Press Release No. <a name="P16_75"></a>04/101

The Executive Board of the International Monetary Fund (IMF) today approved a 14-month SDR 69.44 million (about US$102 million) Stand-By Arrangement for Gabon to support the country's economic program. The approval opens the way for the immediate release of SDR 13.888 million (about US$20 million).

Following the Executive Board discussion, Anne Krueger, Acting Managing Director and Chairman, said:

"Since mid-2002, Gabon has taken important policy actions to address the serious challenges stemming from declining oil production, a heavy debt burden, and weak social indicators. A staff-monitored program, covering the period September-December 2003, was implemented in a broadly satisfactory manner. Measures have been taken to strengthen the public finances and advance structural reforms, in order to boost non-oil economic growth. In addition, Gabon has taken steps toward improved governance, including participation in the Extractive Industries Transparency Initiative.

"The authorities' economic program for 2004-05, supported by the Stand-By Arrangement, aims at strengthening the adjustment effort. It emphasizes continued fiscal adjustment to free resources for the private sector, reduce financing gaps, and contain the debt burden, as well as improved public expenditure management to direct resources to priority sectors. The program also seeks to deepen structural reforms, including privatization and governance at all levels of the public administration, in order to promote growth in the economy's non-oil sector and place the public debt on a sustainable path.

"The program provides for a reduction in the public sector wage bill, following increases in recent years, and curtailment of other current expenditure, while capital expenditure would increase modestly. The efficiency of public investment is to be improved, particularly through the preparation of medium-term expenditure frameworks for key sectors, including health and education, which will have to be consistent with the priorities outlined in the Poverty Reduction Strategy Paper (PRSP) under preparation. The PRSP, which is being prepared through a broad consultative process, is expected to be finalized in early 2005. The financial positions of the local authorities and the long-term viability of social security agencies are being strengthened.

"The authorities attach priority to the reforms under way in the key forestry sector. The preparation of a letter of development policy for the forestry sector confirms their commitment to the principles of sustainable development and transparency in the management of forestry resources. In addition, the role of the timber marketing board will be re-defined through a comprehensive study to be carried out in the coming months, in order to improve the efficiency of the timber exporting process.

"Despite some improvements in macroeconomic performance and the strengthened outlook for private investment as a result of recent privatizations, the authorities will need to vigorously implement the economic program to ensure its success. In particular, the program depends crucially on growth in the non-oil sectors of the economy. Progress in program implementation will therefore need to be monitored carefully," Ms. Krueger said.

ANNEX

Recent economic developments

Gabon's economy continues to face major challenges, including a drop in oil production, a heavy debt burden, and weak social indicators. Following a pattern of intermittent adjustment and recurrent excess spending, the authorities have shown since mid-2002 a new resolve to address these challenges through sustained fiscal adjustment and comprehensive structural reforms. Efforts in the second half of 2002 focused on improving governance, reforming tax and customs administrations, strengthening the Budget and Treasury Departments, restructuring public enterprises, and promoting private investment. An austerity budget was adopted for 2003, which aimed at raising non-oil revenue and reducing substantially the non-oil primary fiscal deficit; its implementation in the first half of 2003 was satisfactory. This led to improved policy performance during 2003, and in particular under the staff-monitored program (SMP) covering the period September-December 2003.

Macroeconomic performance in 2003 was generally positive. A higher-than-anticipated rise in oil GDP more than offset lower-than-expected growth of non-oil GDP. As a result, total real GDP grew by 2.8 percent in 2003, as opposed to a stagnation projected under the SMP. The 12-month inflation rate continued to be subdued, at 2 percent, in line with the program.

The pace of structural reforms has accelerated since mid-2002, as the authorities took steps to strengthen significantly the budgetary management capacity, improve governance, and foster private sector development. Key reforms include restructuring and preparing the privatization of public enterprises, the adoption of the anti-corruption legislation, the revamping of the computerized budget information system, and the reform of the procurement code.

Program summary

Gabon's economic program, which is supported by the Stand-By Arrangement, seeks to create conditions for sustained economic growth and poverty reduction. The program aims at fostering non-oil sector growth and the diversification of the economy through sustained fiscal adjustment and comprehensive structural and social reforms.

The fiscal adjustment, which will rely mainly on containing current expenditures, aims at a reduction in the non-oil primary deficit, so as to maintain a significant overall budgetary surplus despite the decline in oil revenue, and help to further reduce the public debt-to-GDP ratio.

The structural measures, directed at fostering non-oil growth, will center on further progress in the privatization process, the implementation of reforms in the forestry sector, and the strengthening of key infrastructure, in the context of a well-targeted public investment program for 2004-06. The program will also include measures to further solidify the banking system, and to strengthen the financial system so as to support the development of small and medium-sized enterprises, agriculture, and residential construction.

When finalized, a well-focused Poverty Reduction Strategy, with detailed plans for the priority social sectors, will represent an essential instrument for prioritizing the public expenditure effort in a coherent medium-term framework, and ensuring accountability and close monitoring of progress in improving social indicators and achieving the Millennium Development Goals.

Gabon: Selected Economic and Financial Indicators, 2000-2006
	2000	2001	2002	2003	2004	2005	2006
					Projections
	(Annual percent change)
Domestic economy
Real GDP growth	-1.9	2.0	0.0	2.8	2.0	-0.7	0.6
Of which: oil	-10.2	-5.7	-1.4	7.6	-0.6	-11.7	-9.3
non-oil	2.1	5.3	0.6	1.0	3.0	3.5	3.8
Consumer price inflation, average	0.4	2.1	0.2	2.1	2.0	2.0	2.0
	(In percent of GDP)
Gross fixed investment	21.8	25.8	24.4	23.9	25.7	26.2	26.3
Gross national savings	41.5	36.8	29.6	34.4	31.5	27.7	25.8
	(In millions of U.S. dollars) 1/
External sector
Exports, f.o.b.	3,329.7	2,616.2	2,597.9	3,243.5	3,380.8	2,862.3	2,629.8
Imports, f.o.b.	-800.2	-848.2	-956.4	-1,084.5	-1,236.1	-1,235.8	-1,258.4
External current account balance (including grants)	1,003.7	517.9	256.4	634.2	365.8	94.5	-31.9
In percent of GDP	19.7	11.0	5.2	10.5	5.8	1.5	-0.5
External public debt (in percent of GDP) 1/	57.1	63.1	62.7	55.9	58.6	60.7	61.6
Real effective exchange rate (in percent change, average)	-6.9	1.7	0.7	3.4	...	...	...
	(In percent of GDP, unless otherwise indicated)
Financial variables
Central government revenues (excluding grants)	33.4	34.0	31.5	29.8	30.2	29.3	27.9
Of which: non-oil	10.9	12.2	13.9	13.6	15.2	16.8	17.8
Total expenditure	21.7	30.8	28.1	22.4	25.0	24.8	25.0
Primary balance (payments order basis, excluding grants)	17.5	12.0	7.9	11.4	10.3	8.6	7.0
Overall balance (payments orderbasis, excluding grants)	11.6	3.2	3.5	7.4	5.4	4.7	3.1
Change in broad money (in percent)	18.0	7.5	5.7	-1.2	5.3	5.3	5.5
Sources: Gabonese authorities; and IMF staff estimates and projections.
1/ Including obligations to the Fund, and new borrowing.