## _cr1686 — Staff Report excerpt (Gabon, Staff Report for the 2015 Article IV Consultation, February 5, 2016) ## Source details **Canonical URL:** [_cr1686 — Staff Report excerpt (Gabon, Staff Report for the 2015 Article IV Consultation, February 5, 2016)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1686.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1686.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1686.pdf.json) --- ### Economic impact of the oil price shock - Terms-of-trade shock: external position from a surplus of 8.3 percent of GDP in 2014 to a deficit of 1.9 percent in 2015. - Consumer price inflation (CPI): expected to be about zero percent in 2015. - Oil dependence (as of 2014): oil accounted for roughly 40 percent of GDP, 45 percent of government revenues, and nearly 85 percent of exports. - Oil sector weakness reduced available financing for the PSGE second phase (2016–20). ### Growth outlook and scenarios - Real GDP growth: - 2015 (Prel. Est.): 4.0 percent. - 2016 (Proj.): 3.2 percent (largely due to declining oil production). - 2017 (Proj.): 4.5 percent. - Non-oil GDP growth: - 2015: 4.0 percent. - 2016: 5.4 percent. - 2017: 6.6 percent. - Oil share of overall GDP: - 2015: 31.6 - 2016: 22.7 - 2017: 22.1 - Medium-term scenario: ongoing large-scale investments in agriculture (palm oil and rubber) could lift growth to around 5 percent in the medium term, conditional on sustained PSGE progress and tight financing constraints. ### Fiscal position and public debt - Fiscal outcomes (percent of GDP): - Revenue: 2015: 21.4; 2016: 19.3; 2017: 19.7. - Expenditure: 2015: 23.7; 2016: 25.1; 2017: 24.6. - Fiscal Balance: 2015: -2.3; 2016: -5.8; 2017: -4.8. - Public Debt (including statutory advances from BEAC): - 2015: 43.0 percent of GDP; 2016: 50.1 percent of GDP; 2017: 49.9 percent of GDP. - Trend and drivers: - Public debt more than doubled from 20 to 43 percent of GDP since 2012 (above the 35 percent indicative ceiling). - Drivers since 2014: depreciation of the CFA franc, decline in the oil GDP deflator; Eurobond issuances of US$1.5 billion (December 2013) and US$500 million (June 2015). - Government deposits at the BEAC (net of Eurobond receipts) declined by 57 percent between December 2014 and October 2015. - Gross international reserves declined by 30 percent between December 2014 and October 2015. ### External sector and monetary indicators - Current account (percent of GDP): 2015: -1.9; 2016: -9.0; 2017: -7.4. - FDI (percent of GDP): 2015: 3.6; 2016: 3.5; 2017: 3.8. - Reserves (months of imports, BEAC, excluding intra-CEMAC trade): 2015: 4.9; 2016: 4.2; 2017: 4.0. - External Debt (percent of GDP): 2015: 35.6; 2016: 41.2; 2017: 41.3. - Broad Money (percentage change): 2015: -1.1; 2016: -0.5; 2017: 0.8. - Credit to the private sector (percentage change): 2015: -5.3; 2016: 3.1; 2017: 5.1. - Nominal effective exchange rate reversed earlier appreciation; year-on-year inflation declined with falling energy prices. ### Key risks and vulnerabilities - Main downside risk: weak fiscal adjustment to sharply lower oil prices, potentially forcing substantial drawdowns of the deposit buffer and/or significant increases in borrowing. - Additional risks: - Stronger spillover of the oil price shock to non-oil activity, including the financial sector. - Weaker global economy and tightening international financial conditions. - Persistent fragility at three small distressed state-owned banks. - Political environment ahead of 2016 elections could delay tough policy decisions. ### Financial sector concerns - Financial system broadly sound, but weak financial condition of public banks requires urgent attention. - Risks: amplification of macro-financial linkages and potential rise in nonperforming loans (NPLs) given links between oil and non-oil sectors and government project exposures. - Aggregate indicators (2010–2015): credit and monetary aggregates contracted, reflecting economic deceleration. - Bank NPLs: surged from 2.8 percent in June 2012 to 8.4 percent in November 2014, before subsiding to about 4 percent in February 2015. - Microfinance sector NPLs: rose from 14.6 percent in 2011 to 24.1 percent of gross loans in 2015. - Stress transmission: a 40 percent oil-price shock leads on average to a 40 percent deterioration in asset quality across oil exporters; ongoing shock manifested as liquidity tensions in some commercial banks. ### Policy recommendations (IMF staff and Executive Directors) - Fiscal adjustment to new oil price outlook: - Eliminate inefficient and costly tax exemptions. - Contain the public wage bill. - Protect critical capital and social spending. - Prioritize reversing erosion of revenue base by curbing tax exemptions and enhancing revenue administration. - Reduce inefficient spending in favor of productive expenditure. - Promote private sector participation in infrastructure projects. - Financial sector measures: - Prompt corrective actions to address financially weak public banks. - Strengthen monitoring of nonperforming loans. - Adopt recommendations from recent Fund technical assistance, including strengthening treasury management. - Structural reforms and diversification: - Redouble efforts to foster economic diversification under PSGE. - Reprioritize reform agenda given reduced financing availability; focus on high-impact infrastructure projects and productivity-boosting reforms. - Strengthen education and institutions; increase labor market flexibility. - Promote deeper intraregional integration and trade liberalization in CEMAC. - Regional policy stance: - Advocate tighter fiscal and monetary policies at the regional level to ensure continued viability of the monetary union. - Data and surveillance: - Increase priority on improving quality and timeliness of macroeconomic data. - Redouble efforts to address major weaknesses in economic statistics. ### Selected social and economic indicators (snapshot) - Population: 1.8 million. - Per capita GDP (2015): US$ 7,728. - Quota: SDR 154.3 million (equivalent to 0.06 percent of total). - Literacy rate: 94.7 percent. - Main products and exports: Oil, manganese, and processed wood. - Poverty rate: 34.3 percent. - Key export markets: USA, China, and European Union. - Unemployment (percent): 2015: 28.0; 2016: 29.0; 2017: 29.0. - Inflation (Average): 2015: 0.1 percent; 2016: 2.5 percent; 2017: 2.5 percent. ### Risk overview and alternative macroeconomic scenarios (2014–21) - Main downside risk reiterated: insufficient fiscal adjustment to lower oil prices. - Scenario assumptions: - No-Fiscal Adjustment Scenario assumes government spending grows in line with non-oil GDP. - Lower Oil Price Scenario assumes oil prices remain US$ 5 below WEO projections (under this assumption oil price averages US$25 per barrel in 2016). - Baseline (Adjustment) Scenario selected series (2014–21): - Non-Oil Fiscal Primary Balance (% of GDP): -12.4 -13.5 -10.3 -8.9 -7.6 -6.3 -5.2 -4.1 - Overall Fiscal Balance (% of GDP): 2.5 -2.3 -5.8 -4.8 -4.0 -2.9 -2.3 -1.6 - Government Deposits (% of non-oil GDP): 11.0 9.3 6.2 4.9 5.4 6.2 6.5 6.7 - Public Debt (% of GDP): 32.2 43.0 50.1 49.9 50.5 50.3 49.3 47.9 - International Reserves (US$ billion): 2.7 2.1 1.6 1.4 1.4 1.5 1.6 1.8 - Current Account Balance (% of GDP): 8.3 -1.9 -9.0 -7.4 -5.8 -4.7 -3.9 -3.2 - No-Fiscal Adjustment Scenario selected series: - Non-Oil Fiscal Primary Balance (% of GDP): -12.4 -13.5 -11.7 -11.6 -11.4 -11.1 -10.8 -10.5 - Overall Fiscal Balance (% of GDP): 2.5 -2.3 -6.8 -6.9 -7.0 -6.9 -7.1 -7.3 - Government Deposits (% of non-oil GDP): 11.0 7.9 3.5 3.2 2.9 2.7 2.4 2.2 - Public Debt (% of GDP): 32.2 42.0 50.1 50.6 54.4 56.9 59.6 62.5 - International Reserves (US$ billion): 2.7 2.1 1.5 1.3 1.2 1.1 1.1 1.1 - Current Account Balance (% of GDP): 8.3 -1.9 -9.4 -8.1 -6.8 -6.0 -5.5 -4.9 - Lower Oil Price Scenario selected series: - Non-Oil Fiscal Primary Balance (% of GDP): -12.4 -13.5 -10.2 -8.9 -7.6 -6.3 -5.2 -4.1 - Overall Fiscal Balance (% of GDP): 2.5 -2.3 -6.8 -5.7 -4.8 -3.7 -3.0 -2.3 - Government Deposits (% of non-oil GDP): 11.0 9.3 5.0 4.5 4.1 3.8 3.5 3.2 - Public Debt (% of GDP): 32.2 43.0 50.1 50.6 52.7 52.0 51.0 49.4 - International Reserves (US$ billion): 2.7 2.1 1.5 1.4 1.2 1.1 1.1 1.2 - Current Account Balance (% of GDP): 8.3 -1.9 -11.1 -9.0 -7.3 -6.0 -5.1 -4.2 ### Fiscal outlook, adjustment needs, and staff baseline - 2015 budget execution slowed: only 62 percent of budgeted capital spending executed by September. - Staff projects a fiscal deficit in 2015: on a commitment basis 3½ percent and on a cash basis 9 percent of non-oil GDP (including large reimbursements of VAT-related and other arrears). - 2016 initial budget assumptions: - Assumed US$42 per barrel of Gabonese oil when prepared; staff suggests need to amend given acceleration of decline in international oil prices. - Assumes a 20 percent increase in non-oil revenues relative to authorities’ 2015 projection. - Proposes a 3.5 percent increase in current spending; includes two stadia to host the 2017 African Cup of Nations accounting for 15 percent of total capital spending. - 2016–18 MTFF proposes freeze in current spending in nominal terms and reduction in capital spending by 8 percent between 2015 and 2018; expects overall fiscal deficit to gradually decline and reach a small surplus in 2018 under these assumptions. - Staff baseline adjustment measures: - Widen non-oil revenue base by eliminating overly generous tax exemptions. - Wages and salaries to grow at 2 percent per year in nominal terms throughout the period. - Other current and capital spending grow in nominal terms but at rates significantly below non-oil GDP growth. - Debt sustainability analysis (DSA) under staff assumptions: projected debt level peaks at 50.1 percent of GDP in 2016, then declines slowly from 2019. - Shocks in the DSA could push debt above the CEMAC ceiling (70 percent of GDP) by 2021. - About half of Gabon’s public debt is denominated in US dollars, with Eurobonds accounting for most of it; exchange rate fluctuations pose significant risk. ### The wage bill and public spending risks - Wage bill grew by 70 percent between 2010 and 2015 (11 percent average growth rate per year). - Drivers: 30 percent increase in number of public servants, conversion of temporary workers to permanent status, introduction of a performance incentive system in 2014 later converted into base pay in 2015. - By 2015: - Wage bill accounted for 34 percent of total government spending. - Wage bill equivalent to 38 percent of total revenue. - Wage bill equivalent to 9 percent of GDP and to 60 percent of non-oil revenue. - Staff view: wage bill is a major threat to fiscal sustainability; need for wage bill to grow below inflation in the medium term. ### Public financial management (PFM) reforms and implementation - Major reforms implemented: budgétisation par objectifs de programme (BOP) to align budget with public policy objectives, gauge performance, increase decentralization and accountability. - BOP progress: alignment with CEMAC directives, significant computerization of the expenditure chain, start of decentralizing budgetary execution, adoption of a single account at the BEAC. - Staff recommendation: continue BOP implementation with emphasis on improving treasury management and avoiding further accumulation of arrears, especially external arrears. ### Authorities’ actions and views - Actions taken: - Eliminated petrol and diesel subsidies on February 1, 2016, and introduced an automatic fuel-pricing mechanism. - Measures to reduce the wage bill: incentives for early retirement, recruitment freezes, elimination of an inefficient incentive system; a major civil service reform is being designed with World Bank assistance. - Studying partial reversal of the restriction on second-hand vehicle imports. - World Bank assisting on rationalization of the tax exemption regime. - Indicated plans to limit expenditure in line with cash flow constraints and prepare a revised 2016 budget with a lower oil price assumption. - Welcomed staff’s recommended PFM reforms and reiterated commitment to proceed with BOP reforms. - Authorities’ position on public banks and financial deepening: - Prefer restructuring for Post Bank to preserve rural branch network; committed to establishing sound governance, business strategy, and risk management prior to any government funding. - Intend to reduce barriers to financial deepening, set up a credit registry, and adopt new technology innovations. ### Financial sector vulnerability and public banks - Government response after Poste Bank branch closures (mid-October 2015): - Replaced CEO of Poste Bank, injected liquidity, provided a blanket deposit guarantee, and imposed limits on individual depositors’ withdrawals. - Regional supervisor (COBAC) intervened; all three public banks have temporary administrators tasked to propose restructuring plans within six months. - Size and systemic linkages: - Three public banks are relatively small: total assets of 3 percent of GDP and 9 percent of total banking system assets. - Preferred options: restructuring and recapitalization to preserve branch network value. - Stress test and vulnerability results: - 2015 FSAP stress test for CEMAC: Gabon is the second most vulnerable country in the sub-region to credit and liquidity shocks. - Ongoing oil price shock caused liquidity tensions in some commercial banks, increasing reliance on parent companies or BEAC refinancing. ### Financial inclusion and financial deepening - Physical outreach improved since 2004 (bank branches and ATMs per head) but remains substantially below emerging markets levels; access concentrated in urban areas. - Financial deepening is low: deposit- and loan-to-GDP ratios are "low at approximately a third of frontier markets averages and a quarter of emerging markets averages." - Main hurdles to credit supply: - Lack of credit history information. - High collateral requirements. - High lending rates. - Staff recommendations to promote financial inclusion: - Swiftly resolve governance issues at state-owned banks; assess options for resolution and ensure business model, risk management, and governance reforms before recapitalization. - Accelerate PSGE diversification to allow banks to diversify lending portfolios. - Create credit bureaus and upgrade land and commercial registries; streamline procedures for recording and enforcing guarantees; strengthen creditor rights enforcement. - Authorities’ commitments: set up a credit registry and adopt technology innovations. ### Promoting non-oil growth under tighter budget constraints - Decline in oil prices highlights need to foster non-oil growth and employment. - Olam International agri-business partnership: - Government provided land bank of 300,000 hectares. - Over one-sixth already under oil palm and rubber cultivation. - Olam’s FDI to date totals US$1.5 billion (including plantations and development of the Special Economic Zone and port capacity). - Joint venture GRAINE program to address food security and rural income. - These investments expected to "boost real growth by one percentage point," with tradeoffs (government financing for infrastructure and foregone revenue from long tax holiday). - Investment prioritization guidance: - Avoid investor tax incentives that undermine revenue and are unlikely to trigger self-sustaining diversification. - Reprioritize transport and energy projects with growth spillovers. - Focus on horizontal reforms: education, infrastructure, institutions. - Accelerate business climate reforms: improve labor market legislation, strengthen anti-corruption and AML/CFT, cut red tape per IFC action plan. - Pursue deeper regional integration in CEMAC and trade openness. ### External sustainability and competitiveness - Current account trajectory: surplus of 8.3 percent of GDP in 2014 to a deficit of 1.9 percent in 2015, then slowly recover but remain negative over the medium term. - Recovery depends on non-oil exports projected to increase by 64 percent between 2014 and 2020 (mainly manganese and processed wood). - Official external reserves: appear adequate but under downward pressure since oil shock; Gabon’s BEAC reserve contribution among highest in CEMAC. - BEAC actions: 50-basis-point discount rate cut to 2.45 percent in July 2015 and a 52.4 percent increase in regional statutory advances in August 2015. - Exchange rate competitiveness: model-based approaches suggest REER overvalued by 3 to 16 percent (methodologies cited). ### Data weaknesses, progress, and recommendations - Main data weaknesses: balance of payments inconsistencies, untimely financial soundness indicators, non-comprehensive fiscal statements, scarce basic social indicators. - Progress: - Law establishing national statistics system and decree creating National Agency for Statistics and Demographic, Economic, and Social Studies. - 2013 demographic census finalized (estimating population at 1.8 million). - IMF technical assistance working toward quarterly national accounts. - Improved timeliness of fiscal, monetary, and price data to IMF. - Staff priorities: strengthen statistics services, produce high-frequency indicators, improve quality for PSGE monitoring and access to international markets. ### Public and external debt: levels, composition, and DSA highlights - Public debt stock (end-September 2015): CFAF 3,177 billion (US$5.4 billion). - Debt-to-GDP evolution: approximately 16.7 percent of GDP in 2008; 32.6 in 2014; projected 43 percent in 2015. - Composition (selected): - 2013 total public debt: 2,283.2 (CFAF billion); external debt 2,039.0. - 2014 total public debt: 2,631.0; external debt 2,454.1. - Sep-15 total public debt: 3,177.7; external debt 2,912.9. - External debt composition end-2014: multilateral 14 percent; bilateral 23 percent; commercial and market debt 63 percent. - Public DSA baseline: - Debt levels reach 50 percent of GDP in 2016 and decrease only from 2020 (staff projections). - Nominal gross public debt (percent of GDP) sequence (2014–2021): 28.4, 32.2, 43.0, 50.1, 49.9, 50.5, 50.7, 49.3. - Public gross financing needs (percent of GDP) sequence (2014–2021): -1.0, -0.7, 5.2, 8.0, 10.2, 7.9, 7.0, 6.9. - Shock findings: - A 1 percentage point decline in real GDP growth plus a 2 percentage point revenue loss could push public debt to 85 percent of GDP by 2021. - Contingent liability and exchange rate shocks could push debt above CEMAC 70 percent ceiling. ### External DSA and shocks - Baseline external debt (percent of GDP): 2011: 13.6; 2012: 16.6; 2013: 24.2; 2014: 25.3; 2015: 34.5; 2016: 41.4; 2017: 41.2; 2018: 42.1; 2019: 42.3; 2020: 41.5; 2021: 40.4. - Shock outcomes: - Non-interest current account shock: external debt up to 56 percent of GDP by 2021. - Real depreciation shock: external debt up to 62 percent of GDP by 2021. - External debt-to-exports ratio: 2015: 80.4; 2016: 135.9; 2017: 133.5; 2018: 135.0; 2019: 135.1; 2020: 133.0; 2021: 130.5. ### Risk Assessment Matrix — selected risks and policy responses - Domestic risks and policy responses: - Insufficient adjustment of current spending: Likelihood: M; Expected Impact: H; Policy Response: Tighten fiscal policy, shield social spending, prioritize PSGE financing. - Political turmoil due to upcoming elections: Likelihood: L; Expected Impact: H; Policy Response: Restrain fiscal policy, finance security, shield social spending. - Financial turmoil from three public banks (Post-Bank severe liquidity problems): Likelihood: M; Expected Impact: M; Policy Response: Decisive action (restructuring and recapitalization likely). - Failure of diversification strategy: Likelihood: M; Expected Impact: H; Policy Response: Implement structural reforms to enhance competitiveness. - Loose regional fiscal/monetary policies: Likelihood: M; Expected Impact: H; Policy Response: Further tighten fiscal and monetary policy; advocate regional reforms. - External risks and policy responses: - Persistently low energy prices: Likelihood: H; Expected Impact: H; Policy Response: Restrain fiscal policy, shield social spending, prioritize PSGE financing. - Increased volatility in energy prices: Likelihood: M; Expected Impact: H; Policy Response: Structural reforms to enhance competitiveness. - Sharp asset price adjustment and decompression of credit spreads: Likelihood: H; Expected Impact: H; Policy Response: Restrain fiscal policy, implement structural reforms to lower country risk. - Structurally weak growth in key external economies (including China): Likelihood: M; Expected Impact: M; Policy Response: Structural reforms to enhance competitiveness. - Heightened risk of fragmentation/state failure in some African countries: Likelihood: M; Expected Impact: H; Policy Response: Restrain fiscal policy, finance security, shield social spending. ### Data, surveillance, and Fund relations - Membership and arrangements: - IMF member since 1963. - CEMAC members accepted Article VIII obligations in June/July 1996. - Three-year SBA for about US$118 million expired in May 2010; only first three reviews completed. - Last Article IV Consultation concluded February 18, 2015; staff recommends next on a 12-month cycle. - Exchange rate regime: CFA franc pegged at fixed rate of 655.957 CFA franc per euro. - Wire transfer tax: Gabon maintains a 1.5 percent tax on wire transfers abroad, inconsistent with Article VIII obligations; proceeds fund health insurance; authorities have exempted several transactions but do not propose eliminating the tax; staff does not recommend approval of this restriction. - Technical assistance and cooperation: AFRITAC, World Bank, and IFC engagements across revenue administration, PFM, statistics, infrastructure, and private investment projects (selected programs and amounts preserved in source). *Staff Report for the 2015 Article IV Consultation, February 5, 2016.* ### 2.3 percent in 2015, a rise in public debt above the government’s self-imposed ceiling of a debt- ### _cr1686 - 2.3 percent in 2015, a rise in public debt above the government’s self-imposed ceiling of a debt- ### Economic impact of the oil price shock - Terms-of-trade shock turned the external position from a surplus of 8.3 percent of GDP in 2014 to a deficit of 1.9 percent in 2015. - Consumer price inflation (CPI) expected to be about zero percent in 2015. - Gabon remains heavily dependent on oil; oil accounted for roughly 40 percent of GDP, 45 percent of government revenues, and nearly 85 percent of exports (as of 2014). - Oil sector weakness has reduced available financing for the PSGE (Plan Stratégique Gabon Emergent) second phase (2016–20). ### Growth outlook and scenarios - 2015 real GDP growth: 4.0 percent (Prel. Est.). - 2016 projection: 3.2 percent (Proj.), largely due to declining oil production. - 2017 projection: 4.5 percent (Proj.). - Non-oil GDP growth: 2015: 4.0 percent; 2016: 5.4 percent; 2017: 6.6 percent. - Oil share of overall GDP: 2015: 31.6; 2016: 22.7; 2017: 22.1. - Medium-term scenario: ongoing large-scale investments in agriculture (palm oil and rubber) expected to potentially lift growth to around 5 percent in the medium term, conditional on sustained progress on PSGE and tight financing constraints. ### Fiscal position and public debt - Fiscal outcomes (percent of GDP): - Revenue: 2015: 21.4; 2016: 19.3; 2017: 19.7. - Expenditure: 2015: 23.7; 2016: 25.1; 2017: 24.6. - Fiscal Balance: 2015: -2.3; 2016: -5.8; 2017: -4.8. - Public Debt (including statutory advances from BEAC): 2015: 43.0 percent of GDP; 2016: 50.1 percent of GDP; 2017: 49.9 percent of GDP. - Public debt more than doubled from 20 to 43 percent of GDP since 2012 (above the 35 percent indicative ceiling). - Drivers of debt increase since 2014: depreciation of the CFA franc and decline in the oil GDP deflator; Eurobond issuances of US$1.5 billion (December 2013) and US$500 million (June 2015) contributed to debt stock. - Government deposits at the BEAC (net of Eurobond receipts) declined by 57 percent between December 2014 and October 2015. - Gross international reserves declined by 30 percent between December 2014 and October 2015. ### External sector and monetary indicators - Current account (percent of GDP): 2015: -1.9; 2016: -9.0; 2017: -7.4. - FDI (percent of GDP): 2015: 3.6; 2016: 3.5; 2017: 3.8. - Reserves (months of imports, BEAC, excluding intra-CEMAC trade): 2015: 4.9; 2016: 4.2; 2017: 4.0. - External Debt (percent of GDP): 2015: 35.6; 2016: 41.2; 2017: 41.3. - Broad Money (percentage change): 2015: -1.1; 2016: -0.5; 2017: 0.8. - Credit to the private sector (percentage change): 2015: -5.3; 2016: 3.1; 2017: 5.1. - Nominal effective exchange rate reversed an earlier appreciation; year-on-year inflation declined with falling energy prices. ### Key risks and vulnerabilities - Main downside risk: weak fiscal adjustment to sharply lower oil prices, which could force substantial drawdowns of the deposit buffer and/or significant increases in borrowing. - Other risks: - Stronger-than-expected spillover of the oil price shock to non-oil activity, including the financial sector. - Weaker global economy and tightening international financial conditions. - Persistent fragility at three small distressed state-owned banks. - Political environment ahead of 2016 elections could delay tough policy decisions. ### Financial sector concerns - Financial system broadly sound, but weak financial condition of public banks needs urgent attention. - Risks include amplification of macro-financial linkages, potential rise in nonperforming loans given links between oil and non-oil sectors and government project exposures. - Between 2010–2015: credit and monetary aggregates contracted, reflecting economic deceleration. ### Policy recommendations (IMF staff and Executive Directors) - Fiscal adjustment to new oil price outlook: - Eliminate inefficient and costly tax exemptions. - Contain the public wage bill. - Protect critical capital and social spending. - Prioritize measures to reverse erosion of revenue base by curbing tax exemptions and enhancing revenue administration. - Reduce inefficient spending in favor of productive expenditure. - Promote private sector participation in infrastructure projects. - Financial sector measures: - Prompt corrective actions to address financially weak public banks. - Strengthen monitoring of nonperforming loans. - Adopt recommendations from recent Fund technical assistance, including strengthening treasury management. - Structural reforms and diversification: - Redouble efforts to foster economic diversification under PSGE. - Reprioritize reform agenda given reduced financing availability; focus on high-impact infrastructure projects and productivity-boosting reforms. - Strengthen education and institutions; increase labor market flexibility. - Promote deeper intraregional integration and trade liberalization in CEMAC. - Regional policy stance: - At the regional level, advocate tighter fiscal and monetary policies to ensure continued viability of the monetary union. - Data and surveillance: - Higher priority on improving the quality and timeliness of macroeconomic data to strengthen surveillance. - Redouble efforts to address major weaknesses in economic statistics. ### Selected social and economic indicators (snapshot) - Population: 1.8 million. - Per capita GDP (2015): US$ 7,728. - Quota: SDR 154.3 million (equivalent to 0.06 percent of total). - Literacy rate: 94.7 percent. - Main products and exports: Oil, manganese, and processed wood. - Poverty rate: 34.3 percent. - Key export markets: USA, China, and European Union. - Unemployment (percent): 2015: 28.0; 2016: 29.0; 2017: 29.0. - Inflation (Average): 2015: 0.1 percent; 2016: 2.5 percent; 2017: 2.5 percent. *Staff Report for the 2015 Article IV Consultation, February 5, 2016.* ### 6. The main downside risk to the outlook remains insufficient fiscal adjustment to lower oil ### 6. The main downside risk to the outlook remains insufficient fiscal adjustment to lower oil prices ### Risk overview and channels - Main downside risk: insufficient fiscal adjustment to lower oil prices (Risk Assessment Matrix, Annex I). - If government spending grows in line with non-oil GDP, or oil prices remain US$5 per barrel below the current baseline of the IMF’s World Economic Outlook, the government would be forced to deplete available deposits, and significantly increase borrowing and arrears. - Additional headwinds: slower global growth and tighter international financing conditions. - Ancillary risks: stronger-than-expected spillover of the oil price shock to non-oil activity (including the financial sector), and persistent fragility at three small distressed state-owned banks, one of which experienced severe liquidity problems prompting government intervention. ### Alternative macroeconomic scenarios (2014–21) — IMF staff calculations Baseline (Adjustment) Scenario - Non-Oil Fiscal Primary Balance (% of GDP): -12.4 -13.5 -10.3 -8.9 -7.6 -6.3 -5.2 -4.1 - Overall Fiscal Balance (% of GDP): 2.5 -2.3 -5.8 -4.8 -4.0 -2.9 -2.3 -1.6 - Government Deposits (% of non-oil GDP): 11.0 9.3 6.2 4.9 5.4 6.2 6.5 6.7 - Public Debt (% of GDP): 32.2 43.0 50.1 49.9 50.5 50.3 49.3 47.9 - International Reserves (US$ billion): 2.7 2.1 1.6 1.4 1.4 1.5 1.6 1.8 - Current Account Balance (% of GDP): 8.3 -1.9 -9.0 -7.4 -5.8 -4.7 -3.9 -3.2 No-Fiscal Adjustment Scenario (1/) - Non-Oil Fiscal Primary Balance (% of GDP): -12.4 -13.5 -11.7 -11.6 -11.4 -11.1 -10.8 -10.5 - Overall Fiscal Balance (% of GDP): 2.5 -2.3 -6.8 -6.9 -7.0 -6.9 -7.1 -7.3 - Government Deposits (% of non-oil GDP): 11.0 7.9 3.5 3.2 2.9 2.7 2.4 2.2 - Public Debt (% of GDP): 32.2 42.0 50.1 50.6 54.4 56.9 59.6 62.5 - International Reserves (US$ billion): 2.7 2.1 1.5 1.3 1.2 1.1 1.1 1.1 - Current Account Balance (% of GDP): 8.3 -1.9 -9.4 -8.1 -6.8 -6.0 -5.5 -4.9 Lower Oil Price Scenario (2/) - Non-Oil Fiscal Primary Balance (% of GDP): -12.4 -13.5 -10.2 -8.9 -7.6 -6.3 -5.2 -4.1 - Overall Fiscal Balance (% of GDP): 2.5 -2.3 -6.8 -5.7 -4.8 -3.7 -3.0 -2.3 - Government Deposits (% of non-oil GDP): 11.0 9.3 5.0 4.5 4.1 3.8 3.5 3.2 - Public Debt (% of GDP): 32.2 43.0 50.1 50.6 52.7 52.0 51.0 49.4 - International Reserves (US$ billion): 2.7 2.1 1.5 1.4 1.2 1.1 1.1 1.2 - Current Account Balance (% of GDP): 8.3 -1.9 -11.1 -9.0 -7.3 -6.0 -5.1 -4.2 Notes accompanying scenarios - 1/ No fiscal adjustment scenario assumes that government spending continues to grow in line with non-oil GDP growth, whereas the baseline scenario assumes a gradual decline in all spending headline items as a share of non-oil GDP. It is assumed that the government finances its deficits first through its available deposits at the central bank and borrows afterwards. - 2/ Oil Price Scenario assumes that oil prices remain US$ 5 below projections in the World Economic Outlook. It is assumed that the government finances its deficits first through its available deposits at the central bank and borrows afterwards. - Under the US$5-per-barrel-below-WEO assumption the oil price would average US$25 per barrel in 2016. ### Fiscal outlook, adjustment needs, and IMF staff baseline - Continued drawdown of fiscal buffers increases risks to fiscal sustainability and adequate financing of needed investment. - 2015 budget execution slowed: only 62 percent of budgeted capital spending executed by September. - Staff projects a fiscal deficit in 2015: on a commitment basis 3½ percent and on a cash basis 9 percent of non-oil GDP (including large reimbursements of VAT-related and other arrears). - 2016 initial budget assumptions and concerns: - Assumed US$42 per barrel of Gabonese oil was conservative when prepared, but acceleration of the decline in international oil prices suggests need to amend the budget. - Assumes a 20 percent increase in non-oil revenues relative to the authorities’ 2015 projection. - Proposes a 3.5 percent increase in current spending; includes two stadia to host the 2017 African Cup of Nations accounting for 15 percent of total capital spending. - 2016–18 MTFF proposes freeze in current spending in nominal terms and reduction in capital spending by 8 percent between 2015 and 2018; expects overall fiscal deficit to gradually decline and reach a small surplus in 2018 under these assumptions. - Staff baseline adjustments to preserve fiscal sustainability: - Widen non-oil revenue base by eliminating overly generous tax exemptions. - Wages and salaries to grow at 2 percent per year in nominal terms throughout the period. - Other main current spending items and capital spending grow in nominal terms but at a rate significantly below non-oil GDP growth. - Debt sustainability analysis (DSA) under staff assumptions: projected debt level peaks at 50.1 percent of GDP in 2016, then declines slowly from 2019. - Shocks in the DSA could lead to much higher debt-to-GDP ratios; a growth shock could push debt above the CEMAC ceiling (70 percent of GDP) by 2021. - About half of Gabon’s public debt is denominated in US dollars, with Eurobonds accounting for most of it; exchange rate fluctuations pose a significant risk. ### The wage bill and public spending risks - The wage bill grew by 70 percent between 2010 and 2015 (an 11 percent average growth rate per year). - Drivers: 30 percent increase in the number of public servants, conversion of temporary workers to permanent status, introduction of a performance incentive system in 2014 later converted into base pay in 2015. - By 2015: - Wage bill accounted for 34 percent of total government spending. - Wage bill was equivalent to 38 percent of total revenue. - Wage bill was equivalent to 9 percent of GDP and to 60 percent of non-oil revenue. - Staff: the outsized and still growing wage bill is a major threat to fiscal sustainability; public wage bill needs to grow below inflation in the medium term. ### Public financial management (PFM) reforms and implementation - Major reforms implemented: budgétisation par objectifs de programme (BOP) to align budget with public policy objectives, gauge performance, increase decentralization and accountability. - As part of BOP: alignment with CEMAC directives, significant computerization of the expenditure chain, start of decentralizing budgetary execution, adoption of a single account at the BEAC. - Staff recommends continuing BOP implementation with emphasis on improving treasury management and avoiding further accumulation of arrears, especially external arrears. ### Policy recommendations (selected, as stated) - Foster non-oil revenues by widening the tax base, mainly by reducing tax exemptions and improving tax administration. - Recent elimination of taxes and fees for over 171 products and prohibition of importation of vehicles over three years old represent a revenue loss of 0.7 percent of GDP in 2015; a review of these policies is urgently needed. - Staff recommends a thorough review and reform of the tax policy regime. - Prepare a revised budget for 2016 reflecting the worsening growth and oil price outlook to pre-empt unfavorable public debt dynamics and avoid accumulation of arrears. - Further enhance tax administration using IMF and AFRITAC technical assistance: - Formalize collaboration between tax and customs directorates. - Move collection of customs revenues from the Treasury to the customs department. - Modernize customs drawback system. - Adopt a risk-based approach to VAT reimbursements. - Curb inefficient and/or poorly targeted current spending, while protecting social spending. - Encourage private sector participation in infrastructure by accelerating development of a Public Private Partnership (PPP) framework; review and reprioritize PSGE key projects and minimize projects with limited long-term economic payoff such as sports infrastructure. - Anchor medium-term fiscal policy by targeting a steady reduction in the debt to non-oil GDP ratio through progressive strengthening of the non-oil primary deficit; annual reductions in the non-oil primary deficit should not exceed 2 percent of non-oil GDP so as to limit negative fiscal impulse. ### Authorities’ views and actions - Authorities committed to staff recommendations; actions taken include: - Eliminated petrol and diesel subsidies on February 1, 2016, and introduced an automatic fuel-pricing mechanism. - Measures to reduce the wage bill: incentives for early retirement, recruitment freezes, elimination of an inefficient incentive system; a major civil service reform is being designed with World Bank assistance. - Studying partial reversal of the restriction on second-hand vehicle imports. - World Bank assisting on rationalization of the tax exemption regime. - Indicated they would limit expenditure in line with cash flow constraints and prepare a revised 2016 budget with a lower oil price assumption. - Welcomed staff’s recommended PFM reforms and reiterated commitment to proceed with BOP reforms. ### Financial sector vulnerability and public banks - Government actions addressing public banks’ structural problems after Poste Bank branch closures in mid-October 2015: - Replaced CEO of Poste Bank, injected liquidity, provided a blanket deposit guarantee, and imposed limits on individual depositors’ withdrawals. - Regional supervisor (COBAC) intervened; all three public banks have temporary administrators tasked to propose restructuring plans within six months. - Size and systemic linkages: - The three public banks are relatively small: total assets of 3 percent of GDP and 9 percent of total banking system assets. - Tackling their situation is crucial to preserve financial stability and foster deepening and inclusion, especially in rural areas where Poste Bank is well-established. - Preferred options: restructuring and recapitalization to preserve branch network value. - Aggregate financial system soundness and vulnerabilities: - Aggregate bank capital and liquidity levels appear adequate. - 2015 FSAP stress test for CEMAC: Gabon is the second most vulnerable country in the sub-region to credit and liquidity shocks. - Bank NPLs: surged from 2.8 percent in June 2012 to 8.4 percent in November 2014 (in part due to government arrears), before subsiding to about 4 percent in February 2015. - Microfinance sector NPLs rose from 14.6 percent in 2011 to 24.1 percent of gross loans in 2015. - Transmission and stress: - Analysis indicates a significant causal link between oil price shocks and financial sector fragility; a 40 percent oil-price shock leads on average to a 40 percent deterioration in asset quality across oil exporters, transmitted through government and economic activity channels. - Ongoing oil price shock manifested as liquidity tensions in some commercial banks, forcing reliance on parent companies or BEAC refinancing. - Worsening growth and fiscal outlook likely to increase NPLs significantly, posing risks to financial inclusion. *Source: IMF Staff calculations.* ### 19. Staff noted that financial inclusion has improved in recent years, but there has been ### _cr1686 - 19. Staff noted that financial inclusion has improved in recent years, but there has been ### Financial inclusion and financial deepening: findings - Physical outreach has substantially improved since 2004 (measured by number of bank branches and ATMs per head), but remains substantially below emerging markets levels. - Access to financial services is concentrated in a few urban areas. - Financial deepening is low: - Deposit- and loan-to-GDP ratios are "low at approximately a third of frontier markets averages and a quarter of emerging markets averages." - Main hurdles to credit supply: - Lack of information on potential borrowers’ credit history. - High collateral requirements. - High lending rates. - Specific indicators and datapoints highlighted in the text and figures: - Depositors with commercial banks: comparison across Gabon, CEMAC average, Frontier Markets, Emerging Economies (per 1,000 adults, 2008–2013 series shown). - Outstanding deposits with commercial banks: percent of GDP time series (2005–2013) and comparisons with CEMAC Avg, Frontier Markets, Emerging Economies; also shown as percent of non-oil GDP. - Borrowers from commercial banks (per 1,000 adults, 2013) and outstanding loans with commercial banks (percent of GDP, 2005–2013), with comparisons to CEMAC Avg, Frontier Markets, Emerging Economies; also shown as percent of non-oil GDP. - Physical outreach charts: ATMs per 100,000 adults and ATMs per 1,000 km2 (2013) and commercial bank branches per 100,000 adults (2004–2013). - Note: Financial access and deepening in Gabon and CEMAC remain below emerging and frontier markets levels, even when measured in terms of non-oil GDP.13 ### Recommendations to safeguard financial stability and promote development of the financial sector (staff) - Swiftly resolve governance issues at state-owned banks: - Assess available options for bank resolution (restructuring or winding-down) through careful cost-benefit analysis. - Prior to injecting additional funds to restore regulatory capital, ensure fundamental changes to banks’ business models, risk management, and governance. - Accelerate the PSGE economic diversification agenda to strengthen resilience to macroeconomic shocks by allowing banks to better diversify lending portfolios. - Promote financial deepening and inclusion by: - Improving SMEs’ access to financial services. - Creating credit bureaus and upgrading operations of land and commercial registries. - Streamlining procedures for recording and enforcing guarantees. - Strengthening creditor rights enforcement. ### Authorities’ views on financial sector issues - Authorities acknowledged urgency to address governance issues, while noting limited systemic risk from state-owned banks. - COBAC actions: appointment of temporary administrators mandated to deliver resolution plans. - Post Bank: authorities prefer restructuring (due to rural branch network seen as platform for improving financial inclusion); prerequisite is clear separation of operations of La Poste and Poste Bank. - For public banks, authorities committed to establishing sound governance, business strategy, and risk management prior to any government funding. - On financial deepening: authorities intend to reduce barriers, set up a credit registry, and adopt new technology innovations in the banking sector. ### Promoting non-oil growth under tighter budget constraints: context and findings - Recent decline in oil prices highlights Gabon’s oil dependence and the need to foster non-oil growth and employment. - Econometric evidence (2015 CEMAC regional consultation staff report): shocks like the oil price decline could lead to negative non-oil GDP growth in Gabon due to fiscal pro-cyclicality and direct linkages between oil and non-oil economies. - Current strong fiscal response and increased non-oil production expected to soften impact during the oil price slump, but fiscal outlook remains vulnerable. - PSGE objectives: stewardship of natural resources, infrastructure and human resource development, moving up the value chain. ### Non-oil investment, major projects, and tradeoffs - Infrastructure investments: - Rehabilitation of the Trans-gabonais railway line with IFC support (expected to reduce bottlenecks for wood-related and mineral exports). - Olam International agri-business partnership: - Government provided a land bank of 300,000 hectares. - Over one-sixth of that land is already under oil palm and rubber cultivation. - Olam’s foreign direct investment in Gabon to date totals US$1.5 billion (including plantations and development of the Special Economic Zone and port capacity). - Joint venture GRAINE program to address food security and rural income. - These investments are expected to increase cash crop and subsistence farming, "boosting real growth by one percentage point," with a tradeoff of government financing for related infrastructure and foregone revenue from a long tax holiday. ### Structural reform priorities and policy guidance (staff) - In tight budgetary context, maximize return on limited resources: - Avoid investor tax incentives (undermine revenue and unlikely to trigger self-sustaining diversification). - Reprioritize investment toward transport and energy projects with potential growth spillovers. - Focus on horizontal structural reforms to raise competitiveness and productivity (education, infrastructure, institutions). - Accelerate business climate reforms even before a Phase 2 PSGE road map: - Improve labor market legislation15. - Strengthen anti-corruption efforts and the AML/CFT framework. - Cut red tape, following an action plan developed with the IFC. - Pursue deeper regional integration in CEMAC and more trade openness to facilitate diversification; Gabon should lead regional reform efforts and review its investment program for regional synergies. - Authorities’ views on investment focus: - Prioritize projects with long-term spillovers: completing corridors connecting growth poles, development of SEZs, setting up an investment promotion agency. - Authorities emphasize agro-industrial projects and the catalytic role of the Trans-gabonais railway redevelopment. - Road map for second phase of the PGSE will focus on social transformation: administrative reform, employment training, and health infrastructure. ### External sustainability and competitiveness: findings and projections - Current account balance projection: - From surplus of 8.3 percent of GDP in 2014 to a deficit of 1.9 percent in 2015, then slowly recover but remain negative over the medium term. - Recovery predicated on non-oil exports projected to increase by 64 percent between 2014 and 2020 (mainly manganese and processed wood). - Prospects vulnerable to spillovers from China. - Official external reserves: - Appear adequate but downward pressure intensified since oil price shock. - Gabon’s BEAC reserve contribution is among highest in CEMAC, but pooled reserves mean Gabon’s external sustainability hinges on CEMAC sustainability. - BEAC extraordinary measures: 50-basis-point discount rate cut to 2.45 percent in July 2015 and a 52.4 percent increase in regional statutory advances in August 2015. - By end-2015, all countries substantially drew down deposits at BEAC; except Cameroon and Gabon, others exhausted available advances.17 - As of November 2015, Gabon had used up CFAF 340 billion out of CFAF 453 billion (ceiling). - Exchange rate competitiveness: - Model-based approaches suggest the REER is overvalued by 3 to 16 percent (Bems and Carvalho (2009) and Araujo et al. (2013) methodologies). ### Policy recommendations to address competitiveness and external vulnerabilities (staff) - Fiscal consolidation and structural reforms to promote export diversification; continue PSGE with focus on projects with highest socio-economic returns and business climate improvements. - Lobby for more efficient regional integration, trade, and implementation of regional policies to reduce external vulnerabilities by: - Increasing international reserves through full repatriation of reserves by member states and more ambitious fiscal consolidation across member states. - Removing barriers to regional trade (simplifying customs procedures, restoring the common external tariff, implementing rules of origin, creating common merchandise standards). - Advocate greater coordination between regional and national authorities on regional governance, business climate, taxation, and public investment to improve public investment efficiency, attractiveness to investors, and relieve current account pressures.18 ### Data weaknesses, progress, and recommendations - Main data weaknesses (as described in 2014 Article IV staff report): - Balance of payments inconsistencies. - Untimely financial soundness indicators. - Non-comprehensive fiscal statements. - Scarce basic social indicators. - Ratings agencies cite data weaknesses as negatively affecting sovereign debt ratings. - Progress made: - Law establishing a national system of statistics and a decree creating the National Agency for Statistics, and Demographic, Economic, and Social Studies. - 2013 demographic census finalized (estimating total population at 1.8 million). - IMF technical assistance working toward production of quarterly national accounts data. - Improved timeliness of fiscal, monetary, and price data provided to the IMF. - Staff encouragement and priorities: - Redouble efforts to strengthen statistics services, with special attention to data quality and production of high frequency indicators. - Improving data quality is a major requisite for proper design and monitoring of the PSGE and to improve access to international financial markets. - Elaborate and publish high frequency indicators and add more analytical elements to the Note de Conjoncture (quarterly report by the Ministry of the Economy). *International Monetary Fund staff summary as presented in the source document.* ### 34. Fund jurisdictional issues: As noted in previous Article IV staff reports, Gabon maintains a ### Fund jurisdictional issues: As noted in previous Article IV staff reports, Gabon maintains a ### Authorities’ position on the wire transfer tax - Gabon maintains a 1.5 percent tax on wire transfers abroad that is not consistent with Gabon’s obligations under Article VIII, Section 2(a) of the Articles of Agreement. - The proceeds of this tax are used to fund Gabon’s health insurance scheme. - The authorities note that they have exempted a number of transactions from this tax (notably, all interbank transfers), but do not propose eliminating the tax. ### Authorities’ views on statistics and capacity building - The authorities indicated that they are strongly committed to improving statistical systems, as well as data quality and timeliness. - To this end, the government is negotiating a loan with the World Bank to support the national statistical development strategy. - Key components of the national statistical development strategy include: - (i) institutional reforms; - (ii) human resource development; - (iii) enhancement of quality and timeliness of statistics; and - (iv) improvement of warehousing and dissemination of statistics. ### Staff appraisal — macroeconomic context and fiscal strategy - The recent collapse in oil prices represents major terms-of-trade shock for Gabon, demanding an equally exceptional policy reaction from the authorities. - As part of a monetary union with a currency pegged to the euro, efforts should center on adjusting government finances to the new oil price outlook. - Fiscal adjustment is a prerequisite to ensure proper financing of the authorities’ non-oil economic growth strategy and to preserve internal and external macroeconomic balances. - The magnitude of the terms-of-trade shock requires careful monitoring of its likely negative impact on the financial sector. - While implementing adjustment measures, the authorities also need to maintain focus on long-term reform efforts such as improvement of its statistics system. - Given its prominent role in the CEMAC, Gabon should play a key role as a champion for reform. ### Fiscal policy guidance and revenue/expenditure priorities - Given medium-term projections that put the international oil price at less than half of its pre-2015 levels, the government needs to make additional efforts to cut spending while judiciously increasing non-oil revenues and protecting social spending. - Staff welcomes recent policy steps: - Elimination of all diesel and petrol subsidies. - Introduction of an automatic fuel-pricing mechanism. - Urgent policy actions recommended: - Reverse recent measures that erode the revenue base (tax and fee exemptions to control the cost of living and restrictions on imported used vehicles). - Avoid clearly inefficient spending such as sports infrastructure. - Foster PPP participation for infrastructure development. - Protect social spending. - Given considerable changes in underlying macroeconomic conditions since the draft 2016 budget was prepared, staff believes an early revision to the budget is warranted to avoid escalating fiscal imbalances and increase policy credibility. ### Public financial management reforms - Ongoing public finance management reforms would contribute to fiscal adjustment. - The ongoing implementation of the BOP is an important step to address major public finance management weaknesses identified in the 2013 Public Expenditure and Financial Accountability (PEFA) performance assessment. - Results are already showing up, but recent recommendations by IMF technical assistance need to be taken into account. - Emphasis needed on measures to improve treasury management and to avoid further accumulation of arrears, especially external ones. ### Financial sector risks and monitoring - The massive terms-of-trade shock requires the government to carefully monitor macrofinancial linkages that could amplify its economic impact. - The regional and national authorities need to aggressively address currently troubled public banks. - Considering the dominance of oil and government activities to bank creditors, the entire banking system needs to be closely monitored, focusing on the likely increase in NPLs. - The financial sector’s resilience to macroeconomic shocks needs to be enhanced by promoting economic diversification to foster diversification of the banking sector’s lending portfolio. - Authorities should continue long-term goals to promote financial deepening and inclusion. ### Structural and diversification priorities - Fiscal adjustment should take into account the need to foster Gabon’s economic diversification and reduce its vulnerability to oil price fluctuations. - In the present tight budgetary context, authorities should aim to maximize the return on limited resources and avoid incentives for investors, while focusing spending on infrastructure development. - Prioritize horizontal, productivity-boosting structural reforms, notably in: - education, - infrastructure, - institutions, - labor flexibility, - bureaucratic procedures, - anti-corruption, and - AML/CFT. - Gabon could advocate for CEMAC external trade liberalization, as well as deeper intraregional integration. - Such productivity enhancing measures are also needed to address current real exchange rate overvaluation. ### Statistics, data quality, and surveillance - Staff commends the authorities for their efforts to address major weaknesses in economic statistics, while noting that they are still a major hindrance on economic surveillance. - The negative impact of weak statistics on Gabon’s sovereign debt rating is noteworthy. - Ongoing measures to improve the quality and timeliness of high-frequency macroeconomic indicators and social indicators are crucial. - Additional work is needed to improve the very weak balance of payments and financial stability statistics. - Staff encourages the authorities to implement measures under the forthcoming World Bank-supported statistics reforms. ### Staff position on the wire transfer tax - Gabon maintains a tax on wire transfers, which is inconsistent with its obligations under Article VIII. - Staff does not recommend approval of this restriction. *IMF staff report content (excerpt).* ### 43. Staff recommends that the next Article IV consultation with Gabon be held on the ### 43. Staff recommends that the next Article IV consultation with Gabon be held on the standard 12-month consultation cycle. ### Recommendation - Staff recommends that the next Article IV consultation with Gabon be held on the standard 12-month consultation cycle. ### Key macroeconomic indicators and projections (selected figures from tables) - Real GDP (annual percent change): 5.6, 4.3, 4.0, 3.2, 4.5, 4.7, 4.9, 5.0, 4.9 - Oil sector real growth (annual percent change): -2.2, 1.8, 4.2, -5.7, -4.7, 0.0, 0.1, 0.0, 0.1 - Non-oil real growth (annual percent change): 7.8, 5.0, 4.0, 5.4, 6.6, 5.6, 5.8, 5.8, 5.7 - GDP deflator (annual percent change): -6.2, -0.9, -9.3, -6.3, 4.8, 4.0, 3.4, 2.8, 2.6 - Consumer prices (yearly average): 0.5, 4.5, 0.1, 2.5, 2.5, 2.5, 2.5, 2.5, 2.5 - Exports, f.o.b. (annual percent change): -8.1, -8.5, -25.9, -33.1, 11.9, 10.8, 9.1, 7.8, 6.0 - Imports, f.o.b. (annual percent change): 4.9, 2.4, -9.2, -20.7, 5.5, 4.9, 5.4, 5.7, 4.0 - Terms of trade (deterioration = – , annual percent change): -2.8, -8.4, -41.2, -35.6, 18.1, 9.3, 6.8, 3.3, -0.1 - Total revenue (percent of GDP): -0.6, -10.4, -22.9, -12.5, 11.8, 10.6, 10.4, 9.1, 8.5 - Oil revenue (percent of GDP): -12.2, -23.0, -31.4, -49.6, 14.4, 11.4, 8.1, 4.2, 1.5 - Total expenditure (percent of GDP): -1.2, -14.6, -4.7, 2.4, 7.2, 6.4, 5.4, 6.0, 5.4 - Non-oil primary balance (in non-oil GDP, percent): -20.3, -12.4, -13.5, -10.3, -8.9, -7.6, -6.3, -5.2, -4.1 - Overall balance (commitment basis, percent of GDP): 1.8, 2.5, -2.3, -5.8, -4.8, -4.0, -2.9, -2.3, -1.6 - Overall balance (cash basis, percent of non-oil GDP): 0.4, -1.7, -9.0, -8.8, -6.2, -5.1, -3.7, -2.9, -2.0 - Net domestic financing (percent of GDP): -10.4, 0.1, 4.4, 4.0, 1.4, -0.3, -0.6, -0.2, -0.3 - Net external financing (percent of GDP): 10.0, 1.6, 4.6, 4.8, 4.8, 5.3, 4.4, 3.1, 2.3 - External public debt (including to the Fund, percent of GDP): 23.5, 27.3, 35.6, 41.2, 41.3, 42.1, 42.1, 41.4, 40.2 - Total public debt (percent of GDP): 29.2, 32.2, 43.0, 50.1, 49.9, 50.5, 50.3, 49.3, 47.9 - Statutory advances from BEAC (percent of GDP): 3.0, 2.9, 4.0, 4.1, 3.8, 3.5, 3.2, 3.0, 2.8 - Credit to the economy (annual percent change): 23.6, -2.0, -5.3, 3.1, 5.1, 6.4, 9.8, 9.9, 10.1 - Broad money (annual percent change): 6.1, 1.6, -1.1, -0.5, 0.8, 1.1, 1.9, 2.1, 3.2 - Gross national savings (percent of GDP): 41.2, 43.0, 35.4, 28.2, 29.0, 30.4, 31.9, 32.5, 31.4 - Gross fixed investment (percent of GDP): 29.3, 34.8, 37.2, 37.2, 36.5, 36.2, 36.6, 36.5, 34.6 - Private investment (percent of GDP): 18.7, 28.0, 30.9, 30.3, 29.6, 29.5, 29.9, 29.8, 28.0 - Public investment (percent of GDP): 10.6, 6.7, 6.3, 6.9, 6.9, 6.8, 6.7, 6.6, 6.6 - Current account balance (percent of GDP): 11.9, 8.3, -1.9, -9.0, -7.4, -5.8, -4.7, -3.9, -3.2 - Nominal GDP (billion CFA francs): 8,691, 8,988, 8,483, 8,201, 8,984, 9,783, 10,609, 11,448, 12,317 - Nominal non-oil GDP (billion CFA francs): 5,119, 5,581, 5,804, 6,337, 6,996, 7,646, 8,347, 9,102, 9,899 - National Currency per U.S. Dollar (Average): 494, 494, 592 - Oil Prices (WEO, U.S. Dollar/BBL): 104, 96, 5130, 36, 40, 43, 45, 46 - Total revenue and grants (billion of CFA francs): 2,622, 2,349, 1,811, 1,950, 1,585, 1,772, 1,960, 2,163, 2,361, 2,562 - Oil revenue (billion of CFA francs): 1,344, 1,035, 709, 601, 358, 409, 456, 493, 514, 521 - Non-oil revenue (billion of CFA francs): 1,278, 1,314, 1,102, 1,349, 1,227, 1,363, 1,504, 1,670, 1,848, 2,041 - Total expenditure and net lending (billion of CFA francs): 2,468, 2,120, 2,010, 2,113, 2,059, 2,206, 2,346, 2,474, 2,624, 2,765 - Current expenditure (billion of CFA francs): 1,419, 1,477, 1,476, 1,529, 1,490, 1,590, 1,686, 1,766, 1,866, 1,956 - Capital expenditure (billion of CFA francs): 925, 606, 533, 584, 568, 616, 661, 708, 758, 809 - Overall balance (commitment basis, billion of CFA francs): 154, 229, -198, -163, -474, -434, -387, -311, -263, -203 - Gross official reserves imputed to Gabon (billions of CFAF): 1436.1, 1347.3, 1222.2, 998.1, 851.7, 853.9, 898.1, 974.2, 1081.6 ### Risk Assessment Matrix — Selected risks and recommended policy responses - Domestic Risks - Insufficient adjustment of current spending. - Likelihood: M - Expected Impact on Economy: H. - Policy Responses: Tighten fiscal policy, while shielding social spending and prioritizing financing of the PSGE. - Political turmoil due to upcoming elections. - Likelihood: L - Expected Impact on Economy: H. - Policy Responses: Restrain fiscal policy, while properly financing security activities and shielding social spending. - Financial turmoil due to difficulties in three public banks, especially severe liquidity problems in Post-Bank. - Likelihood: M - Expected Impact on Economy: M. - Policy Responses: Take decisive action to strengthen financial situation of public banks, most urgently Post-Bank. Will likely involve restructuring and recapitalization. - Failure of full materialization of the diversification strategy due to insufficient fiscal space and structural reforms. - Likelihood: M - Expected Impact on Economy: H. - Policy Responses: Implement structural reforms to enhance competitiveness. - Loose fiscal and monetary policies in CEMAC, and regional institutional reform stalled. - Likelihood: M - Expected Impact on Economy: H. - Policy Responses: Further tighten fiscal and monetary policy. Advocate for deeper regional institutional reforms. - External Risks - Persistently low energy prices. - Likelihood: H - Expected Impact on Economy: H. - Policy Responses: Restrain fiscal policy, while shielding social spending and prioritizing financing of the PSGE. - Increased volatility in energy prices. - Likelihood: M - Expected Impact on Economy: H. - Policy Responses: Implement structural reforms to enhance competitiveness. - Sharp asset price adjustment and decompression of credit spreads. - Likelihood: H - Expected Impact on Economy: H. - Policy Responses: Restrain fiscal policy (shielding social spending and prioritizing financing of the PSGE). Implement structural reforms to lower country risk. - Structurally weak growth in key advanced and emerging economies, including China. - Likelihood: M - Expected Impact on Economy: M. - Policy Responses: Implement structural reforms to enhance competitiveness. - Heightened risk of fragmentation/state failure/security dislocation in some countries in Africa. - Likelihood: M - Expected Impact on Economy: H. - Policy Responses: Restrain fiscal policy, while properly financing security activities and shielding social spending. *Source: IMF staff report excerpt (tables and annexes as provided).* ### Annex II. Traction of Past IMF Recommendations ### Annex II. Traction of Past IMF Recommendations ### Implementation status of 2014 Article IV recommendations - Overall assessment: Gabon’s track record in implementing the recommendations of the previous Article IV consultation has improved substantially. - Reforms implemented: - Eliminated some tax exemptions; however, several products have been added to the list of tax exemptions. - Reduced wage bill growth through implemented reforms. - Phase out of fuel subsidies: fuel importation was liberalized in 2015 and remaining petrol and diesel subsidies have been removed. - Public finance management (PFM) reforms as part of the BOP reform are being implemented to improve the quality of investment. - Investment promotion agency has been set up to improve the business climate. - Important initial steps taken to improve economic statistics and more timely data supply to the Fund. - Government action to strengthen weak public banks, including the appointment of temporary administrators. - Table 1 — Status summary (as presented in source): - Reducing tax exemptions and exonerations: Partly done, but new products added to list of exempted products as part of the "policies against expensive living costs". - Greater control of wage bill: Partly done; implemented reforms that curbed wage bill growth. - Phase out of fuel subsidies: Done; fuel importation was liberalized in 2015 and remaining petrol and diesel subsidies have been removed. - Improve quality of investment: Initial steps taken; public finance reforms being implemented. - Improve business climate: Initial steps taken; investment promotion agency being set up. - Address financial situation of weak public banks: Initial steps taken; notably the government appointed temporary administrators. - Improve economic statistics for surveillance: Initial steps taken; creation of national statistics agency, population census adopted, more timely data supply to the Fund, preliminary work towards high frequency indicators. ### External assessment — REER, current account norms, and external vulnerabilities - Key drivers: - Protracted oil-price shock and secularly declining oil production continue to hamper Gabon’s external position. - Decline in the real effective exchange rate (REER) since 2014 after prior relative stability versus CEMAC countries. - Downward REER pressures attributable to US dollar appreciation against the euro (to which the CFA franc is pegged) and low domestic inflation. - Gabon’s consumer price index averaged 4½ percent in 2014 and subsequently embarked on a downward trend through 2015; expected to remain low in the medium term. - Methodology findings: - Bems and Carvalho (2009) methodology: - Suggests real exchange rate overvaluation of about 8 to 16 percent, assuming trade balance elasticity relative to the real effective exchange rate is -0.6. - Norms derived under the permanent income hypothesis and with no account for future returns on public investment are significantly above Gabon’s medium term current account path, given public investment scaling-up. - Araujo et al. (2013) methodology: - More appropriate to account for significant public investment in Gabon. - Suggests overvaluation of 3 and 7 percent under cost overrun assumptions of 60 and 40 percent, respectively. - Methodology solves for a current account norm from a welfare maximization problem where productive investment needs may be financed by contracting external debt to be repaid with income flows from oil resource windfalls; it takes into account many frictions common to developing countries. - Presented numerical items and model inputs (as shown in source material): - Trade balance elasticity2: 0.6 0.6 0.6 0.6 - Underlying trade balance (Percent of GDP): -3.2 -3.2 -3.2 -3.2 - MT trade balance norm (Percent of GDP)1.5 6.1 -1.2 1.0 - Overvaluation (Percent)8.0 16.0 3.4 7.2 - Cost overrun scenarios referenced: Cost overrun of 60 percent; Cost overrun of 40 percent - Projection labels shown: Projections; Constant real annuity; Constant real per capita annuity; Araujo et al.; Bems and Carvalho - External sector vulnerability evidence: - Evolution of Gabon’s share in global trade has coincided with oil price fluctuations, demonstrating high reliance on the oil sector and sensitivity during oil-price slump episodes. *Sources: 2014 Article IV staff report on Gabon; IMF staff estimates and projections.* ### 0.04 percent from 0.05 percent. Starting ### _cr1686 - 0.04 percent from 0.05 percent. Starting ### External sector vulnerability and export composition - Gabon’s share of global trade shrank starting from 2012, reflecting secularly declining oil production and the 2014 oil-price slump. - Oil represented 84 percent of total exports in 2014 and 76 percent in 2015. - The value of non-oil exports has stagnated in past years, reinforcing the need for structural reforms to increase manganese, wood, and other exports. - Structural bottlenecks and weak productivity hinder competitiveness and amplify Gabon’s external vulnerability (see Sections C and D of the staff report). - Charts and series referenced (labels preserved): - CEMAC: Exports share (Percent of World Exports) with time series 2000–2015. - Gabon (RHS) plotted alongside CEMAC series. - Gabon: Composition of Total Exports (Billions of CFAF) — components: Non-oil Exports, Oil, Total Exports (2000–2015). - Gabon: Composition of Non-oil Exports — components: Manganese, Wood, Other, Non-oil Exports (2000–2015). - Source noted: IMF staff calculations. ### Relations with the Fund and regional monetary arrangements - Membership and programs: - Gabon has been a member of the IMF since 1963. - CEMAC member countries accepted the obligations of Article VIII in June/July 1996. - A three-year SBA for about US $118 million expired in May 2010; only the first three reviews were completed. - The last Article IV Consultation was concluded on February 18, 2015. - Exchange rate regime: - Gabon is a member of CEMAC; the CFA franc is pegged at the fixed rate of 655.957 CFA franc per euro. - Gabon levies a tax on wire transfers that constitutes a restriction on the making of payments and transfers for current international transactions subject to approval under Article VIII, Section 2 (a) of the Articles of Agreement. - IMF financial data (as of December 31, 2015): - Quota: 154.30 SDR Million, 100.00 %Quota. - Fund holdings of currency (Exchange Rate): 153.47 SDR Million, 99.46 %Quota. - Reserve Tranche Position: 0.85 SDR Million, 0.55 %Quota. - Net cumulative allocation (SDR Department): 146.72 SDR Million, 100.00 %Allocation. - Holdings (SDR Department): 132.80 SDR Million, 90.51 %Allocation. - Outstanding Purchases and Loans: None. - Latest Financial Arrangements (selected lines preserved): - Stand-By May 07, 2007 – May 06, 2010: 77.15 (SDR Million) approved, 0.00 drawn. - Stand-By May 28, 2004 – Jul 31, 2005: 69.44 approved, 41.66 drawn. - Stand-By Oct 23, 2000 – Apr 22, 2002: 92.58 approved, 13.22 drawn. - Projected Payments to Fund (Expectation Basis), (SDR Million): - Charges/Interest: 0.01 in each year 2016, 2017, 2018, 2019, 2020. - Total: 0.01 in each year 2016, 2017, 2018, 2019, 2020. - Safeguards and BEAC: - BEAC remains subject to close IMF monitoring of safeguards “rolling measures” following governance challenges and control failures in 2009. - A safeguards staff visit to the BEAC was last conducted in April 2015; slippages occurred and progress on rolling measures has been mixed. - BEAC requested IMF technical assistance for amendments to the BEAC charter and adoption of an internationally recognized financial reporting framework (IFRS); work is underway. - Article IV consultations: Gabon is on a 12-month Article IV consultation cycle; last concluded on February 18, 2015. - FSAP and ROSCs: - National FSAP module for Gabon completed in 2002 (discussed March 2002). - Regional FSAP carried out January–March 2006; regional FSAP Update November 2014–January 2015. - ROSCs on monetary and financial policy transparency, banking supervision, and AML/CFT in June 2006. - Resident representation: The Fund no longer has a resident representative nor a local economist in Libreville. ### Technical assistance and relations with the World Bank and IFC - AFRITAC technical assistance delivered across revenue administration, public debt management, macroeconomic statistics, public financial management, banking supervision, and customs (selected deliveries and dates preserved, e.g., Dec. 2015; Oct. 2015; Sep. 2015; Aug. 2015; Jul. 2015; and earlier 2014 dates). - Headquarters technical assistance (FAD) included: - Trust Fund Design — Sept. 2015. - Rationalization of Expenditure Chain — June 205 (as listed). - PEFA assessment and PFM reforms — May 2014; PEFA assessment — Dec. 2013. - Public finance management — July 2013. - World Bank advisory and lending programs (selected items and values preserved): - US$1.3 million Statistics RAS for national statistics strategy and household survey (EGEP II). - US$1 million Tax System Reform RAS for tax exemptions rationalization and risk-based audit system. - US$58 million IBRD Loan for the Central African Regional and National Backbone project (CAB4) signed May 2012 (approved March 2012; effective March 2013). - US$18 million Investment Promotion and Competitiveness project approved March 2014. - US$60 million Access to Basic Services in Rural Areas and Capacity Building Project (Energy) approved September 17, 2015. - US$7.5 million GEF wetlands grant. - US$100 million Infrastructure and Local Development Program II approved December 2015. - US$100 million Skills for Employability Support Project ongoing. - US$9.33 million Wildlife and Human-Elephant Conflict Management Project planned. - US$23 million Additional Financing to scale up CAB Program (preparation). - US$56 million e-Gabon project under preparation. - IFC engagements include support to SETRAG, Aéroport de Libreville (ADL), Vaalco Gabon (loan in September 2013), and scoping for a Libreville ring road toll project. ### Statistical issues and data adequacy - General assessment: - Data provision has shortcomings but is broadly adequate for surveillance. - Staff analysis affected by accuracy, reliability, periodicity, timeliness, and consistency issues. - Statistical agencies lack sufficient access to source data and institutional frameworks for sharing and coordination. - Gabon participates in the GDDS but has not updated metadata or plans since 2002. - Except for consumer prices, authorities do not report real sector or government finance statistics (GFS) to STA for publication in IFS or electronic dissemination. - Long historical series published in Tendances de l’Économie (twice a year) and more recent sectoral developments in Tableau de Bord de l'Économie (quarterly). - Gabon does not provide IIP data required under Article VIII, Section 5; authorities have not taken steps to fill this gap. - National accounts: - Central AFRITAC (AFC) working to incorporate System of National Accounts 1993 recommendations. - New series of national accounts covering 2001–2009 prepared; compilation for 2010–2013 underway; whole new series to be released after 2010–2013 completion. - AFC assisting with quarterly national accounts and related indicators. - Prices and employment: - Improved CPI index published since 2007, covering the CEMAC HCPI basket with weights from Gabon’s 2005 household expenditure survey; CPI covers Libreville only. - Data on unemployment and total labor force are not systematically available. - Government finance statistics: - Major shortcoming: limited institutional coverage — social security operations not included in Statement of Operations for central or general government. - Audited oil sector accounts generally available annually and sometimes quarterly, with significant reporting lag. - Needed improvements: record government-owned capital formation financed by oil companies and record government arrears. - Data provided for surveillance are based on GFSM 1986; Gabon does not provide GFS to IMF Yearbook nor IFS. - Monetary and financial statistics: - BEAC reports monthly monetary, interest rate, and exchange rate statistics; delays sometimes occur. - Institutional coverage comprehensive but accuracy affected by cross-border currency movements among CEMAC members. - BEAC project to migrate monetary statistics to MFSM methodology began mid-2007; test monetary data for Gabon submitted for January 2000–December 2007. - External sector statistics: - Balance of payments compiled by national directorate of BEAC, validated by BEAC HQ staff; data disseminated with considerable delay and not submitted for IFS publication since 2006. - Compilation conforms to BPM5 since 1995. - Source data: enterprise surveys by central bank, bank and postal reports on foreign exchange transactions, BEAC reports on banknote movements. - External trade data mostly based on estimates not cross-checked with customs data. - Current account items suffer from low enterprise survey response rates; FDI in financial account likely underestimated due to insufficient oil sector survey detail. - Private capital flow magnitudes and breakdowns, particularly short term, are incomplete. - Comprehensive data on stock of external public debt and composition exist and are usually provided to Fund missions by Direction générale de la dette publique. - Financial sector surveillance: - Gabon does not report Financial Soundness Indicators (FSIs) to STA. - Table of Common Indicators Required for Surveillance (as of January 28, 2016) — selected entries preserved exactly: - Exchange Rates: Date of latest observation Dec. 2012; Date received Dec. 2012; Frequency of Data D; Frequency of Reporting D; Frequency of Publication D. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation Oct. 2015; Date received Jan. 2016; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Reserve/Base Money: 10/15; 1/5/16; M; M; M. - Broad Money: 10/15; 1/5/16; M; M; M. - Central Bank Balance Sheet: 10/15; 1/5/16; M; M; M. - Consolidated Balance Sheet of the Banking System: 10/15; 1/5/16; M; M; M. - Interest Rates: 03/15; n.a.; M; M; M. - Consumer Price Index: 10/15; n.a.; M; M; M. - Revenue, Expenditure, Balance and Composition of Financing – General Government: 08/14; 23/10/14; M; Q; N/A. - Revenue, Expenditure, Balance – Central Government: Sep. 2015; n.a.; M; Q; N/A. - Stocks of Central Government and Central Government-Guaranteed Debt: Dec. 2011; Dec. 2012; Q; Q; N/A. - External Current Account Balance: Dec. 2011; Dec. 2012; I; M; A. - Exports and Imports of Goods and Services: Dec. 2011; Dec. 2012; M; M; I. - GDP/GNP: 2008; Dec. 2012; A; I; A. - Gross External Debt: Dec. 2011; Dec. 2012; Q; I; I. - International Investment Position: N/A; N/A; N/A; N/A; N/A. - Footnotes preserved: definitions 1–7 and frequency codes (D, W, M, Q, A, I, NA). ### Debt Sustainability Analysis (DSA) — key findings and projections - Context and recent fiscal outcome: - Public and external debt remain at moderate levels but have considerably increased since the previous DSA. - In the context of plummeting oil prices and the need to repay large arrears, the overall fiscal balance on a cash basis reached 9 percent of GDP 2015. - Baseline projection: - Under a baseline scenario that assumes that a substantial adjustment takes place, debt is projected to reach 50 percent of GDP in 2016, exceeding the government’s public debt ceiling (of 35 percent of GDP), and gradually decline only from 2020. - Risks and vulnerabilities: - Lower than projected GDP growth, fiscal revenues, or current account balances could lead to a dramatic increase in debt indicators, far above the CEMAC ceiling. *Prepared by the African Department (in consultation with other departments); February 5, 2016 — staff report excerpt* ### 1. Public debt level and structure. Gabon’s public debt stood at CFAF 3,177 billion ### 1. Public debt level and structure. Gabon’s public debt stood at CFAF 3,177 billion ### Public debt level and composition (end-September 2015 and 2013–2015 stock) - Public debt stock (end-September 2015): CFAF 3,177 billion (US$5.4 billion). - Drivers of rapid increase this decade: - Financing the PSGE. - Building infrastructure for the soccer African Cup of Nations in 2012 (jointly with Equatorial Guinea). - Compensation for lower revenues following the oil price shock. - Debt-to-GDP evolution: - Approximately 16.7 percent of GDP in 2008. - 32.6 in 2014. - Projected to have increased to 43 percent in 2015. - Key factors behind the 2014–2015 increase in the debt ratio: - Issuance of a US$500 million Eurobond in June 2015. - Euro-CFAF depreciation. - Considerable decline in nominal GDP from the collapse in oil prices. - Contribution to the increase in the debt-to-GDP ratio since 2014: - About two-thirds is due to the depreciation of the CFA and the decline in the oil GDP deflator. - External vs. domestic: - Government debt is mostly external; external debt accounted for 85 percent of total public debt in 2014. - Debt is predominantly medium-to-long term. - Debt ceiling context: - CEMAC regional group public debt ceiling: 70 percent of GDP (noted as deemed too high in recent CEMAC regional surveillance staff reports). - Gabon’s national public debt ceiling: 35 percent of GDP, which was surpassed in 2015. - Table 1. Gabon: Public Debt Stock by Components in 2013–15 (CFAF billion) — stock values from Gabonese authorities: - 2013 total public debt: 2,283.2 - External Debt: 2,039.0 - Bilateral: 461.8 - of which: Paris Club: 47.4 - Multilateral: 262.1 - Commercial: 496.4 - International Financial Markets: 818.7 - Domestic Debt: 244.2 - Banking: 76.4 - Moratory: 83.8 - Regional Financial Markets: 69.5 - Other: 14.5 - 2014 total public debt: 2,631.0 - External Debt: 2,454.1 - Bilateral: 573.3 - of which: Paris Club: 40.2 - Multilateral: 350.8 - Commercial: 602.7 - International Financial Markets: 927.2 - Domestic Debt: 176.9 - Banking: 44.5 - Moratory: 56.4 - Regional Financial Markets: 22.6 - Other: 13.4 - Sep-15 total public debt: 3,177.7 - External Debt: 2,912.9 - Bilateral: 746.4 - of which: Paris Club: 36.7 - Multilateral: 359.2 - Commercial: 535.9 - International Financial Markets: 1,271.5 - Domestic Debt: 264.8 - Banking: 44.5 - Moratory: 48.7 - Regional Financial Markets: 159.7 - Other: 11.9 ### Baseline scenario (public DSA) - Macroeconomic framework inputs (staff report Tables 1–6) and assumptions: - Non-oil revenue base would be widened over time with the elimination of overly generous tax exemptions. - Wages and salaries would remain constant in real terms. - Capital spending would grow at a rate lower than non-oil GDP growth. - International oil and other commodity prices, as well as exchange rates, reflect World Economic Outlook projections through 2021. - Public DSA projection outcome: - Debt levels reach 50 percent of GDP in 2016 and decrease only from 2020. - Selected projections and indicators (from Table 2, As of January 12, 2016): - Nominal gross public debt (in percent of GDP): - 2014: 28.4 - 2015: 32.2 - 2016: 43.0 - 2017: 50.1 - 2018: 49.9 - 2019: 50.5 - 2020: 50.7 - 2021: 49.3 - Public gross financing needs (in percent of GDP): - 2014: -1.0 - 2015: -0.7 - 2016: 5.2 - 2017: 8.0 - 2018: 10.2 - 2019: 7.9 - 2020: 7.0 - 2021: 6.9 - Real GDP growth (in percent): - 2014: 3.0 - 2015: 4.3 - 2016: 4.0 - 2017: 3.2 - 2018: 4.5 - 2019: 4.7 - 2020: 4.9 - 2021: 4.9 - Inflation (GDP deflator, in percent): - 2014: 6.2 - 2015: -0.9 - 2016: -9.3 - 2017: -6.3 - 2018: 4.8 - 2019: 4.0 - 2020: 3.4 - 2021: 2.8 - Effective interest rate (in percent, defined as interest payments divided by previous-year debt stock): - 2014: 6.1 - 2015: 4.4 - 2016: 4.3 - 2017: 5.0 - 2018: 5.8 - 2019: 6.6 - 2020: 6.7 - 2021: 6.9 - Change in gross public sector debt (cumulative, in percent of GDP): - 2014: -3.5 - 2015: 2.9 - 2016: 10.8 - 2017: 7.1 - 2018: -0.2 - 2019: 0.6 - 2020: 0.2 - 2021: -1.4 - Identified debt-creating flows (cumulative, in percent of GDP): - 2014: -8.4 - 2015: -0.9 - 2016: 8.7 - 2017: 7.3 - 2018: 0.6 - 2019: 0.3 - 2020: -0.5 - 2021: -0.8 - Primary deficit (in percent of GDP): - 2014: -7.1 - 2015: -3.8 - 2016: 0.9 - 2017: 3.6 - 2018: 2.4 - 2019: 1.3 - 2020: 0.3 - 2021: -0.3 - Primary (noninterest) revenue and grants (in percent of GDP) cumulative over projection: 120.9 (sum for years shown). - Primary (noninterest) expenditure (in percent of GDP) cumulative over projection: 127.3 (sum for years shown). ### Shocks and alternative scenarios - Historical scenario: - Assumes fiscal balance is much higher than in the baseline. - Results in a reduction in public debt levels over the projection period. - Production (real GDP) and revenue shocks: - A 1 percentage point decline in real GDP growth in the projection period combined with a reduction in government revenues by 2 percentage points of GDP leads to: - A sharp increase in public debt up to 85 percent of GDP by 2021. - Contingent liability shock: - Has a smaller impact on the debt-to-GDP ratio than the combined production and revenue shock, but would still bring debt above CEMAC’s 70 percent ceiling. - Contingent liability shock specification note (footnote 22): - Assumes a one-time increase in non-interest expenditures equivalent to 10 percent of banking sector assets leads to a real GDP growth shock: - Growth is reduced by 1 standard deviation for 2 consecutive years; - Revenue-to-GDP ratio remains the same as in the baseline; - Deterioration in primary balance leads to higher interest rate; - Decline in growth leads to lower inflation. ### Public debt profile visual summaries (figures) - Figure 1 highlights: - Composition of public debt by scenario (Baseline, Historical, Constant Primary Balance, Contingent Liability Shock, Production Shock, Production and Revenue Shock). - Under the baseline, gross nominal public debt projection rises through 2017–2019 then stabilizes and edges down from 2020. - Public gross financing needs under projection rise and then moderate. - By maturity: medium and long-term dominate over short-term across projections. - By currency: foreign currency-denominated debt constitutes the larger share versus local currency-denominated debt in projections. ### Risk assessment (Figure 2) - IMF staff risk-assessment indicators (2015 benchmarks referenced): - Gross financing needs benchmark: 15 percent of GDP. - External financing requirement benchmarks: 5 and 15 percent of GDP. - Bond spread benchmarks: 200 and 600 basis points. - Change in share of short-term debt benchmarks: 0.5 and 1 percent. - Public debt held by non-residents benchmarks: 15 and 45 percent. - Share of foreign-currency denominated debt benchmarks: 20 and 60 percent. - Selected 2015 indicators and flags from the risk assessment chart (values shown in figure): - EMBIG (bp): 569 - External financing requirement: 12 (percent of GDP) - Public debt held by non-residents: 83% (in percent of total) - Bond spread (long-term bond spread over German bonds, 14-Oct-15 through 12-Jan-16 average): 881 bp shown in figure - Public debt in foreign currency (in percent of total): 83% ### External debt level and structure - External debt evolution: - After restructuring and reduction in late 2000s, external debt rose from US$2.1 billion in 2009 to about US$4.3 billion in 2013 (equivalent to 24.8 percent of 2013 GDP). - Increase partly due to issuance of a US$1.5 billion Eurobond in 2013 (US$610 million of which was used for partial repayment of a US$1 billion Eurobond issued in 2007). - A later issuance of US$500 million in 2015 also contributed. - External debt composition by end-2014: - Multilateral institutions: 14 percent of total external debt. - Bilateral debt: 23 percent. - Debt to commercial institutions and debt placed in financial markets: 63 percent. ### Baseline scenario (external debt sustainability) - External DSA baseline mirrors public DSA macroeconomic framework. - Assumption on rollover: - The international bond for US$1 billion issued in 2007 is rolled over in the baseline. - Projection outcome: - External debt-to-GDP ratio is projected to surpass 40 percent from 2016 and gradually decline only from 2020. *Source: IMF staff (Gabon staff report, Public and External Debt Sustainability Analyses).* ### 6. Shocks. Alternative scenarios include a historical scenario in which main variables are ### 6. Shocks. Alternative scenarios include a historical scenario in which main variables are assumed to be the same as in the past ten years, and others that incorporate a 0.25 standard deviation applied to real interest rate, growth rate, and the current account balance. ### Findings from shock analysis and scenarios - Historical scenario (key variables at ten-year historical averages) implies much lower financial needs than the baseline and leads to a drastic reduction in external debt. - Other shocks to the baseline lead to dramatic external debt escalation. - Most notably: - A shock to the non-interest rate current account leads to an increase in external debt by 2021 up to 56 percent of GDP. - A shock to the real exchange rate (real depreciation shock) leads to an increase in external debt by 2021 up to 62 percent of GDP. - Combined shocks and other individual shocks produce substantially higher external debt trajectories versus the baseline. ### Key baseline external debt and dynamics (selected series from Table 3) - Baseline: External debt (in percent of GDP) - 2011: 13.6 - 2012: 16.6 - 2013: 24.2 - 2014: 25.3 - 2015: 34.5 - 2016: 41.4 - 2017: 41.2 - 2018: 42.1 - 2019: 42.3 - 2020: 41.5 - 2021: 40.4 - Change in external debt (percent of GDP) - 2011: -2.3 - 2012: 3.0 - 2013: 7.6 - 2014: 1.1 - 2015: 9.2 - 2016: 6.8 - 2017: -0.2 - 2018: 0.9 - 2019: 0.1 - 2020: -0.7 - 2021: -1.2 - Identified external debt-creating flows (4+8+9) (percent of GDP) - 2011: -22.7 - 2012: -18.2 - 2013: -16.7 - 2014: -14.6 - 2015: 4.3 - 2016: 2.8 - 2017: 0.7 - 2018: -0.8 - 2019: -1.7 - 2020: -2.6 - 2021: -3.4 - Current account deficit, excluding interest payments (percent of GDP) - 2011: -16.1 - 2012: -17.0 - 2013: -13.4 - 2014: -9.3 - 2015: 0.7 - 2016: 7.3 - 2017: 5.4 - 2018: 3.7 - 2019: 2.6 - 2020: 1.8 - 2021: 1.0 - Automatic debt dynamics (percent of GDP) - 2011: -2.6 - 2012: 2.4 - 2013: 1.1 - 2014: 0.2 - 2015: 8.0 - 2016: 0.5 - 2017: 0.3 - 2018: 0.4 - 2019: 0.2 - 2020: 0.2 - 2021: 0.3 - Contribution from nominal interest rate (percent of GDP) - 2011: 0.8 - 2012: 0.9 - 2013: 1.5 - 2014: 1.0 - 2015: 1.2 - 2016: 1.7 - 2017: 2.0 - 2018: 2.1 - 2019: 2.1 - 2020: 2.2 - 2021: 2.2 - Contribution from real GDP growth (percent of GDP) - 2011: -0.9 - 2012: 0.0 - 2013: -0.9 - 2014: -1.0 - 2015: -1.3 - 2016: -1.2 - 2017: -1.7 - 2018: -1.8 - 2019: -1.9 - 2020: -1.9 - 2021: -1.9 - Residual, incl. change in gross foreign assets (percent of GDP) - 2011: 20.4 - 2012: 21.2 - 2013: 24.3 - 2014: 15.8 - 2015: 4.9 - 2016: 4.1 - 2017: -0.9 - 2018: 1.7 - 2019: 1.8 - 2020: 1.9 - 2021: 2.2 - External debt-to-exports ratio (percent) - 2011: 22.2 - 2012: 25.8 - 2013: 40.1 - 2014: 47.2 - 2015: 80.4 - 2016: 135.9 - 2017: 133.5 - 2018: 135.0 - 2019: 135.1 - 2020: 133.0 - 2021: 130.5 - Gross external financing need (in billions of US dollars) - 2011: -2.5 - 2012: -2.4 - 2013: -1.1 - 2014: -1.1 - 2015: 0.7 - 2016: 1.5 - 2017: 1.6 - 2018: 1.2 - 2019: 1.1 - 2020: 1.2 - 2021: 1.2 - Gross external financing need (in percent of GDP): selected entries - 2011: -13.8 - 2012: -13.9 - 2013: -6.4 - 2014: -6.2 - 2015: 4.6 - 2016: 10-Year - 2017: 10-Year - 2018: 11.2 - 2019: 10.6 - 2020: 7.3 - 2021: 6.5 - (table shows mixed labels "10-Year" in cells for some years) ### Key macroeconomic baseline assumptions (selected) - Real GDP growth (in percent) - Historical: 7.1 - Standard deviation: 0.0 - Baseline series by year (selected): 5.6, 4.3, 4.0, 3.6, 3.4, 3.2, 4.5, 4.7, 4.9, 5.0, 4.9 - GDP deflator in US dollars (change in percent) - Historical/selected: 18.4, -10.3, -3.0, -0.8, -24.3, 1.8, 16.2, -8.8, 5.4, 3.9, 3.9, 3.5, 3.3 - Nominal external interest rate (in percent) - Historical/selected: 6.1, 5.7, 9.2, 4.5, 3.7, 5.8, 1.6, 4.7, 5.2, 5.7, 5.5, 5.6, 5.6 - Growth of exports (US dollar terms, in percent) - Historical/selected: 31.2, -0.7, -4.1, -7.9, -37.0, 4.5, 27.3, -33.3, 11.6, 10.0, 9.2, 8.5, 7.3 - Growth of imports (US dollar terms, in percent) - Historical/selected: 30.9, 13.2, 4.0, 7.6, -22.4, 9.3, 15.0, -20.6, 5.1, 3.8, 6.1, 6.1, 4.9 - Current account balance, excluding interest payments (percent of GDP) - Historical/selected: 16.1, 17.0, 13.4, 9.3, -0.7, 13.1, 6.7, -7.3, -5.4, -3.7, -2.6, -1.8, -1.0 - Net non-debt creating capital inflows (percent of GDP) - Historical/selected: 4.0, 3.6, 4.4, 5.6, 4.3, 4.6, 1.0, 5.1, 5.0, 4.8, 4.5, 4.6, 4.7 ### Scenario design and technical notes - Historical scenarios use ten-year historical averages to project debt dynamics five years ahead. - Individual shocks are modeled as permanent one-half standard deviation shocks (figure note 1). - The staff also run permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance (figure note 3). - A one-time real depreciation of 30 percent occurs in 2010 in one scenario (figure note 4). - Debt-stabilizing non-interest current account is defined as the long-run constant balance that stabilizes the debt ratio assuming key variables remain at their levels of the last projection year (note 6). - Automatic debt dynamics formula and contribution from price and exchange rate changes are defined precisely in notes 1 and 2. ### Policy implications highlighted by the shock analysis and staff report - Historical-average outcomes would substantially reduce external financing needs and lower external debt—highlighting the sensitivity of debt dynamics to key macro variables. - Shocks to the current account and real exchange rate can quickly reverse debt sustainability gains and raise external debt to levels of 56 percent and 62 percent of GDP by 2021, respectively, underscoring the importance of: - Reprioritizing and scaling down public investment to align with absorptive capacity and fiscal resources. - Strengthening fiscal consolidation measures to reduce vulnerability to oil price shocks. - Accelerating structural reforms to diversify the economy and increase resilience to external shocks. - Protecting external debt dynamics by improving non-interest current account balances and containing real exchange rate pressures. *IMF staff analysis and country statement excerpts as presented in the source content.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1686.pdf_