Information about Sub-Saharan Africa África subsahariana
Journal Issue

IMF Concludes 2003 Article IV Consultation with Equatorial Guinea

International Monetary Fund
Published Date:
December 2003
  • ShareShare
Information about Sub-Saharan Africa África subsahariana
Show Summary Details

On November 12, 2003, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Equatorial Guinea.1


Recent economic developments have been dominated by a further strong expansion of the oil sector. Production more than doubled between 2000 and 2002 to about 250,000 barrels per day. Reflecting this development, real GDP growth averaged 24 percent during that period while non-oil activity expanded by an annual average of about 5 percent on account of strong growth in services to the oil sector and construction activity. By contrast, growth in agriculture and logging was sluggish, owing to a loss of competitiveness and the enforcement of sustainable logging levels. Domestic price pressures and the appreciation of the euro vis-à-vis the U.S. dollar led to an appreciation of the real effective exchange rate by 15 percent between end-2001 and mid-2003, thereby erasing the gain in competitiveness stemming from the devaluation of the CFA franc in 1994, The annual rate of consumer price inflation stood at 10 percent in mid-2003.

External sector trends reflected growing petroleum exports and high oil-related investment. The deficit in the external current account narrowed significantly over 2000–02 and is projected to be close to balance in 2003. The non-oil current account deficit widened as non-oil imports surged, owing to strong demand from the oil sector and expanding public investment. The overall terms of trade have improved by about 40 percent, mainly due to higher oil prices. Rising oil receipts have led to an increasing accumulation of foreign assets.

Budgetary revenue and spending have also grown rapidly, giving rise to significant overall surpluses but also putting considerable pressure on the country’s small non-oil economy. The overall fiscal surplus increased from about 8 percent of GDP in 2000 to 12½ percent of GDP in 2002 as strong growth in oil revenue was only partly offset by higher government outlays. However, owing to persistently weak budgetary discipline and unsustainable spending plans, both public sector outlays and the non-oil deficit expanded significantly during that period in relation to non-oil GDP.

Monetary developments mirrored overall economic and fiscal trends. Rising oil export revenues were reflected in a buildup of net foreign assets of the banking system as the government accumulated deposits at the regional central bank (BEAC) and in domestic commercial banks; in addition, the revenues were reflected in rising balances held in bank accounts abroad. Credit to the economy grew strongly between 2000 and 2002, largely in the form of bridge financing to construction companies engaged in public works. As a result, broad money expanded, leading to strong price pressures in spite of some monetization of the economy.

Following significant public spending overruns in 2002 that were in part related to the elections, the authorities drew up a more conservative budget for 2003. Compared with the 2002 budget outturn, the 2003 budget envisages a significant decline in nominal spending, which would lead to a contraction of the non-oil deficit of 30 percentage points of non-oil GDP, to about half of non-oil GDP. During the first six months of 2003, overall spending was kept within budgeted limits, as higher-than-planned capital outlays were offset by lower-than-budgeted current spending.

The authorities have initiated some fiscal structural reforms and are eliminating external arrears. A public finance law and regulations for public accounting are being prepared to strengthen the budget process. A draft tax code has been elaborated to incorporate formerly dispersed legislation into one document. The authorities have reduced external arrears, and they recently concluded discussions on an agreement with Spain (their largest creditor).

Progress has been made in enhancing the transparency of oil-related transactions, and other aspects of managing the oil sector are being improved. The recorded budgetary surplus in 2002 was reconciled with movements in the government’s bank accounts. However, discrepancies in earlier years still need to be clarified. The government has stepped up audits of oil companies, and the use of advance payments on oil revenue has been discontinued.

Against the background of the uneven progress in improving key human development indicators, the authorities have taken first steps toward developing a new and more effective poverty reduction strategy. They have finalized a broad-based education plan and a strategy to improve productivity in agriculture that may also help reduce poverty.

Executive Board assessment

Executive Directors noted that oil-related inflows pose considerable challenges to Equatorial Guinea’s macroeconomic management, including unsustainable levels of public spending, and significant upward pressure on prices and the real exchange rate. The consequent loss of competitiveness is a threat to non-oil activities, with potentially serious economic and social consequences. Directors were encouraged by the authorities’ strong commitment to address these challenges, and welcomed the steps already taken in this regard. However, Directors underscored the urgency of developing a medium-term strategy aimed at transforming Equatorial Guinea’s oil wealth into sustained development. This should include further improvements in governance and transparency; the attainment of a sustainable fiscal position; the implementation of structural reforms to bolster the non-oil sector; the development of a transparent framework for saving and managing part of the country’s oil wealth; and a comprehensive effort to reduce poverty more effectively.

Directors urged the authorities to strengthen fiscal policy in the face of the challenges posed by large revenue inflows. While welcoming their renewed commitment to fiscal consolidation, Directors emphasized that steadfast adherence to the 2003 budget and the containment of public spending in 2004 at the current year’s level will be essential to reduce price pressures and slow the loss of competitiveness. Going forward, the fiscal consolidation effort will need to be sustained to move the budgetary position toward a sustainable level.

Directors welcomed the legislative reforms to strengthen the budgetary process and consolidate tax legislation. They encouraged the authorities to move expeditiously toward improving the tracking of budgetary spending to ensure that public outlays are channeled to their intended uses. In addition, Directors recognized that, although debt sustainability is not likely to be a problem in the medium term, it will be important to refrain from borrowing against oil revenues. They welcomed the authorities’ intention to request a fiscal Report on the Observance of Standards and Codes, which will help identify weak areas in their fiscal system and direct external technical assistance to them.

Directors viewed Equatorial Guinea’s participation in the Central African Economic and Monetary Community (CEMAC) as appropriate. However, they noted the resulting constraints on monetary policy, and expressed concern about the liquidity implications of oil-related revenue flows, including above-target inflation rates. In the absence of an independent monetary policy, Directors suggested prudent fiscal policy and the permanent reduction of government deposits in domestic commercial banks to help control the money supply. Directors viewed the banking system as generally sound, although continued vigilance will be required to ensure the high quality of bank loans going forward.

Directors urged the authorities to continue to make strong progress in addressing governance issues, and, in particular, to build further on their recent efforts to increase the transparency of oil-related transactions. Oil-related information should from now on be reconciled on a regular basis, and remaining discrepancies between data on budget balances and changes in financial assets should be clarified without delay. Directors also highlighted the importance of ensuring that the state-owned oil company’s activities are subject to a firm supervisory and control framework, and that its finances are fully integrated into the budget process.

Directors welcomed the authorities’ plan to save part of the oil revenue in an oil reserve fund, but stressed the need for an operational framework with rules guided by international best practices. This should include full disclosure of the fund’s activities, separation of supervisory and executive functions, and recruitment of internationally-reputable managers. It will also be important to ensure that amounts to be deposited are determined flexibly, based on macroeconomic considerations. Directors encouraged the authorities to seek help from oil-exporting countries in setting up the reserve fund. They encouraged the authorities to follow through on their intentions to become a pilot case under the Extractive Industries Transparency Initiative, and to cooperate with the World Bank and the Fund in this area.

Directors underscored the importance of structural reforms to reduce the cost of doing business in Equatorial Guinea and foster the development of the non-oil economy. They welcomed the authorities’ steps to support the development of human capital over the medium term, and looked forward to additional measures that will help offset recent losses in competitiveness. These should include the effective implementation of legislation aimed at removing uncertainties for private investment (OHADA), and a broadening of training programs for local entrepreneurs in basic business skills. Competitiveness would be further enhanced by keeping tax rates at the lowest levels permitted by the CEMAC agreements, simplifying tax administration, and eliminating taxes on non-oil exports.

Directors encouraged the authorities to press ahead with their plans to develop a poverty reduction strategy. A broad-based discussion on how to make the best use of the country’s oil wealth and foster non-oil growth should be a central building block for that strategy. The construction of poverty profiles should help target the strategy’s actions effectively.

To allow effective surveillance and informed policy discussions, Directors urged the authorities to intensify their efforts to provide the Fund with key economic data on a regular and timely basis. Directors welcomed the authorities’ interest in closer surveillance and technical assistance relationship with the Fund, while noting that, to be effective, this would need to be based on steady progress in enhancing the transparency of oil-related transactions and in implementing sound economic policies, including fiscal consolidation. They recommended that the authorities also seek early involvement from other partners to assist in developing human and institutional capacity.

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF’s assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board. The Staff Report for the 2003 Article IV Consultation with Equatorial Guinea is also available.

Equatorial Guinea: Selected Economic and Financial Indicators
2000200120022003 Proj.2004 Proj.
(Annual percentage change, unless otherwise specified)
Domestic economy
Real GDP18.037.517.614.710.2
Of which: non-oil GDP11.
Oil production (thousands of barrels per day) 1/117.9205.1247.0279.4315.3
Consumer prices (annual average)
External economy
Exports, f.o.b.64.435.722.430.40.8
Imports, c.i.f.16.365.0-30.723.3-29.3
Exchange rate (CFA francs per U.S. dollar)710732695586
Real effective exchange rate (depreciation -) 2/-
Financial variables
Government revenue108.697.319.138.618.1
Government expenditure and net lending24.646.846.0-20.2-1.1
(In percent of GDP, unless otherwise specified)
External economy
Current account balance (including official transfers; - deficit)-29.0-34.4-8.6-1.713.6
Outstanding medium- and long-term public debt31.522.919.116.416.0
Debt service-to-export ratio1.
Financial variables
Gross investment43.957.029.426.820.1
Gross national savings14.922.620.825.134.4
Government revenue19.627.728.033.939.7
Of which: oil revenue16.422.822.828.934.1
Government expenditure and net lending11.812.415.310.610.5
Overall government balance (including oil revenue; - deficit)7.815.312.623.229.2
(In millions of U.S. dollars, unless otherwise specified)
External economy
Exports, f.o.b.1,3411,8192,2262,9032,926
Imports, c.i.f.-968-1,597-1,107-1,365-965
Current account balance-367-589-183-49396
Overall balance of payments36168258553805
Financial variables
Gross international reserves (excl. oil reserve fund)23.070.870.2105.1112.9
(equivalent months of imports, c.i.f.)
(equivalent months of non-oil sector imports, c.i.f.)
Sources: Equatoguinean authorities; and IMF estimates and projections.

Including oil equivalent of methanol and liquefied gas beginning in 2001.

Period average changes; for 2003, the average of the first half of 2003 over the first half of 2002.

Sources: Equatoguinean authorities; and IMF estimates and projections.

Including oil equivalent of methanol and liquefied gas beginning in 2001.

Period average changes; for 2003, the average of the first half of 2003 over the first half of 2002.

1Under 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.

Other Resources Citing This Publication