Public Information Notice: IMF Concludes 2001 Article IV Consultation with Equatorial Guinea

October 11, 2001

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On August 31, 2001, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Equatorial Guinea.1


Recent economic developments have been dominated by the coming onstream in August 1996 and November 2000 of important new oil fields. Oil production rose from 17,000 barrels per day at end-1996 to 180,000 barrels per day at end-2000. Real GDP growth reached 41 percent in 1999 and is estimated at 17 percent in 2000. Non-oil GDP grew by 21 percent in 1999 and 6 percent in 2000, reflecting the unsustainable intensification of logging activity. Consumer price inflation remained at 6 percent in 1999 and 2000 on an end-of-year basis. The external current account deficit (including official transfers) narrowed from more than 80 percent of GDP in 1998 to 25 percent of GDP in 2000, owing to the strong increase in oil output and prices, as well as the increase in timber output and prices. The real effective exchange rate depreciated by 2.9 percent in 1999 and 0.4 percent in 2000, reflecting the depreciation of the euro against the U.S. dollar.

The government cash-flow situation improved considerably during 1999-2000, reflecting growing oil revenue, but fiscal policy performance continued to weaken, as evidenced by the lack of control over government financial operations. The overall fiscal balance turned from a deficit of 2 percent of GDP in 1998 to a surplus of 9 percent of GDP in 2000. In the circumstances, the treasury fully repaid its bank borrowing as at end-March 2001, but the government continued to accumulate domestic and external arrears, including periodic arrears to the Fund. The management of oil contracts lacks transparency, and there is no fiscal control over the payments due from, and paid by the oil companies. Government oil revenue is paid into treasury accounts held abroad. Moreover, large extrabudgetary expenditures have been financed since 1996 through advances on oil revenue, and the oil companies have been withholding government oil revenue at source to repay these advances.

Monetary developments in 1999 and 2000 were characterized by a significant improvement in the net foreign assets position of the banking system, a rapid growth in broad money, and a modest increase in credit to the private sector, mostly in the form of short-term loans to timber and cocoa exporters. Equatorial Guinea's two banks both meet the prudential and solvency ratios established by the regional banking commission (COBAC). A third bank was approved by the COBAC in April 2001 and began operations in July.

With respect to the structural reform agenda, the government has largely liberalized the economy, with the exception of the commercialization of major agricultural export commodities. The authorities adopted a new forestry law in December 1997 aimed at improving supervision and monitoring and at scaling down timber production to a sustainable level. In May 2000, two laws were published, (a) reducing export taxes on processed wood, and (b) classifying one-third of the wooded area as protected zones. The authorities also privatized and liberalized the distribution of petroleum at end-1998 and completed a civil service census in December 1999.

Executive Board Assessment

Executive Directors noted that the coming onstream of important new oil fields and the intensification of logging activity in recent years has helped sustain unprecedented high rates of real GDP growth in Equatorial Guinea, but at the same time has led to a very heavy reliance of the economy on natural resource exports. Directors were concerned by continued weaknesses in economic policy performance, macroeconomic management, and governance. They were particularly concerned by the serious lack of fiscal discipline and transparency. Directors also expressed concern about the continued accumulation of domestic and external payments arrears.

Looking ahead, Directors urged the authorities to act forcefully to establish Equatorial Guinea's credibility through the timely and effective implementation of strong structural adjustment policies. They stressed the need to introduce greater transparency in oil operations in the period ahead and to improve public accounting procedures, including control over expenditure commitment and management. Directors urged the authorities to refrain from extrabudgetary spending financed by borrowing against future oil revenue on nonconcessional terms, to fully disclose government bank accounts abroad, to transfer deposits in these accounts to the treasury account with the Bank of Central African States (BEAC), and to conduct independent external annual audits of the oil sector. On expenditures, Directors stressed that the authorities should be cautious in the use of oil resources and should work toward accumulating fiscal surpluses and building the oil reserve fund. They underscored the need to contain nonpriority primary expenditures, including the wage bill, and to target spending on education, health, and infrastructure. Directors encouraged the authorities to remain current on external debt service obligations and to eliminate all external payments arrears by the end of 2001. On the revenue side, Directors considered that tax administration and reforms needed to be strengthened, including by eliminating tax and customs exemptions and combating tax evasion and fraud.

Directors emphasized the need for the regional banking commission to monitor closely lending activities and bank portfolio performance.

Directors underscored the need to press ahead with the structural reform agenda in order to improve the competitiveness of the economy, promote diversification, create an environment conducive to private sector activity, and establish the foundations for broad-based growth and poverty reduction. Directors emphasized in particular the importance of civil service reform and privatization, and the need to establish a system of three-year investment programming. They noted that it is important to manage natural resources well in order to ensure long-term sustainability, and called for the rationalization of the timber industry.

Directors expressed concern about the adequacy, availability, and timeliness of statistical information for effective surveillance and policy monitoring, and stressed the importance for the authorities to provide monthly data and other key information to the Fund and to intensify efforts to achieve lasting improvements in the quality of statistics.

Directors observed that Equatorial Guinea's administrative capacity is limited and that the availability as well as full and effective use of external technical assistance will be critical for prioritizing and carrying out fiscal and structural adjustment policies.

Directors welcomed the authorities' renewed interest in a Fund-supported program, but observed that the authorities have yet to demonstrate their capacity to implement effectively the needed measures and thereby lay the foundation for establishing a strong record of policy performance. In this regard, they stressed that discussions on a program that could be monitored by the staff (SMP) could start as soon as the authorities demonstrate sufficient evidence of their resolve to address the weaknesses in macroeconomic management and governance, and improve the quality and timeliness of statistical information needed to monitor a comprehensive program.

Equatorial Guinea: Selected Economic Indicators

  1997 1998 1999 2000 2001

  Estimates Proj.

  Change in percent 1/ 
Domestic economy          
Change in real GDP 71.2 22.0 41.4 16.9 53.4
Of which: non-oil real GDP 19.4 0.2 20.8 5.6 2.8
Oil production (thousands of barrels per day) 56.6 82.9 103.1 117.9 212.6
Consumer prices (end of period) 3.7 6.6 6.0 6.0 6.0
  In millions of U.S. dollars 1/ 
External economy          
Exports, f.o.b. 498.4 459.8 814.3 1363.1 2181.7
Imports, c.i.f. 352.8 434.3 439.6 464.3 695.7
Current account balance 2/ -189.3 -374.5 -365.4 -365.9 -480.2
Direct investment 185.4 366.5 415.3 490.6 706.2
Capital account balance 184.1 361.3 392.1 459.1 693.7
Current account balance (in percent of GDP) 2/ -38.0 -82.2 -41.9 -25.4 -23.3
Change in real effective exchange rate
(depreciation -)
3.4 7.4 -2.9 -0.4 ...
  In percent of GDP 1/ 
Financial variables          
Gross national savings 27.6 9.4 12.7 12.1 16.0
Gross investment 65.7 91.6 54.7 37.5 39.4
Primary fiscal balance 3/ 4.5 1.2 4.9 10.3 16.0
Overall fiscal balance (commitment basis) 4/ 1.4 -2.1 0.3 9.0 15.3
Broad money (annual percentage change) 9.3 15.5 68.7 37.8 22.8
Discount rate (in percent) 8.5 7.5 7.6 7.0 ...
Outstanding medium- and long-term public debt 49.3 57.7 32.3 19.7 13.9
External public debt service 5/ 6/ 3.8 4.3 2.2 1.2 0.6

Sources: Equatorial Guinean authorities; and IMF staff estimates and projections.

1/ Unless otherwise indicated.          
2/ Including grants.          
3/ Government revenue less noninterest expenditures.
4/ Excluding grants.          
5/ Including obligations to the IMF.          
6/ In percent of exports of goods and services.          

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. This PIN summarizes the views of the Executive Board as expressed during the August 31, 2001 Executive Board discussion based on the staff report.


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