Press Release No. 15/211

Press Release: IMF Staff Concludes 2015 Article IV Mission to Equatorial Guinea

May 12, 2015

A mission from the International Monetary Fund (IMF), led by Montfort Mlachila, visited Malabo from April 27 to May 12 to conduct the 2015 Article IV consultation discussions. At the conclusion of the mission, Mr. Mlachila made the following statement:

“Hydrocarbon production and revenue over the last two decades has vaulted Equatorial Guinea to the highest per capita GDP in sub-Saharan Africa. It has also enabled the buildup of a strong infrastructure base under the first phase (2008–12) of the national development plan—Horizonte 2020. The country now possesses high-quality roads, international airports and ports, and much of the population has access to electricity and potable water. Nonetheless, according to the latest available statistics, wealth has been slow to translate into improved social indicators, which are similar to those of low-income countries.This task now becomes more challenging, as the recent oil price slump coincides with an anticipated trend decline in output from aging oil fields.

“Equatorial Guinea’s recent economic performance has been weak. Overall real growth in 2014 was slightly negative at about -0.3 percent. The large and volatile hydrocarbon sector has generally driven overall growth, although more recently non-resource sector growth has slowed in line with the pace of the infrastructure spending program. The infrastructure spending has also triggered large fiscal deficits in recent years. Following measures introduced to control outlays, there was an improvement in 2014 which lowered the deficit to 6.8 percent of GDP. The current account deficit was 10 percent of GDP, although there is considerable uncertainty about this figure given very weak external sector statistics. CPI stood at 4.3 percent in December 2014, above the regional Central African Economic and Monetary Community (CEMAC) convergence ceiling of 3 percent, due to food price pressures in 2014.

“The growth outlook poses very significant challenges with prospects dominated by falling oil production volumes and very weak prices, given that hydrocarbons account for around 80 percent of the economy. With limited fiscal buffers to cushion the drop in government revenues, fiscal retrenchment will be unavoidable, and will contribute to an economic contraction of 9½ percent in 2015. Growth is expected to decline over the medium term. The gradual decline in oil output will likely continue in coming years, but may potentially be somewhat mitigated by the introduction of new extraction technologies and ongoing exploration.

“The main near-term risk to the economic outlook is a slow fiscal adjustment that could result in rapid depletion of fiscal buffers and accumulation of public debt. Moreover, an insufficient effort to address a weak business climate and attract foreign investment would impede diversification and potential non-hydrocarbon growth.

“In view of the challenge confronting Equatorial Guinea, the Article IV consultation focused on the authorities’ strategic objective of better leveraging their existing stock of infrastructure to foster diversification and structural transformation in an environment of much-reduced government revenue. Specifically, the discussion focused on the following issues: (i) adjusting fiscal policy to a world of very low oil prices; (ii) policies to underpin a “big push” to attract investment; and (iii) strengthening financial stability and fostering financial deepening.

“The mission welcomes the authorities’ revised 2015 budget, which aims to tackle the fiscal challenges through an upfront fiscal adjustment focused on capital spending. It is underpinned by a reassessment of ongoing projects according to economic, social, and fiscal impacts. The credibility of fiscal consolidation should be supported by strengthening public financial management (PFM), including high-frequency monitoring of budget execution and cash-flow situation.

“The mission also welcomed the emphasis of the next stage of Horizonte 2020 on improving governance, the business climate, and human capital development. It suggested a number of areas where “quick wins” could signal a drive to improve the business climate, including easing requirements for local content and ownership, speeding visa processing, and starting work toward an eventual credit rating. Equatorial Guinea could also champion further CEMAC integration in order to benefit from potential economies of scale. The authorities should also proactively address emerging weaknesses in asset quality in the financial system that could undermine efforts toward financial deepening.

“The mission underscored that the IMF is committed to strengthening relations with the Equatoguinean authorities, and stands ready to help them address these challenges. The Executive Board of the IMF is expected to consider the staff report on the Article IV consultation in July 2015.

“The mission wishes to sincerely thank the authorities for their very warm hospitality and constructive cooperation.”

The mission had constructive meetings with H.E. Miguel Engonga Obiang Eyang, Minister of Finance and Budgets; H.E. Eucario Bakale Angüe Oyana, Minister of Economy, Planning, and Public Investment; H.E. Alfredo Mitogo Mitogo Adá, Minister of Commerce and Business Promotion; Mr. Ivan Bacale Ebe Molina, National Director of the Central Bank for Central African States (BEAC); Ms. Milagrosa Obono Angüe, Secretary of State for Treasury, and other senior government officials. The mission also exchanged views with representatives of the private sector, civil society, and development partners.