Oil price decline puts economic prospects at risk
Reforms aim at consolidation of public finances and structural transformation
Loan, first tranche of €500 million package
The Board of Directors of the African Development Bank (AfDB) has approved a € 200 million loan to Gabon, to support the country's economic and financial reforms programme (EFRSP). The loan aims to revive economic growth by strengthening the sustainability of public finances, as well as the structural transformation of the economy in a context marked by the recent oil price decline, which has seriously hit the economy.
This loan is the first of two programme-based General Budget Support (GBS) operations covering the 2016-17 period for an indicative total financing of €500 million supporting the implementation of reforms aimed at unlocking Gabon's significant growth potential.
"We look at this operations within discussions we had with the Economic and Monetary Community of Central African States (CEMAC), and think, this is our response to the fall in oil price that has had a significant impact on Gabon's economy. This is a great support we are providing the country, in collaboration with other development partners," Bank Group President, Akinwumi Ayodeji Adesina highlighted, also underscoring that: "What we need most is to look at things comprehensively and help our countries to implement the H5s."
Gabon has experienced strong economic growth during the first implementation phase of the emerging Gabon Strategic Plan (EGSP), with the economy growing at an average of 6% (2010-2014). Growth was driven by an increase in the public investment rate estimated at 22 % of the budget, particularly in the infrastructure, as well as construction and services sectors. However, emergence of fiscal and external imbalances, compounded by the lack of economic diversification, has put Gabon's prospects at risks. Falling oil revenues have resulted in a growth slowdown, with real GDP growth down to 4% in 2015 against 5% in 2014.
Declining oil prices have also weakened macroeconomic stability of Gabon, through the negative impact on public finances, external balances and public debt. These have also highlighted the vulnerabilities of a hydrocarbon-dependent growth model and public spending. The shock, in terms of trade, also affected the external position which moved from a surplus of 7.8% of GDP in 2014 to a deficit of 0.2% in 2015. As regards public finance, the fall in oil prices has significantly reduced the headroom to support growth and helped to compound the risks to fiscal sustainability. Gabon relies heavily on oil. In 2014, the hydrocarbons sector still accounted for about 40% of GDP, 45% of government revenues and almost 85% of exports.
The government's economic reform program seeks to shift from a hydrocarbon-based growth model with limited impact on poverty reduction, to a more diversified, inclusive, job-creating and private-sector-led growth model. In this context, the EFRSP aims to (i) strengthen fiscal consolidation through increased revenue mobilisation and expenditure rationalization with a particular emphasis on enhancing payroll and public debt control, as well as public investment effectiveness; (ii) support economic diversification through improving the investment climate, access to finance and agricultural sector competitiveness.
Beyond the macroeconomic imbalances, Gabon's economy faces major challenges, including weak diversification of its productive base due to the unattractive investment climate and the deficit of basic infrastructure (roads and rural tracks, market infrastructure, energy, water, ICT ...) essential to stimulate production. In addition, the low level of access to finance, especially to SMEs, as well as the lack of competitiveness of the agricultural sector which could serve as an alternative to falling oil prices - to support growth and employment - are major impediments to the country's economic growth.
The proposed operation meets Gabon's need to build the foundation of a diversified economic, sustainable and inclusive growth. It is part of the country's national development policy, the Emerging Gabon Strategic Plan "EGSP" and contributes to the implementation of the Bank's Ten-Year Strategy and three of its High 5s, in particular "Feed Africa" and "Industrialise Africa" and "Improve the living conditions of the people of Africa". The EFRSP is also consistent with the Bank's strategy on governance and private sector development as well as the Bank's Agricultural Transformation Strategy for Africa, and the Jobs for Youth in Africa strategy.
