Equatorial Guinea Economic Outlook
Economic performance and outlook
Equatorial Guinea saw very rapid economic growth following the discovery of hydrocarbons in the 1990s. Since 2014, however, the protracted fall in global oil prices, combined with the decline in the country’s output, the large budgetary surpluses that financed important investment programs that continue today have been declining. GDP continued to shrink in 2016 and 2017, and the forecast for 2018 remains unfavorable. The decline is expected to stabilize beginning in 2019. Authorities are relying on the stabilization of public finances and economic diversification to bring about new sources of growth. Consultations are under way with the International Monetary Fund (IMF) on the possible implementation of a program under its Extended Credit Facility.
The recession of the past three years remains evident in macroeconomic and budgetary indicators. The decline in hydrocarbon prices directly hit public finances; a contraction of approximately 8% in public revenues was forecast between 2016 and 2017. This contraction adversely affected the current account balance, leading to a deficit of 10.5% of GDP.. The net government position with the Central Bank has been negative since July 2017. The arrears accumulated by the government as a result of ambitious public investment programs to support the country’s emergence strategy are a major concern. The government started a medium-term expenditure reduction program; the focus is on its primary expenditure item of public investment, which will have a direct impact on construction and public works, a driver of the economy and employment.
Equatorial Guinea has enjoyed significant political stability and an excellent security situation. It has substantially modernized its infrastructure in recent years, in accord with its National Economic and Social Development Plan. It has made major strides in human development, particularly in health and education, and is modernizing its public administration by attracting Equatorial Guinean managers trained abroad. Although evolving at a slow pace, economic diversification is moving forward, due largely to advances in construction, agriculture, forestry, fishing, and trade. The October 2017 decision to eliminate the requirements for visas for Central African Economic and Monetary Community citizens is expected to promote regional trade and stimulate economic growth.
At the December 2016 summit in Yaoundé, Cameroon, the CEMAC Heads of State endorsed policies to stop the depletion of BEAC reserves and preserve the fixed exchange-rate arrangement. These included tighter monetary policy and liquidity management, and measures to preserve financial sector stability. Membership in the monetary union helps Equatorial Guinea maintain low inflation rates. But it limits its options for adjusting to negative shocks and ensuring external competitiveness. The lack of economic diversification in Equatorial Guinea remains a major constraint and prevents gains from higher exports in non-oil sectors. Since 2014, the government has accumulated arrears with the private sector, including local small and medium-size enterprises and major international groups active in the country. In October 2017, the IMF estimated these arrears at CFAF 1 trillion. These hinder economic growth and job creation, as well as financial sector development. To truly benefit from its excellent infrastructure, the country needs to improve its business climate and governance.