Gabon: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for Gabon

Summary: KEY ISSUES Context: Despite the abundance of natural resources and one of the highest levels of income per capita in sub-Saharan Africa for several decades, poverty remains widespread and unemployment is high. Weak institutions and governance, a shallow financial sector, and a poor business environment have been obstacles to transforming the oil wealth into better living conditions for the population. In 2010, after a long period of lackluster growth, the authorities launched an ambitious strategic vision—Plan Stratégique Gabon Emergent (PSGE)—to transform Gabon into a diversified emerging market economy by 2025. The resulting scaling up in public investment significantly accelerated economic growth, but also substantially weakened the fiscal stance. As a key member of the CEMAC currency and economic union, Gabon’s economic policies have significant regional implications and spillovers. Risks: In the context of the recent sharp decline in oil prices, the foremost downside risk to the economic outlook in the short to medium term is an inadequate fiscal adjustment, leading to further depletion of fiscal buffers, rapid debt accumulation, and insufficient fiscal space to address binding constraints to growth. Key policy recommendations The oil price shock underscores the need for faster fiscal adjustment and acceleration of structural reforms: • Fiscal Policy. The fiscal stance should aim at adjusting to low oil prices to avoid a rapid escalation of public debt levels and accumulation of arrears. On the revenue side, there is need to compensate for declining oil revenues by widening the tax base, notably by reducing tax exemptions and improving tax administration. The main focus should be on the expenditure side by controlling the rapidly increasing wage bill and phasing out costly oil subsidies. The emphasis should be on improving the quality of investment, rather than increasing its level. • Structural Policies. Promote inclusive growth, structural transformation and economic diversification by focusing on “horizontal” binding constraints to growth such as infrastructure bottlenecks especially in transportation and electricity, as well as enhancing the business environment, improving the quality of education and vocational training to reduce the skills mismatch on the labor market, and reforming the legal and regulatory framework to support employment creation in the private sector. • Financial Sector. Promote financial deepening and access by improving the institutional environment for credit, especially for SMEs, and enhancing access to microfinance and other financial services for households. Implement plans to restructure the three public banks in financial difficulty. Policies should be consistent with CEMAC regional financial sector development and stability objectives.

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