IMF urges Gabon to boost growth, re­forms

The Pak Banker - - COMPANIES/BOSS -

The Ex­ec­u­tive Board of the In­ter­na­tional Mon­e­tary Fund (IMF) to­day con­cluded the Ar­ti­cle IV con­sul­ta­tion with Gabon. The IMF says Gabon's econ­omy is fac­ing mount­ing head­winds. Eco­nomic ac­tiv­ity ben­e­fited from a one-off boost in oil pro­duc­tion in 2015, due to the in­tro­duc­tion of new oil fields and pro­duc­tiv­ity im­prove­ments, which are ex­pected to help main­tain over­all growth around 4 per­cent in 2015.

How­ever, the slow­down in non-oil econ­omy ac­tiv­ity con­tin­ued, led by con­struc­tion, trans­port, com­merce, and ser­vices. An im­por­tant fac­tor in slow­ing non-oil ac­tiv­ity are fall­ing oil prices and oil-re­lated rev­enue, which is re­duc­ing ag­gre­gate de­mand and spurring a large fis­cal consoli- da­tion. Even so, the strains on the bud­get are in­ten­si­fy­ing, lead­ing to a shift of the fis­cal bal­ance (com­mit­ment ba­sis) from a sur­plus of 2.5 per­cent of GDP in 2014 to a deficit of 2.3 per­cent in 2015, a rise in pub­lic debt above the govern­ment's self­im­posed ceil­ing of a debt-to-GDP ra­tio of 35 per­cent, and a de­cline in govern­ment de­posits and for­eign re­serves.

This sub­stan­tial terms-of-trade shock is also im­pact­ing the ex­ter­nal po­si­tion, which turned from a sur­plus of 8.3 per­cent of GDP in 2014 to a deficit of 1.9 per­cent in 2015. Con­sumer price in­fla­tion (CPI) has come down sharply over the past year and ex­pected to be about zero per­cent in 2015. Gabon's econ­omy re­mains heav­ily de­pen­dent on oil, and as such the medium-term eco­nomic out­look has de­te­ri­o­rated in tan­dem with weak- en­ing prospects for that sec­tor. In 2016, over­all growth is ex­pected to de­cline to 3.2 per­cent, largely due to de­clin­ing oil pro­duc­tion. On­go­ing, large-scale in­vest­ments in the agri­cul­tural sec­tor, es­pe­cially in cash crops such as palm oil and rubber, are ex­pected to ac­cel­er­ate sig­nif­i­cantly in 2017-18, could lift growth to around 5 per­cent in the medium term. Re­al­iza­tion of this sce­nario will de­pend on sus­tained progress on Gabon's eco­nomic di­ver­si­fi­ca­tion strat­egy, the Plan Stratégique Gabon Emer­gent (PSGE), which needs to be care­fully pri­or­i­tized given the tight fi­nanc­ing con­straints posed by the cur­rent junc­ture.

The main down­side risk to the out­look re­mains weak fis­cal ad­just­ment to sharply lower oil prices. In the event of weak­erthan-pro­jected per­for­mance on oil rev­enues or govern­ment spend­ing, the govern­ment would be forced to sub­stan­tially draw down on its de­posit buf­fer and/or sig­nif­i­cantly in­crease bor­row­ing. Other risks con­cern a stronger-than-ex­pected spillover of the oil price shock to non-oil eco­nomic ac­tiv­ity (in­clud­ing to the fi­nan­cial sec­tor), a weaker global econ­omy, tight­en­ing in­ter­na­tional fi­nan­cial con­di­tions, as well as per­sis­tent fragility at three small dis­tressed sta­te­owned banks.

Di­rec­tors noted that the low oil price out­look and the sec­u­lar de­cline in oil pro­duc­tion con­tinue to test Gabon's macroe­co­nomic re­silience and weigh on the coun­try's medium-term growth prospects. Di­rec­tors un­der­scored the crit­i­cal im­por­tance of re­dou­bling ef­forts to foster eco­nomic di­ver­si­fi­ca­tion, con­tin­u­ing fis­cal ad­just­ment in re­sponse to the oil shock, but­tress­ing fi­nan­cial sec­tor sta­bil­ity, and in­vig­o­rat­ing struc­tural re­form.

Di­rec­tors stressed the need for stronger ef­forts to en­sure fis­cal and ex­ter­nal sus­tain­abil­ity in the face of lower oil rev­enue. In this con­text, they sup­ported the au­thor­i­ties' fo­cus on con­tain­ing the pub­lic wage bill, and com­mended the re­cent elim­i­na­tion of diesel and petrol sub­si­dies. They em­pha­sized the im­por­tance of pri­or­i­tiz­ing mea­sures to re­verse the re­cent ero­sion of the rev­enue base by curb­ing tax ex­emp­tions and en­hanc­ing rev­enue ad­min­is­tra­tion. Other pri­or­i­ties in­clude re­duc­ing in­ef­fi­cient spend­ing in fa­vor of pro­duc­tive ex­pen­di­ture, fos­ter­ing pri­vate sec­tor par­tic­i­pa­tion in in­fra­struc­ture projects, and safe­guard­ing so­cial spend­ing.

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