 101.3 - Consumer prices (end of period): 2009 5.0; 2010 5.4; 2011 4.9; 2012 5.9; 2013 5.2 - Broad money: 2009 18.8; 2010 48.9; 2011 6.1; 2012 4.7; 2013 7.1 - Nominal effective exchange rate (- = depreciation): 2009 -1.3; 2010 -4.5; 2011 -1.1; 2012 n.a.; 2013 n.a. - Real effective exchange rate (- = depreciation): 2009 3.1; 2010 1.1; 2011 4.0; 2012 n.a.; 2013 n.a. - Government finance (Percent of GDP, unless otherwise specified) - Revenue: 2009 48.4; 2010 35.4; 2011 35.9; 2012 34.6; 2013 35.7 - Of which: resource revenue: 2009 43.7; 2010 31.0; 2011 32.6; 2012 30.7; 2013 31.6 - Expenditure: 2009 57.8; 2010 41.4; 2011 34.9; 2012 37.1; 2013 34.7 - Overall fiscal balance after grants: 2009 -9.4; 2010 -6.0; 2011 1.0; 2012 -2.5; 2013 1.0 - Non-resource primary balance (percent of non-hydrocarbon GDP) (Excluding oil revenues, oil-related expenditures, and interest earned and paid): 2009 -164.4; 2010 -130.9; 2011 -128.6; 2012 -137.4; 2013 -118.5 - Gross government deposits (billions of CFAF): 2009 3,367.9; 2010 3,261.9; 2011 2,961.2; 2012 2,833.8; 2013 2,730.7 - External sector - Current account balance (including official transfers; - = deficit): 2009 -20.9; 2010 -22.8; 2011 -9.3; 2012 -15.0; 2013 -10.5 - Outstanding medium- and long-term public debt: 2009 5.8; 2010 5.9; 2011 8.8; 2012 8.3; 2013 8.0 - Debt service-to-exports ratio (percent): 2009 0.2; 2010 0.3; 2011 0.3; 2012 1.1; 2013 3.3 - External debt service/government revenue (percent): 2009 0.8; 2010 1.6; 2011 1.4; 2012 5.1; 2013 14.7 - Note: The rise in external debt service starting in 2012 reflects the amortization of Chinese loans under a 2006 US$2 billion credit line from the Chinese government. The loans are earmarked for infrastructure, including four projects in electrification and improvements to Bata harbor. Loan terms are non-concessional, carrying an interest rate of 5½ percent, five years maturity with two years grace. ### Statement by Mr. Ngueto Yambaye, Alternate Executive Director for the Republic of Equatorial Guinea (January 11, 2013) — Authorities’ Perspective and Policy Intentions - Recent developments (authorities’ view): - Economic development remains mostly driven by the oil sector, notably by gas derivatives, which partly compensate for the decline in primary oil output. - Real GDP grew by 4.9 percent in 2011, is estimated to have decreased to 2.5 percent in 2012, with a projected decline of about 1.7 percent in 2013, mostly due to lower hydrocarbon output. - Inflation has remained stable at single digit, although above regional average, due to intense construction activities and related increased domestic demand. - External current account remains in deficit, mainly due to high imports of capital goods and services. - Fiscal policy and NDP: - Focus has been to use oil revenue to build and upgrade basic infrastructure. - Public investment program undertaken with limited external borrowing; fiscal accounts returned to surplus in 2011, in line with CEMAC convergence criteria. - With culmination of first phase of NDP (2008-2012), public investment volume planned to be scaled down to 2010 levels in the 2013 budget framework, focusing on economic diversification and social sectors. - For the medium term, authorities contemplate a more conservative spending program adaptive to broad-based growth; they are considering staff advice and recommendations. - Weak capacity in fiscal administration is being addressed with Fund technical assistance; authorities hope renewal of resident advisor contract will be approved. - Monetary and financial sector: - Membership in BEAC and pegged exchange rate regime have served Equatorial Guinea well; key financial indicators are sound. - Limited exposure to outside risky banking systems contributed to resiliency. - Further efforts needed to increase private sector development and financing, maintain a lower rate of None Performing Loans (NPLs), and deepen financial intermediation. - Revenue and public finance measures planned: - Authorities will pursue reduction of the non-oil primary deficit; focus of next phase is to strengthen economic diversification. - Fiscal targets met through quarterly budget reviews and adjustments. - Measures to broaden tax base and revenue collection: provision of taxpayer identification number, strengthening customs administration through computerization, adoption of pre-shipment inspections, creation of a single unit for large taxpayers. - Continued efforts to combat over invoicing and tax evasion; capacity strengthening in fiscal sector with assistance from the Fund, the World Bank and the African Union. - Structural reforms and data: - Improving business climate and external competitiveness, promoting private sector-led growth, and reducing poverty are main objectives. - Emphasis on capacity building within local workforce, improving access to credit, and improving financial and property legal framework. - Recent changes and improvements within the Ministry of Planning and Statistics Department should help address data shortcomings. - Social outcomes: - Authorities note progress in education, health, and infrastructure; contend that staff-cited data from 2006 do not fully reflect progress achieved. - Authorities remain committed to reduce poverty and improve standards of living. *Source: IMF — 2012 Article IV Consultation materials and Public Information Notice (PIN) No. 13/37.* ### Conclusion ### Conclusion ### Progress and remaining challenges - Equatorial Guinea has made considerable progress towards achieving its development goals. - Lack of readily available statistics is a key challenge preventing a full appreciation of progress achieved. - There are downside risks to the economy due to its dependency on the hydrocarbon sector, but there are also upside opportunities. - The hydrocarbon sector has supported development and the authorities expect this sector to continue playing a vital role in future development and in enabling the country to implement required policies. - Current top objectives on the authorities’ development agenda include: - Strengthening human capital. - Developing a strong non-hydrocarbon sector. - Creating a conducive environment for private sector development. ### Institutional and statistical capacity - The government acknowledges that economic and social policy formulation is handicapped by the absence of a system for the preparation, compilation, and dissemination of macroeconomic, social, and demographic data. - The National Statistics Institute was recently established and has already begun working on the preparation of the censuses and surveys planned for 2013, including the population and housing censuses. - The paucity of data makes it difficult to measure changes in economic and social indicators, as discussed during the 2012 Article IV consultations. ### Infrastructure and social outcomes (PNDES first phase: 2008 to 2012) - The government highlights efforts to achieve the Millennium Development Goals and implement the National Economic and Social Development Plan (PNDES). - Investments during the first phase from 2008 to 2012 included infrastructure to develop the productive sector and improve living conditions. Post-PNDES, the following have been put in place: - Regular supply of potable water and electricity. - Telecommunications systems. - Social housing. - A hospital network. - School buildings. - Hotels and convention centers. - Road infrastructure. - Ports and airports of international standard. ### Governance, transparency, and institutional reforms - The government remains committed to strengthening public administration management and fostering transparency, and to supporting productive and business development to generate sustainable economic growth over the medium- and long-term. - A 2011 referendum to update the Basic Law resulted in the creation of institutions such as: - The Court of Auditors. - The National Economic and Social Development Council. - The Office of the Ombudsman. - With World Bank support, progress has been made towards accession to the Extractive Industry Transparency Initiative (EITI). ### Public finance measures, capacity building, and technical assistance - Short-term measures have been taken to streamline public expenditure and increase non-oil revenues to put government finances on a stable and sustainable path. - Ongoing and recent initiatives include: - The “Strengthening Public Finances” project supported by the African Development Bank, with an important capacity-building component and focus on computerization of the public sector. - Stepped-up IMF Technical Assistance. - A massive effort to strengthen the capacities of public servants. - Establishment of a faculty of Public Financial Administration with World Bank support. ### Regional commitments and CEMAC compliance - The government has asked the Bank of Central African States (BEAC) to prepare a proposal to resolve issues and facilitate compliance with the CEMAC Agreements regarding community reserves and bilateral agreements signed with friendly countries. ### Response on investments and project management - The government welcomes the IMF’s commendation on the creation and coming on stream of economic and social infrastructure. - The government considers it inappropriate to describe investments made during the first phase of the National Development Plan as “waste,” given factual technical capacity deficits in awarding contracts and inspecting projects. - A dedicated, independent entity has been established to evaluate, design, monitor, and inspect public works and has been strengthening its project evaluation, design, and monitoring capabilities over time. - The government expresses confidence that it is moving in the right direction. - Translation note: the word ‘despilfarro’ was used in paragraph 33 of the Spanish text provided to the Equatorial Guinean authorities as a translation of the English word ‘wastage’. ‘Despilfarro’ can sometimes imply a strong element of intent. An alternative translation could have been ‘desperdicio’. ### Publication consent and formalities - Republic of Equatorial Guinea, Ministry of Finance and Budget - Number: 627 - Malabo, February 28, 2013 - The government of the Republic of Equatorial Guinea consents to the publication of the attached 2012 Article IV Report, together with this communiqué. /s/ /stamp/ The Minister of Finance and Budget *Source: _cr1383 - Conclusion* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1383.pdf_