July 18, 2016

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 made the following statement:

“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-of-trade 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.

“In view of the challenge confronting Equatorial Guinea, the over-arching message of the consultation was to accelerate an economic reset driven by the non-resource economy. There is need to step up the pace of fiscal consolidation to avoid a disorderly adjustment and macroeconomic instability. It is essential that fiscal policy be consistent with CFA franc arrangements, which have served the country well as a pillar of economic stability. The effort should be bolstered by implementing highly visible structural reforms, containing macro-financial spillovers, and improving statistical capacity.

“The mission noted that although fiscal adjustment is underway, progress so far has been insufficient. It agreed with the authorities’ focus on mobilizing non-hydrocarbon revenue by improving tax administration, including by reorganizing the customs service and establishing a large taxpayer unit, which should help in tracing ad hoc tax exemptions that significantly reduce potential tax revenues. The mission also agreed on the urgent need to scale back the large public investment plan, which should focus on efficient projects with a large impact on growth or significant social benefits.

“To revive economic growth, Equatorial Guinea is determined to foster private sector activities in sectors considered strategic, including agriculture, fisheries, tourism, and financial services. The authorities intend to establish a national committee to spearhead reforms; expand training opportunities; and develop a tourism sector policy. In that regard, the mission stressed the importance of a broad effort to improve the business climate and the efficiency of public services to foster private sector development

“The mission underscored that the IMF is committed to strengthening relations with the Equatoguinean authorities, and stands ready to help them address these challenges. The Executive Board of the IMF is expected to consider the staff report on the Article IV consultation in late August 2016.

“The mission wishes to sincerely thank the authorities for their very warm hospitality and constructive cooperation.”

The mission had constructive meetings with H.E. Francisco Pascual Obama Asue, Prime Minister, H.E. Miguel Engonga Obiang Eyang, Minister of Finance and Budgets; H.E. Eucario Bakale Angüe Oyana, Minister of Economy, Planning, and Public Investment; H.E. Gabriel Mbega Obiang Lima, Minister for Mines and Hydrocarbons; Mr. Ivan Bacale Ebe Molina, National Director of the Central Bank for Central African States (BEAC); Ms. Milagrosa Obono Angüe, Secretary of State for Treasury, and other senior government officials. The mission also exchanged views with representatives of the private sector, civil society, and development partners.