IMF urges Gabon to boost growth, reforms
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.