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

IMF News, October 11, 2001

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

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• Published: October 11, 2001

Background and recent economic developments

• New oil fields came onstream in August 1996 and November 2000, driving oil production from 17,000 barrels per day at end-1996 to 180,000 barrels per day at end-2000.
• Real GDP growth:
  • 1999: 41 percent
  • 2000: estimated 17 percent
• Non-oil GDP growth:
  • 1999: 21 percent
  • 2000: 6 percent, reflecting an unsustainable intensification of logging activity
• Consumer price inflation (end-of-year basis):
  • 1999: 6 percent
  • 2000: 6 percent
• External current account deficit (including official transfers) narrowed:
  • more than 80 percent of GDP in 1998 to 25 percent of GDP in 2000
  • drivers: strong increase in oil output and prices, and increase in timber output and prices
• Real effective exchange rate depreciation:
  • 1999: depreciated by 2.9 percent
  • 2000: depreciated by 0.4 percent
  • cause: depreciation of the euro against the U.S. dollar
• Fiscal and public finance developments:
  • Government cash-flow improved during 1999-2000 due to growing oil revenue
  • Fiscal policy performance weakened due to lack of control over government financial operations
  • Overall fiscal balance shifted from a deficit of 2 percent of GDP in 1998 to a surplus of 9 percent of GDP in 2000
  • 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
  • Management of oil contracts lacks transparency; no fiscal control over payments due from and paid by oil companies
  • Government oil revenue is paid into treasury accounts held abroad
  • Large extrabudgetary expenditures since 1996 financed through advances on oil revenue; oil companies have been withholding government oil revenue at source to repay these advances
• Monetary sector and banking:
  • 1999–2000: significant improvement in net foreign assets position of the banking system, rapid growth in broad money, modest increase in credit to the private sector (mostly short-term loans to timber and cocoa exporters)
  • Equatorial Guinea's two banks meet prudential and solvency ratios established by the regional banking commission (COBAC)
  • A third bank was approved by COBAC in April 2001 and began operations in July 2001
• Structural reforms:
  • Economy largely liberalized, except commercialization of major agricultural export commodities
  • New forestry law adopted December 1997 to improve supervision and monitoring and scale down timber production
  • May 2000 laws: (a) reduced export taxes on processed wood; (b) classified one-third of wooded area as protected zones
  • Petroleum distribution privatized and liberalized at end-1998
  • Civil service census completed December 1999

Executive Board assessment, concerns, and recommendations

• Key concerns raised by Executive Directors:
  • Very heavy reliance of the economy on natural resource exports due to new oil fields and intensified logging
  • Continued weaknesses in economic policy performance, macroeconomic management, and governance
  • Serious lack of fiscal discipline and transparency
  • Continued accumulation of domestic and external payments arrears
• Recommendations and urged actions:
  • Act forcefully to establish Equatorial Guinea's credibility through timely and effective implementation of strong structural adjustment policies
  • Introduce greater transparency in oil operations and improve public accounting procedures, including control over expenditure commitment and management
  • Refrain from extrabudgetary spending financed by borrowing against future oil revenue on nonconcessional terms
  • Fully disclose government bank accounts abroad and transfer deposits in these accounts to the treasury account with the Bank of Central African States (BEAC)
  • Conduct independent external annual audits of the oil sector
  • Be cautious in the use of oil resources; work toward accumulating fiscal surpluses and building the oil reserve fund
  • Contain nonpriority primary expenditures, including the wage bill; target spending on education, health, and infrastructure
  • Remain current on external debt service obligations and eliminate all external payments arrears by the end of 2001
  • Strengthen tax administration and reforms, including eliminating tax and customs exemptions and combating tax evasion and fraud
  • Regional banking commission should monitor closely lending activities and bank portfolio performance
  • Press ahead with structural reform agenda to improve competitiveness, promote diversification, create an environment conducive to private sector activity, and establish foundations for broad-based growth and poverty reduction
  • Prioritize civil service reform and privatization; establish a system of three-year investment programming
  • Rationalize the timber industry and manage natural resources well to ensure long-term sustainability
  • Improve adequacy, availability, and timeliness of statistical information; provide monthly data and other key information to the Fund and intensify efforts to improve quality of statistics
  • Recognize limited administrative capacity; full and effective use of external technical assistance will be critical for prioritizing and carrying out fiscal and structural adjustment policies
• Fund-supported program prospects:
  • Directors welcomed authorities' renewed interest in a Fund-supported program
  • Observed authorities have yet to demonstrate capacity to implement needed measures
  • Discussions on a program that could be monitored by staff (SMP) could start as soon as the authorities demonstrate sufficient evidence of resolve to address weaknesses in macroeconomic management and governance, and improve quality and timeliness of statistical information

Key statistics and projections (selected)

• Domestic economy — change in real GDP (change in percent 1/):
  • 1997: 71.2
  • 1998: 22.0
  • 1999: 41.4
  • 2000: 16.9
  • 2001 (Proj.): 53.4
• Non-oil real GDP (change in percent 1/):
  • 1997: 19.4
  • 1998: 0.2
  • 1999: 20.8
  • 2000: 5.6
  • 2001 (Proj.): 2.8
• Oil production (thousands of barrels per day):
  • 1997: 56.6
  • 1998: 82.9
  • 1999: 103.1
  • 2000: 117.9
  • 2001 (Proj.): 212.6
• Consumer prices (end of period):
  • 1997: 3.7
  • 1998: 6.6
  • 1999: 6.0
  • 2000: 6.0
  • 2001 (Proj.): 6.0
• External economy — exports, f.o.b. (In millions of U.S. dollars 1/):
  • 1997: 498.4
  • 1998: 459.8
  • 1999: 814.3
  • 2000: 1363.1
  • 2001 (Proj.): 2181.7
• Imports, c.i.f. (In millions of U.S. dollars 1/):
  • 1997: 352.8
  • 1998: 434.3
  • 1999: 439.6
  • 2000: 464.3
  • 2001 (Proj.): 695.7
• Current account balance (In millions of U.S. dollars 1/; including grants):
  • 1997: -189.3
  • 1998: -374.5
  • 1999: -365.4
  • 2000: -365.9
  • 2001 (Proj.): -480.2
• Direct investment (In millions of U.S. dollars 1/):
  • 1997: 185.4
  • 1998: 366.5
  • 1999: 415.3
  • 2000: 490.6
  • 2001 (Proj.): 706.2
• Capital account balance (In millions of U.S. dollars 1/):
  • 1997: 184.1
  • 1998: 361.3
  • 1999: 392.1
  • 2000: 459.1
  • 2001 (Proj.): 693.7
• Current account balance (in percent of GDP) 2/:
  • 1997: -38.0
  • 1998: -82.2
  • 1999: -41.9
  • 2000: -25.4
  • 2001 (Proj.): -23.3
• Change in real effective exchange rate; (depreciation -):
  • 1997: 3.4
  • 1998: 7.4
  • 1999: -2.9
  • 2000: -0.4
  • 2001 (Proj.): ...
• Financial variables (In percent of GDP 1/):
  • Gross national savings:
  • 1997: 27.6
  • 1998: 9.4
  • 1999: 12.7
  • 2000: 12.1
  • 2001 (Proj.): 16.0
  • Gross investment:
  • 1997: 65.7
  • 1998: 91.6
  • 1999: 54.7
  • 2000: 37.5
  • 2001 (Proj.): 39.4
  • Primary fiscal balance 3/:
  • 1997: 4.5
  • 1998: 1.2
  • 1999: 4.9
  • 2000: 10.3
  • 2001 (Proj.): 16.0
  • Overall fiscal balance (commitment basis) 4/:
  • 1997: 1.4
  • 1998: -2.1
  • 1999: 0.3
  • 2000: 9.0
  • 2001 (Proj.): 15.3
  • Broad money (annual percentage change):
  • 1997: 9.3
  • 1998: 15.5
  • 1999: 68.7
  • 2000: 37.8
  • 2001 (Proj.): 22.8
  • Discount rate (in percent):
  • 1997: 8.5
  • 1998: 7.5
  • 1999: 7.6
  • 2000: 7.0
  • 2001 (Proj.): ...
  • Outstanding medium- and long-term public debt (in percent of GDP):
  • 1997: 49.3
  • 1998: 57.7
  • 1999: 32.3
  • 2000: 19.7
  • 2001 (Proj.): 13.9
  • External public debt service 5/ 6/:
  • 1997: 3.8
  • 1998: 4.3
  • 1999: 2.2
  • 2000: 1.2
  • 2001 (Proj.): 0.6