Equatorial Guinea's economy faces several challenges: IMF
A mission from the International Monetary Fund (IMF), led by Montfort Mlachila, visited Malabo from June 29 to July 13 to conduct the 2016 Article IV consultation discussions.
At the conclusion of the mission, Mr. Mlachila said, Equatorial Guinea has for two decades been one of Sub-Saharan Africa's (SSA) largest hydrocarbon exporters. As a result, the country has one of the highest average per capita incomes in the region. Moreover, a recent rebasing of the national accounts to a 2006 base year has led to an upward revision of the size of the economy by roughly 30 percent, which now better captures the considerable infrastructure investment Equatorial Guinea has undertaken in recent years. The country has also considerably improved its social indicators, including some of the highest literacy rates in SSA, but there remains room for improvement.
The oil price shock since 2014 is having a major impact on Equatorial Guinea. Despite efforts to foster economic diversification in recent years, the economy remains heavily resource dependent. GDP declined by 7.4 percent during 2015, as lower hydrocarbons prices induced oil companies to reduce operating expenditures, and thereby reducing production. Non-hydrocarbon activity also slumped by 5.2 percent, due to sharp slowdown in public investment and private sector construction. The terms-oftrade deterioration resulted in a widening of the current account deficit to 16.8 percent of GDP, and a faster-than-expected drawdown of national external reserves, which declined by nearly 35 percent since end-2014. Inflation declined to 0.6 percent in during the second quarter of 2016. Despite weak economic activity and bank asset quality, private credit growth decreased only slightly to 14 percent in 2015.
Equatorial Guinea's near-term outlook is very challenging, given that energy prices remain depressed, and hydrocarbon production will continue to decline. In 2016, weak oil revenues and limited buffers will require further cuts to public investment, leading to a further deep contraction of the large construction sector. As such, overall economic activity is expected to decline 9.7 percent. A modest recovery in non-hydrocarbon activity could start from 2018, and average about 2 percent through the medium-term as the national development strategy shifts toward pro-growth social development. However, the overall economy is unlikely to grow much in the medium term given the still large weight of the hydrocarbons and the impact of fiscal consolidation on non-hydrocarbon activities.
Substantial risks to the outlook highlight the need for proactive policy measures. The key short- to medium-term downside risk is an insufficient fiscal adjustment to prolonged weakness in the oil market. This could lead to a faster depletion of available deposits, risking a rapid accumulation of arrears and public debt. Further domestic risks concern a faster- than- expected decline of oil production, uncertain prospects for a rebound in non- hydrocarbon growth, and a slow improvement in investment efficiency.