Press Release No. 18/218

IMF Managing Director Approves a Staff-Monitored Program for the Republic of Equatorial Guinea

June 4, 2018

• The Staff-Monitored Program (SMP) will help build an adequate track record of performance for a potential Fund-supported program.
• The program aims to reduce further the fiscal deficit, increase non-oil revenue, and address critical public financial management weaknesses, while protecting social spending.
• The program will aim to lay the basis for improving governance and transparency in public administration and the hydrocarbon sector.

On May 10, 2018, the Managing Director of the International Monetary Fund (IMF), approved a SMP for Equatorial Guinea (EG), covering the period January-July 2018. An SMP is an agreement between country authorities and Fund staff to monitor the implementation of the authorities’ economic program. SMPs do not entail endorsement by the IMF Executive Board.

The main objectives of the SMP in the area of public finances are to reduce further the fiscal deficit, increase non-oil revenue, and address critical public financial management (PFM) weaknesses, while protecting social spending. The SMP also envisages measures to improve the business climate and foster economic diversification. The program will aim to lay the basis for improving governance and transparency in public administration and the hydrocarbon sector.

The program will also provide a framework to strengthen public sector capacity through technical assistance provided by the IMF. It will help to build an adequate track record of performance as the basis for a potential Fund-supported program in the second half of this year.

Starting in the late 1990s when oil production came on stream, EG went through a long economic boom. The boom lifted income per capita in EG from least developed to upper middle-income levels. This process was accompanied by an increasing dependence on oil and gas, which in 2013 accounted for about 90 percent of exports and government revenue, among the highest in Africa. The boom allowed a sharp and sustained increase in public investment that has led to a high degree of infrastructure development, which could prove crucial to diversify the economy. During the boom years, some macroeconomic buffers were built up, including substantial government deposits, while external and public debt remained very low. In the event, these buffers were not sufficient to withstand the oil-price shock that took place in mid-2014.

In 2014, like other CEMAC countries, EG was hit hard by the plunge in oil prices. Since then, oil prices have partially recovered, but this has been offset by a decline in hydrocarbon output, which peaked in 2008. In addition to weakening the external sector and the public finances, these factors, along with business environment weaknesses and financing constraints have led to a prolonged contraction in overall GDP. At the same time, weaknesses in the PFM framework have reduced the effectiveness of the macroeconomic policy responses.

Macroeconomic imbalances narrowed considerably and the pace of economic contraction slowed in 2017. Driven by a large reduction in capital spending and higher oil prices, the fiscal situation improved markedly in 2017, with the deficit declining to 3 percent of GDP. Real GDP is estimated to have declined by 3 percent, driven by continued decline in hydrocarbon output, but non-hydrocarbon GDP is estimated to have increased (1.2 percent) for the first time since 2013. However, macroeconomic conditions remained strained, and the country needs to further strengthen its public finances, rebuild macroeconomic buffers, and improve its economic growth prospects. The SMP would help the authorities to achieve these objectives.