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Gabon: Staff Report for the 2014 Article IV Consultation

International Monetary Fund. African Dept.
Published Date:
February 2015
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Background: Strategy to Reverse Economic and Social Decline

1. Despite oil wealth, economic growth for most of the past 15 years has been lackluster and has not been inclusive. Real GDP growth averaged less than 1 percent in the decade through 2009 (Figure 1). As a result, despite relatively high per capita GDP (US$11,100 in 2013), one third of the population remains below the poverty line and (formal) unemployment is at 20 percent. While the political environment has remained stable, weak institutions and governance, a shallow financial sector, and a poor business environment have been obstacles to transforming the oil wealth into better living conditions for the population. Against this backdrop, President Ali Bongo Ondimba launched in 2010 an ambitious plan to transform Gabon into an emerging and diversified economy by 2025, underpinned by a large US$12 billion public investment program.

Figure 1.Growth Performance

Sources: IMF and Gabonese Authorities.

2. The Plan Stratégique Gabon Emergent (PSGE) is the cornerstone of the authorities’ economic policies. The plan’s objectives are to: (i) significantly accelerate economic growth and diversify its sources away from oil; (ii) improve social indicators by having more inclusive and job-rich growth; and (iii) ensure sustainable management of natural resources for future generations. The two main pillars of the strategy are to improve the level and quality of infrastructure, and to raise the quality of human capital.

3. Despite its upper middle-income country status, Gabon fares poorly in areas that are critical to the success of the PSGE. Figure 2 and Text Table 1 compare Gabon to other emerging economies on several indicators, including the business environment and financial market development.1 As seen in Figure 2, Gabon ranks considerably lower than its comparators in most determinants of competitiveness, and does poorly in basic aspects such as infrastructure, health, and education. Comparisons of financial indicators show that emerging countries have considerably more financial depth and market access than Gabon (Text Table 1).

Figure 2.Global Competitiveness Index Comparison, 2014–15 (Position in the Ranking)

Sources: World Economic Forum and IMF Staff estimates.

Text Table 1.Financial Sector Indicators: Gabon and Emerging Countries
NPL/loansEmerging Countries4.6
Emerging Countries Similar Income per Capita4.5
Private credit bureau coverageEmerging Countries43.7
(% of adults)Emerging Countries Similar Income per Capita63.3
Account at a formal financialEmerging Countries47.5
institution (% age 15+) 1/Emerging Countries Similar Income per Capita53.3
Commercial bank branchesEmerging Countries20.1
(per 100,000 adults)Emerging Countries Similar Income per Capita22.7
Strength of legal rights indexEmerging Countries5.3
(0=weak to 12 = strong)Emerging Countries Similar Income per Capita5.7
Domestic credit to private sectorEmerging Countries61.2
by banks (% of GDP)Emerging Countries Similar Income per Capita57.5
Borrowers from commercialEmerging Countries296.3
banks (per 1,000 adults)Emerging Countries Similar Income per Capita378.2
Sources: World Development Indicators and IMF Staff calculations.

Refers to 2011 data only.

Sources: World Development Indicators and IMF Staff calculations.

Refers to 2011 data only.

4. Gabon is the second largest economy in the CEMAC monetary and economic union, and its policies have significant spillover effects to the union. This is notably the case regarding the accumulation of external reserves, since Gabon’s large oil wealth is a major source of foreign exchange to the union. Representing over one fifth of CEMAC’s nominal GDP, the evolution of the Gabonese economy is bound to have significant effects over the rest of the region. Furthermore, a successful, fiscally sustainable implementation of Gabon’s diversification plan would not only be a valuable model for other countries in the region that are aiming to foster non-oil growth, but the resulting improvement in Gabon’s roads and telecommunications infrastructure could foster the region’s integration and connection to the rest of the world.2

Growth has Improved, But Near Term Risks Have Increased

5. Gabon’s growth performance has recently been strong, but fiscal pressures increased significantly. Real GDP growth has averaged about 6 percent in the last four years on the back of substantial scaling-up of public investment (Figure 3). Higher oil and manganese export prices have improved the external current account balance since 2010. However, the fiscal position has increasingly come under pressure due to a very rapid increase in spending, especially on investment, notwithstanding historically high oil prices. By 2013 the overall budget surplus (commitment basis) had virtually disappeared from a high of about 6 percent of GDP in 2009. Due to base effects in 2013, average inflation has increased in 2014 to a projected 4½ percent.

Figure 3.Gabon: Selected Economic Indicators

Sources: IMF and Gabonese Authorities.

6. The growth outlook for 2015 has weakened due to the oil price shock, but should improve afterwards. Thus, while 2015 growth is projected to slowdown to 4½ percent, it should average about 5.7 percent in the following five years, driven by public investment, non-oil natural resources, and services. The gradual decline in oil output—which is driven by maturing wells—will likely continue in the coming years3, but may potentially be somewhat mitigated by the introduction of new extraction technologies and new small-scale discoveries. A number of projects underway at Special Economic Zones (SEZs) in agro-industry, mining, and wood processing, should help sustain the projected non-oil growth.

7. The foremost downside risk to the economic outlook in the short to medium term is an insufficient adjustment to fiscal policy in the face of extremely weak oil prices, and weak investment execution capacity. This could lead to further depletion of fiscal buffers and insufficient fiscal space to address binding constraints to growth (see Risk Assessment Matrix), which could depress both aggregate demand and supply. In the longer run, there is upside potential to raise growth if the PSGE rapidly succeeds in its objectives of reducing “horizontal” binding constraints, such as infrastructure bottlenecks, lack of qualified labor, and a weak business environment. In fact, the diversification strategy is starting to bear fruit in attracting new FDI in mining, wood processing, and agro-industry. The baseline assumes a somewhat higher growth rate toward the end of the projection period, in part driven by increased FDI. The baseline projections also assume implementation of additional fiscal adjustment beyond what the authorities currently envisage. If fiscal adjustment is insufficient or delayed, the lack of sufficient fiscal space could derail the diversification strategy toward a more private sector-led growth (see Figure 4). With the projected trend decline in oil exports, the external current account surplus is expected to turn negative over the medium term.

Figure 4.No Fiscal Adjustment Scenario1, 2014–2020

Sources: IMF Projections

1 With respect to the baseline scenario, the “No Fiscal Adjustment Scenario” assumes: (i) a lower increase in nonoil revenues because tax exemptions are not significantly eliminated; (ii) the fuel subsidy scheme is not reformed; (iii) other current spending items are not controlled and therefore grow in tandem with non-oil GDP throughout the projection period; and (iv) public investment also grows at the same rate as non-oil GDP from 2015.

8. Gabon’s track record in implementing the recommendations of the last Article IV consultation has been relatively weak, with some progress made only recently (see Text Table 2). Gabon has not adopted an oil price-smoothing rule and fiscal buffers have not been rebuilt mainly due to continued high spending levels, especially on the wage bill and energy subsidies. However, during 2014 the authorities eliminated industrial diesel subsidies for most sectors and reduced the very high capital spending. They also reduced the number of days needed to open a business in SEZs, and have initiated the assessment of the financial situation of weak public banks.

Text Table 2.Gabon: Status of Implementation of Key Recommendations from the 2012 Article IV Consultation
Build larger fiscal buffersNot done; deposits at BEAC have continued o decline
Adopt oil price-smoothing rule for budgetNot done
Greater control of wage billNot done
Reduce fuel subsidiesPartly done; most industrial diesel subsidies eliminated in January 2014
Curb sharp increase in public investment spendingDone in mid-2014; spending cut by more than 50 percent
Improve business climateInitial steps taken
Address financial situation of weak public banksInitial steps taken
Sources: 2012 Article IV staff report on Gabon and information from the authorities.
Sources: 2012 Article IV staff report on Gabon and information from the authorities.

Adjusting Fiscal Policy to Ensure Sustainable Financing of Authorities’ Growth and Diversification Strategy

9. Given the economic challenges facing Gabon, the Article IV consultation was centered on how to make the PSGE a reality while ensuring fiscal sustainability in the face of a major terms of trade shock. Specifically, the discussions focused on the following issues: (i) creating the fiscal space necessary to finance the PSGE on a fiscally sustainable basis, notably by keeping rapid public debt accumulation in check despite the collapse in oil prices; (ii) policies to strengthen competitiveness and promote economic diversification; and (iii) deepening the financial sector and enhancing financial stability.

A. Financing the PSGE on a Fiscally Sustainable Basis

Fiscal framework and policies

10. Despite historically high oil prices, in recent years the fiscal stance has substantially deteriorated as a result of a massive scaling up of public investment. The accelerated implementation of the PSGE led to a large increase in government expenditures from 38 percent of non-oil GDP in 2009 to 46.5 percent in 2013 (see Figure 5).4 The non-oil primary deficit consequently increased from 11.7 to 19.6 percent of non-oil GDP between 2009 and 2013. The massive boost in public spending, in the context of gradually declining oil revenues, has been partly financed by a large increase in public debt from 16.5 percent of GDP in 2011 to 27.6 percent in 2013, statutory advances at the maximum permissible level and a rapid draw-down of deposits at the central bank in 2014, a significant accumulation of domestic payments and VAT arrears, and even some accumulation of external arrears.5

Figure 5.Gabon Fiscal Indicators

Sources: IMF and Gabonese Authorities.

11. The authorities recognized the tight fiscal situation, appropriately rectified their 2014 budget in order to scale down their investment program, and are finalizing a conservative 2015 budget assuming much lower oil revenues. The revised budget approved by parliament in July 2014 sharply cut down capital spending with respect to the initial budget by an amount equivalent to 12 percent of 2014 non-oil GDP. Preliminary estimates indicate that the adjustment in 2014 resulted in an overall surplus of 4½ percent of non-oil GDP on a commitment basis that allowed the government to pay about CFAF 435 billion in arrears.6 The authorities also recently implemented measures to speed up the reimbursement of the VAT. The most recent version of the 2015 budget to be sent to parliament conservatively assumes the price of Brent oil at US$45 per barrel, cuts down spending on goods and services with respect to 2014, substantially reduces oil subsidies, reschedules repayment of domestic arrears7, and freezes the level of public investment. To protect capital spending, the government intends to issue a eurobond in 2015.8 The staff report baseline scenario (see Tables 1-5 and Figure 7) incorporates the expenditures proposed in the latest 2015 budget, reduces by half the size of the eurobond issuance, and projects oil revenues based on a price of US$51 per barrel as per January 20, 2015 WEO assumptions. For 2016 onwards, the projections are based on staff’s understanding of the authorities’ planned medium-term policies, and present an adjustment scenario aimed at controlling public debt levels and ensuring repayment of arrears, mainly by containing the wage bill growth and considerably reducing oil subsidies.

Table 1.Gabon: Selected Economic Indicators, 2012–20
Est.Est.Prel. Est.Proj.
(Annual percent change, unless otherwise indicated)
Real sector
GDP at constant prices5.
of which: primary oil−4.2−5.3−0.9−6.00.1−0.4−0.6−1.3−1.6
GDP deflator−16.8−2.7−4.6−
Consumer prices
Yearly average2.
End of period2.
External sector
Exports, f.o.b.9.1−6.0−5.7−41.313.
Imports, f.o.b.−−
Terms of trade (deterioration= −)−14.21.7−5.9−−0.8
Central government finance
Total revenue6.1−0.6−9.6−24.317.
Oil revenue12.5−12.2−8.7−−0.6−0.6
Total expenditure9.8−1.2−14.2−
(Percent of GDP, unless otherwise indicated)
Non-oil primary balance (in non-oil GDP)−25.1−19.6−15.0−11.6−11.2−9.8−8.9−8.2−7.9
Overall balance (commitment basis)−3.1−
Overall balance (cash basis)2.40.2−2.2−3.8−2.2−
Net domestic financing−3.6−−1.61.4−2.6−2.3−1.5
Net external financing−
External public debt (including to the Fund)
Total public debt (Percent of GDP)21.126.927.734.435.733.733.232.931.9
(Percent Change, unless otherwise indicated)
Money and credit
Credit to the economy24.123.6−
Broad money15.
Velocity ratio of NOGDP over broad money2.
(Percent of GDP, unless otherwise indicated)
Gross national savings42.340.636.928.530.431.933.333.233.5
Gross fixed investment21.025.825.830.931.231.833.635.236.3
of which: private9.014.918.723.524.624.926.127.227.7
Current account balance21.314.811.1−4.0−0.40.3−0.1−1.8−2.9
(CFA francs billion, unless otherwise indicated)
Memorandum items
Nominal GDP8,2748,5008,5188,0628,7229,3889,97510,54611,235
Nominal non-oil GDP4,8795,3075,5415,9966,3896,9037,4047,9488,605
National Currency per U.S. Dollar (Average)510494494............
Oil Prices (WEO, U.S. Dollar/BBL)10510496515964676868
Sources: Gabonese authorities and IMF staff estimates and projections.
Sources: Gabonese authorities and IMF staff estimates and projections.
Table 2.Gabon: Central Government Accounts, 2012–20
Est.Est.Prel. Est.Proj.
(Billion of CFA francs)
Total revenue and grants2,6382,6222,3701,7942,0982,2882,4572,5922,760
Oil revenue1,5311,3441,226586805865893887881
Non-oil revenue1,1071,2781,1431,2081,2951,4241,5651,7071,881
Tax revenue1,0481,0559951,0911,1661,2841,4091,5321,686
Taxes on income, profits, and capital gains310343360408425470519558611
Domestic taxes on goods and services184280195239264294326361404
Value-added tax12621398165182205229255288
Taxes on international trade and transactions407401398403430466504546595
Import tariffs397389378379403436467502543
Export taxes111220242631374452
Other non-oil taxes1463142424853606776
Non-tax revenue59222148117127139155173193
Total expenditure and net lending2,4202,4682,1182,0432,1782,2812,3972,5472,759
Current expenditure1,4271,4191,4771,4391,5171,5471,5771,6281,727
Wages and salaries515553681733741755767781834
Goods and services328239279254270281296316340
Interest payments87152144141169177175185198
Transfers and subsidies498476374312337334339346355
of which: oil subsidies22922012536199788
Capital expenditure995925601599580653745843956
Domestically financed813655331321138392483573673
Foreign financed183271270278442261262270284
Net lending−78−99001010555
Road Fund (FER) and special funds752234157071717171
Overall balance (commitment basis)218154251−249−78961474
Change in arrears−21−134−435−55−111−111000
Domestic arrears payments−21−134−435−55−111−111000
External arrears (interest only)000000000
Overall balance (cash basis)19620−184−304−189−10261474
Total financing−196−20184304189102−61−47−4
Foreign borrowing (net)−18514322692924132138128
Exceptional financing072502731360000
Domestic borrowing (net)−178−53415235−10398−192−186−132
Banking system−76−319227−5−14358−232−226−132
Monetary authorities−92−331250−35−15546−240−243−149
Deposit money banks1611−2330121281717
Non-bank sector−101−215−7540404040400
Financing gap000000000
Memorandum item:
Gross government deposits in BEAC382.9740.0657.5692.1846.9800.71041.11283.71432.5
Non-oil primary balance excluding capital transfers (NOPD)−1,227−1,039−832−694−714−680−657−654−680
as percent of non-oil GDP−25.1−19.6−15.0−11.6−11.2−9.8−8.9−8.2−7.9
Non-oil GDP at market prices4,8795,3075,5415,9966,3896,9037,4047,9488,605
Sources: Gabonese authorities and IMF staff estimates and projections.
Sources: Gabonese authorities and IMF staff estimates and projections.
Table 3.Gabon: Central Government Accounts, 2012–20
Est.Est.Prel. Est.Proj.
(Percent of non-oil GDP)
Total revenue and grants54.149.442.829.932.833.133.232.632.1
Oil revenue31.425.322.19.812.612.512.111.210.2
Non-oil revenue22.724.120.620.120.320.621.121.521.9
Tax revenue21.519.918.018.218.318.619.019.319.6
Taxes on income, profits, and capital gains6.
Domestic taxes on goods and services3.
Taxes on international trade and transactions8.
Other non-oil taxes3.
Non-tax revenue1.
Total expenditure and net lending49.646.538.
Current expenditure29.226.726.624.023.722.421.320.520.1
Wages and salaries10.510.412.312.211.610.910.49.89.7
Goods and services6.
Interest payments1.
Transfers and subsidies10.
of which: oil subsidies4.
Capital expenditure20.417.410.810.09.19.510.110.611.1
Domestically financed16.712.
Foreign financed3.
Net lending−1.6−
Road Fund (FER) and special funds1.
Overall balance (commitment basis)−4.2−
Change in arrears−0.4−2.5−7.8−0.9−1.7−
Overall balance (cash basis)4.00.4−3.3−5.1−3.0−
Total financing−4.0−−0.8−0.60.0
Foreign borrowing (net)−
Exceptional financing0.
Domestic borrowing (net)−3.6−−1.61.4−2.6−2.3−1.5
Banking system−1.6−6.04.1−0.1−2.20.8−3.1−2.8−1.5
Non-bank sector−2.1−4.0−
(Billion of CFA francs, unless otherwise indicated)
Total revenue and grants2,6382,6222,3701,7942,0982,2882,4572,5922,760
Total expenditure and net lending2,4202,4682,1182,0432,1782,2812,3972,5472,759
Overall balance218154251−249−78961474
Memorandum items:
Gross government deposits in BEAC (percent of GDP)
Overall balance (percent of GDP)−3.1−
Non-oil primary balance excluding capital transfers−1,227−1,039−832−694−714−680−657−654−680
As percent of non-oil GDP−25.1−19.6−15.0−11.6−11.2−9.8−8.9−8.2−7.9
Oil revenues (percent of oil GDP)
Basic balance (percent of GDP)
Public debt (percent of GDP)21.126.927.734.435.733.733.232.931.9
Domestic debt (percent of GDP)
External debt (percent of GDP)
Non-oil GDP at market prices4,8795,3075,5415,9966,3896,9037,4047,9488,605
Sources: Gabonese authorities and IMF staff estimates and projections.
Sources: Gabonese authorities and IMF staff estimates and projections.
Table 4.Gabon: Monetary Survey, 2012–20
Est.Est.Prel. Est.Proj.
(Billion of CFA francs, unless otherwise indicated)
Net foreign assets110614241328146415711611169519752096
Net domestic assets924732741874861956994845956
Domestic credit1131999995107110331214111010321091
Claims on central government (net)82−250−175−195−338−292−516−725−840
Claims on public agencies (net)−32−124−136−136−136−136−136−136−136
Claims on nongovernment108113731306140215061641176218922066
Other items (net)−207−268−255−197−171−258−115−187−134
Broad money (M2)203422122243233824322567268928203053
(Annual change as percent of Broad Money)
Net foreign assets3.415.6−
Net domestic assets10.4−−−5.33.7
Domestic credit9.9−5.9−0.23.2−1.67.1−3.9−2.81.9
Claims on general government (net)−1.0−15.03.3−0.8−5.91.8−8.3−7.4−3.8
Claims on nongovernment11.913.2−
Other items (net)−0.5−4.1−
Memorandum items:(Annual percent change)
Broad money (M2)
Reserve money (RM)40.7−32.6−2.7−8.3−
Credit to the economy24.123.6−
Credit to the private sector (in percent of non-oil GDP)21.324.221.521.321.521.721.721.721.9
Broad money (in percent of overall GDP)24.626.026.329.027.927.327.026.727.2
Government non-cash deposits in BEAC (billion CFA francs)265.7205.0n.a.n.a.n.a.n.a.n.a.n.a.n.a.
Sources: Gabonese authorities and IMF staff estimates and projections.
Sources: Gabonese authorities and IMF staff estimates and projections.
Table 5.Gabon: Balance of Payments, 2012–20
Est.Est.Prel. Est.Proj.
(Billions of CFAF)
Current account1,7601,261947−324−3532−12−189−327
Goods (net)4,0873,4833,1061,6421,9242,0882,1352,0861,963
Export of goods (fob)5,7305,2164,9143,1973,6053,9124,1094,2174,263
Import of goods (fob)−1,643−1,732−1,809−1,555−1,681−1,824−1,974−2,131−2,300
Petroleum sector−405−358−324−172−200−215−222−221−216
Services (net)−990−944−972−914−877−929−981−1,014−989
Other private services−360−451−487−458−463−472−472−441−489
Income (net)−1,185−1,121−1,031−903−926−968−1,004−1,098−1,146
Current transfers (net)−152−157−156−148−156−159−161−163−156
Capital account000000000
Financial account−964−269−1,063311151−60266447309
Direct investment (net)425478481585634657666702727
Portfolio investments (net)000000000
Other investment assets and liabilities (net)−1,389−747−1,544−274−483−717−399−255−141
Medium- and long-term transactions−117432−34216238−58625737
Short term transactions−1,272−1,180−1,510−490−720−658−462−312−179
Errors and Omissions−716−7410000000
Overall balance80252−116−12116−28254258190
Change in net foreign assets−80−25211612−11628−254−258−190
Use of IMF credit and loans (net)000000000
Memorandum items:(Percent of GDP)
Current account21.314.811.1−4.0−0.40.3−0.1−1.8−2.9
Exports of goods and services72.464.861.143.044.745.044.643.441.7
Imports of goods and services−34.9−34.9−36.1−34.0−32.7−32.7−33.0−33.3−33.0
Capital and financial accounts−5.9−1.6−−
Foreign Direct Investment5.
Overall balance0.51.5−0.7−0.10.7−
(Billions of CFAF, unless otherwise indicated)
Gross official reserves imputed to Gabon1064.01315.81200.11187.61303.71275.61529.51787.11977.2
Sources: Gabonese authorities and IMF staff estimates and projections.
Sources: Gabonese authorities and IMF staff estimates and projections.

Figure 6.Gabon 2013 Eurobond Interest Yield and Spread with 10 Year US Bond


Source: Bloomberg.

Figure 7.Gabon Medium Term Outlook, 2014–2020

Sources: IMF and Gabonese Authorities.

12. The substantial and continued decline in oil revenues will complicate the sustainable implementation of the PSGE, absent additional fiscal consolidation. With oil prices forecast at half of their 2014 level and with Gabonese production continuing its declining trend, considerable fiscal adjustment is required. As seen in Figure 4, without adjustment the fiscal position would deteriorate sharply and debt levels would considerably surpass the government’s own ceiling of 35 percent of GDP. Plans to finance the 2015 and 2016 deficit through international borrowing amidst a potential increase in global interest rates could be further complicated by negative prospects in the oil sector and the perception of a weakening fiscal situation. In fact, the spread of Gabon’s 2013 eurobond has climbed about 200 basis points between end-November 2014 and mid-January 2015 (see Figure 6), and the regional bond market may also tighten as many oil exporters in the region are also seeking additional financing. The implementation of the PSGE itself could be endangered without the fiscal resources needed for many of its public and public-private investments. At the same time, even if projects under the PSGE reach production stage in the medium run, generous tax concessions will significantly limit their potential contribution of net fiscal revenues anytime soon.9

13. In this context, ensuring the fiscal sustainability of the PSGE requires revenue and spending measures upfront. The non-oil revenue tax base should be expanded, notably by reducing overly generous tax exemptions. On the spending side, the government should strictly contain growth in current expenditures, especially of the wage bill, and seize the opportunity provided by low oil prices to phase out the substantial and poorly targeted fuel subsidies (Appendix III), while protecting well-targeted spending on key social areas. The government should avoid any increase in spending beyond its current projections in the run-up to the 2016 elections. Staff’s macroeconomic framework assumes the full implementation of these measures, and shows how capital spending can be gradually increased to finance the PSGE while accumulating currently low government deposits to protect the economy against exogenous shocks and without permanently violating the government’s debt ceiling.10,11 The government should further strengthen the legal environment to promote PPPs in order to help finance much-needed infrastructure, making sure the necessary safeguards are in place so as to avoid putting excessive risk on the government. Finally, staff recommends anchoring medium-term fiscal policy based on a nonoil primary deficit of less than 10 percent of GDP and an overall surplus of at least 2 percent of GDP, which would allow the authorities to progressively rebuild fiscal buffers.

14. Under the proposed staff scenario, public debt approaches the government’s ceiling only temporarily and gradually declines afterwards, but shocks could considerably worsen the debt situation (see Debt Sustainability Analysis). Debt is expected to continue its rapid upward trend in 2015 and 2016 slightly exceeding the 35 percent of GDP ceiling in 2016, and gradually decline afterwards as the government further controls spending. External debt is also projected to increase up to 2016 and gradually decline afterwards. Lack of fiscal adjustment, GDP growth below projections, and/or shocks to government revenues would significantly accelerate public debt accumulation to bring it considerably above the government’s ceiling. External debt could substantially rise if the non-interest rate current account deteriorates and the real exchange rate depreciates.12 The destabilizing impact of the shock scenarios highlights the urgent need to accumulate fiscal buffers.

Authorities’ views

15. Given the tight fiscal situation and the collapse of oil prices, the authorities recognized the need for further adjustment. In their view, the oil price shock has underscored the need to accelerate structural reforms to boost non-oil growth. While emphasizing the need to keep public debt below its conservative ceiling by limiting growth in current spending, they stressed the need to adequately finance their diversification strategy. In order to do so, the authorities agreed on the need to eliminate discretionary tax exemptions and progressively phase out fuel subsidies, while more forcefully controlling current expenditures after 2016. At the same time, they underscored the need to protect capital spending by shifting away resources from current spending, notably on goods and services. The authorities emphasized that they are also strengthening the PPP regulatory framework, as well as redoubling its tax collection effort. Revenue measures also include greater emphasis on risk-based audits and enhanced customs controls including the use of scanners, which will be facilitated by the survey of tax expenditure already undertaken by the authorities. To improve the credibility of the tax system, the authorities are committed to ensuring that they are current on VAT refunds.

Public finance management issues

16. Ensuring the fiscal sustainability of PSGE requires continued efforts to improve the effectiveness and efficiency of government spending. A recent Public Expenditure and Financial Accountability (PEFA) assessment on Gabon found many deficiencies in its PFM system including: (i) low credibility of the budget due to frequent upward revisions and inadequate monitoring of arrears; (ii) weak accounting and financial reporting; (iii) insufficient monitoring and external audit, and lack of parliamentary review; (iv) weak internal controls; and (v) low transparency of budgetary transactions and of transfers to local authorities. On the positive side, the PEFA praised the fact that the annual budget is prepared in a participatory process and within a medium-term framework.

17. Overall, the PEFA concluded that the PFM system remains outdated and relatively ineffective. There are gaps between budget transactions and accounting, delays in the expenditure chain, inadequate financial information systems, a chasm between payroll and personnel files, and weak ex-post internal controls. There is need to improve the quality of spending, especially for investment (“investing in investment”) by enhancing the selection, execution and monitoring (Figure 8), as well as to curtail high extra-budgetary spending, which potentially leads to the accumulation of arrears, and to strengthen anti-corruption safeguards. These improvements should be facilitated by more manageable levels of investment.

Figure 8.Public Investment Management Index, 2011

18. An action plan should be developed to tackle weaknesses identified in the PEFA. The authorities should aim to: (i) improve the completeness of the transactions recorded in the state budget by fully integrating revenue and expenditure operations currently performed in cash on the accounts of the treasury; (ii) enhance financial supervision of public institutions; (iii) modernize the accounting functions to produce more reliable accounts within a reasonable time; and (iv) strengthen collaboration between revenue collection units (at the Ministry of the Economy) and spending units (at the Ministry of the Budget).

Authorities’ views

19. The authorities expressed their determination to strengthen the PFM system and welcomed IMF assistance in this area. They also highlighted recent PFM reforms, such as the recent establishment of a single treasury account, the unification of customs and tax statements, and the ongoing process to introduce a “budgeting by program objective” (BOP, according to its initials in French), which should result in a budget implementation in program mode as of January 2015.13 The law governing the budget in BOP mode should be adopted by end-2014. The authorities underscored their determination to increase transparency of natural resource revenues. To this end, they have adopted an action plan to become EITI-compliant during 2015. Regarding investment quality, the authorities highlighted their adoption of a public procurement code, a requirement to finalize technical studies underpinning specific investment projects before monetary outlays are made, and a requirement to effect payments only after proof of performance. They also note that Bechtel Corporation, a large construction and engineering multinational company, contributes to the design and monitoring of the implementation of PSGE infrastructure projects.

B. Improving Competitiveness for Economic Diversification and Structural Transformation

20. The PSGE aims to achieve greater economic diversification while moving up on the exports value-added chain. With oil-related GDP accounting for about 35 percent of GDP and oil exports accounting for about 80 percent of goods exports in 2014, and against the background of falling oil prices and aging oil wells14, the authorities recognize the need to develop non-oil sectors (mainly agro-industry, wood processing, industrial fishing, and service exports). Overall, the PSGE has an ambitious target of creating 325,000 new jobs by 2025. According to value chain analyses conducted by the World Bank for agriculture, forestry, and tourism, key hurdles to the expansion of the non-oil economy include high transportation and labor costs, low labor productivity, and lack of craftsmanship and technical know-how.15

21. To meet the PSGE’s objectives, the government has taken several actions. In 2010, the government banned the export of raw logs. A special economic zone (SEZ) has been established at Nkok (near Libreville) and a free-trade zone is being established in Port-Gentil. Both offer very generous incentives to firms exporting more than 75 percent of their production, including a 10-year corporate income tax holiday, total tariff exemption on imported capital equipment and parts, total exemption from the value-added tax (VAT) for the first 25 years, unlimited and tax-free profit repatriation, and flexible labor laws for seven years for the employment of foreign workers. 16 Steps have also been taken to facilitate business, such as cutting in half to two weeks the average time needed to start a business in the SEZ of Nkok, and the granting of construction permits has been reduced from more than six months to ten days.

22. To support the economic takeoff, the PSGE seeks to improve public infrastructure, enhance the business climate, and strengthen human capital. Objectives for the modernization of public infrastructure include developing a nationwide fiber optic infrastructure, doubling the country’s energy capacity to 1,000 MW, and establishing a national network of 3,600 kilometers of paved roads17 and 3,000 kilometers of waterways by 2025. The target for business climate reforms is to make Gabon one of the top 10 performers in Africa in the ranking of the World Bank’s of Doing Business indicators by 2020 (Figure 9). Regarding human capital formation, the objective is to refocus the educational system toward technical training in the sectors targeted by the PSGE.

Figure 9.Gabon: Business Environment and Governance

Sources: Doing Business, 2014; World Bank’s Worldwide Governance Indicators (WGI), 2012, (average of control of corruption, government effectiveness, rule of law, regulatory quality, political stability and voice and accountability); Economist Intelligence Unit (EIU); and IMS staff calculations.

LIC = Low-income country; UMIC= Upper-middle income country; OIL=Oil producers; WGI= Worldwide Governance Indicators. SSA oil exporters = Angola, Cameroon, Chad, Congo, Rep. of, Equatorial Guinea, Gabon, and Nigeria.

23. Despite considerable progress in attracting investment and improving infrastructure (Appendix I), the government needs to focus on “horizontal” policies to ensure a positive impact of the PSGE on the Gabonese population. Key achievements under the PSGE include improvements in transport and energy infrastructure, and joint-ventures with foreign companies in strategic sectors, but much remains to be done. Indeed, foreign investors typically cite insufficient and unreliable electricity supply, limited supply of qualified labor, and security of contracts as key deterrents to investing in Gabon. Given high labor costs, the authorities have aimed to compensate for them by granting foreign investors tax exemptions and subsidized electricity. This may have the perverse effect of attracting industries that are capital-intensive, thereby leading to a limited increase in employment and government revenue. Staff underscored that cross-country evidence shows that to attract labor-intensive industries that do not require direct government assistance, priority should be given to “horizontal” reforms.18 These include notably reforms to improve the business climate, physical infrastructure, and the quality of technical education. Clear targets for social indicators should be defined and surveys should be conducted regularly to monitor progress. This is particularly important given that Gabon has fallen short of meeting most Millennium Development Goals (Table 7).

Table 6.Gabon: Financial Soundness Indicators for the Banking Sector, 2009–13
Regulatory Capital to risk-weighted assets19.424.022.621.117.111.6
Capital to total assets10.716.211.310.910.09.2
Asset quality
Bank nonperforming loans to total assets8.
Bank provisions to non performing loans61.471.056.893.284.263.0
Earnings and profitability
Return on assets1.
Return on equity20.817.
Liquid Assets to short-term liabilities243.0197.0158.0137.9143.2125.2
Sources: BEAC, COBAC, and staff estimates using definitions from IMF’s “Compilation Guide on Financial Soundness Indicators.”
Sources: BEAC, COBAC, and staff estimates using definitions from IMF’s “Compilation Guide on Financial Soundness Indicators.”
Table 7.Gabon: Millennium Development Goals, 1990–2012
Goal 1: Eradicate extreme poverty and hunger
Employment to population ratio, 15+, total (%)6060606162..
Employment to population ratio, ages 15–24, total (%)4041403938..
Malnutrition prevalence, weight for age (% of children under 5)....9....6
Goal 2: Achieve universal primary education
Primary completion rate, total (% of relevant age group)70687269..88
Total enrollment, primary (% net)..9282....96
Goal 3: Promote gender equality and empower women
Proportion of seats held by women in national parliaments (%)13..8917..
Ratio of female to male primary enrollment (%)1009910099..100
Ratio of female to male secondary enrollment (%)868286....110
Ratio of female to male tertiary enrollment (%)42..54......
Share of women employed in the nonagricultural sector (% of total nonagricultural employment)..29.3........
Goal 4: Reduce child mortality
Immunization, measles (% of children ages 12–23 months)765755555574
Mortality rate, infant (per 1,000 live births)686563595543
Mortality rate, under-5 (per 1,000)938988827565
Goal 5: Improve maternal health
Adolescent fertility rate (births per 1,000 women ages 15–19)..1301169786114
Births attended by skilled health staff (% of total)....86....89
Contraceptive prevalence (% of women ages 15–49)....33....31
Maternal mortality ratio (modeled estimate, per 100,000 live births)260250260260260316
Pregnant women receiving prenatal care (%)....94....95
Unmet need for contraception (% of married women ages 15–49)....28....27
Goal 6: Combat HIV/AIDS, malaria, and other diseases
Children with fever receiving antimalarial drugs (% of children under age 5 with fever)..........26
Condom use, population ages 15–24, female (% of females ages 15–24)..........60
Condom use, population ages 15–24, male (% of males ages 15–24)..........78
Incidence of tuberculosis (per 100,000 people)153155248326502428
Prevalence of HIV, female (% ages 15–24)........3.52.4
Prevalence of HIV, male (% ages 15–24)........1.40.4
Prevalence of HIV, total (% of population ages 15–49)
Tuberculosis case detection rate (%, all forms)656673564171
Goal 7: Ensure environmental sustainability
CO2 emissions (kg per PPP $ of GDP)00000..
CO2 emissions (metric tons per capita)54112..
Forest area (% of land area)85.4..85.485.485.485.4
Improved sanitation facilities (% of population with access)..3636333338
Improved water source (% of population with access)..8485868789
Marine protected areas (% of territorial waters)001772
Net ODA received per capita (current US$)14113294452
Goal 8: Develop a global partnership for development
Debt service (PPG and IMF only, % of exports, excluding workers’ remittances)51593..
Internet users (per 100 people)
Mobile cellular subscriptions (per 100 people)00105493180
Telephone lines (per 100 people)233321
Fertility rate, total (births per woman)554434
Sources: Authorities and World Development Indicators.
Sources: Authorities and World Development Indicators.

24. The real effective exchange rate is overvalued by 9 to 15 percent (Appendix II), following the large decline in oil prices. The recent collapse in oil prices significantly weakened the current account currently forecasted to fall from a surplus of 11 percent of GDP in 2014 to a deficit of about 4 percent in 2015. In the medium term, the current account deficit is projected to moderate somewhat on the back of higher processed wood and manganese exports. The deficit is expected to be financed with FDI inflows into strategic sectors19 and with external borrowing by the government, consistently with debt sustainability. To reinforce external stability, structural policies should be implemented to curtail factor costs considered high by regional standards. Key priorities are: (1) adopting a more prudent medium-term fiscal stance to sustain the implementation of programs and projects under the PSGE; and (2) accelerating the pace of structural reforms to boost human capital development and improve the business climate.

Authorities’ views

25. The authorities concurred on the need to improve infrastructure, boost human capital development, and accelerate business climate reforms to diversify the Gabonese economy. They further agreed that business climate reforms would be essential to the realization of public-private partnerships needed to support the PSGE, and noted the recent creation of a special agency to improve the business climate (Agence Nationale de la Promotion des Investissements) and efforts to improve technical education under the PSGE. They also noted ongoing discussions with local businesses to enhance their role in on-the-job training, and their intention to establish a specialized court for mediating industrial disputes in 2015. However, they argued that given high labor costs, the small size of the economy, and international competition, they had no choice but to offer incentives and affordable electricity for SEZs—which was possible in part due to newer lower-cost plants. Finally, the authorities deemed staff’s growth projections to be rather conservative.

C. Enhancing Financial Access and Financial Stability

26. The financial sector in Gabon comprises mainly banks, and is highly concentrated. Three banks account for nearly 75 percent of total assets, and their activity is concentrated on large companies financing large-scale projects. Financial intermediation remains limited (lending to the private sector is 15 percent of GDP), and well below the average for its emerging-market peers. The nascent regional bond market, which has limited depth and short maturity profiles, can only meet a limited amount of domestic financing needs. There are nine microfinance institutions (MFIs) and eight insurance companies that operate in Gabon that have been increasingly instrumental in providing financial access to households and small- and medium-size enterprises (SMEs). Banking supervision is carried out by the regional authority COBAC. While recent progress has been made in reforming the regulatory framework, particularly in bank resolution, and licensing, the COBAC has also been facing serious capacity constraints, which hinder its efficiency. Additional efforts will be required to develop the regional bond market even to a level similar to that observed in the WAEMU.

27. Financial access in Gabon is low due to several factors. While the share of population with bank accounts has increased, it is still below the sub-Saharan Africa and emerging market averages. Total credit provided to households constituted 3 percent of GDP in 2013. Given low financial deepening, SMEs face even lower access to finance than in Gabon’s peer groups. Banks cite the absence of credit bureaux and lack of company information and guarantees as underlying reasons for low credit supply and high lending rates (Figure 10). Low financial deepening and access as well as high banking sector liquidity also reduce the effectiveness of monetary policy transmission. Nonetheless, the exchange rate peg has adequately anchored inflation expectations and inflation is quite low.

Figure 10.Financial Indicators

Sources: IMF (Financial Access Survey), World Development Indicators, Findex and Staff calculations.

28. Although the overall banking sector in Gabon remains liquid, profitable, and generally well-capitalized, public banks are under financial stress.20 Overall financial soundness indicators show that the banks were sufficiently capitalized with slightly higher return on assets and equity in 2013 compared to 2012. The liquidity ratio has come down as a result of increasing credit to the economy, but remains high. The regulatory capital has been decreasing, but is above the legal requirement of 8 percent, while non-performing loans are low at 3.5 percent of total assets. Similarly, the ratio of provisions to non-performing loans decreased in 2013, although it is still at a comfortable level. Although banks are not very exposed to the government directly, the weakening government balance sheet will undoubtedly have a negative impact on the banking system through increasing NPLs. Apart from the weaker growth outlook, the main transmission channel is likely to be through the weakening financial situation of firms that rely on government contracts.

29. Timely action is needed to address the weak financial situation of three distressed public banks. These banks’ total assets amount to 9 percent of the banking system’s total and 3 percent of GDP. The banks are facing structural problems leading to significant undercapitalization, and one of them has had serious governance issues. Faced with high overhead costs relative to their peers, these banks are unable to generate sufficient revenues from lending activities. Thus, they continue registering losses, but they have limited interbank relations with other banks. Staff commends the authorities’ on their acknowledgement of the severity of the situation and for initiating the process of assessing the financial needs to define an action plan. Staff recommends developing resolution options in consultation with the regional bank supervisor, COBAC, and subsequently taking timely action—which will likely have fiscal costs—to safeguard financial stability.

Authorities’ views

30. The authorities broadly agreed with staff’s assessment of the financial sector, and concurred with the need to improve financial access in the economy. They indicated that they intend to continue their efforts in setting-up a credit registry, which is expected to decrease barriers to finance. Regarding the three problem banks, the authorities informed staff that they have hired international advisors to assess the banks, and to define an action plan and a financing package. As for the MFIs, the authorities remain cautious of any macroprudential risks that may be induced by these institutions.

Improving the Quality of Data for Decision-Making and Monitoring Progress Under PSGE, and Fund Jurisdictional Issues

31. The monitoring of the Gabonese economy and of the PSGE requires substantial improvements in the quality, timeliness, and transparency of statistics. Comprehensive, readily available, and high quality data are fundamental to the proper design and monitoring of a development strategy. Reliable statistics are particularly important if the country wants to attain market access levels similar to those that characterize emerging countries.

32. Unfortunately, data comprehensiveness, availability and quality in Gabon have serious shortcomings. In this regard, Gabon not only lags with respect to emerging economies, but even with respect to SSA countries of much lower income per capita. Balance of payments statistics are particularly weak, showing significant inconsistencies between oil exports and production data and not elaborating International Investment Position data, for example. Financial soundness indicators are very weak, and are produced with long lags.

33. Since the 2012 Article IV mission the provision of public financial statements to staff has been only sporadic. The authorities have provided fiscal statements in an untimely manner. In addition, the quality of these statements is quite weak, considering that they have not reflected the rapid accumulation of arrears in recent years, in part due to high extra-budgetary spending undertaken by various public agencies. The authorities urgently need to improve the quality and frequency of their fiscal statements to better monitor the fiscal sustainability of the PSGE.

34. The authorities need to substantially strengthen the measurement of basic social indicators. Household surveys are carried out with very low frequency. The latest survey of social indicators in Gabon took place in 2012 and focused only on demographics and health. Gabon’s latest unemployment figures date back to 2010.

35. Fund jurisdictional issues. As has been noted in previous Article IV staff reports, Gabon maintains a 1.5% tax on wire transfers abroad that is not consistent with Gabon’s obligations under Article VIII, Section 2(a) of the Articles of Agreement. The proceeds of this tax are used to fund Gabon’s health insurance scheme. The authorities note that they have exempted a number of transactions from this tax (notably, all interbank transfers), but do not propose eliminating the tax.

Staff Appraisal

36. The Gabonese economy is at a crossroads, and the recent sharp decline in commodity prices will make additional fiscal adjustment inevitable. While progress has been made to meet some of the objectives of the PSGE, there is still a long way to go. A recent acceleration of public investment has improved some infrastructure and put in place a nascent structural transformation. However, the country is now facing a major negative terms of trade shock and has limited fiscal buffers. The challenge ahead is to ensure that the recent growth pick-up is not derailed. In particular, there is need to implement additional fiscal adjustment beyond what the authorities currently envisage to secure the needed fiscal space and keep debt dynamics favorable. High growth, especially outside of the enclave sectors, is necessary to reduce high unemployment, especially among the youth. Given its prominent role in the CEMAC, Gabon should play a key role as a champion for reform.

37. Faced with the challenge of meeting infrastructure needs against the backdrop of weak oil revenues, the government rightly decided to implement fiscal adjustment in 2014. The very high level of investment spending undertaken from 2010 to 2013 was clearly unsustainable, as it led to substantial accumulation of arrears. The fiscal measures implemented in 2014 and the revised 2015 budget to be sent to parliament, which both better balance the need to address infrastructure bottlenecks while maintaining medium-term debt sustainability are steps in the right direction, but clearly more adjustment is needed in the medium run.

38. Despite a much lower level of oil revenues, the government needs to repay arrears and control the debt dynamics, while significantly improving the quality of investment. On the revenue side, there is need to compensate for declining oil revenues by widening the tax base, notably by reducing tax exemptions and improving tax administration. At the same time, improving the management of oil revenues over the medium term will be crucial. That said, the main focus should be on the expenditure side, containing the growth in current spending, especially in the wage bill and seizing the opportunity of low oil prices to phase out costly, inefficient, and inequitable fuel subsidies. After the recent reduction in investment the emphasis should therefore be on improving the quality of investment (“investing in investment”) by addressing weaknesses in investment prioritization—focusing on those with highest returns, project preparation, execution and monitoring.

39. Staff supports efforts under way to improve the management and transparency of public finances. The planned implementation of program budgeting from 2015 is a step in the right direction. To ensure full success, there is need to enhance training in the use of new monitoring and accounting tools. There is also need for better coordination between the Ministries of the Economy and the Budget, especially in treasury management, to eliminate the frequent accumulation of payment arrears. More details on public finances should be provided to the general public, including on budget execution. Staff welcomes the authorities’ renewed efforts to become fully compliant with EITI standards by end-2015 to ensure transparency and accountability in the management of natural resource wealth.

40. The government has appropriately aimed at diversifying the economy away from oil, and the oil price shock has underscored the need to foster diversification. Its strategy hinges on addressing a number of binding constraints to growth, especially weak infrastructure in electricity production and transportation, but the government also provides overly generous tax exemptions to many projects that substantially limit their potential contribution to public revenues. Without strong fiscal adjustment to the very weak commodity price outlook, there is considerable risk that lack of sufficient fiscal space could impede on the government’s ability to implement a well-focused diversification strategy. Thus, there is need to focus more on “horizontal” policies aimed at improving the business climate and the educational system to provide better trained labor. These policies would help lower factor costs, thereby boosting Gabon’s competitiveness and helping establish external stability.

41. There is need to improve financial depth and inclusion, and forcefully address financial weaknesses of three public banks. Staff recommends improving the operations of land and commercial registries, streamlining procedures for recording and enforcing guarantees, and strengthening creditor rights enforcement by enhancing governance of the relevant courts. Staff commends the authorities for initiating due diligence to assess the financial situation of the weak banks in order to define an action plan. Staff recommends developing resolution options and subsequently taking timely action in collaboration with the regional supervisor.

42. While the data provided to the Fund are broadly adequate for surveillance, there has been a notable deterioration in the timeliness of provision. Balance of payments and financial stability statistics are particularly weak, and fiscal statistics have not been provided on regular and timely basis. Current efforts to strengthen official statistics services need to be redoubled and, in particular, data on the International Investment Position needs to be produced and published.

43. Gabon maintains a tax on wire transfers, which is inconsistent with its obligations under Article VIII. Staff does not recommend approval of this restriction.

44. It is expected that the next Article IV consultation will be held on the standard 12-month cycle.

Annex 1. Gabon: Risk Assessment Matrix1
Source of RiskLikelihood of Realization in the Next Three YearsExpected Impact on Economy if Risk is Realized
Global RisksSide-effects from global financial conditionsStaff assessment: High
  • A surge in financial volatility: as investors reassess underlying risk and move to safe-haven assets given slow and uneven growth as well as asymmetric monetary exit.
Staff assessment: Medium
  • Persistent dollar strength: improving U.S. economic prospects versus the rest of the world leads to a further dollar surge, boosting non-U.S. trade but creating balance sheet strains for dollar debtors
Staff Assessment: High
  • Gabon would find it difficult to issue new sovereign bonds at competitive interest rates.
Staff Assessment: High
  • Dollar strength would help mitigate the revenue impact of oil price falls in local currency, but FX debt service would also increase. However, the former impact would dominate.
Protracted period of slower growth in advanced and emerging economies.Staff Assessment: High
  • Advanced economies: Lower-than-anticipated potential growth and persistently low inflation due to a failure to fully address legacies of the financial crisis, leading to secular stagnation.
  • Emerging markets: Maturing of the cycle, misallocation of investment, and incomplete structural reforms leading to prolonged slower growth.
Staff Assessment: High
  • Lower oil exports will sharply reduce government revenue and lead to increased public debt levels. Financing for infrastructure would be curtailed.
  • Demand for non-oil exports would be reduced, and would negatively impact efforts of diversification.
  • FDI in non-oil sectors would likely be lower, with a negative impact on potential non-oil growth.
Domestic RisksLoosening of fiscal policy and weak investment execution capacity.Staff Assessment: Medium to High
  • Capital spending has historically been volatile and pro-cyclical, in the context of weak administrative and absorptive capacity.
  • Since 2009, the government has failed to increase fiscal buffers despite high hydrocarbon revenues.
Staff Assessment: Medium to High
  • A loose and inefficient fiscal policy would raise inflation and undermine competitiveness, thereby inhibiting non-oil growth and negatively impacting the poor.
  • Further scaling-up of capital spending could strain the absorptive and implementation capacity, with impact on project selection and scope for corruption, and resulting in additional waste of resources.
  • Failure of full materialization of the diversification strategy due to insufficient fiscal space and weak implementation of structural reforms (e.g., PFM, business climate initiatives).
  • Widening inequalities in income and job opportunities.
  • CEMAC institutional reform stalled.
Staff Assessment: Medium
  • Investment and growth would remain hampered by a poor business environment and over-reliance on a public sector-led growth model.
  • Non-hydrocarbon sectors would remain rudimentary and offer few job opportunities.
  • Regional integration and cooperation would remain limited.
Staff Assessment: High
  • Economic diversification and job creation would be much lower than hoped for, making the objective of emerging market status very difficult to reach.
  • Continued social inequalities could fuel social tensions. There is an urgent need to improve human development outcomes and enhance job opportunities.
  • Duplication of development projects across the sub-region would waste resources and new growth opportunities would be lost.

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability of 30 percent or more). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly.

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability of 30 percent or more). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly.

Appendix I. PSGE Track Record

Industrial and Agricultural Development

1. Several projects have been realized to enhance industrial and agricultural development, mainly as joint-ventures with international investors. Key achievements include the establishment of a 1,126 hectare SEZ specialized in wood processing in Nkok (near Libreville), the development of two palm oil plantations with over 100,000 hectares in total, and the development of a rubber plantation with over 28,000 hectares, all as joint ventures with the Singapore-based multinational corporation OLAM. Project costs are estimated at about US$400 million for the SEZ of Nkok, most of which has been spent by OLAM, and US$1 billion for the palm oil and rubber plantations. Production in the Nkok SEZ started in 2012 and over 70 foreign investors have signed up. In the palm oil and rubber plantations, production is expected to start in 2015 and 2019, respectively. So far, about 3,800 people have been employed by the plantations. In addition, OLAM is involved in a US$2 billion joint venture project with the government for the development of a fertilizer plant in the free trade zone of Port-Gentil.

Adding Value-Added to Manganese and Iron Exports

2. Manganese and iron processing plants are being constructed to increase value-added. In addition to the manganese processing plant under construction in the manganese deposit of Ndjolé (expected production amounts to 700,000 tons of manganese per year), a metallurgical complex is being built in the Moanda-Franceville mining area. This complex is expected to process 20,000 metric tons of manganese and 40,000 metric tons of silico-manganese on average per year. Another industrial complex estimated to cost US$4 billion will be built in Belinga to produce about 44 million tons of iron ore and 18 million tons of transformed iron on average per year.

Ongoing Infrastructure Projects

3. Infrastructure has been boosted to catalyze economic growth. About 435 km of new paved roads have been constructed and work is ongoing to pave 980 km more. An agreement was signed with Singapore Port Authority to modernize and extend the ports of Owendo and Port-Gentil. Five docks in river tributaries have been built throughout the country and two river ports were built in the cities of Lambaréné and Port-Gentil. Other projects pertaining to energy infrastructure development include ongoing construction of the 160 MW capacity-Grand Poubara and the 84 MW-capacity Empresse Eugenie hydroelectric dams, and the upgrading project for the Alenakiri gas-fired power plant (in Libreville) which is expected to double capacity from 35MW to 70 MW.

Human Capital Development and Business Climate Reforms

4. The government seeks to enhance human capital development through technical education and training. A Mines and Metallurgy school is expected to open in the metallurgical complex of Moanda in September 2015. Measures implemented to improve the business climate include the adoption of a special agency to promote investments (Agence Nationale de la Promotion des Investissements), the computerization of procedures required to open a business, a reduction in construction permits processing delays which fell from over 6 months to 10 days, and the adoption of a one-stop shop for large companies at the national company for water and electricity (SEEG) to reduce connection delays.

Appendix II. External Sector Assessment

Falling all prices and oil production have contributed to deteriorating the external sector. Results from the methodology of Araujo et al. (2013) suggest that the effective real exchange rate is overvalued by about 10 percent. The Bems and Carvalho methodology, which abstracts from returns on investment, points to some overvaluation between 9 and 15 percent. While the current account balance is expected to continue falling in the medium term, sustained capital inflows from FDI and external borrowing by the government would help maintain a sound level of international reserves.,

1. Gabon’s current account is projected to fall from a surplus of 11 percent of GDP in 2014 to a deficit of 4 percent in 2015 and 3 percent in 2020. The deterioration of the current account is caused by falling oil exports reflecting the joint impact of the oil price collapse and maturing oil wells. Oil prices are forecasted to drop from US$96 per barrel in 2014 to US$51 per barrel in 2015 and US$69 per barrel in 2020. In spite of potential new oil discoveries from ongoing exploration projects, production is expected to fall by 9 percent between 2014 and 2020, owing to aging wells. The share of non-oil exports to total exports would increase in the medium term from about 23 percent in 2014 to 40 percent in 2020 as manganese and processed wood exports pick up in the context of the PSGE while oil exports continue falling.

2. Thanks to increased FDI, international reserves will gradually increase from 5 to 6 months of imports in 2014–20. Projected falls in the current account would be largely compensated by growing foreign direct investment and government’s eurobond issuances. Future government’s bond issuance would help finance public investment projects supporting the PSGE. Expected FDI would mainly target deep offshore oil exploration projects, wood processing, rubber, palm oil production, and manganese and iron ore production.

Gabon: External Position (2012–20)

Exchange Rate Assessment

3. The real effective exchange rate appears overvalued by 9 to 15 percent. Given an estimate of the trade balance elasticity with respect to the real effective exchange rate of -0.61, results from the methodology of Araujo et al. suggest real exchange rate overvaluation of about 10 percent. The Bems and Carvalho methodology, which abstracts from returns on investment, indicates an overvaluation between 9 and 15 percent. Although Gabon’s real effective exchange rate has remained relatively stable compared to other oil exporters over the past decade, both methodologies point to a strong need to reinforce external competitiveness by accelerating the pace of human capital development and business climate reforms.

Comparison: Real Effective Exchange Rate (2010=100)

4. The methodology of Araujo et al. (2013) suggests that the effective real exchange rate is overvalued. 2 This methodology solves for a current account norm resulting from a welfare maximization problem in which productive investment needs may be financed by contracting external debt that will be repaid from income flows from oil resources windfalls. It takes into account absorptive capacity constraints associated with investment, reflecting the fact that ambitious public and private investment programs in developing countries are often plagued by poor planning and poor coordination which associated to weak oversight contribute to large cost overruns.3 Results from this methodology suggest an overvaluation of 9.9 and 9.7 percent under cost overrun assumptions of 40 and 20 percent. Higher cost overruns lead to relatively higher investment needs to cover for the larger inefficiencies, which in turn imply a higher current account balance norm.

Current Account: Projections and Norms from Araujo et al. (2013), Percent of GDP

Gabon - External Stability Assessments, 2020
Bems and CarvalhoAraujo et al. 2 Cost Overrun of 40 percentAraujo et al. 2 Cost Overrun of 20 percent
Constant real annuityConstant real per capita annuity
MT trade balance norm (Percent of GDP)
Underlying trade balance (Percent of GDP)−2.4−2.4−2.4−2.4
Trade balance elasticity
Overvaluation (Percent)9.415.49.99.7
Source: IMF staff estimates.

Trade elasticity is estimated assuming exports volume and imports volume elasticities equal to zero. Hakura and Billmeier (2008): “Trade Elasticities in the Middle East and Central Asia: What is the Role of Oil?”, WP/08/216, IMF.

Based on Bems and Carvalho (2009), “Exchange Rate Assessments: Methodologies for Oil Exporting Countries”, WP09/281, IMF.

Prepared by Bin Li and Juliana Araujo, based on Araujo et al. (2013).

Source: IMF staff estimates.

Trade elasticity is estimated assuming exports volume and imports volume elasticities equal to zero. Hakura and Billmeier (2008): “Trade Elasticities in the Middle East and Central Asia: What is the Role of Oil?”, WP/08/216, IMF.

Based on Bems and Carvalho (2009), “Exchange Rate Assessments: Methodologies for Oil Exporting Countries”, WP09/281, IMF.

Prepared by Bin Li and Juliana Araujo, based on Araujo et al. (2013).

5. The methodology of Bems and Carvalho (2009) abstracts from existing investment needs and suggests an overvaluation of the real effective exchange rate between 9 and 15 percent.4 The Bems and Carvalho methodology derives a desired path for the current account based on specified inter-temporal allocation rules of oil income flows. It does not account for future returns of public investment on future productivity growth and hence produces current account norms that are significantly above Gabon’s medium term current account path. In the current context of public investment scaling-up, the methodology of Araujo et al. appears more appropriate for assessing potential real effective exchange rate misalignments5.

Current Account Projections and Norms from Bems and Carvalho (2009), Percent of GDP

Appendix III. Reform of Fuel Subsidies: Progress and Remaining Agenda1

1. The government has made progress in reducing its fuel subsidies. The main reform has been the partial elimination of the subsidy to industrial diesel (excluding food processing, fishing, cement production, and forestry). Another measure was the addition of imports duties to the calculation of the notional market price on which the calculation of the subsidy is made.

2. Fuel subsidies declined in 2014 as a result of reforms and a decline in the oil price. Preliminary estimates indicate that the gross subsidy came down from CFAF 220 billion in 2013 to CFAF 125 billion in 2014 (see Figure), and because of the decline in oil prices, the subsidy is expected to come down to CFAF 24 billion in 2015 despite an increase in volume.

Gabon: Fuel Taxes and Consumption Subsidy, 2009-2014

Sources: Gabonese authorities; and IMF staff estimates.

3. Further reforms are still needed given the tight fiscal situation. Fuel subsidies took up 1.5 percent of GDP from government resources in 2014. In the context of lower oil prices the government could seize the opportunity and significantly phase out the fuel subsidy scheme. Reforms in the short term could include: removal of the SOGARA refinery markup and renegotiation of cost/margin in the pump price structure, and introduction of competitive tenders for procurement of refined products. Eventual elimination of fuel subsidies should be the ultimate objective, starting with elimination of the rest of industrial diesel subsidies, followed by a reduction in gasoline subsidies.

4. Lessons from experience in other countries point to the need for a comprehensive strategy for the eventual elimination of fuel subsidies. The introduction of fuel pricing reforms involves large trade-offs between different social and macroeconomic objectives. Recent work has highlighted key elements of a successful reform strategy based on international experience:2

  • Analyze the costs and benefits of the subsidy system to the various stakeholders, and the macroeconomic impact of possible reforms.
  • Consult widely with all stakeholders.
  • Communicate clearly: initiate a wide program to broaden the policy debate on fuel pricing by mobilizing thought leaders and using far-reaching media.
  • Decide early on important parameters of the reform initiative, e.g., pace of price adjustment. The reform commitment must be seen as irreversible.
  • Roll out tangible accompanying mitigating measures to provide offsets to stakeholders who are adversely affected by the reforms, with particular emphasis on vulnerable households. Ideally, targeting should be informed by a poverty mapping based on household surveys. In Gabon there is an urgent need to conduct one, as the previous one is out of date. Possible mitigating measures could include cash transfers and vouchers for public transportation.

This report uses the IMF’s WEO definition of emerging market economies. The main criteria used by the WEO to classify emerging markets are: (1) per capita income level; (2) export diversification; and (3) degree of integration into the global financial system.


For example, a recent enhancement in internet connection in Libreville through a submarine fiber optic cable is now to be extended to a connection point on the border with the Republic of Congo and will ultimately create a broadband artery linking the entire region.


The significant decline in 2015 is in part driven by large-scale rehabilitation of some wells.


In assessing the quality of the scaling up of public investment it is worth noting that a considerable part of it was extrabudgetary and another significant amount was allocated to developing the infrastructure needed to host the African Cup of Nations in 2012.


Non-accumulation of government arrears (domestic or external) is a CEMAC convergence criterion.


Oil revenue performance was better than originally projected in part due to settlement of arrears and fines of over CFAF 190 billion.


The authorities are negotiating the repayment of arrears over the next three years. They are committed to remain current on VAT reimbursements.


The initial 2015 budget planned the issuance of a US$1 billion eurobond, but the authorities may revise down this amount in view of the tightening financing terms in international markets for Gabon (see Figure 3) and other oil producers.


Even if new oil explorations bear fruit, they will not reach production stage until the next decade.


The proposed framework actually assumes that, given tighter financing conditions for oil exporters in the oil market, the authorities issue a US$500 million eurobond in 2015, not the previously planned US$1 billion. For 2016, the assumption is that Gabon will issue a US$250 million eurobond.


Throughout the projection period, Gabon would be in compliance of CEMAC’s convergence criteria, including the non-accumulation of government arrears criterion, which was violated in recent years.


The shock scenarios considered in the DSA could result from, for example, a decline in oil prices below WEO projections or a limited growth pay-off of the PSGE.


Staff emphasized that considerable risks to its effective implementation remain, especially insufficient staff training and inadequate testing of new software, and recommended back-up options.


Even if ongoing exploration in deep offshore bears fruit, production stage would be reached in the next decade and therefore oil production is expected to fall by 10 percent between 2013 and 2020.


World Bank, 2014, Gabon—Export Diversification and Competitiveness Report, World Bank Policy Notes, Report No. ACS10571.


World Bank (2014), op. cit.


In 2009, Gabon had about 1,060 km of paved roads.


IMF, 2014, “Sustaining Long-Run Growth and Macroeconomic Stability in Low-Income Countries—the Roles of Structural Transformation and Diversification”.


These include, wood processing, rubber, palm oil, manganese, and iron ore production.


More detailed assessment will be available after the completion of the ongoing regional FSAP exercise.


Trade elasticity is estimated assuming exports volume and imports volume elasticities equal to zero as in Hakura and Billmeier, 2008, “Trade Elasticities in the Middle East and Central Asia: What is the Role of Oil?”, IMF Working Paper 08/216.


Araujo et al., 2013, “Current Account Norms in Natural Resource Rich and Capital Scarce Economies”, IMF Working Paper 1/0, IMF. The exchange rate assessment based on Araujo et al. (2013) was prepared by Bin Li and Juliana Araujo.


Comparing investment flows to the physical measure variations of the public capital stock in Columbia and Mexico over the period 1981–95, Arestoff and Hurlin (2006) estimates that one peso of public investments created around 0.40 pesos of public capital. Pritchett (1996) reports that in a typical developing country in earlier decades, less than 50 cents of capital were created for each public dollar invested.


Bems and Carvalho, 2009, “Exchange Rate Assessments: Methodologies for Oil Exporting Countries”, IMF Working Paper 09/281.


More standard CGER-like and “EBA-lite” methods provide a similar assessment.


Jean Van Houtte (AFR) was the main contributor to this appendix.


See IMF, 2013, “Energy Subsidy Reform: Lessons and Implications”.

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