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

_IMF News, February 26, 2015_

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## Bibliographic details
- Authors: Gonzalo Salinas IMF African Department February
- Published: February 26, 2015

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### Economic outlook
- 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.

### Diversification strategy and implementation
- 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.

### Fiscal challenges and vulnerabilities
- 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.

### Policy recommendations and reform priorities
- 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.

### Recent policy actions and near-term steps
- 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).*

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## Content in this bundle

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [Press release](http://www.imf.org/external/np/sec/pr/2015/pr1568.htm)
- [Gabon and the IMF](http://www.imf.org/external/country/gab/index.htm)
- [Reforms—path to higher status](http://www.imf.org/external/pubs/ft/survey/so/2014/CAR121614A.htm)
- [Sustain Africa’s growth](http://www.imf.org/external/pubs/ft/survey/so/2014/car101114a.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar022515a_