IMF Survey : Oil Price Collapse Vindicates Gabon’s Aim to Diversify

IMF News, February 26, 2015

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Projected growth slowdown to 4 ½ percent in 2015 from an estimated 5.1 percent in 2014, with considerable downside risks.
Growth could improve subsequently to average around 5.7 percent in the following five years, driven by public investment, non-oil natural resources, and services.
Since the third quarter of 2014, international oil prices have fallen by half.
For Gabon, oil has traditionally accounted for more than half of government revenue and four-fifths of exports.

The Plan Stratégique Gabon Emergent (launched in 2010) aims to transform Gabon into a diversified emerging economy by 2025.
The plan’s main pillars include improving the level and quality of infrastructure, and raising the quality of human capital—tackling two binding constraints to economic growth.
Significant progress since 2010: using most revenue windfalls during high oil price years, the government has considerably improved transport and energy infrastructure, and established joint ventures with foreign companies in non-oil, higher value–added sectors—mainly in natural resource processing.
New projects in agro-industry, mining, and wood processing would help sustain non-oil growth.

Financing the development plan was predicated, among other factors, on continued high oil prices; the recent oil price collapse undermines that assumption.
Marked public financial management weaknesses raise concerns about the efficiency of public investment and their fiscal costs.
Widespread use of tax exemptions erodes the tax base and significantly weakens fiscal sustainability.
A massive increase in government spending during 2010–13—mainly in public investment—severely strained the fiscal accounts before the oil price collapse.
Public debt increased from about 16 percent of GDP in 2011 to about 28 percent of GDP in 2013.
There was a significant accumulation of domestic payments and value-added tax arrears, and a rapid drawdown of deposits at the central bank in 2014.
Authorities recognized the tight fiscal situation and rectified the 2014 budget to scale down the investment program to more manageable levels.

Fine-tune the strategy to promote non-oil investment in a context of much lower oil revenues.
Focus structural reforms on reducing input costs and boosting productivity, notably:
- Improve the business climate.
- Improve physical infrastructure.
- Improve the quality of technical education.
Continue improving public finance management and investment quality to ensure fiscal sustainability and success of the development plan.
Control growth in current spending, in particular the rapidly increasing wage bill.
Phase out costly, inefficient, and inequitable oil subsidies.
Expand the non-oil tax base by reducing tax exemptions and improving tax administration.
Prioritize reliable infrastructure and a predictable legal environment to attract investors over broad tax exemptions.

Authorities plan to send to parliament a revised 2015 budget based on conservative oil price assumptions.
To balance the books, they intend to reduce current spending, especially on goods and services as well as on subsidies.
The authorities have announced the decision to move ahead with phasing out gasoline and diesel subsidies as one of the most important measures to ensure fiscal sustainability.

© International Monetary Fund (IMF) — IMF Survey : Oil Price Collapse Vindicates Gabon’s Aim to Diversify (February 26, 2015).