IMF Staff Concludes 2016 Article IV Mission to Equatorial Guinea

IMF News, July 18, 2016

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A mission from the International Monetary Fund (IMF), led by Montfort Mlachila, visited Malabo from June 29 to July 13 to conduct the 2016 Article IV consultation discussions.
End-of-Mission press releases convey preliminary findings; views are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
The Executive Board of the IMF is expected to consider the staff report on the Article IV consultation in late August 2016.

Equatorial Guinea has for two decades been one of Sub-Saharan Africa’s (SSA) largest hydrocarbon exporters, resulting in one of the highest average per capita incomes in the region.
A recent rebasing of the national accounts to a 2006 base year led to an upward revision of the size of the economy by roughly 30 percent.
Social indicators have considerably improved, including some of the highest literacy rates in SSA, though room for improvement remains.
Key macroeconomic outcomes and changes:
- GDP declined by 7.4 percent during 2015.
- Non-hydrocarbon activity slumped by 5.2 percent in 2015.
- The current account deficit widened to 16.8 percent of GDP.
- National external reserves declined by nearly 35 percent since end-2014.
- Inflation declined to 0.6 percent in during the second quarter of 2016.
- Private credit growth decreased only slightly to 14 percent in 2015.
Drivers of the downturn:
- The oil price shock since 2014.
- Reduced hydrocarbon production as oil companies cut operating expenditures.
- Sharp slowdown in public investment and private sector construction.

Near-term outlook is very challenging due to depressed energy prices and continued hydrocarbon production declines.
Growth projections and expectations:
- Overall economic activity is expected to decline 9.7 percent in 2016.
- A modest recovery in non-hydrocarbon activity could start from 2018, and average about 2 percent through the medium-term.
- The overall economy is unlikely to grow much in the medium term given the large weight of hydrocarbons and fiscal consolidation impacts on non-hydrocarbon activities.
Substantial risks to the outlook:
- The key short- to medium-term downside risk is an insufficient fiscal adjustment to prolonged weakness in the oil market, which could lead to faster depletion of available deposits, rapid accumulation of arrears, and public debt.
- Other domestic risks: faster-than-expected decline of oil production; uncertain prospects for a rebound in non-hydrocarbon growth; slow improvement in investment efficiency.

Over-arching message: accelerate an economic reset driven by the non-resource economy.
Fiscal policy:
- Step up the pace of fiscal consolidation to avoid a disorderly adjustment and macroeconomic instability.
- Ensure fiscal policy is consistent with CFA franc arrangements.
- The mission noted that although fiscal adjustment is underway, progress so far has been insufficient.
- Urgent need to scale back the large public investment plan, focusing on efficient projects with a large impact on growth or significant social benefits.
Revenue mobilization:
- Focus on mobilizing non-hydrocarbon revenue by improving tax administration.
- Reorganize the customs service and establish a large taxpayer unit to help trace ad hoc tax exemptions that significantly reduce potential tax revenues.
Structural reforms and private sector development:
- Implement highly visible structural reforms, contain macro-financial spillovers, and improve statistical capacity.
- To revive economic growth, foster private sector activities in strategic sectors including agriculture, fisheries, tourism, and financial services.
- Authorities intend to establish a national committee to spearhead reforms; expand training opportunities; and develop a tourism sector policy.
- The mission stressed the importance of a broad effort to improve the business climate and the efficiency of public services to foster private sector development.

The mission underscored that the IMF is committed to strengthening relations with the Equatoguinean authorities and stands ready to help them address these challenges.
The mission will prepare a report based on these preliminary findings that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

The mission had constructive meetings with:
- H.E. Francisco Pascual Obama Asue, Prime Minister
- H.E. Miguel Engonga Obiang Eyang, Minister of Finance and Budgets
- H.E. Eucario Bakale Angüe Oyana, Minister of Economy, Planning, and Public Investment
- H.E. Gabriel Mbega Obiang Lima, Minister for Mines and Hydrocarbons
- Mr. Ivan Bacale Ebe Molina, National Director of the Central Bank for Central African States (BEAC)
- Ms. Milagrosa Obono Angüe, Secretary of State for Treasury
- Other senior government officials, and representatives of the private sector, civil society, and development partners.
The mission expressed thanks for the authorities’ warm hospitality and constructive cooperation.

IMF Press Release No. 16/344 — July 18, 2016.