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.
