IMF Executive Board Concludes 2010 Article IV Consultation with Gabon

Public Information Notice (PIN) No. 11/30
March 4, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On February 18, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Gabon.1

Background

Gabon is recovering from the financial crisis. Low prices and weak demand for commodities shrank the fiscal and current account surpluses in 2009 and turned growth moderately negative. Real Gross Domestic Product is estimated to increase to 5.7 percent in 2010 and remain broadly at that level in 2011, reflecting public investment and a rebound in mining. Average annual inflation is projected to remain subdued. The non-oil primary deficit will deteriorate significantly, reflecting the increase in government investment and the fall in non-oil revenues.

Economic activity is projected to remain robust in 2011, supported by mining, wood processing, and public investment. Inflation is forecast to pick up, mostly driven by higher food and energy prices. The foremost risk to the economic outlook is a decline in oil and manganese prices, because these commodities accounted for about 90 percent of total exports of goods and 45 percent of nominal GDP on average during the last decade.

To improve the quality of spending and release resources for growth-enhancing spending and social outlays, the government is strengthening public financial management. Reforms to enhance the business environment for private sector promotion focus on abolishing burdensome regulations involving lengthy procedures. Also, to facilitate access to financial services, work is ongoing to finalize the microfinance medium-term strategy.

Looking ahead, the government aims to transform Gabon into an emerging economy through diversification away from oil and promotion of a business friendly environment.

Executive Board Assessment

Executive Directors welcomed that Gabon is on a path of recovery from the global crisis. Looking ahead, the key challenge will be preparing the economy for the post-oil period through economic diversification, increased external competitiveness, and poverty reduction. Directors stressed the importance of maintaining long-term fiscal sustainability, improving the business environment, and strengthening the financial sector as key pillars of the authorities’ strategy to transform Gabon into an emerging economy.

Directors emphasized that, as oil reserves dwindle, sustained fiscal consolidation, while addressing Gabon’s substantial development needs, is crucial. Annual budgets need to be linked to longer-term policies and to making progress toward fiscal sustainability. Capital spending should be anchored in a realistic multiyear investment plan and a credible medium-term fiscal strategy to safeguard macroeconomic stability. A number of Directors saw scope in the short term for accelerating fiscal consolidation, while at the same time scaling up infrastructure and health and education investment. A few other Directors saw merit in a more gradual adjustment.

Directors welcomed the authorities’ intention to strengthen public financial management to improve the quality of spending and release resources for growth-enhancing spending and social outlays. Reforms to refocus public investment on key infrastructure and social projects and to strengthen the appraisal, selection, and monitoring of projects are a priority. Directors also stressed the importance of enhanced transparency and accountability in the management of resources from the country’s extractive sector, in particular with respect to the new funds under consideration.

Directors noted the staff’s assessment that the real effective exchange rate appears broadly in line with fundamentals. At the same time, they encouraged the authorities to step up efforts to enhance external competitiveness. To address the poor performance of the non-oil sector, structural reforms are needed to improve the business climate, build basic infrastructure, enhance health and education services, and increase labor market flexibility.

Directors underlined that limited access to financial services remains a serious obstacle to private sector development. They considered that priority should be given to improving the institutional and regulatory environment, in particular for small and medium enterprises. Directors advised the authorities to eliminate as soon as possible the tax on wire transfers, which gives rise to an exchange restriction under Article VIII.

Directors encouraged the authorities to further improve the quality of economic and financial data, making use of technical assistance from the Fund and donors.


Gabon: Selected Economic Indicators, 2008–15
 
  2008 2009 2010 2011 2012 2013 2014 2015
  Est. Proj.
 
  (Annual percent change, unless otherwise indicated)

Production, prices, and money

               

Real GDP

2.3 -1.4 5.7 5.6 3.3 1.6 2.6 2.5

Oil

-1.4 -4.5 4.1 1.5 -0.8- -6.1 -0.6 -0.7

Non-oil

3.4 -0.5 6.1 6.7 4.3 3.6 3.3 3.2

Consumer prices (average)

5.3 2.1 0.4 2.3 3.4 3.1 3 3

Terms of trade (deterioration = -)

13.4 -22.6 11 1.6 1.8 0.4 0.4 1

Broad Money

8.8 2.2 8.3 9.2 9.5 10.5 6.1 5
  (Percent of GDP, unless otherwise indicated)

Government operations

               

Overall balance (commitment basis)

11.4 6.5 4.8 5 6.1 5 5.5 5.8

Non-oil primary balance (percent
of non-oil GDP)

-14.8 -13.9 -21.1 -22.5 -18.7 -16.7 -15.1 -14

External sector

               

External current account balance
(with official transfers)

23.3 7.9 10.5 11.6 10.2 6.2 6 5.2

External public debt

15.6 18.8 15.7 14.3 13.1 12.6 12.2 11.7
 

Sources: Gabonese authorities and IMF staff estimates and projections.


1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.



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