Gabon Economic Outlook
Economic performance and outlook
Economic growth continued despite the fall in oil prices, reaching 2.1% in 2016; however, it was estimated at less than 1% in 2017. In January 2017, authorities approved an economic revitalization plan to address the current economic crisis by containing macroeconomic and budgetary imbalances and stimulating growth. To tackle the economic shock that Gabon has been experiencing since 2014, the government has committed to revitalization measures, including implementing budgetary adjustments, developing infrastructure, and promoting the private sector as a driver of economic diversification and transformation.
Since the decline in oil prices, Gabon has recorded revenue losses that have hurt public finances, the financial sector, and the productive sector. Despite adjustment efforts, the government has accumulated sizable budget deficits, particularly to pay a large wage bill (close to 40% of the budget) and support the investment program associated with the country’s vision of emergence. In combination with the accumulation of arrears, the decrease in public investment has hindered economic growth, job creation, and the nonoil sector. The balance of payments is in deficit, and government reserves with the Central Bank have decreased sharply.
Gabon is determined to reduce its dependence on raw materials, particularly hydrocarbons, and transform its economy to become an emergent nation by 2025. It has established a credible industrial policy, including setting up special economic zones and attracting foreign direct investment. These measures are seen in the public-private partnership with the OLAM Corporation, whose objective is to promote subsistence and export-oriented agriculture as a bridge to growth. To improve public administration, the government has launched reforms that streamline the number of civil servants, re-examined the roles of certain ministries, and retargeted public resources to meet results. The reforms are supported by the international community through a $655 million triennial agreement approved in June 2017 under the International Monetary Fund’s Extended Credit Facility, as well as through budgetary support from the African Development Bank, the World Bank, and the French Development Agency.
Membership in the monetary union helps Gabon maintain low inflation rates. But it limits its options for adjusting to negative shocks and ensuring external competitiveness. Limited economic diversification remains a major constraint and prevents gains from higher exports in non-oil sectors. Despite bringing civil service expenditure under control and refocusing public expenditure, the past three years have seen the government accrue significant arrears with the private sector. This situation hinders the development of the nonoil, is detrimental to employment, and runs the long-term risk of weakening the banking sector because of the accumulation of questionable loans. The level of public debt is also a concern because of the substantial increase in recent years, to approximately 59% of GDP in October 2017. The government needs to continue to invest heavily in infrastructure, particularly roads, to remain an attractive destination for foreign investment. The government needs to continue to invest substantially in infrastructure, particularly roads, to remain an attractive destination for foreign investment. But the financing strategy should preserve debt sustainability.