## _cr16341 ## Source details **Canonical URL:** [_cr16341](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16341.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16341.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16341.pdf.json) --- ### Economic context and recent developments - Following a long hydrocarbon-fueled boom, Equatorial Guinea’s economy is in the midst of a protracted decline after large-scale investment and a secular decline in hydrocarbon production. - A rebasing of the national accounts to 2006 revised the size of the economy upward by roughly 30 percent. - The economy remains heavily dependent on hydrocarbons despite large public investment under the Horizonte 2020 plan. - Social indicators improved in some areas (school enrollment, infrastructure-based indicators), but progress has been uneven and equity/inclusive outcomes remain weak. - Key outturns: - Overall GDP declined by 7½ percent during 2015. - Hydrocarbon activity declined by 8.9 percent in 2015. - Non-hydrocarbon activity slumped by 5.2 percent in 2015. - Investment spending exceeded the revised 2015 budget target by nearly 8 percent of GDP. - Total public debt rose to 14 percent of GDP at end-2015. - Government deposit buffer declined by 1.9 percent of GDP in 2015; government deposits fell from 24 percent of GDP in 2011 to 10.6 percent in 2015. - Usable external reserves (including government offshore deposits) equivalent to 6.4 months of projected imports, down from 6.9 months the previous year. - Inflation: 0.6 percent during the second quarter of 2016, down from over 4 percent in 2014. - Private credit growth decelerated only slightly to 14 percent (signaling possible “evergreening”). ### Near-term outlook and risks - Outlook: - Near-term outlook is very challenging given prospects for depressed energy prices and a continued decline in hydrocarbon production. - Overall economic activity in 2016 is expected to decline further by nearly 10 percent. - The overall economy is unlikely to grow in the medium term given the still large weight of hydrocarbons and the impact of fiscal consolidation on non-hydrocarbon activities. - Principal risks: - Key short- to medium-term downside risk: an insufficient fiscal adjustment, risking a rapid accumulation of arrears and public debt, or disorderly adjustment. - Other domestic risks: faster-than-expected decline of oil production, uncertain rebound in non-hydrocarbon growth, and slow improvement in reorientation of public investment. - Upside for hydrocarbon production: the Fortuna FLNG project could increase biogenic gas production by as much as half from the end of the forecast period (final investment decision expected by end 2016). ### Macro-fiscal position and projections (selected figures preserved exactly) - Inflation (second quarter of 2016): 0.6 percent. - Real GDP growth: - 2013: -4.1 - 2014: -0.5 - 2015: -7.4 - 2016 (Prel./Proj.): -9.9 - 2017 (Proj.): -5.8 - 2018 (Proj.): -2.7 - 2019 (Proj.): -1.5 - 2020 (Proj.): -1.2 - 2021 (Proj.): 0.1 - Oil and gas primary production growth: - 2013: -12.1 - 2014: 1.8 - 2015: -8.1 - 2016 (Proj.): -21.6 - 2017 (Proj.): -11.5 - 2018 (Proj.): -5.0 - 2019 (Proj.): -3.0 - 2020 (Proj.): -3.1 - 2021 (Proj.): -1.8 - Oil price (U.S. dollars a barrel): - 2013: 100.3 - 2014: 92.5 - 2015: 47.0 - 2016 (Proj.): 38.5 - 2017 (Proj.): 45.7 - 2018 (Proj.): 48.5 - 2019 (Proj.): 50.7 - 2020 (Proj.): 52.6 - 2021 (Proj.): 54.2 - Government finance (percent of GDP): - Revenue: 2013: 24.9; 2014: 24.3; 2015: 25.3; 2016 (Proj.): 22.8; 2017 (Proj.): 21.2; 2018 (Proj.): 19.5; 2019 (Proj.): 19.1; 2020 (Proj.): 18.3; 2021 (Proj.): 17.8 - Of which: resource revenue: 2013: 21.4; 2014: 21.0; 2015: 20.4; 2016 (Proj.): 16.5; 2017 (Proj.): 14.3; 2018 (Proj.): 12.4; 2019 (Proj.): 11.7; 2020 (Proj.): 10.5; 2021 (Proj.): 9.6 - Expenditure: 2013: 30.7; 2014: 29.2; 2015: 28.5; 2016 (Proj.): 28.1; 2017 (Proj.): 26.5; 2018 (Proj.): 24.5; 2019 (Proj.): 22.5; 2020 (Proj.): 20.5; 2021 (Proj.): 19.2 - Overall fiscal balance after grants: 2013: -5.8; 2014: -4.9; 2015: -3.2; 2016 (Proj.): -5.3; 2017 (Proj.): -5.3; 2018 (Proj.): -5.0; 2019 (Proj.): -3.4; 2020 (Proj.): -2.2; 2021 (Proj.): -1.3 - Non-resource primary balance (percent of non-hydrocarbon GDP): 2013: -66.1; 2014: -61.1; 2015: -44.2; 2016 (Proj.): -36.7; 2017 (Proj.): -33.1; 2018 (Proj.): -29.0; 2019 (Proj.): -24.6; 2020 (Proj.): -20.0; 2021 (Proj.): -16.9 - External sector: - Current account balance (including official transfers; - = deficit): 2013: 0.1; 2014: -5.6; 2015: -16.8; 2016 (Proj.): -11.8; 2017 (Proj.): -6.6; 2018 (Proj.): -5.9; 2019 (Proj.): -4.8; 2020 (Proj.): -4.1; 2021 (Proj.): -3.5 - Outstanding medium- and long-term public debt (percent of GDP): 2013: 6.1; 2014: 8.7; 2015: 14.0; 2016 (Proj.): 19.6; 2017 (Proj.): 21.9; 2018 (Proj.): 25.9; 2019 (Proj.): 29.1; 2020 (Proj.): 31.7; 2021 (Proj.): 33.7 - Debt service-to-exports ratio (percent): 2013: 2.5; 2014: 2.2; 2015: 7.6; 2016 (Proj.): 11.9; 2017 (Proj.): 14.3; 2018 (Proj.): 18.3; 2019 (Proj.): 21.6; 2020 (Proj.): 24.2; 2021 (Proj.): 26.5 - External debt service/government revenue (percent): 2013: 7.3; 2014: 6.4; 2015: 5.9; 2016 (Proj.): 11.2; 2017 (Proj.): 11.7; 2018 (Proj.): 9.9; 2019 (Proj.): 12.8; 2020 (Proj.): 16.2; 2021 (Proj.): 17.7 - Gross government deposits (billions of CFAF): 2013: 1,226; 2014: 913; 2015: 862; 2016 (Proj.): 655; 2017 (Proj.): 466; 2018 (Proj.): 424; 2019 (Proj.): 451; 2020 (Proj.): 516; 2021 (Proj.): 642 ### Policy priorities and recommendations - Fiscal policy - Sustain and accelerate fiscal adjustment to forestall total depletion of remaining buffers. - Rationalize and reorient public investment to focus on maximum returns. - Accelerate reforms to mobilize more non-hydrocarbon revenues and rationalize tax exemptions. - Prioritize ongoing projects while retaining investment in social development, particularly in health and education. - Develop debt management capacity, with IMF technical assistance as needed. - Specific operational priorities: - Anchor fiscal policy on a non-resource primary deficit of less than 20 percent of GDP over the medium term. - Gradual increase in non-resource revenue and sustained spending adjustment around 2 percent of GDP per year over the medium term. - Revised 2016 budget based on conservative oil price assumptions and revised expenditure projections with adequate allocations for maintenance and social development. - Operationalize the Large Taxpayer Unit; introduce a single taxpayer identification number; streamline tax filing procedures and better track exemptions; vigorously eliminate exemptions not established by law. - Reorganize customs services and finalize customs clearance procedures for ASYCUDA World. - Target: halve the PIP over three years; develop action plans with the World Bank to strengthen project selection, monitoring, and alignment with the national development plan. - Proceed quickly on an audit of the stock of arrears and prepare a clearance strategy; transparently provision for retiring these debts in the annual budget. - Develop debt management capacity; note: in 2015 Equatorial Guinea entered the regional T-bill market with a successful test issuance of CFAF 15 billion at an interest rate of around 1 percent. - Structural reforms to spur non-hydrocarbon growth - Develop a comprehensive reform agenda to improve the business climate, strengthen governance, foster human capital development, and reduce factor costs. - Leverage existing infrastructure to improve competitiveness of the non-resource sector. - Greater cooperation with the World Bank on business climate diagnostics to establish structural reform priorities. - Recommendations to reduce factor costs: external trade facilitation, easing barriers to FDI inflows, lowering telecommunication charges. - Promote tourism by leveraging existing infrastructure and address onerous visa entry requirements. - Financial sector and macro-financial stability - Adopt a repayment strategy for accumulated government arrears to suppliers and contractors. - Ensure adequate capital and liquidity buffers in the banking sector. - Strengthen bank supervision at the regional level and promote financial inclusion. - Implement critical financial structural reforms to boost resilience and support poverty reduction. - Close financial development gaps: establish credit bureaus and upgrade collateral registries; promote microfinance; increase financial literacy; facilitate mobile banking. - Data and statistics - Continue efforts to improve statistical production and dissemination: adoption of legislation and a development strategy for the national statistical system, rebasing of national accounts, and application to join the enhanced General Data Dissemination Standard (e-GDDS). - Address remaining data gaps, with assistance from the IMF and other partners, to support effective surveillance and policy formulation. - Priorities: accelerate INEGE capacity-building program, compile and report International Investment Position data, create metadata, undertake integrated household survey, and deploy SYDONIA World at customs. ### Financial sector: conditions, vulnerabilities, and recommendations - Banking sector indicators and concerns: - Banks appear well capitalized and liquid; Return on equity contracted to 8 percent in 2015. - Nonperforming loans increased to 20 percent of total loans in 2013; provisioning ratio stable around 50 percent of NPLs but does not cover loans guaranteed by the government. - Around 80 percent of loans extended to large enterprises and construction firms depending on government contracts. - Credit growth has averaged more than 20 percent over the recent period; private credit growth recorded at 14 percent in 2015. - Recommendations: - Strengthen supervision and enforcement; enhance crisis resolution mechanisms (COBAC powers noted). - Ensure adequate provisioning and monitor government-guaranteed loans. - Promote regional supervisor action plans and coordinated regional approach for consolidated bank supervision. - Strengthen AML/CFT regime in line with 2012 FATF standard; provide ANIF adequate resources and ensure risk-based implementation by regulated institutions. ### Statistical reforms and national accounts rebasing (Annex I highlights) - On July 19, 2016, Equatorial Guinea adopted a new series of national accounts: change in the base year from 1986 to 2006; use of SNA93 features; inclusion of a larger number of sources and surveys. - Impact: - Increase of about 30 percent in the size of the economy. - Non-hydrocarbon activity more than doubled over 2006–14 compared with previous estimates. - Value of hydrocarbon production increased by about 5 percent. - In 2014, hydrocarbon GDP contribution revalued at 60 percent of overall GDP (from 75 percent before rebasing). - Specific non-hydrocarbon sector shares (2014): trade and commerce increased 6 fold to 19.7 percent of non-hydrocarbon activity; public administration increased 13 times to 26.1 percent; transport and communication increased 20 fold to 12 percent. - Policy implications: - Rebasing revised debt and non-resource primary deficit ratios downward by about 28 percent in 2014. - Non-resource revenue as a percentage of nominal GDP estimated at 3.3 percent in 2014, underscoring urgency of structural reforms to boost non-hydrocarbon revenue. - Need to establish an enterprise census and improve survey coverage to increase accuracy. ### External position and exchange rate assessment (Annex IV highlights) - Overall assessment: - External position in 2015 is substantially weaker than levels consistent with medium-term fundamentals and desirable policy settings, largely due to terms-of-trade shock. - Real exchange rate is assessed as significantly overvalued; methodologies (Bems-Carvalho Filho (2009) and Araujo et al. (2013)) suggest overvaluation in ranges cited in the source. - Methodology results (as presented): - Bems and Carvalho Filho methodology: depreciation required of 19 or 33 percent depending on elasticity assumptions (table entries preserved as in source). - Araujo et al. methodology: moderate overvaluation of 8 or 14 percent depending on elasticity assumptions. - Policy implications: - Urgent need for far-reaching structural reforms to reduce factor costs and leverage existing infrastructure to boost nonoil growth. - Improve data quality for balance of payments, current account, and public investment returns to strengthen exchange rate and external position assessments. ### Public debt dynamics and stress testing (selected DSA highlights) - Baseline macro assumptions (selected): - Baseline real GDP growth path: -9.9 -5.8 -2.7 -1.5 -1.2 0.1 (projection years indicated in source). - Baseline GDP deflator: -6.8 4.7 3.1 2.6 2.6 2.9. - Baseline primary balance: -4.7 -4.7 -4.6 -3.0 -1.8 -1.0. - Baseline effective interest rate: 3.4 3.2 3.3 3.6 4.1 4.4. - External debt (percent of GDP), baseline: - 2011 5.5; 2012 7.5; 2013 6.4; 2014 4.8; 2015 7.4; 2016 11.9; 2017 14.3; 2018 18.4; 2019 21.7; 2020 24.2; 2021 26.4 - Identified external debt-creating flows (percent of GDP): 2015 21.1; 2016 13.1; 2017 9.9; 2018 9.6; 2019 9.0; 2020 8.8; 2021 8.7 - Stress tests: - Growth shock, current account shock, interest rate shock, real depreciation shock and combined shocks were analyzed (figures and scenario values presented in source). - One scenario includes a one-time real depreciation of 30 percent in 2017 (stress scenario in the source). - Policy implications: - Need to undertake fiscal consolidation to avoid unsustainable debt dynamics; increase non-resource revenue and curb spending. - Continued monitoring under stress scenarios given vulnerability to shocks. ### Horizonte 2020, competitiveness, and structural reform (program highlights) - Horizonte 2020: - First phase (2008–12) focused on road networks, energy, water, and ports. - Second phase launched in 2014 emphasizes governance, fighting corruption, business climate, and human capital formation. - To date, limited movement on structural reforms; weak governance and corruption remain impediments. - Large-scale prestige projects continue, including new capital city at Oyala; non-oil activity and exports have remained stagnant. - Authorities’ planned measures: - Promote agriculture, fisheries, tourism, and financial services. - Establish a national committee by end-2016 to spearhead reforms; build eight vocational schools; develop a tourism sector policy. - CFAF 100 billion Co-investment Fund planned to support SMEs (no suitable projects identified to date). - External advisers contracted for a “one-stop-shop” to facilitate investor entry (potentially operational by 2017). - Population estimate from 2015 census: 1.2 million persons. - Competitiveness assessment: - Evidence suggests REER is significantly overvalued; Araujo et al. (2013) and Bems-Carvalho (2009) methodologies suggest an overvaluation of 8–33 percent (as presented in source). - Recommendation: implement wide-ranging structural reforms to reduce factor costs and improve productivity. ### Investment climate reform and IMF–World Bank cooperation - Investment climate reform project: - A third technical assistance agreement to promote investment climate reform and support an Investment Promotion Agency is pending signature. - Next supervisory mission scheduled for July – August 2016; expected completion December 2017. - Legal agreement ends December 2016 with expected extension through 2017. - Data sharing and work program requests: - Fund to Bank: data sharing on outcomes of statistical technical assistance. - Bank to Fund: regular macroeconomic framework updates and fiscal/external/hydrocarbon production data. ### Executive Board assessment and staff appraisal (summary) - Directors noted deep economic contraction caused by declining hydrocarbon production and depressed oil prices. - Given limited buffers, Directors underscored sustained policy adjustment is needed to restore fiscal sustainability. - Directors welcomed ongoing fiscal adjustment and containment of current spending and public investment freezes, but encouraged increasing the pace of consolidation and defining other key elements of the adjustment strategy. - Directors highlighted risks from financial sector vulnerabilities related to fiscal-financial linkages and emphasized the need for vigilance and arrears repayment. - Authorities concurred with staff’s assessment and recommendations and committed to improving data quality and dissemination, accelerating fiscal and statistical reforms, and pursuing diversification and human capital investment. *REPUBLIC OF EQUATORIAL GUINEA STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION. August 12, 2016. International Monetary Fund.* ### 16.8 percent of GDP. Inflation is very low at 0.6 percent during the second quarter of 2016, ### _cr16341 - 16.8 percent of GDP. Inflation is very low at 0.6 percent during the second quarter of 2016, ### Economic context and recent developments - Following a long hydrocarbon-fueled boom, Equatorial Guinea’s economy is in the midst of a protracted decline after large-scale investment and a secular decline in hydrocarbon production. - A rebasing of the national accounts to 2006 revised the size of the economy upward by roughly 30 percent. - The economy remains heavily dependent on hydrocarbons despite large public investment under the Horizonte 2020 plan. - Social indicators improved in some areas (school enrollment, infrastructure-based indicators), but progress has been uneven and equity/inclusive outcomes remain weak. ### Near-term outlook and risks - Inflation is very low at 0.6 percent during the second quarter of 2016, down from over 4 percent in 2014. - The near-term outlook is very challenging given prospects for depressed energy prices and a continued decline in hydrocarbon production. - Overall economic activity in 2016 is expected to decline further by nearly 10 percent. - The overall economy is unlikely to grow in the medium term given the still large weight of the hydrocarbons and the impact of fiscal consolidation on non-hydrocarbon activities. - Key short- to medium-term downside risk: an insufficient fiscal adjustment, risking a rapid accumulation of arrears and public debt, or disorderly adjustment. ### Macro-fiscal position and projections (selected figures preserved exactly) - Inflation (second quarter of 2016): 0.6 percent. - Real GDP growth: - 2013: -4.1 - 2014: -0.5 - 2015: -7.4 - 2016 (Prel./Proj.): -9.9 - 2017 (Proj.): -5.8 - 2018 (Proj.): -2.7 - 2019 (Proj.): -1.5 - 2020 (Proj.): -1.2 - 2021 (Proj.): 0.1 - Oil and gas primary production growth: - 2013: -12.1 - 2014: 1.8 - 2015: -8.1 - 2016 (Proj.): -21.6 - 2017 (Proj.): -11.5 - 2018 (Proj.): -5.0 - 2019 (Proj.): -3.0 - 2020 (Proj.): -3.1 - 2021 (Proj.): -1.8 - Oil price (U.S. dollars a barrel): - 2013: 100.3 - 2014: 92.5 - 2015: 47.0 - 2016 (Proj.): 38.5 - 2017 (Proj.): 45.7 - 2018 (Proj.): 48.5 - 2019 (Proj.): 50.7 - 2020 (Proj.): 52.6 - 2021 (Proj.): 54.2 - Government finance (percent of GDP): - Revenue: 2013: 24.9; 2014: 24.3; 2015: 25.3; 2016 (Proj.): 22.8; 2017 (Proj.): 21.2; 2018 (Proj.): 19.5; 2019 (Proj.): 19.1; 2020 (Proj.): 18.3; 2021 (Proj.): 17.8 - Of which: resource revenue: 2013: 21.4; 2014: 21.0; 2015: 20.4; 2016 (Proj.): 16.5; 2017 (Proj.): 14.3; 2018 (Proj.): 12.4; 2019 (Proj.): 11.7; 2020 (Proj.): 10.5; 2021 (Proj.): 9.6 - Expenditure: 2013: 30.7; 2014: 29.2; 2015: 28.5; 2016 (Proj.): 28.1; 2017 (Proj.): 26.5; 2018 (Proj.): 24.5; 2019 (Proj.): 22.5; 2020 (Proj.): 20.5; 2021 (Proj.): 19.2 - Overall fiscal balance after grants: 2013: -5.8; 2014: -4.9; 2015: -3.2; 2016 (Proj.): -5.3; 2017 (Proj.): -5.3; 2018 (Proj.): -5.0; 2019 (Proj.): -3.4; 2020 (Proj.): -2.2; 2021 (Proj.): -1.3 - Non-resource primary balance (percent of non-hydrocarbon GDP): 2013: -66.1; 2014: -61.1; 2015: -44.2; 2016 (Proj.): -36.7; 2017 (Proj.): -33.1; 2018 (Proj.): -29.0; 2019 (Proj.): -24.6; 2020 (Proj.): -20.0; 2021 (Proj.): -16.9 - External sector: - Current account balance (including official transfers; - = deficit): 2013: 0.1; 2014: -5.6; 2015: -16.8; 2016 (Proj.): -11.8; 2017 (Proj.): -6.6; 2018 (Proj.): -5.9; 2019 (Proj.): -4.8; 2020 (Proj.): -4.1; 2021 (Proj.): -3.5 - Outstanding medium- and long-term public debt (percent of GDP): 2013: 6.1; 2014: 8.7; 2015: 14.0; 2016 (Proj.): 19.6; 2017 (Proj.): 21.9; 2018 (Proj.): 25.9; 2019 (Proj.): 29.1; 2020 (Proj.): 31.7; 2021 (Proj.): 33.7 - Debt service-to-exports ratio (percent): 2013: 2.5; 2014: 2.2; 2015: 7.6; 2016 (Proj.): 11.9; 2017 (Proj.): 14.3; 2018 (Proj.): 18.3; 2019 (Proj.): 21.6; 2020 (Proj.): 24.2; 2021 (Proj.): 26.5 - External debt service/government revenue (percent): 2013: 7.3; 2014: 6.4; 2015: 5.9; 2016 (Proj.): 11.2; 2017 (Proj.): 11.7; 2018 (Proj.): 9.9; 2019 (Proj.): 12.8; 2020 (Proj.): 16.2; 2021 (Proj.): 17.7 - Gross government deposits (billions of CFAF): 2013: 1,226; 2014: 913; 2015: 862; 2016 (Proj.): 655; 2017 (Proj.): 466; 2018 (Proj.): 424; 2019 (Proj.): 451; 2020 (Proj.): 516; 2021 (Proj.): 642 ### Policy priorities and recommendations - Fiscal policy - Sustain and accelerate fiscal adjustment to forestall total depletion of remaining buffers. - Rationalize and reorient public investment to focus on maximum returns. - Accelerate reforms to mobilize more non-hydrocarbon revenues and rationalize tax exemptions. - Prioritize ongoing projects while retaining investment in social development, particularly in health and education. - Develop debt management capacity, with IMF technical assistance as needed. - Structural reforms to spur non-hydrocarbon growth - Develop a comprehensive reform agenda to improve the business climate, strengthen governance, foster human capital development, and reduce factor costs. - Leverage existing infrastructure to improve competitiveness of the non-resource sector. - Greater cooperation with the World Bank on business climate diagnostics to establish structural reform priorities. - Financial sector and macro-financial stability - Adopt a repayment strategy for accumulated government arrears to suppliers and contractors. - Ensure adequate capital and liquidity buffers in the banking sector. - Strengthen bank supervision at the regional level and promote financial inclusion. - Implement critical financial structural reforms to boost resilience and support poverty reduction. - Data and statistics - Continue efforts to improve statistical production and dissemination: adoption of legislation and a development strategy for the national statistical system, rebasing of national accounts, and application to join the enhanced General Data Dissemination Standard (e-GDDS). - Address remaining data gaps, with assistance from the IMF and other partners, to support effective surveillance and policy formulation. ### Executive Board assessment (summary) - Directors noted the deep economic contraction caused by declining hydrocarbon production and depressed oil prices. - Given limited buffers, Directors underscored that sustained policy adjustment is needed to restore fiscal sustainability. - Directors welcomed ongoing fiscal adjustment and containment of current spending and public investment freezes, but encouraged increasing the pace of consolidation and defining other key elements of the adjustment strategy. - Directors highlighted risks from financial sector vulnerabilities related to fiscal-financial linkages and emphasized the need for vigilance and arrears repayment. *REPUBLIC OF EQUATORIAL GUINEA STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION. August 12, 2016. International Monetary Fund.* ### 4. The traction of IMF policy recommendations is improving. In the past year, the ### _cr16341 - 4. The traction of IMF policy recommendations is improving. In the past year, the ### Recent developments - The authorities have acted on recommendations to better monitor investment spending, shift the focus to human development, and implement IMF technical assistance toward increasing tax revenue. - Significant steps to address weak statistical data include the adoption of a national statistical development strategy and the decision to subscribe to the IMF’s enhanced General Data Dissemination System (e-GDDS). - Little progress on recommended business climate reforms. Key macroeconomic outturns and developments: - Overall GDP declined by 7½ percent during 2015. - Hydrocarbon activity declined by 8.9 percent. - Non-hydrocarbon activity slumped by 5.2 percent, as fiscal adjustment slowed public investment and private sector construction. - Outturn data for 2015 show a further decline of the overall deficit (cash basis) to 3.2 percent of GDP. - Investment spending exceeded the revised 2015 budget target by nearly 8 percent of GDP. - Statutory advances from the BEAC equivalent contributed 1.8 percent of GDP in 2015. - Total public debt rose to 14 percent of GDP at end-2015. - Government deposit buffer declined by 1.9 percent of GDP in 2015. - Government deposits fell from 24 percent of GDP in 2011 to 10.6 percent in 2015. - The terms-of-trade deterioration widened the current account deficit to 16.8 percent of GDP. - Usable external reserves declined by some 40 percent since end-2014. - Including government offshore deposits, usable external resources are equivalent to 6.4 months of projected imports, down from 6.9 months the previous year. - Inflation was 0.6 percent during the second quarter of 2016, down from over 4 percent in 2014. - Private credit growth decelerated only slightly to 14 percent, signaling possible “evergreening” of loans to the construction sector. ### Very challenging outlook and rising risks - Baseline scenario assumes depressed energy prices and a deeper near-term decline in hydrocarbon production as oil companies minimize operating expenditures. - In 2016, weak oil revenues and limited buffers will require further cuts to public investment, leading to a deep contraction of the construction sector and public administration. - Overall economic activity is expected to decline by nearly 10 percent in 2016. - Beyond the near-term, investment in hydrocarbon facilities is expected to recover, suggesting a return to production declines of around 5 percent annually. - Staff projects non-hydrocarbon growth of over 3 percent could be achieved by 2021 if the national development strategy shifts toward pro-growth social development. Principal risks: - Key short- to medium-term downside risk: insufficient fiscal adjustment to prolonged weakness in the oil market, risking faster depletion of deposits, rapid accumulation of arrears, and rising public debt. - Other domestic risks: faster-than-expected decline of oil production, uncertain rebound in non-hydrocarbon growth, and slow improvement in reorientation of public investment. - Upside for hydrocarbon production: the Fortuna FLNG project could increase biogenic gas production by as much as half from the end of the forecast period (final investment decision expected by end 2016). ### Policy discussions: charting an economic reset and a path to recovery - Overarching theme: accelerate an economic reset driven by the non-resource economy to avoid disorderly adjustment and macroeconomic instability. - Fiscal retrenchment is essential to support the CFA franc and should be bolstered by visible structural reforms, containing macro-financial spillovers, and improving statistical capacity. A. Sustaining the path of fiscal adjustment - Budget management weaknesses identified: incomplete and poor quality data, ad hoc procedures, fragmented decision-making, and extra-budgetary spending; expenditure and revenue deviations relative to budget targets have been large, ranging from 5–10 percent of GDP on the large capital expenditure budget. - Fiscal adjustment is under way but progress is slow; hydrocarbon revenues accounted for 90 percent of total revenue through 2014. - Presidential decree of November 2015 focuses on mobilizing non-hydrocarbon revenue and progressively reducing the public investment budget. - Key revenue measures remain in early stages: audit and rollback of ad hoc VAT and income tax exemptions; customs modernization. - On expenditure: current spending contained and freeze on new public investment projects imposed; action plans still being developed to reform the public investment plan (PIP) and review ongoing projects. Fiscal risk illustration: - A passive scenario with gradual expenditure consolidation and slow improvement in investment efficiency would deplete fiscal buffers and push indicative public debt to about 50 percent of GDP over the medium term. Staff fiscal policy recommendations and operational priorities: - Anchor fiscal policy on a non-resource primary deficit of less than 20 percent of GDP over the medium term. - Gradual increase in non-resource revenue and sustained spending adjustment around 2 percent of GDP per year over the medium term to safeguard minimal government deposits. - Ensure continued fiscal consolidation with a revised 2016 budget based on conservative oil price assumptions and revised expenditure projections with adequate allocations for maintenance and social development. - Implement priority non-hydrocarbon revenue mobilization measures: - Operationalize the Large Taxpayer Unit. - Introduce a single taxpayer identification number. - Streamline tax filing procedures and better track exemptions. - Vigorously eliminate exemptions not established by law. - Reorganize customs services and finalize customs clearance procedures for ASYCUDA World. - Embark on a comprehensive review of tax policy to increase the non-resource tax base and avoid distortionary fees; IMF technical assistance offered. - Accelerate public financial management (PFM) reforms focusing on the PIP and domestic arrears: - Target: halve the PIP over three years. - Develop action plans with the World Bank to strengthen project selection, monitoring, and alignment with the national development plan. - Develop clear criteria to prioritize efficient ongoing investment projects (state of completion, service delivery, maintenance). - Support inclusive growth by increasing spending share on social programs and public service delivery; current expenditure composition is 2:1 in favor of capital spending versus the inverse in other CEMAC countries. - Proceed quickly on an audit of the stock of arrears and prepare a clearance strategy; transparently provision for retiring these debts in the annual budget. - PFM measures to avoid new arrears: more frequent National Payments Committee meetings and action plan to align budget classification and reporting with CEMAC directives by end 2016. - Develop debt management capacity: - In 2015 Equatorial Guinea entered the regional T-bill market with a successful test issuance of CFAF 15 billion at an interest rate of around 1 percent. - Strengthen capacity and develop a sound debt management strategy as recommended by prior World Bank and IMF TA. - Advocate for a tighter region-wide policy stance to contain monetary financing of the budget and rein in fiscal dominance given Equatorial Guinea’s contribution to the regional reserves pool. Authorities’ views: - Authorities agreed ongoing fiscal adjustment is needed and concurred that absent active measures debt would rapidly rise. - They highlighted measures in the November 2015 presidential decree, including elimination of ad hoc tax exemptions, and noted sizeable fiscal adjustment in 2015. - Authorities optimistic about short-term revenue gains from tax administration improvements (especially customs) and the planned tax amnesty to incentivize registration. - Authorities reported reducing the PIP budget by 30 percent since 2014 and are working with the World Bank on an open platform to monitor and manage the PIP. - Work underway on prioritization criteria for ongoing projects and discussions with contractors on scope to delay or curtail elements; a strategy for rescheduling unpaid bills is being discussed with service providers and commercial banks. B. A decisive move to promote nonoil growth - (Content unit ends at the beginning of section B in the provided text.) *Source: IMF staff report excerpt.* ### 18. Horizonte 2020 has enhanced infrastructure, but the impact on non-oil growth has ### 18. Horizonte 2020 has enhanced infrastructure, but the impact on non-oil growth has ### Horizonte 2020: progress and limits - First phase (2008–12) focused on road networks, energy, water, and ports. - Second phase launched in 2014 emphasizes improving governance and fighting corruption, the business climate, and human capital formation. - To date, limited movement on structural reforms; weak governance and corruption remain a serious impediment. - Large-scale prestige projects continue, including the new capital city at Oyala. - Result: non-oil activity and exports have remained stagnant. ### Authorities’ strategic focus and planned measures - Current emphasis on promoting agriculture, fisheries, tourism, and financial services. - Measures to foster private sector activity in strategic sectors: - Intend to establish a national committee composed of chambers of commerce, educational institutions, banks and several members of the government by end-2016 to spearhead reforms. - Emphasis on education, including building eight vocational schools to train youth. - Developing a tourism sector policy to leverage recently constructed hotel facilities, building on the expertise of foreign professionals. - Authorities noted catalytic potential of a CFAF 100 billion Co-investment Fund to support small- and medium-enterprises, although no suitable projects identified to date. - External advisers contracted for establishment of a “one-stop-shop” to facilitate investor entry, which could be operational by 2017. - Population estimate from 2015 population census: 1.2 million persons. ### Real exchange rate and competitiveness - Significant data limitations on the external sector; existing evidence suggests the real exchange rate is significantly overvalued. - The real effective exchange rate has appreciated considerably more than in other CEMAC countries due to consistently higher CPI inflation. - Araujo et al. (2013) and the Bems-Carvalho (2009) methodologies suggest an overvaluation of the real exchange rate of 8–33 percent. - Urgent need to implement wide-ranging structural reforms that reduce factor costs, including through fiscal consolidation, foster human capital development, and address weaknesses in the investment climate. ### Recommendations to improve non-oil competitiveness and diversify exports - Address current real exchange rate overvaluation; beyond fiscal consolidation, reduce costs and implement productivity-boosting structural reforms. - Given the relatively small government wage bill and retrenchment in construction, wages will remain depressed. - Priority measures to reduce factor costs: external trade facilitation, easing barriers to FDI inflows, lowering telecommunication charges. - Improve the business climate and efficiency of public services to foster private sector development. - Establishing a “one-stop shop” welcomed but insufficient; finalize business climate diagnostics and reforms with the World Bank. - Advocate further integration with CEMAC by lowering trade policy barriers through behind-the-border measures to tap economies of scale. - Promote tourism by leveraging existing infrastructure; address onerous and unpredictable visa entry requirements that depress hotel occupancy rates while balancing national security concerns. ### Authorities’ views on reform priorities - Authorities broadly agreed with the need for structural reforms, made more urgent by oil price and output declines. - Emphasis on vocational training for construction workers. - Noted contracting of external advisers for the one-stop-shop; potential operational date 2017. - On tourist visa streamlining, authorities noted the need to balance facilitation with national security. ### Macro-financial spillovers from the oil shock - BEAC’s accommodative monetary policy has temporarily eased government and banks’ difficulties, but little additional room remains given the CEMAC currency peg. - Use of BEAC statutory advances at end-2015 reached CFAF 518 billion (over 6 percent of GDP), the maximum allowable, putting a premium on fiscal adjustment. ### Banking sector: buffers, profitability, and vulnerabilities - Banks appear well capitalized and liquid, with capital and liquidity relatively unaffected so far and remaining adequate. - Return on equity contracted to 8 percent in 2015, mainly related to falling non-oil economic activity. - Stress tests show Equatorial Guinea relatively resilient to solvency and liquidity shocks, but banks appear vulnerable to asset quality shocks. ### Nonperforming loans and credit concerns - Nonperforming loans increased to 20 percent of total loans in 2013 amid disorderly adjustment of the PIP and slowing activity. - Credit growth has averaged more than 20 percent over the same period, suggesting potential distortions due to evergreening of loans—mostly overdrafts for some construction companies. - Provisioning ratio stable around 50 percent of NPLs, but does not cover loans guaranteed by the government. - Around 80 percent of loans extended to large enterprises and construction firms depending on government contracts. - Financial sector weakness stems from fiscal-financial linkages (fiscal consolidation and government arrears affect firms’ ability to service loans) and possibly lax loan classification. ### Supervision, crisis resolution, and regional spillovers - 2015 regional FSSA report notes need to strengthen supervision and enforcement. - Crisis resolution mechanism improving: COBAC can appoint administrators without prior BEAC Board approval. - BEAC’s monetary policy committee increased frequency of monitoring liquidity to quarterly; on-site bank inspections frequency increased. - Bank supervision constrained by limited capacity and complications from banks exposed to spillovers from potentially distressed parents in the CEMAC region. ### Financial development and inclusion - Financial sector is shallow and characterized by limited inclusiveness. - Equatorial Guinea’s financial development gap is the highest among African oil-exporters, at one-fifth the level predicted by its income and other fundamentals. - Financial deepening (deposit- and loan-to-GDP ratios) is less than a third of the EM average. - Limited information on borrowers’ credit history and high collateral requirements are significant bottlenecks. - High volatility of banks’ deposits—driven by large and irregular government payments—constrains credit supply. - Financial inclusion limited by small size of the microfinancial sector. - Recommendations to close the financial development gap and boost inclusion: - Establish credit bureaus and upgrade collateral registries as high priorities. - Promote microfinance, increase financial literacy, and facilitate mobile banking. - Encourage regional supervisor action plans to ensure bank compliance with prudential norms and provisioning; cooperate with COBAC on asset quality review and monitor government-guaranteed loans. - Advocate coordinated regional approach for developing consolidated bank supervision; improve quality and timeliness of financial stability indicators. ### AML/CFT and institutional developments - Moving toward implementing CEMAC’s AML/CFT framework. - National agency for financial investigations, ANIF, not yet fully operational; staff capacity building underway. - Internal regulations and reporting standards finalized; ANIF processing suspicious transaction reports and referring files to the State Attorney General’s office for possible prosecution. - A regional peer review of Equatorial Guinea’s AML/CFT legal framework against the 2003 FATF standard is being conducted. - Recommendation: strengthen AML/CFT regime in line with the 2012 FATF standard, implement CEMAC’s framework nationally, provide ANIF adequate resources, and ensure risk-based implementation by regulated institutions. ### Statistical data reforms and residual shortcomings - Measures undertaken with World Bank and AFRITAC assistance: - Operationalization of the National Institute of Statistics (INEGE) with a high quality National Statistical Development strategy. - National accounts compiled using a new base year (2006) and improved methodology. - Completion of a legislative package defining the legal framework of the statistical system. - Completion of a population census in 2015; preliminary results published (population estimated at 1.2 million persons). - Authorities subscribed to the e-GDDS of the IMF; an IMF Statistics Department mission conducted stocktaking, action planning, and initiated metadata preparation. - Continued shortcomings hamper surveillance and policy formulation; staff recommendations: - Accelerate INEGE capacity-building program, drawing on findings of the June 2016 IMF Statistics Department mission. - Address capacity weaknesses in compilation and reporting of International Investment Position data. - Create metadata for each type of data currently produced and submit existing data (national accounts, CPI, public debt, etc.) to the IMF Statistics Department even before completion of the e-GDDS process. - Undertake economic and socio-demographic surveys with priority to the planned integrated household survey. - Develop statistical tools for monitoring the national development strategy by establishing statistical units in each government ministry. - Step up deployment of SYDONIA World software for processing international trade transactions at customs. *Source: Republic of Equatorial Guinea, International Monetary Fund (excerpt).* ### 34. The authorities concurred with staff’s assessment and recommendations. They have ### Staff appraisal — Equatorial Guinea ### Authorities' response and data commitments - The authorities concurred with staff’s assessment and recommendations. - Committed actions: - Improving the quality and dissemination of data, including through the nomination of the national coordinator of the e-GDDS initiative at INEGE. - Emphasized challenges in improving timely production of data at source and increasing cooperation with producers of data. - Emphasized continued need for Fund TA and training, which could take the form of custom-made courses in Spanish. ### Macroeconomic overview and strategic imperatives - Current situation: - Equatorial Guinea’s economy is in the midst of a protracted contraction. - The economy is undiversified; twin shocks of declining resource production from mature fields and depressed commodities prices are resulting in a deep and long economic contraction. - Abundant hydrocarbon resources and massive infrastructure investment previously propelled the country to one of the highest average per capita incomes in Sub-Saharan Africa, although the incidence of poverty remained a challenge and key social indicators continued to lag regional averages. - Policy imperatives: - Significant and sustained adjustment from the authorities is needed to restore fiscal sustainability and promote new drivers of non-resource growth building on the existing stock of infrastructure. - Authorities will need to invest more in human resources and service delivery to boost social indicators, support non-oil sector growth, and ensure future growth is inclusive. ### Fiscal adjustment: progress and gaps - Progress noted: - Authorities have taken significant steps to contain current spending and freeze new public investment projects. - Remaining gaps and recommendations: - Key planks of the adjustment strategy are still being developed, including measures to mobilize non-resource revenues by eliminating ad hoc tax exemptions and to rationalize ongoing investment projects and improve investment efficiency. - Authorities should accelerate development of requisite implementation plans to underpin medium-term fiscal adjustment. - These efforts should be buttressed by a comprehensive review of tax policy and a strategy to develop debt management capacity, supported, as needed, by IMF technical assistance. ### Non-resource growth and structural reform agenda - Needs and opportunities: - Decisive actions are needed to engender growth in the non-resource economy. - Equatorial Guinea can leverage considerable investment in infrastructure to launch new sectors that drive non-resource growth. - Required reforms: - Broad structural reforms to address weaknesses in the investment climate, foster human capital development, and reduce factor costs, including through fiscal consolidation. - Decisive actions to tackle corruption and improve governance, in line with Horizonte 2020’s objectives. - A business climate diagnostic in cooperation with the World Bank would help establish a comprehensive agenda for pro-growth structural reforms. - Exchange rate assessment: - The evidence suggests that the real effective exchange rate is significantly overvalued, underlining the urgent need to implement far-reaching structural reforms. ### Financial sector vulnerabilities and recommended actions - Current financial sector conditions: - Banks appear well capitalized and liquid, but NPLs are high, and profitability is in decline. - Vulnerabilities stem from fiscal-financial linkages: fiscal consolidation and government arrears to suppliers and contractors affect firms’ ability to service loans. - Recommended actions: - Adopt a repayment strategy for accumulated arrears, which threaten the credibility of the fiscal adjustment and financial sector stability. - Maintain adequate capital buffers in the banking sector given weak economic activity. - Work toward consolidated regional bank supervision to better monitor potential financial spillovers. - Implement critical financial sector structural reforms to boost resilience to shocks, promote financial inclusion, and support private sector development. ### Statistical system progress and priorities - Recent achievements: - Adoption of legislation and a development strategy for the national statistical system. - Rebasing of the national accounts. - A population census. - Application to join the enhanced General Data Dissemination System (e-GDDS) of the IMF. - Remaining challenges and near-term priorities: - Significant data gaps continue to hamper effective surveillance and impede policy formulation. - Near-term priorities include capacity building and the preparation of metadata, with IMF support, as well as the integrated household survey and the deployment of ASYCUDA World software at customs. *INTERNATIONAL MONETARY FUND* ### 40. Staff recommends that the next Article IV consultation take place on the standard ### 40. Staff recommends that the next Article IV consultation take place on the standard 12-month cycle. ### Recommendation - Staff recommendation: the next Article IV consultation take place on the standard 12-month cycle. ### Selected Economic and Financial Indicators (Table 1 highlights) - Usable external resources (a + c) for projection years: 264,921; 331,389; 806,439; 442,514; 626,863 (units: billions of CFA francs as implied by table header context). - Reserve assets at the BEAC (a) series: 217; 215; 717; 263; 501; 722; 1,729; 1,405; 640. - Government bank deposits outside BEAC (c) series: 477; 563; 663; 456; 267; 224; 222; 222; 222. - Usable external resource (months of next year's imports): 7.5; 6.9; 6.4; 4.5; 2.7; 2.8; 3.3; 3.9; 4.4. - Current account balance (percent of GDP; - = deficit): 0.1; -5.6; -16.8; -11.8; -6.6; -5.9; -4.8; -4.1; -3.5. - Overall balance (percent of GDP; - = deficit): -0.2; -5.8; -12.9; -8.9; -2.6; 0.7; 1.1; 1.6; 3.3. ### Balance of Payments (Table 2 highlights) - Current account levels (billions of CFA francs) by year series: 10; -600; -1,373; -806; -449; -403; -330; -282; -249. - Trade balance series: 505; 446; 0427; 2321; 862; 3062; 390; 2389; 24132; 494 (note: preserve exact table entries). - Exports of goods, f.o.b. series: 795; 774; 3652; 3623; 882; 3923; 783; 737; 753; 790. - Hydrocarbon exports series: 735; 468; 5245; 294; 3174; 3223; 2003; 0852; 9982; 981. - Imports of goods, f.o.b. series: -2,903; -2,832; -2,513; -1,696; -1,616; -1,537; -1,448; -1,362; -1,296. - Services (net): -1,298; -1,446; -1,508; -972; -711; -766; -757; -781; -830. - Income (net) series: -3,588; -3,603; -2,396; -1,887; -1,909; -1,889; -1,823; -1,771; -1,766. - Capital and financial account (overall): -110; 163; 268; 430; 272; 449; 404; 395; 485. - Direct investment series: 288; 831; 383; 217; 722; 026; 530; 537; 372. - Other investment (net) series: -398; 801; 283; 979; 422; 813; 990; 113. - Overall balance (billions): -20; -614; -1,055; -376; -178; 457; 411; 323; 6. - Change in net international reserves (- = increase): 206; 141; 056; 376; 178; -45; -74; -113; -236. ### Central Government Financial Operations (Table 3a–3c highlights) - Revenue series (billions of CFA francs): 2,696; 2,585; 2,071; 1,785; 1,565; 1,436; 1,323; 1,311; 1,272; 1,277. - Resource revenue series: 2,315; 2,235; 1,666; 1,390; 1,131; 970; 841; 806; 728; 690. - Tax revenue (billions): 625; 742; 597; 355; 355; 358; 312; 300; 271; 240. - Expenditure series (billions): 3,329; 3,102; 2,331; 2,086; 1,929; 1,795; 1,666; 1,545; 1,428; 1,373. - Net acquisition of non-financial assets: 2,457; 2,338; 1,647; 1,201; 1,101; 912; 764; 614; 468; 332. - Net lending/borrowing (overall fiscal balance, billions): -633; -517; -261; -301; -364; -360; -343; -234; -156; -96. - Overall fiscal balance (percent of GDP): -5.8; -4.9; -3.2; -4.4; -5.3; -5.3; -5.0; -3.4; -2.2; -1.3. - Gross government deposits series: 1,226; 913; 862; 717; 655; 466; 424; 451; 516; 642. - Outstanding medium- and long-term public debt series (billions): 666; 922; 1,142; ...; 1,342; 1,481; 1,760; 1,996; 2,202; 2,412. - Revenue (percent of GDP) series: 24.9; 24.3; 25.3; 26.0; 22.8; 21.2; 19.5; 19.1; 18.3; 17.8. - Resource revenue (percent of GDP): 21.4; 21.0; 20.4; 20.3; 16.5; 14.3; 12.4; 11.7; 10.5; 9.6. - Expenditure (percent of GDP): 30.7; 29.2; 28.5; 30.4; 28.1; 26.5; 24.5; 22.5; 20.5; 19.2. - Net acquisition of non-financial assets (percent of GDP): 22.7; 22.0; 20.2; 17.5; 16.1; 13.5; 11.3; 9.0; 6.7; 4.6. - Non-resource primary balance (percent of non-hydrocarbon GDP): -2,911; -; -2,702; -1,897; -1,625; -1,463; -1,295; -1,161; -1,017; -862; -764 (table preserves entries exactly as presented). ### Depository Corporations and Monetary Aggregates (Table 4a–4b highlights) - Net foreign assets (billions of CFA francs) series: 2,382; 1,629; 854; 479; 383; 507; 713; 968; 1,323. - Net foreign assets (Millions of U.S. dollars) series: 5,008; 3,015; 1,416; 812; 650; 865; 1,226; 1,669; 2,276. - Broad money liabilities (end period, billions): 1,812; 1,557; 1,387; 1,161; 1,156; 1,362; 1,625; 1,914; 2,238. - CPI inflation (average annual): 3.2; 4.3; 1.7; 1.5; 1.4; 1.5; 1.6; 1.7; 1.8. - Broad money (M2, annual percentage change): 7.3; -14.1; -10.9; -16.3; -0.4; 17.8; 19.3; 17.8; 16.9. - Credit to the private sector (annual percentage change): 34.3; 18.4; 14.8; 14.1; 8.0; 3.0; 3.0; 6.0; 6.0. - Broad money (percent of overall GDP): 16.7; 14.6; 17.0; 16.9; 17.1; 20.1; 23.7; 27.5; 31.2. ### Central Bank and Other Depository Corporations (Table 4b highlights) - Central bank net foreign assets (billions): 213; 315; 467; 003; 241; 461; 912; 653; 786; 14. - Monetary base (end period, billions): 125; 414; 579; 796; 034; 254; 715; 165; 636; 73. - Currency in circulation series: 310; 320; 256; 164; 116; 128; 140; 153; 183. ### Financial Soundness Indicators (Banking Sector) (Table 5 highlights) - Regulatory capital to risk-weighted assets series (percent): 20.2; 18.2; 24.5; 22.3; 25.5; 26.3; 24.4; 25.7; 23.8. - Non-performing loans (gross) to total loans (gross) (percent): 4.7; 4.4; 5.8; 20.1; 19.7; 19.6; 16.8; 17.1; 17.7. - Return on assets (percent): 0.3; 0.9; 0.8; 0.6; 0.7; n.a.; 0.7; n.a.; 1.1. - Return on equity (percent): 10.2; 24.3; 22.5; 14.1; 16.9; n.a.; 5.9; n.a.; 8.4. - Liquid assets to total assets (percent): 45.5; 37.6; 59.2; 48.7; 43.8; 42.2; 40.4; 42.4; 34.9. - Loans to deposits (percent): 67.0; 83.1; 49.1; 64.3; 64.3; 68.6; 81.3; 70.3; 82.6. ### Government Cash Flow and Balance Sheet (Tables 6–7 highlights) - Net lending/borrowing (overall fiscal balance) repeated: -633; -517; -261; -301; -364; -360; -343; -234; -156; -96 (billions of CFA francs). - Gross government deposits (billions): 1,226; 913; 862; 717; 655; 466; 424; 451; 516; 642. - Wealth definition note: Wealth = sum of net financial assets and present value of future resource receipts (discounted at an annual discount of 10 percent). ### Millennium Development Goals (Table 8 highlights) - Selected MDG indicators (years and values preserved as in table): - Employment to population ratio, 15+, total (%) (modeled ILO estimate): 1990..; 2000 81; 2001-10 81; 2011-15 81. - Malnutrition prevalence, weight for age (% of children under 5): 1990..; 2000 16; 2001-10 19; 2011-15 6. - Poverty headcount ratio at national poverty lines (% of population): 1990 85; 2001-10 ..; 2011-15 77; 44. - Primary completion rate, total (% of relevant age group): 1990 ..; 2000 48; 2001-10 49; 2011-15 51. - Immunization, measles (% of children ages 12-23 months): 1990 88; 2000 51; 2001-10 36; 2011-15 42. - Mortality rate, infant (per 1,000 live births): 1990 124; 2000 99; 2001-10 79; 2011-15 68. - Mortality rate, under-5 (per 1,000 live births): 1990 184; 2000 142; 2001-10 111; 2011-15 94. - Maternal mortality ratio (modeled estimate, per 100,000 live births): 1990 1,600; 2000 790; 2001-10 480; 2011-15 290. - Improved sanitation facilities (% of population with access): 1990 ..; 2000 89; 2001-10 76; 2011-15 75. - Improved water source (% of population with access): 1990 ..; 2000 51; 2001-10 48; 2011-15 48. - Internet users (per 100 people): 1990 00; 2000 0; 2001-10 6; 2011-15 19. - Mobile cellular subscriptions (per 100 people): 1990 0; 2000 15; 2001-10 76; 2011-15 66. *Source: REPUBLIC OF EQUATORIAL GUINEA — INTERNATIONAL MONETARY FUND (tables and text as provided in the content unit).* ### Annex I. National Accounts Rebasing ### Annex I. National Accounts Rebasing ### Overview - On July 19, 2016, Equatorial Guinea officially adopted a new series of national accounts based on: - a change in the base year from 1986 to 2006; - many features of the 1993 Systems of National Accounts (SNA93) compilation methodology; and - a larger number of sources and surveys, including the 2006 household survey and recent enterprise surveys. - The new national accounts better capture the structure of the economy, especially public administration and the informal sector, leading to an increase of about 30 percent in the size of the economy. ### Impact on GDP levels and sectoral composition - Real GDP’s level increased by about 30 percent due to improved methodology aligned with SNA93 (instead of SNA68), including: - better estimates of public administrations’ output by including wages, goods and services, and the consumption of fixed capital; - updated estimates of public education, health and social work. - Effects on sectoral output: - Non-hydrocarbon activity more than doubled over 2006–14, compared with previous estimates. - Value of hydrocarbon production increased by about 5 percent. - In 2014, the contribution of hydrocarbon GDP to overall GDP was revalued at 60 percent from 75 percent before the rebasing. - Changes in specific non-hydrocarbon sector shares (2014): - Trade and commerce increased 6 fold to 19.7 percent of non-hydrocarbon activity. - Public administration increased 13 times to 26.1 percent of non-hydrocarbon activity. - Transport and communication increased 20 fold to 12 percent of non-hydrocarbon activity. ### Data sources, methodology improvements, and limitations - Data sources and compilation: - Data collected from a variety of sources including the regional central bank (BEAC), various agencies and ministries, the 2006 household survey, tax declaration information, and surveys of public and private companies across sectors. - Most sectors’ output now includes estimates of activities of service companies in addition to producing companies (e.g., oil sector). - Sources were cross-checked for consistency and sensitivity to alternative sources was tested; many sector estimates aimed to achieve supply–demand balances. - Institutional and technical support: - The new series were produced by INEGE, the National Statistical Institute, with the support of the World Bank and AFRITAC Central. - Remaining information gaps and accuracy constraints: - Accuracy is expected to improve with better coverage of surveys, notably after the number of companies in Equatorial Guinea is established by a new enterprise census. - Accuracy was constrained by the relatively limited participation of known companies in surveys. - Trade statistics estimates were based on BEAC bank survey data because customs data are likely to be highly inaccurate since they are not computerized. ### Fiscal and policy implications - Per-capita income: - The new NA series does not substantially change per-capita income because the recent census resulted in a similar increase in the estimated population. - Fiscal ratios and revenue: - The rebasing suggests a more favorable view of the debt and non-resource primary deficit ratios, both revised downward by about 28 percent in 2014. - Non-resource revenue as a percentage of nominal GDP is now estimated at 3.3 percent in 2014. - Policy messages and recommended actions (as expressed in the text): - The weak non-resource revenue indicator points to the urgency to accelerate structural reforms needed to boost revenue mobilization in the non-hydrocarbon sector. - Improve coverage of surveys and establish an enterprise census to increase the accuracy of national accounts. *Annex prepared by Neree Noumon and Ashan Rodriguez; source: IMF staff calculations.* ### Annex IV. External Stability Assessment ### Annex IV. External Stability Assessment ### Overall assessment - Equatorial Guinea’s external position in 2015 is assessed to be substantially weaker than the level consistent with medium-term fundamentals and desirable policy settings. - Much of the deterioration is due to the large terms-of-trade shock from the decline in oil and gas prices. - Assuming no change in current policies, the real exchange rate assessments indicate it is significantly overvalued. - Very serious data weaknesses affect the accuracy of the quantitative assessment of the real effective exchange rate in Equatorial Guinea. ### Real and nominal effective exchange rate movements - The real effective exchange rate (REER) has appreciated rapidly since 2000 considerably more than in most CEMAC countries. - REER appreciation has reflected relatively high CPI inflation. - There has been a significant reversal in both the REER and the nominal effective exchange rate (NEER) since mid-2014 mainly as a result of the depreciation of the euro, to which the CFA franc is pegged. ### Current account: recent developments and medium-term projection - The current account deficit is projected to decrease gradually over the medium term. - The decline in oil prices and higher imports of capital and consumer goods sharply widened Equatorial Guinea’s current account deficit from 6 percent of GDP in 2014 to 17 percent of GDP in 2015. - Given the forecast for slow recovery in oil prices and REER appreciation, the current account would remain in a deficit position until 2021. - In the medium term, the current account deficit will gradually continue to decline as public sector imports decline, offsetting the expected decline in oil exports. ### Data caveats - Very serious data weaknesses affect the accuracy of a quantitative assessment of the REER in Equatorial Guinea. - Changes in major balance of payments estimates have affected the composition of the current account and therefore the current account projections used by exchange rate assessment methodologies; conclusions should be taken with caution. - The EBA-Lite methodology is not used for Equatorial Guinea due to lack of availability of adequate data. ### REER valuation: methodologies and results - Both the Bems-Carvalho Filho (2009) and Araujo et al. (2013) methodologies suggest that the real exchange rate is significantly overvalued. - The overvaluation would be greater in the absence of adjustment policies. - This underscores the urgent need for far-reaching structural reforms to substantially reduce factor costs and leverage the existing infrastructure base to boost nonoil growth. Bems and Carvalho Filho (2009) methodology - The methodology derives a desired path for the current account based on specified inter-temporal allocation rules of oil and gas income flows. - Under the active scenario, using the current account in 2021 as the underlying current account, the estimated real exchange rate adjustment needed to bring the underlying current account to the norm would require a depreciation of 19 or 33 percent depending on the assumed elasticity of the current account to the real exchange rate. - The methodology does not account for future returns of public investment on future productivity growth and hence produces current account norms that would be above Equatorial Guinea’s medium-term current account path if public investment has a significant payoff. - Given only moderate non-hydrocarbon GDP growth and almost negligible growth in non-hydrocarbon exports, it appears that the sizeable public investment in past years has not improved productivity growth significantly. Araujo et al. (2013) methodology - This methodology takes into account absorptive capacity constraints in investment, recognizing that ambitious public and private investment programs in developing countries are often impacted by weak planning, coordination, and oversight contributing to large cost overruns. - Results from this methodology suggest a moderate overvaluation of 8 or 14 percent depending on the assumed elasticity of the current account to changes in the real exchange rate. Table 1 (as presented) - The line "Bems and Carvalho (adjusted)" refers to the current account norm after adjusting for income transfer (profit repatriation by hydrocarbon producing companies). The lines based on Araujo and others (2013) are preliminary. "Elasticity: -0.4" is from the CEMAC Staff Report (2013); no elasticity can be computed directly for Equatorial Guinea. - Year: 2021 - Percent of GDP Elasticity: -0.2 Elasticity: -0.4 - Underlying current account -3.5 - CA norm (Behms and Carvalho Filho, 2009: adjusted)4.133.119.0 - CA norm (Araujo and others, 2013)-0.314.08.1 - Implied Exchange Rate Misalignment (Note: table content above is reproduced exactly as it appears in the source.) ### Policy implications and recommendations - Urgent need for far-reaching structural reforms to substantially reduce factor costs. - Leverage the existing infrastructure base to boost nonoil growth. - Adjustment policies would reduce the degree of REER overvaluation. - Given data weaknesses, improve data quality (balance of payments, current account, public investment returns) to strengthen the reliability of exchange rate and external position assessments. *Prepared by Koffie Nassar and Ashan Rodriguez — Annex IV. External Stability Assessment* ### 8. The authorities broadly concurred that debt levels have been rising rapidly, and that ### _cr16341 - 8. The authorities broadly concurred that debt levels have been rising rapidly, and that ### Fiscal position and authorities' stance - The authorities broadly concurred that debt levels have been rising rapidly, and that there is need to undertake fiscal consolidation to avoid unsustainable debt dynamics. - They recognized the magnitude of the external shock facing the country and pointed to efforts to bring down the deficit during 2015 and fiscal measures to increase non-resource revenue and curb spending. ### Public sector debt dynamics (DSA) — baseline and composition - Public sector is defined as central government. - Notes on drivers: - The continuous decline of GDP deflator is driven by a decreasing trend of oil and gas prices. - Interest payments defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year. - Debt dynamic derivation: [(r - π(1+g) - g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar). - Real interest rate contribution derived as r - π (1+g) and real growth contribution as -g. - Exchange rate contribution derived as ae (1+r). - Includes asset changes and interest revenues (if any). For projections, includes exchange rate changes during the projection period. - Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year. ### Public debt composition (selected indicators from figures) - By maturity (percent of GDP): historical and projection bars shown for 2005–2021 separated into Medium and long-term and Short-term (figures shown in source). - By currency (percent of GDP): Local currency-denominated and Foreign currency-denominated (figures shown in source). - Gross Nominal Public Debt (in percent of GDP): baseline and projection bars for 2014–2021 (figures shown in source). ### Alternative scenarios — selected underlying assumptions (in percent) - Baseline: - Real GDP growth: -9.9 -5.8 -2.7 -1.5 -1.2 0.1 - GDP Deflator: -6.8 4.7 3.1 2.6 2.6 2.9 - Primary Balance: -4.7 -4.7 -4.6 -3.0 -1.8 -1.0 - Effective interest rate: 3.4 3.2 3.3 3.6 4.1 4.4 - Constant Primary Balance Scenario: - Real GDP growth: -9.9 -5.8 -2.7 -1.5 -1.2 0.1 - GDP Deflator: -6.8 4.7 3.1 2.6 2.6 2.9 - Primary Balance: -4.7 -4.7 -4.7 -4.7 -4.7 -4.7 - Effective interest rate: 3.4 3.3 3.4 3.5 3.9 4.1 - Historical Scenario: - Real GDP growth: -9.9 3.5 3.5 3.5 3.5 3.5 - GDP Deflator: -6.8 4.7 3.1 2.6 2.6 2.9 - Primary Balance: -4.7 2.4 2.4 2.4 2.4 2.4 - Effective interest rate: 3.4 3.3 3.5 4.0 4.9 6.5 ### External debt sustainability — key time series (2011–2021) - Baseline: External debt (percent of GDP) - 2011 5.5 - 2012 7.5 - 2013 6.4 - 2014 4.8 - 2015 7.4 - 2016 11.9 - 2017 14.3 - 2018 18.4 - 2019 21.7 - 2020 24.2 - 2021 26.4 - Change in external debt (percent of GDP) - 2011 -2.5 - 2012 2.0 - 2013 -1.1 - 2014 -1.6 - 2015 2.7 - 2016 4.4 - 2017 2.4 - 2018 4.1 - 2019 3.3 - 2020 2.5 - 2021 2.2 - Identified external debt-creating flows (percent of GDP) - 2011 -6.3 - 2012 0.4 - 2013 2.7 - 2014 6.6 - 2015 21.1 - 2016 13.1 - 2017 9.9 - 2018 9.6 - 2019 9.0 - 2020 8.8 - 2021 8.7 - Current account deficit, excluding interest payments (percent of GDP) - 2011 -6.7 - 2012 -4.2 - 2013 -0.3 - 2014 5.5 - 2015 -16.6 - 2016 11.4 - 2017 6.4 - 2018 5.7 - 2019 4.6 - 2020 3.9 - 2021 3.3 - Deficit in balance of goods and services (percent of GDP) - 2011 -42.9 - 2012 -41.7 - 2013 -34.6 - 2014 -29.7 - 2015 -14.9 - 2016 -17.7 - 2017 -23.6 - 2018 -23.9 - 2019 -23.8 - 2020 -23.5 - 2021 -23.2 - Exports (percent series shown) - 2011 82.1 - 2012 90.1 - 2013 73.8 - 2014 70.4 - 2015 64.8 - 2016 57.4 - 2017 58.8 - 2018 58.7 - 2019 56.8 - 2020 55.1 - 2021 53.7 - Imports (percent series shown — values aligned in source) - 2011 39.3 - 2012 48.4 - 2013 39.2 - 2014 40.7 - 2015 49.9 - 2016 39.7 - 2017 35.2 - 2018 34.8 - 2019 33.0 - 2020 31.6 - 2021 30.5 - Net non-debt creating capital inflows (negative, percent of GDP) - 2011 2.2 - 2012 4.8 - 2013 2.7 - 2014 0.8 - 2015 1.7 - 2016 0.5 - 2017 2.6 - 2018 3.2 - 2019 3.9 - 2020 4.5 - 2021 5.3 - Automatic debt dynamics (percent of GDP) - 2011 -1.9 - 2012 -0.1 - 2013 0.4 - 2014 0.3 - 2015 2.8 - 2016 1.2 - 2017 1.0 - 2018 0.6 - 2019 0.5 - 2020 0.4 - 2021 0.1 - Contribution from nominal interest rate (percent of GDP) - 2011 0.0 - 2012 0.1 - 2013 0.2 - 2014 0.1 - 2015 0.2 - 2016 0.3 - 2017 0.3 - 2018 0.2 - 2019 0.2 - 2020 0.2 - 2021 0.2 - Contribution from real GDP growth (percent of GDP) - 2011 -0.4 - 2012 -0.4 - 2013 0.3 - 2014 0.0 - 2015 0.5 - 2016 0.9 - 2017 0.7 - 2018 0.4 - 2019 0.3 - 2020 0.2 - 2021 0.0 - Residual, incl. change in gross foreign assets (percent of GDP) - 2011 3.8 - 2012 1.6 - 2013 -3.8 - 2014 -8.2 - 2015 -18.4 - 2016 -8.7 - 2017 -7.5 - 2018 -5.5 - 2019 -5.7 - 2020 -6.2 - 2021 -6.5 - External debt-to-exports ratio (in percent) - 2011 6.6 - 2012 8.3 - 2013 8.6 - 2014 11.5 - 2015 20.7 - 2016 24.4 - 2017 33.1 - 2018 38.2 - 2019 43.9 - 2020 49.2 - Gross external financing need (in billions of US dollars) - 2011 -0.3 - 2012 0.8 - 2013 1.4 - 2014 2.2 - 2015 3.4 - 2016 2.7 - 2017 2.4 - 2018 2.8 - 2019 3.1 - 2020 3.4 - 2021 3.7 - Gross external financing need (in percent of GDP) — series shown in source (percent values presented visually in figure). ### Key macroeconomic assumptions underlying baseline (selected series) - Real GDP growth (in percent): 6.5 8.3 -4.1 -0.5 -7.4 3.5 9.1 -9.9 -5.8 -2.7 -1.5 -1.2 0.1 - GDP deflator in US dollars (change in percent): 22.9 -3.1 2.2 -1.5 -30.6 4.0 19.7 -6.6 4.8 3.4 3.2 3.4 2.7 - Nominal external interest rate (in percent): 0.3 2.2 2.7 2.0 2.6 1.4 0.9 3.9 2.2 1.4 1.1 0.9 0.7 - Growth of exports (US dollar terms, in percent): 24.9 15.2 -19.7 -6.6 -40.9 5.6 26.5 -25.3 1.1 0.4 -1.6 -0.8 -0.2 - Growth of imports (US dollar terms, in percent): -16.0 29.4 -20.7 1.7 -21.1 16.2 33.2 -33.0 -12.4 -0.8 -3.6 -2.0 -0.9 - Current account balance, excluding interest payments: 6.7 4.2 0.3 -5.5 -16.6 3.3 16.4 -11.4 -6.4 -5.7 -4.6 -3.9 -3.3 - Net non-debt creating capital inflows: -2.2 -4.8 -2.7 -0.8 -1.7 -0.5 5.0 -0.5 -2.6 -3.2 -3.9 -4.5 -5.3 ### Stress tests and bound tests (high-level outcomes) - Figure 3 presents Public Debt Sustainability Analysis—Stress Tests (graphic results provided in source). - Figure 4 presents External Debt Sustainability: Bound Tests, with the following scenario box summaries (values from figure): - Growth shock — Baseline: -2.2; Scenario: -6.7; Historical: 3.5 - Non-interest current account shock — Baseline: -4.8; Scenario: -12.4; Historical: 2.0 - Combined shock: presentation indicates a combined shock result of 48 (graphic context in source). - Interest rate shock and real depreciation shock panels are shown with baseline and scenario paths (figures in source). - Individual shocks described: - Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. - Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance. - One-time real depreciation of 30 percent occurs in 2017 (as a stress scenario). ### Policy implications and recommendations (implicit from analysis) - Need to undertake fiscal consolidation to avoid unsustainable debt dynamics. - Increase non-resource revenue and curb spending to bring down deficits (authorities indicated measures in 2015 and ongoing fiscal measures). - Continued monitoring under stress scenarios given vulnerability to growth, interest rate, current account, and exchange rate shocks. *Prepared by IMF staff — informational annex material from the STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION — informational annex (figures and tables as presented in source).* ### 3. Investment Climate Reform: A third ### _cr16341 - 3. Investment Climate Reform: A third ### Investment climate reform project status and timeline - A third technical assistance agreement to promote investment climate reform and support the set-up of an Investment Promotion Agency is pending signature. - Next supervisory mission: July – August 2016. - Project currently under discussion — To be confirmed. - Expected completion: December 2017. - Legal agreement ends in December 2016 but an extension through 2017 is expected to be signed in the short term. ### Data sharing and work program requests - Fund request to Bank: - Data sharing, in particular the outcome of technical assistance to the statistical office. - Bank request to Fund: - Regular updates on macroeconomic framework. - Data sharing, in particular with respect to fiscal information, external sector, and hydrocarbon production. ### Statistical issues — assessment and recent actions (As of July 26, 2016) - General: - Data provision has serious shortcomings that significantly hamper surveillance. - Deficiencies across national accounts, government finance statistics, and balance of payments in quality, timing, and coverage. - Poor centralization of information between the island and continental regions. - National accounts: - On July 21, 2016 the National Statistics Institute (INEGE) released a new series of national accounts for the period 2006–13. - The new series was prepared with the assistance of the World Bank, AFRISTAT, and AFRITAC Central, using the System of National Accounts, 1993 (1993 SNA) methodology. - Data sources still need to be improved for more reliable and comprehensive GDP estimates. - Censuses conducted in 2015: housing and population census, agricultural census, and enterprise census. - Household survey and employment survey are planned. - Price statistics: - Official CPI compilation resumed in January 2009, with data collected in five major cities. - Remaining deficiencies: outdated weights and composition of the basket, gaps in the time series corresponding to 2008, imputations for missing data do not always reflect underlying trends. - Government finance statistics: - Authorities provide budget execution data to the Fund, but data are limited in detail (poor delineation between capital and current spending; no functional classification) and not fully reconciled with monetary accounts. - Fiscal data lack internal verification due to weak audit capability. - Authorities have yet to appoint additional residential advisors for public finance, budgeting, and accounting following advice from the Fiscal Affairs Department. - Temporary transparency gains via Extractive Industries Transparency Initiative: reconciliation report posted March 2010; no subsequent information published. - Monetary statistics and financial sector surveillance: - Monetary statistics for the central bank and other depository corporations are reported monthly to the Fund by the Banque des États de l’Afrique Centrale (BEAC) in SRF format. - Depository corporation survey excludes deposit-taking microfinance institutions. - Plans to include future data on interest rates offered by the financial institutions sector to non-financial entities on deposits and loans. - In March 2016, Equatorial Guinea began reporting financial soundness indicators for deposit taking institutions. - Balance of payments: - National Directorate of the Bank of Central African States compiles balance of payments statistics; BEAC produces BOP data for monetary programming but largely relies on estimations. - Customs authorities do not use a computerized system; no merchandise imports data are made available. - Severe capacity constraints at the National Directorate noted in March 2013 mission; need for staff training and institutional improvements. - Data Standards and Quality: - An STA mission visited Equatorial Guinea in June 2016 to assist the country’s preparation to participate in the e-GDDS. - Equatorial Guinea has not yet received a mission to produce the data module of the Report on the Observance of Standards and Codes (data ROSC). - Reporting to STA: - Real sector statistics reported to STA for IFS publication with a long lag and limited coverage: GDP (without breakdown), exports, and imports. - Authorities agreed to submit CPI data for IFS publication; STA communicating regarding procedure. - BEAC reports monetary, interest rates, and exchange rate statistics for IFS, but delays persist (current lag about three months). - Balance of payments data are not submitted to STA for IFS or Balance of Payments Statistics Yearbook; latest year available: 1996. - Equatorial Guinea does not report fiscal data to STA for IFS or Government Finance Statistics Yearbook. ### Key common indicators reporting status (As of July 26, 2016) - Exchange Rates: Latest Observation 7/13/2016; Date Received 7/13/2016; Frequency of Data/Reporting/Publication: D D D. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Latest Observation Dec. 2014; Date Received 5/12/2015; Frequency: M M I. - Reserve/Base Money: Latest Observation May 2016; Date Received 7/13/16; Frequency: M M M. - Broad Money: Latest Observation May 2016; Date Received 7/13/16; Frequency: M M M. - Central Bank Balance Sheet: Latest Observation May 2016; Date Received 7/13/16; Frequency: M M M. - Consolidated Balance Sheet of the Banking System: Latest Observation May 2016; Date Received 7/13/16; Frequency: M M M. - Interest Rates: Latest Observation Jul. 2016; Date Received 7/13/16; Frequency: M M I. - Consumer Price Index: Latest Observation Apr. 2016; Date Received 7/13/16; Frequency: M M M. - Revenue, Expenditure, Balance and Composition of Financing — General Government: Latest Observation Dec. 2015; Date Received 7/13/16; Frequency: M Q I. - Stocks of Central Government and Central Government-Guaranteed Debt: Latest Observation 2015; Date Received 7/13/16; Frequency: A A I. - External Current Account Balance: Latest Observation 2015; Date Received 7/13/16; Frequency: A A I. - Exports and Imports of Goods and Services: Latest Observation 2015; Date Received 7/13/16; Frequency: A A I. - GDP/GNP: Latest Observation 2015; Date Received 7/13/16; Frequency: A A I. - Gross External Debt: Latest Observation 2015; Date Received 7/13/16; Frequency: A A I. - International Investment Position: NA NA NA. ### Statement by Mr. Yambaye, Executive Director for the Republic of Equatorial Guinea (August 29, 2016) — recent economic developments - Progress and social indicators: - Significant progress under National Development Plan - Horizonte 2020. - Incidence of poverty declined from 77 percent in 2006 to an estimated level of less than 50 percent in 2011. - Macroeconomic developments and outlook: - Real GDP in 2015 estimated to have declined by 7.4 percent, mainly due to decline in oil revenues (prices and production). - Inflation estimated to have declined to 0.6 per cent in the second quarter of 2016 compared to 4 percent in 2014. - Non-hydrocarbon sector activity weak as public investment and construction declined. - Real GDP projected to contract by about 10 percent in 2016, and would remain negative over the medium term. - Authorities expect to reverse contraction pace through second phase of National Development Program focused on non-hydrocarbon sector, private sector development, and human resources. - Fiscal and external sector: - Overall fiscal deficit reduced to 3.2 percent of GDP in 2015 reflecting fiscal adjustment (mobilizing non-resource revenues and freezing new capital spending). - Public sector debt rose slightly at end-2015; deposit buffer reduced by 1.9 percent of GDP due to government financing needs. - External current account deficit increased to about 17 percent of GDP in 2015 driven by hydrocarbon decline and higher imports related to public investment; reserves covering 6.4 months of prospective imports. - Current account deficit expected to be reduced to 11.8 percent of GDP in 2016 with further medium-term improvements. ### Authorities’ policy responses and reform agenda - Fiscal policy measures: - Accelerate implementation of measures to boost non-oil revenue collection: operationalization of the Large Taxpayer Unit, introduction of a single taxpayer identification number, streamlining tax filing procedures and exemptions, boosting customs collection. - Finalizing customs clearance procedures for installation of ASYCUDA World software. - Considering a comprehensive tax policy review — IMF technical assistance envisaged. - Expenditure adjustment: sustain spending adjustment of around 2 percent of GDP per year. - Public Investment Program (PIP) reforms: aim to curb the PIP by half over three years; PIP budget reduced by 30 percent since 2014; close monitoring with World Bank. - Addressing arrears: discussing a plan with suppliers and commercial banks. - Monetary and financial sector: - Equatorial Guinea participates in Central African Monetary Union; monetary policy set regionally by BEAC; exchange rate pegged to the Euro. - Regional accommodative monetary policy supportive of adjustment. - Financial sector remains well-capitalized and liquid despite shocks; nonperforming loans remain high and profits declined. - Plan to make country a regional financial hub; structural reforms, staff capacity building, internal regulations and reporting standards finalized. - Regional peer review of AML/CFT legal framework against 2003 FATF standard underway; work toward full implementation of CEMAC’s AML/CFT framework. - Continue to maintain adequate capital buffers, deepen banking sector, collaborate with regional authorities to strengthen supervision and monitor spillovers. - Structural reforms and business climate: - Diversification focus: promote agriculture, fisheries, and financial sectors; improve non-oil competitiveness and foster private sector activity. - Planned measures: - Establish a national committee by end-2016 composed of chambers of commerce, educational institutions, banks and government representatives to spearhead reforms. - Build eight vocational schools to train youth and foster technical education. - Develop a tourism sector policy to leverage recently constructed hotel facilities. - Work closely with the World Bank on business climate diagnostics and reforms. - Launch a “one-stop-shop” by 2017 to facilitate investor entry. - Establish a CFAF 100 billion Co-investment Fund to support small and medium enterprises in non-oil sectors. - Statistical and data reforms: - Strengthened National Statistical Institute capacity; development of a high quality National Statistical Development strategy. - With World Bank and AFRITAC assistance, compiled national accounts using new base year (2006) and improved methodology. - Completed legislative package defining legal framework of the statistical system; completed population census in 2015. - Subscribed to the enhanced General Data Dissemination System (e-GDDS) of the IMF. - Authorities will continue TA-supported efforts: accelerate INEGE capacity building program, compile and report International Investment Position data, create metadata, and develop SYDONIA World software. ### Conclusion from authorities - Decline in oil prices has added to challenges; authorities are implementing wide-ranging measures: fiscal consolidation, economic diversification away from hydrocarbons, and private sector strengthening. - Authorities will continue to rely on advice and assistance of the Fund and development partners. *Source: _cr16341 - 3. Investment Climate Reform: A third (IMF PDF content).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16341.pdf_