AFRICAN DEVELOPMENT BANK
GABON
Public Disclosure Authorized Public Disclosure ECONOMIC AND FINANCIAL REFORM SUPPORT PROGRAMME PHASE II (PAREF II)
ECGF DEPARTMENT
October 2017
Public Disclosure Authorized Authorized Public Disclosure
Translated Document
TABLE OF CONTENTS PROGRAMME INFORMATION ...... IV LOAN INFORMATION ...... IV PROGRAMME EXECUTIVE SUMMARY ...... VI RESULTS FRAMEWORK ...... IX I. INTRODUCTION: THE PROPOSAL ...... 1 II. REVIEW OF COUNTRY’S ELIGIBILITY ...... 2 2.1 Criterion 1: Maintenance of Country’s Commitment to Poverty Reduction...... 2 2.2 Criterion 2: Maintenance of Political Stability: ...... 3 2.3 Criterion 3: Macroeconomic Stability...... 3 2.4 Gabon’s Growth Prospects have Deteriorated...... 4 2.5 Gabon’s low debt profile for about ten years has been undermined by the combined impact of falling oil prices and widening deficits...... 4 2.6 Criterion 4 –Fiduciary Risk Assessment ...... 4 2.7 The new PEFA 2016 Assessment ...... 4 2.8 Criterion 5- Harmonization ...... 5 III. THE 2017-2018 PROGRAMME-PAREF-II ...... 5 3.1 Programme Goal and Objective ...... 5 3.2 Components of the 2017/2018 Programme ...... 5 3.3 Sub-Component I.1- Strengthening of Revenue Mobilization ...... 6 3.4 Progress made Towards Fulfilment of the PAREF-II Prior Conditions (List of PAREF Triggers Defined in PAREF-I) ...... 10 3.5 Policy Dialogue ...... 10 3.6 Lending Conditions ...... 11 3.7 Good-Practice Principles for the Application of Conditionality ...... 12 3.8 Financing Needs and Arrangements ...... 12 3.9 Application of Bank Group Non-Concessional Borrowing Policy ...... 13 IV. IMPLEMENTATION OF THE OPERATION ...... 13 4.1 Programme Beneficiaries ...... 13 4.2 Implementation, Monitoring and Evaluation ...... 14 4.3 Financial Management, Disbursement Arrangements and Procurement ...... 14 V. LEGAL INSTRUMENNTS AND AUTHORITY ...... 15 5.1 Legal Instrument ...... 15 VI. RISK MANAGEMENT ...... 15 VII. RECOMMENDATION ...... 15
APPENDIX 1: LETTER OF DEVELOPMENT POLICY APPENDIX 2: PAREF-MATRIX OF PROGRAMME REFORM MEASURES APPENDIX 3: NOTE ON RELATIONS WITH IMF APPENDIX 4: PBO GENERAL AND TECHNICAL CONDITIONAPPENDIX 7: PBO GENERAL AND TECHNICAL CONDITIONS
ANNEX 1: PAREF-MATRIX OF PAREF-1 REFORM MEASURES AND RESULTS (2016) ANNEX 2: FROM ONE DEVELOPMENT PLAN TO ANOTHER ANNEX 3: PORTFOLIO AS AT 30 SEPTEMBER 2017 ANNEX 4: FIDUCIARY RISK ASSESSMENT
CURRENCY EQUIVALENTS (As at October 2017)
UA 1 = CFAF 822.46 UA 1 = USD 1.39 UA 1 = EUR 1.25
FISCAL YEAR 1January – 31 December
WEIGHTS AND MEASURES
1 metric tonne = 2 204 pounds (lbs) 1 kilogramme (kg) = 2.200 lbs 1 metre (m) = 3.28 feet (ft) 1 millimetre (mm) = 0.03937 inches (“) 1 kilometre (km) = 0.62 miles 1 hectare (ha) = 2.471 acres
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ACRONYMS AND ABBREVIATIONS
ACRONY ABBREVIATIONS MS
AfDB African Development Bank AGANOR Gabonese Standardization Agency APIEX Investment and Export Promotion Agency BPW Building and Public Works CDE Business Development Centre CEMAC Central African Economic and Monetary Community CFAF BEAC CFA Franc (XAF) CPG Gabonese Employers’ Confederation CPI Corruption Perceptions Index CSP Country Strategy Paper DGBFIP Directorate-General of Budget and Public Finance DGPME Directorate of Small and Medium-sized Enterprises ECCAS Economic Community of Central African States ENEC National Survey on Employment and Unemployment ERP Economic Recovery Plan, 2017-2019 EUR Euro FED Federal Reserve of the United States GAP II Governance Strategic Framework and Action Plan, 2014-2018 GCI Global Competitiveness Index GDP GDP: Gross Domestic Product GPN General Procurement Notice IC Individual Consultant IIAG Ibrahim Index of African Governance ILO International Labor Office LCS Least-Cost Selection LLC Limited Liability Company MDGs Millennium Development Goals MEPPD Ministry of Economy, Planning and Sustainable Development Programming (MEPPD) MIC Middle-Income Country MSMEs Micro-, Small-and Medium-sized Enterprises NICT New Information and Communication Technologies NOO No-Objection Opinion NPP National Procurement Procedures NPS National Procurement Systems OHADA Organization for the Harmonization of Business Law in Africa OSGE Governance, Economic and Financial Management Department PIU Project Implementation Unit PP Procurement Plan PPH Public Procurement Hub PROMO National Agency for the Promotion of Small GABON -and Medium-sized Enterprises PSGE Emerging Gabon Strategic Plan QCBS Quality and Cost-based Selection SBD Standard Bidding Documents SMEs SME: Small- and Medium-sized Enterprises
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SMIs Small- and Medium-sized Industries SNBD Standard National Bidding Documents SU Steering Unit SYSCOHA OHADA Accounting System DA TFPs Technical and Financial Partners UA Unit of Account UNDP United Nations Development Programme UNFPA United Nations Fund for Population Activities USD United States Dollar VSEs Very Small Enterprises
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PROGRAMME INFORMATION
INSTRUMENT: General Budget Support PBO DESIGN MODEL: Programme-based Operation
LOAN INFORMATION Client’s Information
BORROWER: Republic of Gabon ORGANE D’EXÉCUTION : EXECUTING AGENCY: Ministry of Economy, Planning and Sustainable Development Programming (MEPPD)
2017 Financing Plan
Source EUR Amount Instrument (2017)
AfDB 300 million Loan World Bank 170 million Loan IMF 30 million Loan AFD 75 million Loan TOTAL COST 575 Million
AfDB’s Key Financing Information Loan Currency: Euro (EUR) Loan Type: Fully flexible loan Tenor: To be determined (up to a maximum of 25 years) Grace Period: To be determined (up to a maximum of 8 years) Weighted Average Maturity**: To be determined (depending on amortization profile) Repayments: Half-yearly consecutive payments at the end of the grace period Interest Rate: Base Rate + Funding Cost Margin + Lending Spread + Maturity premium This interest rate must be higher than or equal to zero. Base Rate: Floating (6-month EURIBOR reset on 1 February and 1 August) A free-fixing option is proposed for the base rate. Funding Cost Margin: Bank's funding cost margin reset on 1 January and 1 July and applied on 1 February and 1 August with the base rate. Lending Spread: 80 basis points (0.8%) Maturity Premium: Zero basis points per year: - 0% if weighted average maturity <= 12.75 years
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- 0.10% if 12.75
Timeframe – Main Milestones (expected)
Approval of Original Programme Concept Note January, 2017 Phase II Approval November, 2017 Phase II Disbursement November, 2017 Completion December, 2018
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PROGRAMME EXECUTIVE SUMMARY
Programme Programme Name: Gabon – Economic and Financial Reform Support Programme- Overview Phase II (PAREF-II). This is the second phase of two programme-based General Budget Support (GBS) Operations. Overall Implementation Schedule: 2016-2017 Programme Cost: 500 million Euros (200 million in 2016 and 300 million in 2017) Programme Goal and Objective: In accordance with the original programme approved in January 2017, the goal of PAREF-II is to consolidate the achievements of PAREF-I and support the Government in implementing its Development Programme aimed at promoting accelerated and inclusive economic growth through enhancing public finance consolidation, improving the investment climate and strengthening agricultural sector competitiveness. Programme Expected Outcomes in 2017. The programme will consolidate the results achieved by Outcomes PAREF-I in 2016. The main expected outcomes are: (I) a broader tax base, streamlined public expenditure and higher efficiency in public investment; (ii) a more diversified economy based on a more business friendly investment climate, a financial system that will facilitate access to finance and a more competitive agricultural sector. Alignment on The Programme is in line with the Bank’s Ten-Year Strategy (2013-2022), the Bank’s particularly with regard to governance and private sector development. By Priorities creating fiscal space for the diversification of the economy and supporting reforms based on the two pillars1 of the CSP (2016-2020) with particular focus on revitalizing the agricultural sector, the programme supports three (3 ) of the Bank’s High-5s, in particular "Feed Africa", "Industrialize Africa" and "Improve the Quality of life". PAREF is also consistent with the 2014-2018 Governance Action Plan (GAP II), in particular, the pillars relating to public sector management and improving the business climate. It is also in line with the Bank’s 2013-2017 Private Sector Development Policy, especially, its pillar relating to the business climate as well as the Bank Group’s Strategy for Agricultural Transformation of Africa and its Strategy for Jobs for Youth in Africa. Needs Gabon is the second largest economy in CEMAC. The collapse of international oil Assessment prices in 2014 resulted in a significant slowdown of economic activity, a sharp fall in and Rationale oil exports and fiscal revenue, deepening of the fiscal deficit and rapid accumulation of external and domestic debt and arrears as well as a widening current account deficit and dwindling foreign exchange reserves which, in December 2016 fell to 1.4 months of imports compared to 2.3 months for the whole of CEMAC. This situation is straining the stability of the exchange rate while reducing the authorities’ room for maneuver to implement the reforms needed for the restructuring of the economy. Indeed, the present crisis underscores the need to shift from a growth model based on hydrocarbons and public investments to a more diversified, inclusive and job-creating growth. To this end, Gabon must address a double challenge, including: (i) fostering public finance consolidation in order to pursue implementation of the country’s development programme “Emerging Gabon Strategic Plan” (PSGE) and more specifically, the Economic Recovery Plan (PRE) which implements the PSGE over the 2017–2019 period, taking into account the ongoing socio-economic constraints; and (ii) diversifying the economy in light of weaknesses relating to the investment climate and infrastructure.
Aware of the serious economic, political and social upheaval that could arise from any drastic changes in the foreign exchange regime, during their meeting in Yaoundé, the Heads of State agreed to implement a strategy aimed at maintaining the existing peg, coupled with significant fiscal adjustments in each CEMAC member country alongside the tightening of monetary policy at the regional level. Based on this
1 (i) Support to economic diversification through infrastructure development and improvement of the business climate; (ii) support for the human development strategy. vi
approach, CEMAC member countries have agreed to individually conclude Economic Reforms programmes with the IMF to address their balance of payment imbalances and ensure the viability of the monetary union. It is in this context that in June 2017, the IMF approved an Extended Arrangement under the Extended Fund Facility (EFF) for Gabon to help implement the authorities’ recently adopted Economic Recovery Plan (ERP).
PARFEF-II will provide the financial assistance needed to close the financing gap identified under the programme agreed upon between Gabon and IMF, to offset the sharp drop in oil revenue, to strengthen the country’s foreign exchange reserves with the Central Bank, to provide financing for the ERP priority programmes and support the implementation of budget-support reforms concerning public finance and economic diversification. Finally, PAREF II will support implementation of the institutional support projects planned under the CSP, particularly the Investment Climate and Economic Diversification project.
Lessons Lessons learned include the need to: (i) focus on selectivity and flexibility in the design Learned and implementation of reforms, (ii) establish adequate coordination mechanisms within the Government to oversee the implementation of public finance reforms (iii) strengthen dialogue and close monitoring of reforms with a more active role of the Bank’s Field Office and; (iv) support the implementation of reforms through targeted institutional support and technical assistance.
Conditions for Gabon meets all the conditions of eligibility for general budget support operations. Continuing As regards poverty reduction, the Government adopted an Economic Recovery Plan Support (ERP) in October 2016 aimed at accelerating economic diversification and the social impact of public policies over the 2017-2019 period, by enhancing the sustainability of public finances in order to adapt the implementation of PSGE to declining oil revenue. With regard to political stability, Gabon enjoys relative institutional stability despite the upheaval linked to the 2016 Presidential elections and recurrent strikes in the public sector. A new inclusive Government that includes some members of the political opposition was formed in August 2017 in the aftermath of the political dialogue organized by the Government. This new cabinet is preparing the legislative elections planned for 2018. The macroeconomic stability criterion has also been met. The macroeconomic situation has deteriorated as a result of the sharp drop in oil prices. However, medium-term prospects remain positive. The macroeconomic framework is regularly monitored by the IMF in collaboration with the other donors under the Extended Funding Facility. An IMF mission is planned for November 2017. At the fiduciary level, the fiduciary risk assessment carried out by the Bank in 2017 concluded that overall fiduciary risk was moderate and that the public finance management system met Bank’s requirements for budget support operations. The 2016 PEFA assessment highlighted improvements in the area of programme-based budgeting and punctuality in the production of budget and accounting information, as well as weaknesses in the area of arrears management and monitoring of the central government’s risk perimeter. The Government has prepared a Public Finance Management Reform Programme intended to correct these weaknesses. As regards harmonization, PAREF was designed in close collaboration with other development partners. PAREF II complements the Extended Arrangement for Gabon under the Extended Fund Facility approved by the IMF in June 2017 and the budget support operations planned by other donors (World Bank, France, etc.).
Policy Through this operation, the Bank will provide Gabon with solid expertise and Dialogue and tools not only to inform policy dialogue but also to implement the reforms Related needed in order to move from an oil -based development model to a more sustainable, diversified and inclusive economic growth. To this end, PAREF II
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Technical has launched a number of studies to inform both the dialogue and the Assistance implementation of the reforms programme. These studies include optimization of revenue in the telecommunications and mining sectors, the establishment of a National Revenue Agency, prioritization of public investments and preparation of a financial sector development strategy. The dialogue will also cover the establishment of an appropriate PPP framework and reforms aimed at strengthening agricultural sector competitiveness. The Governance Department will and the Bank’s Field Office will conduct this dialogue.
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RESULTS FRAMEWORK Programme Country and Name: Gabon : Economic and Financial Reform Support Programme-Phase II (PAREF-II) Programme Goal: Contribute to the promotion of accelerated and inclusive economic growth by strengthening the sustainability of public finances, improving the investment climate and agricultural sector competitiveness
PERFORMANCE INDICATORS RISKS MEANS OF /MITIGATI RESULTS CHAIN Baseline VERIFICATI Indicators (including CSIs) Target ON Situation ON MEASURES Conditions for strong Ministry of GDP growth rate 3.2% in 2016 5% in 2020 and inclusive growth are Economy, created 3.8 in Planning and
Global Competitiveness Index 2015/2016, 4.5 in 2018, 95th out Development Programming IMPACT (score and rank) 103rd out of of 140 140 (MEPPD) 1.1. Ratio of non-oil revenue/ Risks 19% in 2015 19.7 in 2018 Outcome Budget non-oil GDP Political unrest IMF management improved 1.2. Current expenditure/ non-oil 25.4 % in linked to post- 22 % in 2018 GDP 2015 electoral 110 in 2016 disputes and 3.1. Number of registered 200 in 2018 7% by the companies in the non-oil sectors including 10 % by women in organization of (including % managed by women women API bulletin legislative 2016 elections 3.2. Private Investment Rate (% 29.6 in 2016 32.6 in 2018 (as % of planned for GDP) (% of PIB) GDP) 2018 Outcome the 3.3. Ratio of Agricultural Gross Mitigation 3.7% in 2014 4.7% in 2018 Measure OUTCOMES economy is diversified Domestic Product (AGDP) /GDP PAREF-II is 18500 in Ministry of presented to the 2015 Bank’s Board of 3.4. Number of jobs in the (including 20500 in 2017 Agriculture Report Directors after GRAINE Programme (Including 11000 (including 13000 the formation of for women) women, i.e. women) a new 65% of the Government total) that resulted Component I– Improve public finance viability from the Sub-Component 1.1 – Increased domestic resource mobilization political Adoption of a fiscal rule Copy of Order dialogue with on: (i) setting of rules for An Order is adopted signed by the the opposition. calculating forecasts and No to strengthen the Minister of In addition, smoothing of oil revenues Ministerial predictability of oil Ministerial Order on Fiscal Economy and consultations in relation to international Order on revenue and the Rules Minister of are continuing oil prices and (ii) the Fiscal Rules sustainability of Budget was for the institutionalization of in 2015 budget execution in submitted to the organization of precautionary reserves to 2016 Bank in 2016 the upcoming regulate budget execution. legislative
Adoption of a ministerial elections, which circular aimed at could contribute The Circular eliminating tax and to reduce signed by the customs exemptions Circular adopted in political risk. Ministerial Circular on Tax and No circular Minister of OUTPUTS without legal basis the Council of Customs Exemptions in 2015 Economy was granted by the General Ministers in 2016 Risks submitted to the Directors of Ministries - the external Bank in 2016 and unifying exemption shocks linked authorizations to a continuing Forwarding of fall in oil prices Platform extended Platform the extract from could Strengthening of the e- to all firms Number of firms using the e- limited to the 2017 Budget slowdown declaration and e- subjected to platform for their tax large firms Law published economic payment for all taxes (e- corporation tax declarations subject to on OG proving recovery and tax) (CT) and VAT in CT in 2016) the entry of jeopardize 2017 budget resources revenue
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PERFORMANCE INDICATORS RISKS MEANS OF /MITIGATI RESULTS CHAIN Baseline VERIFICATI Indicators (including CSIs) Target ON Situation ON MEASURES 105 additional (i) Forwarding mobilization assessments i.e. a of reports on tax and fiscal Number of tax and customs 345 in 2015 cumulative total of e assessments and adjustment assessments carried out 450 as at 30 June disputed Mitigation 2017 customs revenue Measure: Customs revenue recovery rate 51% in 10% more i.e.61% by the Minister - in addition to (% of unpaid duties) 2015 as at 30 June 2017 of Economy the reforms Strengthening of the (2017) aimed at recovery of tax and enhancing customs revenue (ii)Submission fiscal At least 20% of a report on consolidation, CFAF 311 increase in recovery Amount recovered on unpaid the status of the billion compared to 2015 taxes (in billion CFAF) unpaid taxes for Government (2015) (i.e. CFAF 380 2016 and has prepared an million) in 2017 effective Economic recovery of that Recovery Plan amount in 2017 (ERP) aimed at Submission of implementing reports on the Emerging Preparation of studies and studies and Gabon Strategic action plans on revenue Two studies and action plans Plan over the Number of studies and action No study in optimization in the mining action plans validated by the 2017-2019 plans 2015 and telecommunications prepared in 2017 Minister of period taking sectors Economy and into account the the two sector ongoing socio- Ministries economic Sub-Component I.2 – Streamlining of Public Spending constraints The Decree on the Forwarding of Risks Directive not TOFE is adopted by the Order TOFE - The weak Transposition of CEMAC Decree transposing the CEMAC transposed in the Council of published in the institutional Directive into the TOFE Directive into the TOFE 2015 Ministers in June OG capacity of 2017 Gabon’s public Forwarding of an administration extract from the that could be 2017 Budget overwhelmed Law published in by the 3.4% the OG shows a simultaneous Stabilization of the wage between Maximum 2% Wage bill growth rate2 reduction in implementation bill 2014 and increase in 2016 salary costs from of four major 2015 CFAF 730.9 adjustment billion in 2016 programmes to CFAF 710 (IMF, World billion in 2017 Bank, AfDB and France) Report on the Operationalize the Mitigation establishment of computerized control Measure: An automated the automated system linking the - The Ministry commitments control procedure is authorization of expenditure Computerized arrears control No system in of Economy system is established submitted to the and the availability of the system 2015 has established to reduce domestic Bank by the related credits in order to a Reform arrears Ministry of reduce sources of domestic Support Unit Economy arrears which should (2017) be strengthened Submission of Draft law on Public and provided Adoption of a Draft Law the Revised Draft Law on Public Procurement Procurement Code technical on the Revised Public Old Code Public Code revised adopted by the CM assistance Procurement Code Procurement in 2017 during the Code in 2017
2 70% between 2010 and 2015 x
PERFORMANCE INDICATORS RISKS MEANS OF /MITIGATI RESULTS CHAIN Baseline VERIFICATI Indicators (including CSIs) Target ON Situation ON MEASURES Report signed by implementation the Ministry of of PAREF-II. Reduce the proportion of Economy n the Proportion of public contracts public contracts awarded by 80% in 2015 Under 50% in 2017 award of at least awarded by direct negotiation (%) direct negotiation 50% of contracts by competitive bidding Submission of Order concerning the the Order on the establishment of a Public establishment of Investment Prioritization and the public Maturity Committee and the No order in Order adopted no investment systematization of feasibility 2016 later than end 2017 prioritization studies prior to the entry of major committee by the Prioritization of public projects in the General Ministry of investments Government Budget Economy Forwarding of Procedures Handbook is prepared No the Procedures Handbook adopted in for the prioritization and maturity Handbook in Handbook by the 2017 assessment of public investments 2016 Minister of Economy Component II –Support Economic Diversification Sub-Component II – 1 – Improvement of Investment Climate No roadmap API Reports Preparation of roadmap for The roadmap is Reform roadmap on business adopted in reforms to improve the adopted by the High climate 2016 business climate Council in 2017
API Report on the appointment No Operationalization of the Appointment of a PPP Unit The coordinator was of the PPP coordinator PPP Unit Coordinator appointed in 2016 coordinator was in 2016 submitted to the Bank in 2016 API reports Adoption by Cabinet of The implementing Implementing Decrees of Order No decrees implementing decrees for texts are adopted by on PPPs in 2016 PPP. the Cabinet in 2017
Establishment of the Libreville Commercial Court No Decree establishing API Reports Libreville Commercial Commercial the Libreville Court Court in Tribunal adopted by Libreville in the CM in 2017 2016 Sub-Component II – 2 – Facilitation of Access to Financing Preparation of the Financial Financial Sector Strategy and its No strategy The sector strategy is Submission of Sector Strategy and its Action Plan in 2015 available in 2017 Strategy by Action Plan Ministry of Economy Action Plan for the development No Action Forwarding of Forwarding of Preparation of an Action of non-bank financial instruments Plan in 2016 Action Plan on non- Action Plan Plan for the development of (factoring, private equity, leasing) banking financial adopted by the non-banking financial instruments validated Council of instruments (factoring, by the Government Ministers private equity, leasing) in 2017 Decree regulating savings and No clear Decree laying down Forwarding of credit mutual funds regulations regulations for Decree by the Adoption by the Cabinet of in 2016 savings and credit Minister of a Decree regulating savings mutual funds adopted Economy and credit mutual funds by the Cabinet (2017)
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PERFORMANCE INDICATORS RISKS MEANS OF /MITIGATI RESULTS CHAIN Baseline VERIFICATI Indicators (including CSIs) Target ON Situation ON MEASURES Sub-Component II –3 – Strengthening of Agricultural Sector Competitiveness Conduct of an institutional Report on institutional audit Increase in Audit Report and Ministry of audit aimed at streamlining aimed at streamlining executing number of Action Plan adopted in Agriculture executing agencies agencies agencies and 2017 Report supervision system inadequate Preparation of a Guidance Guidance Note on Agricultural No Guidance A Guidance Note was The Agricultural Note on Agricultural Policy Policy including gender document in adopted and transmitted Guidance Note to the Bank in 2016 including gender mainstreaming 2016 was submitted to mainstreaming the Bank by the Minister of Agriculture Adoption of implementing Implementing texts on the No incentive The incentive Forwarding of texts on the facilitation of facilitation of agricultural framework in agricultural investment Decrees and agricultural investment investment 2016 framework is Orders published established in 2017 in the OG on facilitation Validation by the Minister National Land Allocation Plan Draft Plan The National Land The Letter of Agriculture of the (taking into account women’s prepared in Allocation Plan validated by the National Land Allocation access to land (PNAT) 2016 (taking into account Minister of Plan (taking into account women’s access to Agriculture was women’s access to land land (PNAT) was submitted to the (PNAT) submitted to the Bank in 2016 Bank in 2016 FINANCING: AfDB Loan (500 Million Euros) – In two tranches 2016 and 2017)
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I. INTRODUCTION: THE PROPOSAL
MANAGEMENT’S REPORT AND RECOMMENDATION TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF GABON TO FINANCE THE ECONOMIC AND FINANCIAL REFORM SUPPORT PROGRAMME - PHASE II (PAREF-II)
1.1. Management hereby submits the following report and recommendation concerning a 300 million Euro ADB loan to the Republic of Gabon to finance the Economic and Financial Reform Support Programme (PAREF-II). This is the second of two programme-based General Budget Support (GBS) operations covering the 2016-17 period as planned under the CSP, for an indicative total financing of 500 million Euros. The first phase of the PAREF presented a multi-year framework for the programme and a list of reform measures considered as indicative triggers for the second phase. This programme-based approach facilitates the predictability of aid and its alignment with national policies so as to create the conditions for sustained and inclusive growth.
1.2 Gabon is CEMAC’s second biggest economy and the country mainly depends on oil resources. Falling oil prices since mid-2014 have had a negative impact on the macroeconomic situation due to declining export revenue and budget resources. Non-oil growth has halved from an average of about 7% over the 2012-2014 period to almost 3% in 2015-2016. Despite considerable fiscal adjustment efforts, the overall fiscal situation has deteriorated resulting in an increase in financing needs, as reflected by an increased in bank financing, a large accumulation of arrears and dwindling foreign reserves. In view of the heavy dependency of CEMAC countries on oil exports, the economic crisis facing Gabon and other countries of the regional union, has resulted in a sharp fall in the common pool of foreign exchange reserves at BEAC and increased pressure on the currency peg which could heighten social tension. In order to address this situation, the Heads of State of CEMAC member countries agreed at the Yaoundé Summit to implement fiscal consolidation and structural reforms with the support of the IMF.
1.3 This crisis underscores the need for Gabon to change its economic and social development paradigm by moving away from a hydrocarbons-based growth model whose impact on poverty remains limited to a more diversified, inclusive and job-creating private sector-driven growth model. Against this backdrop, Gabon must address three main macroeconomic challenges: the slowdown of growth, the spiraling increase in public debt and insufficient fiscal space. In order to diversify the economy, Gabon must also tackle a number of challenges related to its unattractive investment climate, the infrastructure gap, and low access to finance as well as the weak competitiveness of agriculture. Improvement in the agricultural sector could help offset the declining oil revenues. 1.4. PAREF-II aims to consolidate and deepen the results of PAREF-I through: (i) the strengthening of fiscal consolidation to restore macroeconomic stability; and (ii) support to economic diversification in order to achieve inclusive growth by improving the investment climate, access to finance and the competitiveness of the agricultural sector. It will provide the authorities with the necessary reserves to absorb the external shocks stemming from declining oil prices, to consolidate reserves at BEAC and facilitate implementation of the reforms needed to enhance fiscal consolidation and ensure the structural transformation of the economy. 1.5. To this end, PAREF-II will support the Government’s medium-term reform programme as stipulated in the Letter of Development Policy (Appendix I). The PAREF reforms over the two-year span of the programme are presented in Appendix II in the Matrix of Measures. The reforms implemented in the first year (PAREF-I) are presented in Annex 1. This operation was built on strong commitment from the Government and close collaboration with Technical and Financial Partners, including the IMF whose recent programme in support of Gabon is presented in Appendix III. In addition, the World Bank, in coordination with AfDB, is preparing a budget support operation for the last quarter of 2017 with special focus on reforms in the social sectors and containing the wage bill3. Gabon has also adapted the implementation of its development plan (PSGE) to the new fiscal constraints through the
3 The AfDB budget support places more emphasis on the mobilization of revenue and the productive sectors, which complements the World Bank’s social sector component. 1
adoption of the 2017-2019 Economic Recovery Plan in Annex 2. 1.6. The operation is in line with the country’s national development policy framework, namely the Emerging Gabon Strategic Plan “PSGE” and contributes to the implementation of the strategic pillars of the CSP, the Bank’s ten-year strategy and three (3) of the Bank’s five (5) Strategic Priorities (Hi-5s), in particular ‘Feed Africa’, ‘Industrialize Africa’ and ‘Improve the Quality of Life’. PAREF is also consistent with the Bank’s strategy on Governance and private sector development as well as with the Bank’s Youth Employment Strategy. The operation is focused on two complementary components: i) strengthening of fiscal consolidation through increased revenue mobilization and the streamlining of public expenditure and; ii) Support to economic diversification through targeted structural reforms aimed at improving the business climate, access to finance and agricultural sector competitiveness. The 2017 triggers were implemented. Consequently, Gabon has met the conditions for the Board’s favorable consideration of PAREF-II.
II. REVIEW OF COUNTRY’S ELIGIBILITY
2.1. Criterion 1: Maintenance of Country’s Commitment to Poverty Reduction.
2.1.1. PAREF is in line with the Emerging Gabon Strategic Plan (PSGE) and the President of the Republic’s Social Pact which present the development vision up to 2025 around the following three strategic thrusts: i) consolidation of the foundations of emergence, ii) development of the pillars of emergence and (iii) shared prosperity. The first strategic thrust aims to strengthen Gabon’s competitiveness through sustainable development, governance, human capital and infrastructure. The second strategic thrust aims to diversify the sources of growth by the transformation from an economy based on commodities (oil and gas, wood and mining) to a more diversified, value-adding economy through three key concepts: ‘Industrial Gabon’, ‘Green Gabon’ and ‘Services Gabon’. The third strategic thrust aims to ensure that this growth will benefit all Gabonese, not only through an increase in incomes but also through improvements in the social sectors around the following five strategic goals: i) establish high quality health services for all, ii) guarantee access for all to drinking water and sanitation services, iii) guarantee access to decent housing for all, iv) promote access to employment and the fight against exclusion, and v) enhance the cultural heritage and foster people’s access to cultural services.
2.1.2. The Government provided fresh impetus to its actions in October 2016 by adopting an Economic Recovery Plan (ERP) which implements the Emerging Gabon Strategic Plan over the 2017-2019 period, taking into account the economic constraints facing Gabon since 2014. More specifically, the ERP aims to accelerate economic diversification and the social impact of public policies by placing public finances on the path of sustainability. These objectives were confirmed in the Prime Minister’s Policy Statement and are in line with the resolutions of the CEMAC Heads of State during the Extraordinary Summit of 21 December 2016.
2.1.3 On the social front, despite economic progress and high income per capita, the country has a low level of human development. Indeed, the drop in oil prices has widened social disparities; 1/5th of the population continues to live on less than US$2 per day and unemployment affects 60% of young people under 30-years old, a rate far above the national average of 21% for a population of 1,800,000 inhabitants half of whom are under 19 years old. Furthermore, the country was ranked 110th in the world out of 188 countries according to the 2015 Human Development Index for which the population’s access to basic social services constitutes an important factor4. Against this backdrop, a large part of the proposed reforms under the PAREF are focused on improving the investment climate, access to finance and modernizing the agricultural sector. This ambitious measures will help improve the employment rate of the youth. In addition, the authorities have launched the Social Pact in 2014 to improve the country’s Human Development performance. With regard to gender, in 2010 the Government adopted the National Equality, Equity and Gender Strategy (SNEEG) with the assistance of UNDP and UNFPA. The SNEEG is focused on six basic thrusts concerning gender equity and equality. Although effective implementation of the SNEEG remains a challenge, Gabon has made great strides in the gender equality
4 /Gabon therefore appears out of step with similar middle-income countries as regards the MDGs. 2
5 index . Thus, in 2016, the country achieved gender parity in primary education. At the secondary level, the parity index was 1.1 in 2012 in favor of girls. However, the proportion of working women was only 38.6% in 2015, below the MDG target set at 50%.
2.2. Criterion 2: Maintenance of Political Stability:
The political situation is characterized by relative institutional stability. The re-election of Ali Bongo in August 2016 triggered violent clashes between his supporters and those of the opposition. The Constitutional Court confirmed the victory of the outgoing President in September 2016. However, the European has continued to raise the issue of weaknesses in Gabon’s electoral system. The national dialogue for reconciliation initiated by the new Government in March 2017, but boycotted by part of the opposition, did not undermine the main institutional balances, as it recommended no term limits for elected officials, including for the President. A new inclusive Government that includes members of the opposition was formed in August 2017 in the aftermath of the dialogue. The new cabinet received a roadmap focused on the implementation of the Emerging Gabon Strategic Plan (PSGE) as well as the continuing dialogue with the opposition in order to create a political climate that is conducive to reconciliation. The legislative elections originally scheduled for December 2016 have been postponed to April 2018.
2.3. Criterion 3: Macroeconomic Stability.
The mid-2014 oil shock has seriously affected the Gabonese economy by weakening macroeconomic stability through its negative impact on economic growth, public finances, the balance of payments and public debt. The slowdown of economic activity continued in 2016 with a GDP growth rate of 2.1% compared to 3.9% in 2015 whereas the average for the 2010-2014 period was about 6%. This slowdown is linked to the drop in oil revenue and public investment and its spin-off on non-oil growth which halved from an average of 7% over the 2012- 2017 period to almost 3% in 2015-16. Despite a significant fiscal adjustment made since 2014, the overall fiscal situation has deteriorated (see Table 1). The overall fiscal balance (on a commitments basis) has deteriorated form an average deficit of 1.1% in 2015 to a deficit of 5.3% in 2016 resulting in increased financing needs, as reflected in an increase in domestic bank financing. The current account deficit has also widened from 0.7% in 2015 to 3.3% in 2016 owing to a drop of about 50% in oil revenue compared to the oil boom years and the maintenance of a high level of imports. This situation has also created strong pressure on reserves which fell from $1.7 billion at end 2015 to about $600 million dollars in 2016 (i.e. 1.4 months of imports) compared to 2.3 months for CEMAC.
Table 1: Key Macroeconomic Indicators (% of GDP, unless otherwise indicated) - Government-2017 2013 2014 2015 2016 2017 2018 GDP (real) (%) 5.6% 4.3% 3.9% 2.1% 0.8% 3.3% Consumer Price–end of period (%) 0.5% 4.7% -0.3% 2.1% 3.1% 2.6% Oil GDP (%) -5.3% -0.3% 8.6% -3.7% -5.9% 0.8% Non-Oil GDP (%) 7.5% 5.0% 3.2% 2.9% 1.8% 3.6% Current Account Balance – including grants (as % du PIB) 13.0% 7.9% -0.7% -3.3% -1.9% -2.1% Broad Money (M2) (as % of GDP) 25.2% 24.4% 25.6% 33.4% 34.9% 35.8% External Public Debt 22.3% 27.4% 33.9% 37.4% 33.4% 34.5% (as % of GDP) Central Government Domestic Debt (as % of GDP) 1.3% 2.3% 3.3% 11.9% 10.7% 8.8% Total Revenue and Grants (as % of GDP) 30.2% 26.1% 21.1% 18.7% 18.3% 19.1% Of which oil revenue 15.5% 11.5% 7.1% 5.1% 5.7% 5.5% Of which non-oil revenue 12.7% 14.2% 15.5% 13.6% 12.6% 13.6% Total Expenditure (as % of GDP) 28.4% 24.5% 22.2% 24.0% 21.4% 21.5% Expenditure excluding interest payments (as % of GDP) 26.7% 23.2% 20.2% 21.7% 18.6% 18.8% Interest Payments (as % of GDP) 1.7% 1.2% 2.0% 2.3% 2.7% 2.6% Primary Balance (as % of GDP) 3.5% 2.9% 0.9% -3.0% -0.3% 0.3%
5 Source : UNDP Human Development Report, 2016 3
Non-oil primary balance (as % of GDP) -12.0% -8.6% -6.2% -8.1% -6.1% -5.2% Overall Fiscal Balance (commitment basis) (as % of GDP) 1.8% 1.7% -1.1% -5.3% -3.1% -2.3% Nominal GDP (in CFAF billion) 8690.5 8988.3 8503.5 8310.3 9071.6 9134.3 Oil GDP 2526.8 2357.8 1937.3 1565.8 1752.0 1621.8 Non-oil GDP 6163.7 6630.6 6566.2 6744.4 7319.6 7512.6
2.4. Gabon’s Growth Prospects Have Deteriorated.
Overall, the downward trend in economic growth would continue in 2017, while the medium- term outlook is more positive. Overall, GDP growth is expected to drop to 0.8% in 2017. Non-oil growth is expected to slow down from 2.9 to 1.8 % because of falling oil production, the impact of fiscal adjustment and the tightening of CEMAC monetary policy. Medium-term growth could return to levels of 4-5%6 by 2020-2022, buoyed by the improved business climate and the authorities’ diversification strategy based on major investments in agriculture and infrastructure aimed at developing comparative advantages in the agribusiness sector, the forest-wood sub-sector and downstream activities (manganese). However, the revival of growth could be jeopardized by weaknesses in terms of efficiency and transparency of expenditure as well as by the falling confidence of the private sector in the event of delays in the implementation of the action plan for clearance of arrears, the exacerbation of central government cash problems and the tightening of external financing conditions which could cause delays in the implementation of major agribusiness projects whose role is key to serve as a new engine of growth.
2.5. Gabon’s low debt profile for about ten years has been undermined by the combined impact of falling oil prices and widening deficits.
While Gabon’s public debt remains under the threshold of 70% of GDP set by CEMAC, the country’s indebtedness has more than doubled from 20% in 2012 to 49% of GDP in 2016 (including over 80% in external debt). Given the weak diversification of the economy and deterioration of the primary balance, this sharp rise in the debt ratio represents a risk for macroeconomic stability while the domestic debt burden contributes to falling investor confidence and slows down the recovery of growth. Such a situation requires rigorous cash and fiscal adjustment management in order to ensure a sustainable debt path. To that end, in June 2017, the Government concluded with IMF a three-year arrangement for 642 million United States dollars under the Extended Fund Facility (EFF) aimed at correcting balance of payments difficulties and guaranteeing the viability of monetary union.
2.6. Criterion 4 –Fiduciary Risk Assessment
The assessment of the fiduciary risk of the public finance management system presents residual fiduciary risks of a moderate level as a result of the reforms implemented in the area of public finance management in general and improvement of efficiency in expenditure through the establishment of Programme-based Budgeting (PBB) following the previous recommendations made by donors. Reforms have been implemented at the (i) legislative and regulatory level, especially entailing the transposition into national law of the CEMAC Directives and the preparation of already adopted texts, (ii) with regard to reference frameworks for budget preparation and execution and programme operationalization and (iii) by the introduction of the performance-based approach in the administration.
2.7. The new PEFA 2016 Assessment
The PEFA shows improvements in the area of programme-based budgeting and the punctuality of the production of budget and accounting information. However, weaknesses persist at the level of the basic functions of the Public Finance Management (PFM) system, in particular, concerning arrears management, the execution of
6 Source : IMF-Gabon : Request for an Extended Arrangement Under the Extended Fund Facility-Medium-Term Prospects, 2016-2022, page 29 4
expenditure, the control and auditing of public procurement, public investment management, supervision of public entities and budget information. These weaknesses are mainly caused by the extensive use of exceptional procedures for budget execution and public procurement as well as weak interconnection between the systems necessary to ensure the consolidation of budget information and guarantee its viability. The Government has prepared a reform strategy for public finance management to address these challenges with special emphasis on (a) the management and prevention of arrears by tightening controls on payment procedures and public procurement as well as close monitoring of outstanding payments to prevent the accrual of new arrears as well as the publication of quarterly reports on payments pending at the Treasury and arrears and; (b) enhanced efficiency of expenditure by reducing the number of public contracts awarded through direct negotiation and closer supervision of public establishments.
2.8. Criterion 5- Harmonization
PAREF was designed in close coordination with other development partners, including the World Bank and IMF. The World Bank is preparing budget support for 2017 to complement the PAREF with particular focus on social inclusion and control of the wage bill. The Bank’s teams have already held several consultations with the IMF. PAREF II will help to close the financing gap and implement a number of reforms agreed with the authorities in the IMF’s Extended Arrangement for Gabon under the Extended Fund Facility. Furthermore, the Gabonese Authorities have undertaken to establish a Coordination Committee responsible for monitoring the PAREF Reforms and public finance management –related reforms in general as well as further strengthening the harmonization of the different donors’ interventions. During this second phase of PAREF, the Bank will continue its active collaboration with the IMF in order to facilitate implementation of the recommendations of the CEMAC Heads of State Summit.
III. THE 2017-2018 PROGRAMME-PAREF-II
3.1 Programme Goal and Objective
3.1.1 As in the case of PAREF-I, the PAREF-II objective is to support the implementation of the Government’s Development Programme in order to create the conditions for accelerated and inclusive economic growth through fiscal consolidation and economic diversification. The operational objective for 2017 aims to (i) strengthen fiscal consolidation through increased revenue mobilization and streamlining of public expenditure with particular emphasis on controlling the wage bill and enhancing the efficiency of public investment; (ii) support economic diversification by improving the investment climate, access to finance and agricultural sector competitiveness in order to facilitate the economy’s structural transformation to offset the oil price slump.
3.2 Components of the 2017/2018 Programme
3.2.1 PAREF-II is a continuation of PAREF-I and is focused on the same complementary components: (I) strengthening of fiscal consolidation to restore macroeconomic stability; and support to economic diversification to achieve inclusive growth. The proposed measures supported by the programme are described in the matrix of reforms (Appendice 2)
Component I –Strengthen fiscal consolidation to restore macroeconomic stability
3.2.2 The programme’s first component has two sub-components: improved predictability and mobilization of revenue (I.1) and streamlining of public expenditure (I.2.) in order to create fiscal leeway that will contribute to fiscal consolidation and create favorable conditions for the continuing implementation of the ERP.
3.2.3 Context and Challenges: Gabon’s economy remains dependent on oil and gas sector revenue that has helped the country achieve an average growth rate of over 6% during the implementation of the first phase of the PSGE (2010-2014). Gabon’s oil revenue represented 33.6% of total revenue in 2015 against 18.6% for Cameroon. In 2016, 5
this share was reduced to 29.7% for Gabon compared to 29.8% for CEMAC and 15% for Cameroon. The sharp decline in oil prices coupled with increasing cost of financing in capital markets highlight the urgent need to strengthen domestic revenue mobilization while scaling up measures to streamline and improve the quality of expenditure in order to continue implementation of the ERP7. Despite the considerable efforts made by the Authorities to accelerate payment of domestic arrears, the implementation of the 2017 clearance plan has been considerably delayed due the government’s cash constraints. This could further impede economic recovery.
3.2.4 The government is therefore determined to maintain fiscal discipline in order to restore macroeconomic stability. The proposed fiscal adjustment aims to narrow the overall fiscal deficit (commitments basis) from 6.6 % of GDP in 2016 to 4.6 % in 2017, then gradually reduce it further to reach equilibrium by 2020. The non-oil primary deficit is expected to fall from 11 % of non-oil GDP in 2016 to 8.9 % in 2017, then gradually trend downwards to 3–4 % by 2020. In the short-term, fiscal consolidation depends on an increase in non-oil revenue and robust measures to control current expenditure included in the Supplementary Budget Law. These include: i) the introduction of tax deductions at source on the incomes of individual taxpayers and non-resident companies using bank accounts (0.1 % of GDP), and ii) a reduction in several VAT and customs duty exemptions (0.4 % of GDP); as well as reform of the wage bill and a review of compensation policy which should help to make savings of about 1% of GDP between 2017 and 2020 from their high level of 8.8% of GDP in 2016; tighter control of public investment which had already declined by two thirds of its 2-13 peak8 ; additional savings on goods and services as well as on transfers and subsidies and inclusion in the budget of allocated revenue should also lead to about 1.2% in savings. The fiscal strategy also envisages the repayment of statutory advances to BEAC, the gradual accrual of deposits and a fiscal rule limiting pending payments at the Treasury. This fiscal consolidation strategy takes into account the need to protect the most vulnerable segments of the population by adopting a floor to protect social spending9 3.3 Sub-Component I.1- Strengthening of Revenue Mobilization
3.3.1 PAREF-I Outputs: Implementation of PAREF-I has contributed to increase revenue mobilization. Indeed, non-oil revenue rose from CFAF 1134.5 billion in 2016 to CFAF 1139.7 billion in 2017, as a result of the implementation of the following reforms: (i) Adoption of a fiscal rule aimed at : (a) defining a baseline for forecasting and smoothing oil revenue in relation to global oil prices and (b) the institutionalization of precautionary reserves to regulate budget execution (Prior Measure 1); (ii) Adoption of a ministerial circular aimed at eliminating tax and customs exemptions with no legal basis that are granted by the Directors-General of Ministries and to harmonize exemption authorizations. (Prior Measure 2) and; (iii) Adoption of a Ministerial Order to: (a) validate the memorandum of understanding between the Directorate-General of Taxes (DGI) and the Directorate-General of Customs (DGD); (b) appoint of a coordinator of the joint committee, and (c) establish joint inspection brigades.
Measures supported by the PAREF-II. The reforms initiated under PAREF-I will be deepened in PAREF- II through the implementation of the following reforms: First, as regards the improvement of the programming and mobilization of revenue, the Bank will focus on the following reforms: (i) Completion of two studies and adoption of Action Plans for the optimization of revenue mobilization in the telecommunications and mining sectors- Trigger 1 ; (ii) increase in the number of tax assessments from 345 in 2015 to 450 in 2017 ; (iii) Increase in the recovery of unpaid customs bills from 51% in 2015 to 61% as of 30 June 2017, (iv) increase in collection of unpaid taxes by at least 20% in 2017 compared to 2015; (v) broadening of the e-declaration pilot platform and of e-payments for large enterprises to all
7 Over the 2014-2016 period, oil revenue fell by 12.9% on average due to the 31.8% drop in oil revenue whose contribution to central government resources is on a chronic downward trend 8 Including the possibility of cancelling or postponing public investments whose represents at least CFAF 40 billion depending on the central government cash position 9 Protected expenditure concerns: i) basic goods and services, educational infrastructure and the rehabilitation of primary, secondary and vocational education facilities, ii) basic goods and services and transfers to primary health care centres, and iii) health insurance and target social safety nets for vulnerable groups (including social assistance programmes in kind and in cash). 6
enterprises liable for income tax and VAT; (vi) Capacity building and Training on procedures for trade facilitation at the port of Libreville and; (vii) launching of a study on the establishment of the National Revenue Agency in order to increase revenue mobilization. Sub-Components I.2- Rationalization of Public Spending 3.3.2 PAREF-I Outputs. Under PAREF-I, the Government has implemented a number of measures in order to reduce public spending and enhance its efficiency. Indeed, public spending fell from CFAF 1997.5 billion in 2016 to CFAF 1938.2 billion in 2017, as a result of tighter control of the wage bill10 and public investment, thanks to the following measures: (i) adoption of a decree on the appointment of the coordinator of the Interministerial Committee in charge of implementing the civil service staffing management policy as well as on the appointment of Human Resource Directors in all Ministries (Prior Measure 3); (ii) adoption of a Ministerial Order on the establishment of a Public Investment Prioritization and Maturity Assessment Committee (Prior Measure 4). 3.3.3 Reforms supported by the PAREF-II. The reforms initiated under PAREF-I to more closely control public spending will be deepened and reinforced under PAREF-II through the implementation of the following reforms: (i) cap the increase in the wage bill at a level below or equal to the inflation rate for 2017; (ii) adoption by the Cabinet of the Public Procurement Code currently being revised to strengthen transparency and compliance with international norms and standards (Trigger 2) ; (iii) reduce the proportion of public contracts awarded without competition from 80% in value in 2015 to 50% in 2017; (iv) include the 2017 budget, the portion of the domestic arrears clearance plan that is due for 2017; (v) Establish an automated control system which makes expenditure commitments dependent on the availability of budget credits; and (vi) prepare a manual for the prioritization of public investments-Trigger 3 Component II: Support to Economic Diversification
3.3.4 In order to accelerate the transformation of the economy, the Government of Gabon has initiated structural reforms aimed at improving competitiveness and diversifying the economy. This component has three sub-components: enhancement of the investment climate (II.1), facilitation of access to financing (II.2.) and strengthening of agricultural competitiveness. (II.3.). Sub-Component II.1 – Enhancement of the Business Climate
3.3.5 Context and Challenges. According to the World Bank’s ‘ Doing Business 2016’ report, Gabon is ranked 162nd in the world out of 189 economies regarding the ease of doing business, down by 6 places on the 2015 report. This lower ranking underscores the efforts that Gabon must make to establish an attractive legal and regulatory framework capable of promoting investments. The major constraints on private sector development include: (i) the cumbersome administrative procedures and the high costs to start a business and get construction permits; (ii) long delays in commercial dispute resolution, (iii) the cost and time needed for import-export operations, (iv) Uncertainties relating to the establishment of, and collection on guarantees, and (v) lack of appropriate legal and institutional framework for Public- Private Partnerships (PPP) that deters investment in sectors such as infrastructure and agriculture11.
3.3.6 PAREF-I Outputs. PAREF-I has contributed to improvement in the investment climate through the implementation of the following reforms: (i) operationalization of the PPP unit through the appointment of its coordinator (Prior Action); (ii) validation of the audit results on arrears and preparation of a five-year clearance plan (Prior Action) ; (iii) appointment of the management team and key personnel of the Authorized Management Centre (CGA) with a view to its operationalization and; (iv) inclusion in the 2007 budget of Gabon’s contribution to the implementation of the Gabon EITI Action Plan’ .
10 Source-Table 6 of Appraisal Report-Financing Needs and Sources of Finance 11According to the Investment Promotion Agency, there are at least five PPP transactions in the pipeline 7
3.3.7 Reforms supported by the PAREF-II. The reforms initiated under the PAREF-I in order to improve the investment climate will be deepened and reinforced under the PAREF-II through the implementation of the following reforms: (i) adoption by the Council of Ministers of the implementing decrees for PPP (Trigger 4); (ii) adoption by the High Investment Council (HCI) of the road map of reforms for improving the investment climate (Trigger 5); (iii) adoption by the Council of Ministers of the decree establishing the Libreville Commercial Court.
3.3.8 Sub-Component II.2 – Facilitation of Access to Financing
3.3.9 Context and Challenges: Several reports show that the Gabonese financial sector mainly consisting of the banking sector is one of the least developed in Sub-Saharan Africa. On average, bank credit represents 20% of GDP. Access to finance remains a major constraint on the economy’s development due to the structural weaknesses raised in PAREF-I. The situation of the three public banks12 (BGD, BHG and Postbank) has deteriorated as a result of structural problems of under- capitalization, governance and financial distress. Their restructuring is necessary in order to prevent the risks of systemic contagion. The non-banking sector has a limited impact on the financing of the real sector. Indeed, microfinance represents about 10 % of credit to SMEs. The insurance penetration rate is about 1% and leasing remains marginal.
3.3.10 PAREF-I Outputs. PAREF-I has contributed to progress in the improvement of access to finance through the implementation of the following reforms: (i) amend the order on the conditions for opening and operating manual foreign exchange bureaus and; (ii) issue an order determining the conditions for the opening and operation of money transfer structures.
3.3.11 Reforms supported by PAREF-II. The reforms initiated under PAREF-I relating to access to finance will be deepened and reinforced under PAREF-II through the implementation of the following reforms:(i) preparation of a national financial sector strategy and its action plan; (ii) preparation of an Action Plan for the development of non-bank financial instruments (factoring, private equity, leasing) Trigger 6 and; (iii) adoption by the Council of Ministers of a Decree regulating savings and credit mutual funds.
Sub-Component II.3 –Improved Agricultural Sector Competitiveness
3.3.12 Issues and Constraints: the Government of Gabon’s ambition, through the Emerging Gabon Strategic Plan (PSGE) and, in particular, its ‘Green Gabon’ pillar, is to transform the agricultural sector into the main driver of economic diversification by increasing its contribution from 7% of GDP in 2014 to 20% of GDP by 2025. While the agricultural sector currently employs about 40% of the labour force, it only contributed to 7% of GDP in 2014 and merely received 0.7% of budget outlays (excluding PPP-financed projects). In order to meet the needs of the domestic market, Gabon has to import at least CFAF 350 billion in foodstuffs per year (i.e. 85% of its food requirements). This creates an unsustainable situation of food dependency against the backdrop of falling oil revenue. The priority sectors and constraints of agricultural sector were described in PAREF-I13. Owing to decades-long setbacks in the implementation of agricultural policies relying on public-owned entities, the Government has shifted its strategy by putting in place public-private partnership with major multinational corporations to boost production14. Since 2010, these multinational firms have invested over $1 billion in Gabon and contributed to increase agriculture outputs. Based on this success, the authorities. Building on this success, the Government is working on a PPP to support the "Gabonese Agricultural Achievements and Initiatives of Committed Citizens (GRAINE) in order to improve food security and diversify exports
12 A restructuring plan is being prepared in cooperation with COBAC. The conclusions of this plan will inform the Government’s decisions (see Annex 8 of the Technical Annexes of the Appraisal Report). 13 See. paragraph 3.14 of PAREF-I 14 As part of the partnership with the Olam International Group, the Government launched two large-scale plantation projects (50,000 hectares of oil palm of which more than 32,000 have already been cultivated and 28.000 ha of rubber of which 7,200 have already been cultivated). 8
by increasing production of cash and food crops through an integrated approach15. This will help to strengthen the country’s food security, create jobs and reduce poverty.
3.3.13 PAREF-I Outputs: Under Phase 1 of the Programme, PAREF has contributed to progress in the improvement of agricultural sector competitiveness through implementation of the following measures: (i) adoption by the Council of Ministers of the Letter of Agricultural Development Policy and its Action Plan (Prior Action 7) and (ii) validation of the National Land Allocation Plan (PNAT) (Prior Action 8).
3.3.14 Reforms supported by PAREF-II: The reforms initiated under PAREF-I to strengthen the agricultural sector’s competitiveness will be deepened and reinforced under PAREF-II through the implementation of the following reforms: (i) streamlining of executing agencies of the Ministry of Agriculture; and (ii) adoption of the implementing texts (decree and order) on the facilitation of agricultural investment in connection with Acts 002/2013 governing the extension of the incentive tax and customs regime in favor of farmers, Act 02/2008 establishing the agricultural code and Act 023/2008 on sustainable agricultural development policy (Trigger 7) and (iii) adoption of a decree on the establishment of the institutional and organizational framework for the profession of agricultural adviser and establishment of the National Agricultural and Rural Advisory Agency (ANCAR) Trigger 8.
3.3.15 Programme Outputs and Expected Outcomes
3.3.16 The implementation of the first year of PAREF has helped mitigate the negative impact of the contraction of the global economy. The effectiveness of these reforms has created appropriate conditions for : (i) the creation of adequate fiscal space to sustainably ensure PSGE financing through increased mobilization of non-oil revenue and tighter control and improvement in the quality of public spending; (ii) an improved business climate; (iii) a more diversified financial sector that is more equipped to help meet the needs of SMEs and (iv) an enabling environment for the agricultural sector that can facilitate wealth and jobs creation, especially for young people and women.
3.3.17 The main objective of the reforms of the second phase, PAREF II is to consolidate and deepen these achievements. Among the efforts to mobilize non-oil revenue, the Government is planning a 2% increase in direct tax revenue and 8.5% in indirect tax revenue. On the expenditure side, the programme’s implementation should result in an 8.3% reduction in total expenditure from CFAF 1997.5 billion in 2016 to CFAF 1832.1 billion in 2017. Current expenditure will drop by 5.6% to CFAF 1583 billion in 2017 compared to CFAF 1804 billion in 2016 ) and 19.3% in transfers (CFAF 191 billion compared to CFAF 236.9 billion in 2017) and subsidies on oil products will stabilize to CFAF 25 billion in 2017 compared to CFAF 26 billion in 2016. The measures aimed at rationalizing staffing should reduce costs relating to the wage bill by about 2% in 2017 from CFAF 730.9 billion in 2016 to CFAF 715 billion in 2017. In this context, the overall fiscal deficit would drop from 6.6% of GDP in 2016 to 4.8% of GDP in 2017 and the primary balance would improve to FCFA +3.1 billion in 2017 compared to a deficit of CFAF 247 billion in 2016.
Table 2 : Progress towards the Achievement of Output Targets set in the Logical Framework Outputs – Reforms Achievements Component I – Improvement of Public Finance Viability Output I.1 –Increased mobilization of domestic resources Adoption of a fiscal rule on: (i) the determination Achieved: A circular was adopted to strengthen the predictability of oil of a baseline for forecasting and smoothing oil revenue and sustainability of budget execution in 2016 revenue in relation to global prices and (ii) the institutionalization of precautionary reserves to regulate budget execution Adoption of a Ministerial circular aimed at Achieved: the Circular on the elimination of exemptions was adopted by the eliminating tax and customs exemptions with no Council of Ministers in 2016 legal basis granted by the Directorates-General of Ministries.
15 The Bank is preparing a PPP to support Gabon through its public and private sector windows. The public sector window will support a project aimed at developing rural infrastructure and capacity-building along the priority value chains to create the enabling conditions for private sector investment. The private sector window of the Bank will finance a project in the agriculture sector co-sponsored by the Government and a foreign investor 9
Table 2 : Progress towards the Achievement of Output Targets set in the Logical Framework Outputs – Reforms Achievements Output I.2 –Streamlining of Public Spending Transposition of CEMAC Directive into TOFE Achieved: the Order laying down the modalities for the production of the Government Consolidated Financial Operations Table (TOFE) was submitted to the Bank in 2016 Stabilization of wage bill Achieved : -2%% increase in 2016 Issue an order to ensure the systematic preparation Achieved : the Order determining the conditions of eligibility of an of a feasibility study for investment projects for all investment project in the GDP circular was issued by the Ministry of large projects prior to inclusion in the Budget Law Economy in 2016 Component II – Support to the Promotion of Private Sector Development Output II.1 – Improvement of the Business Environment Operationalize the PPP Unit by appointing a Achieved: A PPP coordinator was appointed in 2016 coordinator Output II.3 Improvement of Agricultural Sector Competitiveness Have the National Land Allocation Plan validated by Achieved: Letter from the Prime Minister confirming that the PNAT validation the Prime Minister (PNAT) was submitted to the Bank in 2016 Prepare an Agricultural Policy Guidance Note Achieved: The Agricultural Policy Guidance Note validated by the Minister of mainstreaming gender Agriculture was submitted to the Bank in 2016
3.4 Progress made Towards Fulfilment of the PAREF-II Prior Conditions (List of PAREF Triggers Defined in PAREF-I)
3.4.1 The assessment of the implementation of PAREF –I has confirmed that the reforms planned in 2016- 2017 had been effectively implemented (Annex 1 PAREF- I Monitoring and Achievement of Measures Matrix). It has also confirmed that the eight (8) triggers for PAREF-II, as agreed upon in the original appraisal report have been fully executed as of October 15, 2017.
3.4.2 With regard to Component I, the three (03) triggers planned were successfully executed. Concerning Trigger 1, the final report on the study on mobilization of revenue in telecommunications and mining was submitted to the Bank in October 2017. In the case of Trigger 2, the Government had originally planned to have the Revised Public Procurement Code adopted by Order. As confirmed by the communiqué of the Council of Ministers, the new Code was adopted by the Cabinet after taking into account the recommendations of the State Council and Court of Auditors and it was recently submitted to the National Assembly for adoption during the current session of Parliament. With regard to Trigger 3, the Public Investment Prioritization and Budgeting Procedures Handbook has been validated by the Minister of Economy.
3.4.3 With regard to Component II, the five (5) planned triggers were executed. Trigger 4 concerning PPPs was executed. Three implementing texts of the Order on PPP have been finalized and adopted by the Council of Ministers. Trigger 5 has been executed: the Minutes of the meeting on the adoption of the roadmap have been submitted to the Bank. Trigger 6 been executed: The financial sector national strategy and action plan have been validated by the Minister of Finance and submitted to the Council of Ministers for consideration. Trigger 7 has been executed. The original report made provision for the adoption of implementing texts (decrees and orders) for the laws governing the extension of the tax and customs regime for farmers. Following a review of the said laws and their implementing modalities, rather than enacting new implementing texts, the Authorities have decided to prepare a Note referring to the existing provisions in the General Tax Code for incentives to farmers. The Bank has validated these amendments, Trigger 8 has been executed. The original report provided for the adoption of a decree on the establishment of an institutional and organizational framework for the profession of agricultural adviser and the establishment of the National Agricultural and Rural Advisory Agency (ANCAR). However, the authorities decided to streamline the existing agencies and create ADAG which assumes the functions of ANCAR and certain agencies that were closed down as well as the duties of Agricultural Adviser.
3.5 Policy Dialogue
3.5.1 This operation will help consolidate the dialogue engaged with the Authorities during the preparation of the 2016-2020 CSP. This dialogue is welcome by the authorities at this critical juncture when the country needs improvements
10
in its development model in order to foster growth and job creation. PAREF II’s areas of intervention will continue to be the subject of this dialogue through measures and studies on revenue mobilization in the mining and telecommunications sectors, the strengthening of the financial sector, the agricultural sector strategy note, the action plan for the implementation of the ‘Doing Business ‘reforms and the Financial Sector Development Strategy. This dialogue will also be supported by an institutional support project aimed at improving the investment climate and fostering economic diversification as well as by works financed by grants on reforms in the coffee-cocoa sector and wood sub-sector. This dialogue is being carried out in a transparent and complementary manner with the Government and other technical and financial partners in the context of the thematic groups established by the Authorities.
3.6 Lending Conditions
Prior Measures: The Government has undertaken to implement a series of measures prior to the Programme’s presentation to the Bank Group’s Board of Directors. The triggers for 2017 below have been selected on the basis of their status and structuring nature:
Table 3 – Prior Measures and Programme Triggers Components Prior Measures- Phase II-2017 Implementation Status Component I.1 Improvement of Revenue Mobilization Trigger 1 : Conduct two Executed: the study on revenue mobilization in the areas of telecommunications and mining was submitted to the Bank in studies and adopt action plans October 2017 on the optimization of revenue mobilization in the telecommunications and mining sectors Proof required: Submission of study reports and action plans validated by the Minister of Economy and the two sector Ministries
(Trigger 2-Adopt the Public Executed: the revised Public Procurement Code was adopted by the Council of Ministers and recently submitted to the Procurement Code to enhance Parliament for adoption during the current session transparency and ensure its compliance with international norms and standards (by the Council of Ministers) Proof required: Submission of the Revised Public Procurement Code to Parliament and publication in the OG in 2017 Component I.2 Streamlining of Public Spending Trigger 3- Prepare a public Executed. The public investment prioritization procedures manual was validated by the Minister of Economy investment prioritization in 2017 procedures manual
Proof required: Submission of the procedures manual validated by DGBFIP Component II.1 Improvement of Business Climate Trigger 4-Adopt the Executed: Three PPP Decrees were prepared and adopted by the Council of Ministers in October 2017 implementing texts on the Order on PPPs (by the Council of Ministers) Proof Required: Forwarding of implementing texts of the PPP order published in the OG (2017)
Trigger 5 : Adopt the roadmap16 -Executed: the roadmap of reforms on the investment climate has been adopted by the High Investment on facilitation of the business Council (HCI) climate (by the High Investment Council (HCI) Proof required: Submission of roadmap adopted and minutes
16 Adopt the text on the simplification of business start-up procedures, the designation of a principal mediator at the Arbitration Centre and the decree establishing the Libreville Commercial Court 11
of the meeting on the adoption of the reform roadmap (2017
Component II.2 Facilitation of Access to Financing
Trigger 6- Prepare an Action Executed: The National Financial Sector Strategy was validated by the Minister of Finance and transmitted to Plan for the development of the Council of Ministers for consideration within 15 days non-bank financial instruments (Factoring, Leasing and Equity capital)- Proof Required: Submission of an Action Plan validated by the Council of Ministers Component II.3 Improved Agricultural Sector Competitiveness Trigger 7-Adopt the Executed: The Government has prepared a Note on tax and customs incentives for the agricultural sector in the implementing texts (decree and General Tax Code order) on the facilitation of agricultural investment in connection with Acts 002/2013 governing the extension of the incentive tax and customs regime in favor of farmers, Act 02/2008 establishing the agricultural code and Act 023/2008 on sustainable agricultural development policy. Proof Required: Forwarding of decrees and Orders published in the OG relating to Acts 002/2013, 02/2008 and 023/2008
Trigger 8- Adopt a decree on Executed: Copy of Decree No.: 0574/PR/MAEEAMOPG of 23 November 2015 on the creation and the establishment of the organization of ADAG which has broader terms of reference than ANCAR and provides for the functions of institutional and organizational Agricultural Adviser. framework for the profession of agricultural adviser and establishment of the National Agricultural and Rural Advisory Agency (ANCAR) Proof required: Copy of the decree on the organization of the profession of agricultural adviser and establishment of ANCAR (2017) 3.7 Good-Practice Principles for the Application of Conditionality In the design of PAREF and in accordance with the Bank’s policy on Programme-Based Operations (PBOs), the five good practice principles for the application of conditionality have been observed : (i) ownership due to the programme’s participatory design in close collaboration with the authorities; (ii) coordination with other TFPs on budget support, including the World Bank; (iii) consistency of the Bank’s conditionality with the Government’s priorities within the framework of PSGE; (iv) reduced number of disbursement conditions which will be defined during appraisal and, lastly (v) alignment of the Bank’s support on the country’s budget cycle.
3.8 Financing Needs and Arrangements
3.8.1 In the 2017 Supplementary Budget Law, the Government confirms that, in addition to AfDB support, it has included the World Bank and AFD budget support operations which are slated for disbursement at the end of the fourth quarter of 2017 as well as IMF support, the first tranche of which was disbursed in July 2017 and the second is planned for the fourth quarter of 2017. 12
Table 4 – Projected Financing Needs and Sources in Billion CFAF 2016 (CFAF LFR 2017 Prov. 2018 Headings billion) (CFAF billion) (CFAF billion) A. Total Revenue and Grants 1557.3 1659.8 1776.2 Of which oil revenue 423.1 520.1 532.1 Of which non-oil revenue 1134.3 1139.7 1244.0 B. Total Expenditure 1997.5 1938.2 1853.2 Expenditure excl. interest payments 1804.4 1689.1 1614.1 Interest Payments 193.2 249.1 239.1 including payroll expenditure (salaries and compensation) 730.9 710.0 709.8 Including expenditure on goods and services (excluding transfers and other items) 251.7 188.0 173.0 Including capital expenditure (*) 424.6 436.6 299.4 C. Overall Balance (commitments basis) (A - B) -440.2 -278.5 -77.0 D. Arrears (-= reduction ; +=accrual) -133.2 -202.9 -202.8 E. Overall Balance (cash basis) (C + D) -573.3 -481.4 -279.8 G. Domestic Financing (net) 407.6 -62.4 -155.5 F. External Financing (net – minus the Bank’s contribution) including depreciation 141.7 543.8 435.3 - Project Loans 114.1 194.1 - Development Partners’ Budget Supports 616.9 420.1 IMF 117.9 117.9 World Bank 121.8 121.8 France 49.2 49.2 African Development 328.0 131.2 Residual Financing Gap -24.0 0.0 0.0 Source: DGEPF
3.9 Application of Bank Group Non-Concessional Borrowing Policy
Gabon is a middle income country according to the Bank’s classification. Therefore, it is eligible for the AfDB window. The country has a low level of debt distress for about a decade. It has benefited from several sovereign loans from the Bank and other Technical and Financial Partners to finance structuring investment projects and technical assistance. Gabon also issued Euro-bonds of USD 1.5 billion and USD 500 million in December 2013 and June 2015 in a context marked by increased borrowing costs in international financial markets. Despite an increase in public debt from 20 to 49% between 2012 and 2015, the main rating agencies (Standard &Poor's and Fitch) deemed that Gabon’s debt situation remains sustainable in the medium term. The signing of an Arrangement with the IMF is further evidence of the Authorities’ determination to implement reforms in order to restructure public finance and contain debt distress. IV. IMPLEMENTATION OF THE OPERATION 4.1 Programme Beneficiaries
PAREF will benefit the Gabonese population as a whole through more significant public resources, streamlining of expenditure and specific reforms aimed at supporting strong, sustained, diversified and job-creating growth. It will be of particular benefit to the following groups: (i) vulnerable populations that will benefit from better infrastructure and quality social services as a result of the fiscal space that will make it possible to implement the reforms supported by PAREF, (ii) Gabonese entrepreneurs and foreign investors wishing to set up a business or invest within the framework of Public -Private Partnerships (PPP) who will benefit from a more incentive and more transparent framework, (iii) Gabonese SMEs with credit access difficulties; (iv) public, private and community stakeholders involved in the agricultural sector who will benefit from a more suitable framework for their activities.
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4.2 Implementation, Monitoring and Evaluation
The programme will be implemented by the Ministry of Economy, Planning and Sustainable Development Programming (MEPPD). In view of the programme’s complexity, the Ministry has established a Programme Coordination Committee and will use of technical assistance to build the technical capacity for reform implementation and monitoring. This Ministry is the partner of main development partners, including the World Bank17 and the IMF within the framework of economic and financial reform programmes. It, therefore, has the capacity to mobilize the various stakeholders involved in the reforms and to coordinate PREF implementation. The macroeconomic monitoring framework and the agreed upon measures matrix will be the common monitoring and evaluation framework of PAREF (Annex 2). MEPPD will collect data and coordinate monitoring and evaluation, and will provide information to the Bank. The Bank's Field Office in Gabon will ensure continuous programme reforms implementation monitoring.
4.3 Financial Management, Disbursement Arrangements and Procurement
4.3.1 Financial Management and Disbursement Arrangements
Since the proposed loan of EURO 300 million is the second of a two tranche operation totaling an indicative amount of EURO 500 million, it will be disbursed upon fulfilment of the agreed Prior Actions and disbursement conditions. Since PAREF is a general budget support programme, the financial resources will be utilized in compliance with national regulations on public finances under the responsibility of MEPPD. The loan resources will be disbursed to the Public Treasury in a dedicated account opened with the National Branch of the Central Bank of Central African States (BEAC). The financial flows between the account opened with BEAC and the Treasury will be audited at the end of the programme by an independent firm.
4.3.2 Public Procurement:
Since the programme is a general budget support operation, the expected resources will be incorporated in the budget for the procurement of the goods and services required for the State’s needs. Procurements under the budget support operation will be made in accordance with the national systems, the overall risk level of which is considered to be relatively moderate in light of the reforms implemented in recent years. Indeed, Gabon embarked on a series of reforms to its public procurement system which resulted in the adoption of a Public Procurement Code in 2012. This Code took into account (i) the fundamental principle of competition in public procurement (ii) the principle of separation of functions of procurement and control entrusted to the DGMP from the regulatory, rule preparation and audit functions and (iii) a stricter framework for single sourcing. However, some weaknesses persisted in the Public Procurement Code, in particular: i) the legal framework of public procurement which no longer reflected the establishment of new structures, in particular DGBFIP, and ii) standard bidding documents intended for users which were no longer compliant with the regulations. Also, in collaboration with the World Bank and the Bank and with a view to ensuring the consistency of the Public Procurement Code with these different reforms, the country re-examined its Public Procurement Code. The revised Code was adopted by the Council of Ministers on 13 September 2017.
17 Which also provides for budget financing for a total amount of USD 400 million over two years, the first tranche of which will be presented to the Board of Directors of the World Bank on 27 October 2017. 14
V. LEGAL INSTRUMENNTS AND AUTHORITY
5.1 Legal Instrument
5.1.1 The legal instrument which will be used for the programme is the Loan Agreement which will be signed between the African Development Bank and the Republic of Gabon.
5.1.2 Conditions precedent to loan effectiveness: Effectiveness of the loan will be subject to fulfilment of the conditions stipulated in section 12.1 of the General Conditions applicable to Loan Agreements.
5.1.3 Conditions associated with the Bank’s Involvement
5.1.4. Conditions precedent to presentation of the Programme to the Board: as agreed in dialogue with the Government, the latter will implement measures prior to the Programme’s presentation to the Bank’s Board of Directors. These conditions indicated in Annex II of this report relating to the conditions precedent have been fulfilled.
5.1.5 Conditions precedent to disbursement: disbursement of the loan’s second tranche for an amount of 300 million Euros will be made in a single tranche and will be subject to fulfilment of the following conditions precedent: forward to the Bank evidence of a Treasury Account opened at the Central Bank of Central African States (BEAC) acceptable to the Bank and intended to receive the loan resources.
5.1.6 Compliance with Bank Group Policies
5.1.7 The main guidelines of the Bank Group and other guidelines applied in this Programme are as follows: (i) Bank Group Policy on Programme-based Operations to support policy reforms (2012); (ii) Guidelines on flexibility and pricing of financial products for MIC (2009). No waiver is requested as concerns these Guidelines in this proposal.
VI. RISK MANAGEMENT
Risks Mitigation Measures
Political unrest related to the post-electoral disputes and the PAREF-II is presented to the Bank’s Board of Directors after the formation of a organization of legislative elections slated for 2018 new Government following political dialogue with the opposition and the consultations are continuing for the organization of the next legislative elections, which could contribute to the mitigation of the political risk. External shocks linked to a continuing fall in oil prices In addition to the reforms aimed at enhancing the public finance efficiency, could kick-start economic recovery and jeopardize revenue the Government has prepared an Economic Recovery Plan (ERP) mobilization and fiscal adjustment implementing the Emerging Gabon Strategic Plan over the 2017-2019 period taking into account the constraints of the socio-economic context
Persistence of the weak institutional capacities of Gabon’s The Ministry of Economy has established a Reform Support Unit which public administration that can be overwhelmed by the should be strengthened and provided with technical assistance during the simultaneous implementation of four adjustment implementation of PAREF-II. programmes (IMF, World Bank, AfDB and France)
VII. RECOMMENDATION
It is recommended that the Board of Directors approve an African Development Bank loan, not exceeding EUR 300 million, to the Government of Gabon to finance the second phase (2017) of the programme-based support relating to the Economic and Financial Reform Support Programme (PAREF II), for the purposes, and subject to the conditions, stipulated in this report.
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APPENDIX 1: LETTER OF DEVELOPMENT POLICY
APPENDIX 1: LETTER OF DEVELOPMENT POLICY MINISTRY OF SUSTAINABLE DEVELOPMENT, ECONOMY, INVESTMENT PROMOTION AND PLANNING ------OFFICE OF THE MINISTER ------General Secretariat ------Directorate General of Planning
No. 002310/MDDEPIP/CABM/SG/DGPRO Republic of Gabon-Union- Labor–Justice
Libreville,
THE MINISTER
TO
MR. AKINWUMI ADESINA President of the African Development Bank Group Immeuble du Centre Commercial International d’Abidjan Avenue Jean Paul II, 01 BP 1387 Abidjan 01, Côte d’Ivoire Letter of Development Policy (Budget Support to the Republic of Gabon)
Mr. President of the African Development Bank Group,
I am pleased to forward this Letter of Development Policy, which follows upon the request of the Government of Gabon to the African Development Bank Group for a loan in the form of budget support. It sets out the development strategy and reviews the Government’s reform programme, which will be supported by the African Development Bank’s budget support operation.
Since 2010, Gabon’s economic development policy has been focused on the implementation of the Emerging Gabon Strategic Plan (PSGE), which sets out the strategic directions set by the President of the Republic in the conduct of public policies till 2025. It presents the reforms and projects to be implemented in order to follow in the footsteps of emerging economies and achieve shared prosperity.
In this context, the Government has embarked on an ambitious economic and social transformation programme aimed at diversifying the sources of growth through three pillars, namely (i) Green Gabon, which aims to achieve sustainable exploitation of natural wealth; (ii) Industrial Gabon, which focuses on the local processing of mining and agricultural commodities and, finally (iii) Services Gabon, which aims to develop a dynamic value-added services hub. These three pillars build on the strengthening of competitiveness factors, namely environmental sustainability driven by modern road and energy infrastructure, quality human resources and efficient services. PSGE is fully consistent with the five institutional priorities which you have selected for the Bank during your term of office.
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Following an unprecedented investment effort, the Gabonese economy has experienced sustained growth over the past six years. The real average annual growth rate was 5.5% during the 2010–2015 period. This result was mainly attributable to the performance of the non-oil sector (+6.6% average growth) which offset that of the oil sector which experienced virtually zero growth (0.3% of average growth). For 2016, the projected growth rate is about 2.95%, as a result of a +3.99% growth rate for the non-oil sector and -4% for the oil sector.
Strong growth in the activity of the mining sector, wood processing, building and construction, and communications accounts for the performance of the non-oil sector. High oil prices, up to mid-2014, had in particular created a current account surplus and the accumulation of significant fiscal surpluses.
This sound economic performance notwithstanding, Gabon continues to post social indicators well below its potential. It is ranked 110th out of 188 countries according to the HDI and 68th on the basis of income per capita, representing a difference of 42 points between these two rankings. According to a recent report, a third of the population lives below the poverty threshold. The unemployment rate, which is estimated at 16% of the population, exceeds 20% for young people. There is, therefore, a strong determination to achieve even more inclusive growth, as concretized in the “Equal Opportunities” Programme.
Furthermore, at the regional level, Gabon is making considerable efforts to maintain peace both within the framework of security in the Gulf of Guinea and as part of the fight against terrorism, through preventive measures or support to countries directly on the frontline of the fight against Boko Haram. It is also contributing to peace building and restoration in some CEMAC countries, especially in Central Africa. This multifaceted involvement in peace efforts in the sub-region generates significant financial costs.
However, since the second half of 2014, Gabon has experienced a sudden, exponential decline in oil prices. Yet, over the 2010 -2015 period, the oil sector accounted on average for 30% of GDP, 52.5% of fiscal revenue and 81.7% of export earnings. Automatically, fiscal revenue dropped sharply, resulting in an unprecedented deficit of EUR 500 million.
The investment programme was consequently scaled down and focused in priority on the most basic infrastructure. In addition, budgetary savings were recommended, especially as concerns the operating budget. Despite these adjustments, there are still cash-flow problems.
Security obligations combined with a persistent downturn in the oil and mining sectors as well as the need to safeguard growth and eradicate poverty compelled the Government of Gabon to seek your support and the assistance of the African Development Bank to secure exceptional financing of USD 1 billion, in the form of general programme-based support.
New Development Model
The assessment in 2009 revealed the shortcomings of the old development model based on the exploitation and export of raw natural resources. This windfall economy exposed the country to fluctuations in commodity prices. It reduced sources of creation of value added, jobs and increased fiscal revenue.
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In this context, Gabon is facing three main challenges. The first is to continue the process of diversifying the economy in order to reduce the continuing dependency on the oil sector. In this regard, reforms initiated for the creation of an enabling business environment must continue to promote the emergence of a more buoyant private sector.
The second challenge is the optimization of public finance management. Indeed, considering central government’s involvement in the conduct of economic activities as the main contracting authority, greater discipline in public finance management is needed to avoid the transmission of negative shocks to private economic operators. In this regard, the Government intends, on the one hand, to continue the implementation of Programme-Based Budgeting (PBB) begun on 1st January 2015 with the establishment of the first programme-based budget set out in missions, programmes and actions and, on the other hand, to streamline fiscal revenue forecasting as well as resource collection, in particular by bringing customs and tax administrations closer.
The third challenge is the reduction of poverty and social inequalities against a backdrop of declining oil revenue. To this end, the Government plans to ensure quality public service (urban transport, social housing, easy access to water and electricity, education, health...), enhance the empowerment of economically vulnerable persons (through income-generating activities) and maintain an inclusive social policy, in particular, through already established instruments such as CNAMGS and FNAS.
The economic model developed since 2010 especially helped to initiate the broadening of the productive base through reforms in sectors such as wood (suspension of logging), mining (processing of part of manganese and industrial exploitation of gold), other industries (establishment of a preferential-regime economic zone). Agricultural sector development has been made a priority with the implementation of the GRAINE project which aims to boost national foodstuff production and reduce the food import bill. The same applies to cash crops such as oil palm and rubber exports of which will create new sources of foreign exchange.
Actions to be taken under the budget support requested will help to continue the diversification of the economy through implementation of the foundations of emergence, in particular, the strengthening of human capital and the establishment of a more attractive business framework, particularly for the development of Public-Private Partnership, a guarantee of economic efficiency and innovation. They will also contribute to initiating the implementation of the
Equal Opportunities Programme with the aim of building the resilience of vulnerable communities, consolidating inclusion as a basis for social justice, and helping to sustainably reduce poverty.
Regarding the Implementation of the Foundations of Economic Emergence
The aim is to continue strengthening the competitiveness of the Gabonese economy through improvement of the business environment, continued upgrading of the Infrastructure Master Plan, gradual reduction of payroll costs and scaling up the fight against corruption.
In a bid to improve the business climate, the Government intends to speed up the operationalization of the National Investment Promotion Agency (ANPI) whose main goal is to support and assist investors within the framework of a one-stop shop. Financial investigations and anti-corruption services will be provided with more operational means to perform their respective duties.
In the area of infrastructure, Government action will also focus on expanding the road network, to open up certain parts of the territory, continue the interconnection of provincial capitals and ensure connection with neighboring countries in order to contribute to regional integration and increase trade
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among countries. Efforts will be made to step up energy production in line with the evolving needs of the population and the development requirements expected from industrialization.
Regarding the development of sectors considered to be engines of growth, the Government will, during the next five years, continue its sub-sector recovery strategy and therefore the industrialization of its agricultural and mining commodities. There will be a special focus on agricultural sector development. As a result of the progress recorded from preparation of the National Land Allocation Plan (PNAT), the sector will increasingly open up to PPPs with the aim to significantly step up national production of foodstuffs and thus reduce food imports, further develop cash crops such as palm oil and rubber in order to diversify the productive structure, accelerate job creation, contribute to regional development and, through new exports, generate new sources of foreign exchange.
With regard to Human Capital Development
The mismatch between training and the job market and the shortage of skilled labor are the main obstacles to the competitiveness and development of Gabon’s economy. To address this issue, Government has begun to establish a number of structures, including in partnership with the private sector, to ensure the employability of youths in the growth sectors of the economy such as mining, oil, gas and wood. These efforts will be bolstered by the promotion of apprenticeship and the upgrading of existing Vocational Training Centres and the establishment of others in the areas of ICTs, public works and advanced wood processing.
Similarly, ongoing initiatives to promote entrepreneurship and self-employment, particularly through the promotion of business incubators, will be pursued. Links will be developed between general education and vocational training. In the latter, employers’ associations will be involved in the definition of training modules in order to ensure the closest possible match between the needs of enterprises and training profiles. The Government also wishes to create conditions for improving the quality of higher education.
In the area of Health, the Government intends to continue improving the provision of health care by ensuring the operationalization of recently established cutting-edge health facilities. Basic health will be further developed. It will require rehabilitation, staff postings, the supply of equipment and medicines to Primary Healthcare Centres. At the same time, in order to facilitate access to care, the development of CNAMGS will continue, with special focus on the sustainability of its financing.
Regarding Economic Inclusion and Sustainable Development
Gabon has undertaken to adopt a new regional development policy which takes into account the vulnerability of available natural resources and environmental conservation. The definition of a land occupancy plan is part of this effort. Similarly, the establishment of a Space Studies and Observations Agency aims to achieve territorial development that is more closely adapted to the ecosystem situation in order to ensure rational exploitation of the country’s natural resources and continuing monitoring of our forest cover.
Issues related to energy, water, waste management and pollution are the main focus areas of the implementation of Gabon’s Climate Plan as well as its international commitments through the Paris Climate Agreement and the Sustainable Development Goals.
In order to enhance economic inclusion, the Government has begun, and intends to continue the development of high-social-impact sectors, especially those that are labor -intensive. This is the case of agriculture in the context of the GRAINE Project, PRODIAG and cash crop plantation projects such as oil palm and rubber plantations. Further efforts will be made to develop fisheries, fish farming and support for the transition from informal activities to the formal sector. IV
In order to provide more support to private initiatives, there are plans for actions to foster the development of the decentralized financial sector, especially the development of microfinance and private equity.
The relevance of reform actions embarked upon by the government of Gabon since 2010 and its intention to continue them are evidence of Gabon’s firm commitment to pursue sustainable development, likely to sustain economic diversification over the long term, ensure economic prosperity and social progress while meeting the expectations of the population, in particular in relation to the economic and social challenge posed by the country’s youth.
To this end, the reforms prioritized will focus specifically on two aspects. The first concerns the streamlining of public spending, with special emphasis on public investment effectiveness and payroll control, in particular, through improvement of the infrastructure programme determination process, strengthening of the fight against double salaries, reinstatement and acceleration of implementation of the voluntary departure programme. The second will concern the sustainability of public finances and business climate improvement, in order to speed up diversification of the economy and increase fiscal revenue.
Financial support to the reform effort is critical to be able to address the current challenges, particularly falling revenue ensuing from the sharp drop in oil prices per barrel. Gabon is determined to implement all the reforms planned under this programme-based support operation and under the various pillars of its Development Plan. It is, therefore, requesting appropriate financial support from the African Development Bank.
For the Minister,
pp. the Minister Delegate
Pascal HOUANGNI AMBOUROUE
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APPENDIX 2: PAREF-MATRIX OF PROGRAMME REFORM MEASURES
Objectives 2016 Measures 2017 Measures Legal Implications RE
I.1. Improvement of Prior Measure 1-Adoption A copy of the Order signed by DGE/DGB Revenue Programming by Order of a fiscal rule on: the Minister of Economy and and Mobilization (i) the determination of a Minister of Budget is basis for calculating forwarded to the Bank (2016) forecasts and the levelling- off of oil revenue in relation to global prices; and (ii) the institutionalization of precautionary reserves to regulate budget execution
Prior Measure 2 - Forwarding of Ministerial DGI/DGD Adoption of a ministerial Circular (2016) circular aimed at eliminating tax and customs exemptions with no legal basis granted by the Directorates-General of Ministries
Conduct two studies and adopt the Action Plans for the Forwarding of study reports ARCEPS/MIN optimization of revenue mobilization in the following sectors and action plans validated by ES / (i) telecommunications and (ii) mining- Trigger 1 the Minister of Economy and FORET/MEPD the two sector Ministries D Adoption of a Ministerial Forwarding of the Order on the DGI/DGD Order to: strengthening of collaboration (i) validate the memorandum between DGI and DGD of understanding between the VI
Objectives 2016 Measures 2017 Measures Legal Implications RE
Directorate-General of Taxes (DGI) and the Directorate- General of Customs (DGD); (ii) appoint a coordinator of DGI Activity Report the joint committee, and (iii) Increase the number of fiscal assessments from 345 in 2015 establish joint inspection to 450 in 2017 DGD Activity Report brigades. Increase in the recovery of unpaid customs bills from 51% in 2015 to 61% as at 30 June 2017. Increase the volume of unpaid taxes collected by at least DGI Activity Report 20% compared to 2015 (i.e. CFAF 380 billion Broaden the e-declaration pilot platform and e-payments for Forwarding of DGI activity DGI large enterprises to include all enterprises liable for income report on the expansion of the tax and VAT. e-declaration and e-payment pilot experience Establish a programme to build facilitation capacities for procedures at the port of Libreville DGD Forwarding of training report (2017) Launch a study on the establishment of the National Revenue DGCPT Agency in order to increase revenue mobilization I.2. Streamlining of Issue an order on the Forwarding of Order published DGBFIP Public Spending transposition of the in OG (2016) CEMAC Directive into TOFE Prior Measure 3- Adoption Forwarding of Decree on the DGBFIP of a decree on (i) the operationalization of measures appointment of the coordinator to control civil service staffing of the Interministerial (2017) Committee responsible for implementing the civil service staffing management policy; and (ii) the establishment of Forwarding of an extract from DCRH in all the Ministries. Cap the increase in the wage bill at a level below or equal to the inflation the Budget Law published in rate for 2017 the OG indicating the ceiling on salary expenses (2017)
VII
Objectives 2016 Measures 2017 Measures Legal Implications RE
Have adopted by the Council of Ministers the Public Procurement Code Forwarding of the Revised currently being revised to strengthen transparency and make it compliant Public Procurement Code with international norms and standards (Trigger 2) published in 2017
Have the proportion of public contracts awarded by direct negotiations Forwarding of a report reduced from 80% in value in 2015 to 50% in 2017 initialed by the Minister of Economy presenting the allocation of 50% of public contracts (in value) through open competition (2017
Include the 2017 repayment instalment of domestic debt Forwarding of an extract from DGBFIP relating to the domestic arrears clearance plan in the 2017 the BL published in the OG budget law (2017)
Establish an automated control system which makes expenditure commitments dependent on the availability of budget credits Circular from the Budget Execution Directorate confirming the effective establishment of an automated control procedure (2017) Prior Measure 4 Forwarding of the Order DGBFIP Adoption of a Ministerial published in the OG (2016) Order on the establishment of a Public Investment Prioritization and Maturity Assessment Committee Prepare a public investment prioritization handbook Forwarding of the procedures (Trigger 3) handbook validated by DGBFIP Order concerning the Forwarding of the Order on the systematization of feasibility systematization of feasibility studies prior to the entry of studies on major projects of the major projects in the General PIP published in the OG (2016) Government Budget
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Objectives 2016 Measures 2017 Measures Legal Implications RE
II.1. Improvement of Prior Measure 5 Forwarding of the ANPI Business Climate Operationalize the PPP Unit Coordinator’s Letter of by appointing a coordinator appointment (2016)
Have adopted by the Council of Ministers the implementing Forwarding of implementing decrees for the Order on PPPs (Trigger 4) texts of PPP order published in OG (2017)
Have adopted by the High Investment Council (HCI) the Forwarding of the roadmap roadmap map18 on business climate facilitation (Trigger 5). adopted and minutes of the meeting on the adoption of Prior Measure 6 the reform roadmap (2017) Validate the findings of the 2016 off-budget arrears Forwarding of the audit report audit and establish a validated by the Minister of timetable for the clearance Finance + Memorandum of of the balance over five Understanding signed between years of off-budget debt. the State and the employers’ association relating to the 5-year Appoint the management arrears clearance period (2016) team and key personnel of the Authorized Forwarding of the document Management Centre appointing the CGA (CGA) with a view to its managerial staff (2016) operationalization.
Include in the 2007 budget Forwarding of a Note on the Gabon’s contribution to the inclusion of the EITI implementation of the contribution during Gabon EITI Action Plan’ preparation of the 2017 Budget
Ministry of Justice report
18 Adopt the law on business start-up procedures, the appointment of the principal mediator at the Arbitration Centre and the decree establishing the commercial court IX
Objectives 2016 Measures 2017 Measures Legal Implications RE
Have adopted by the Council of Ministers the decree establishing the Libreville Commercial Court
II.2. Facilitation of Prepare a National Financial Sector Strategy and its Action Forwarding of the National DGBFIP/DGE Access to Financing Plan Financial Sector Strategy PF validated by the Ministry of Finance
Prepare an Action Plan for the development of non-banking Forwarding of the Action Plan
instruments (Factoring, Leasing, Equity Capital)-Trigger 6 validated by the Council of Ministers
Have adopted by the Council of Ministers a decree on the
regulation of savings and credit mutual associations. Copy of the Decree published in the OG (2017)
Copy of the amended 2003 Amend the Order on the Decree on the conditions for conditions for opening and opening foreign exchange operating manual foreign bureaus exchange bureaus. Issue an order determining the conditions for the opening and operation of Copy of the Order on the money transfer structures regulation of money transfer structures II.3. Improvement of Prior Measure 7 Forwarding of the Prime MINAGRI Agricultural Sector Validate the National Land Minister’s letter on the Competitiveness Allocation Plan (PNAT) validation of the National Land Allocation Plan (2016) Prior Measure 8 Forwarding of the letter MINAGRI Prepare and have validated validating the Agricultural an Agricultural Sector Sector Guidance Note signed Guidance Note by the Prime Minister (2016)
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Objectives 2016 Measures 2017 Measures Legal Implications RE
Adoption of the implementing texts (decree and order) on the Forwarding of decrees and facilitation of agricultural investment in connection with Acts Orders published in the OG 002/2013 governing the extension of the incentive tax and customs relating to Acts 002/2013, regime in favour of farmers, Act 02/2008 establishing the 02/2008 and 023/2008 (2017) agricultural code and Act 023/2008 on sustainable agricultural development policy (Trigger 7)
Conduct of a study aimed at streamlining the executing
agencies of the Ministry of Agriculture. Forwarding of the Action Plan adopted by the Council of Adoption of a decree on the establishment of the institutional and Ministers on the streamlining organizational framework for the profession of agricultural adviser of Ministry of Agriculture and establishment of the National Agricultural and Rural Advisory Executing Agencies (2017) Agency (ANCAR) Trigger 8.
Copy of the Decree on the organization of the profession of agricultural adviser and establishment of ANCAR (2017)
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APPENDIX 3: NOTE ON RELATIONS WITH IMF
IMF Executive Board Approves US$642 Million Extended Arrangement Under the Extended Fund Facility (EFF) for Gabon Press Release 17/233 For immediate release International Monetary Fund, Washington
June 20, 2017
The program will help Gabon ensure macroeconomic stability and lay the basis for sustainable and equitable growth.
The three-year extended arrangement will help anchor prudent fiscal policies and a sustainable balance of payments position.
Fiscal consolidation will help ensure debt sustainability and support the stabilization of the regional international reserve pool.
On June 19, 2017, the International Monetary Fund (IMF) approved a three-year extended arrangement under the Extended Fund Facility (EFF) for Gabon for SDR 464.4 million (about US$642 million), or 215 percent of Gabon’s quota, in support of the authorities’ medium-term recovery program.
The EFF-supported program will help Gabon ensure macroeconomic stability and lay the basis for sustainable and equitable growth. It seeks to attain debt sustainability at the national level and help contribute to restoring and preserving external stability for the Central African Economic and Monetary Union (CEMAC).
Yesterday’s Executive Board’s decision enables an immediate disbursement of SDR71.43 million, about US$ 98.8 million. The remaining amount will be phased over the duration of the program, subject to semi-annual reviews.
Following the Executive Board discussion on Gabon, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair stated:
“Gabon is facing significant macroeconomic challenges due to a sharp decline in oil prices. Growth has declined, fiscal and external buffers have diminished, and public debt levels have increased. The authorities’ Fund- supported economic program appropriately focuses on addressing these large fiscal and external imbalances, as well as structural fiscal reforms to improve the efficiency and transparency of public spending, and policies to enhance financial sector stability and economic diversification.
“The three-year extended arrangement under the Extended Fund Facility will help anchor prudent fiscal policies and a sustainable balance of payments position. While downside risks in the short term are high, the authorities have presented an adequate policy package to manage risks. Over the medium term, the economic outlook remains positive, provided policies envisaged under the Fund-supported arrangement are rigorously implemented.
“Fiscal consolidation will help ensure debt sustainability and support the stabilization of the regional international reserve pool. The authorities’ plan to contain current spending, while protecting critical social programs, and pursue non-oil revenue mobilization efforts through improvements in tax administration and streamlining of tax exemptions. Prudent financial management will help improve the efficiency and transparency of public spending,
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especially to prevent recurring problems of extra budgetary spending and arrears accumulation. Efforts to improve oil revenue management are also expected to play an important role.
“Safeguarding financial sector stability and promoting financial inclusion will ensure that the financial sector supports economic objectives. An expeditious resolution of the three distressed public banks and strengthening of the supervisory framework for commercial banks would also support financial intermediation and contribute to private-sector led economic growth.
“Further improvements to the business climate—particularly in the areas of starting a business, dealing with construction permits, registering property, paying taxes and enforcing contracts—would help diversify the economy. Improvements in the production and dissemination of economic statistics are also needed.
“The success of Gabon’s program will also depend on the implementation of supportive policies and reforms by the regional institutions.”
Annex
Recent Economic Developments
Since mid-2014, the decline in oil prices has generated large drops in oil exports and fiscal revenues. Within this context, Gabon’s economy is facing three crucial macroeconomic challenges, including slowing growth, rising public debt levels, and insufficient fiscal and external buffers. The decline in economic activity continued in 2016, with 2.1 percent growth, down from 3.9 percent in 2015. Despite substantial fiscal adjustment since 2014, the overall fiscal position has deteriorated substantially. Additionally, the rising deficit in the overall fiscal balance has increased financial needs, which has given rise to large domestic bank financing and the accumulation of arrears. The current account deficit widened sharply in 2016, moving to a deficit of over 10 percent of GDP, from an average surplus of about 14 percent of GDP over 2010-14 period. Average inflation has picked up to 2 percent in 2016, but remains within the CEMAC convergence criterion.
The medium-term economic outlook remains favorable, provided prudent policies are implemented as planned. Growth can return to previous levels of 4-5 percent, supported by the authorities’ ongoing diversification strategy. Large scale investments in agriculture and logistics are projected to develop a competitive advantage in agri- business as well as unlock downstream activity in other non-oil commodity sectors. Gabon’s diversification strategy around these projects could help boost competitiveness and productivity and help restore external stability over time.
Program Summary
The three-year EFF-supported program builds on the strategy set out by the CEMAC heads of state at their December 2016 summit in Yaoundé. Recognizing the potentially serious economic and political disruptions that could result from a change in the exchange rate regime, they agreed on a strategy based on maintaining the current peg, while putting in place substantial fiscal adjustments in each country, all supported by tightening monetary policy at the regional level. In that context, Gabon’s EFF-supported program will buttress the broad objectives of the country’s economic recovery program. The EFF-supported program is built on three key pillars: well- balanced fiscal consolidation that minimizes the impact on growth and protects vulnerable groups; structural reforms to improve the efficiency and transparency of public spending; and policies to enhance financial sector stability and economic diversification.
As part of the IMF-supported program, the authorities are committed to protecting social sector expenditure and to redirecting a portion of the budget resources to those sectors. The main objective is to ensure that expenditure
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in priority sectors—healthcare, education, and social protection—continues to promote the development of human capital, and protects the most vulnerable groups from the impact of the required fiscal adjustment.
The program’s fiscal policy aims at reducing the overall deficit (on a cash basis) to 4.6 percent of GDP in 2017 from 6.6 percent in 2016; and the non-oil primary deficit to 8.9 percent of non-oil GDP from 11 percent. Additionally, the government is taking steps to improve non-oil revenue mobilization, boost tax compliance and combat tax evasion; modernize tax filing and payment procedures; broaden the tax base through the reduction of special tax regimes and exemptions, particularly on VAT; and create a revenue authority.
A strategy for the full repayment of arrears will also be implemented over the EFF-supported program period and the government will accelerate public finance management reforms, including toward implementing CEMAC directives, improving budget transparency and public investment management as well as strengthening of the financial oversight of public companies and government agencies.
Background
Gabon, which became a member of the IMF on September 10, 1963, has an IMF quota of SDR 216 million.
For additional information on the IMF and Gabon, see: http://www.imf.org/external/country/GAB/index.htm
IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: Lucie Mboto Fouda
Phone: +1 202 623-7100Email: [email protected]
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APPENDIX 4: PBO GENERAL AND TECHNICAL CONDITIONS Conditions Observations on the Current Situation Government’s The Government has a development programme, the Emerging Gabon Strategic Determination to Reduce Poverty Plan (PSGE), which extends until 2016 and which organizes the development
Vision of the country until 2025. This plan, which is welcomed by the international community, identifies the Challenges and defines the actions envisaged to deal with them. It sets out the path towards emergence and aims to pursue the deepening of economic and sectoral reforms in order to strengthen the competitiveness and diversification of the Gabonese economy and to generate strong and sustainable growth, solidarity and job creation. The PSGE is based on three pillars: (i) Industrial Gabon Pillar, which supports the transformation of a cash economy towards a diversified economy; (ii) Green Gabon Pillar, which supports the full exploitation of Gabon's mineral wealth; (iii) the Services Gabon, which concerns human capital development. This programme aims to address the three challenges identified by the country, namely:(i) the need to accelerate economic growth and diversify its sources; (ii) the urgent need to reduce poverty and social inequalities; and (iii) ensure sustainable resource management for future generations. To address these challenges, the PAREF Programme will build on the sustainability of public finances through the mobilization of revenues and streamlining of public expenditure, and (ii) support for the diversification of the economy through an improved investment climate facilitation of access finance, and improved competitiveness of the agricultural sector. Implementation of these actions should help to diversify the economy and significantly promote employment and ensure the equitable distribution of the fruits of growth. In order to ensure the impact of the Programme on populations, the Government of Gabon, with the support of the World Bank and the participation of the African Development Bank, initiated the necessary reforms to address the identified weaknesses, in particular those aimed at (a) preparing a new public procurement code, (b) establishing an institutional structure for public procurement which would ensure separation of the procurement, control and redress functions; and (c) the definition of a capacity building strategy for public procurement actors. From a social standpoint, the introduction and the generalization of social security coverage, the increase in family allowances for transport and housing, the establishment of a national social assistance fund and the total care of persons affected by cancer and families living in precarious conditions, reflect the commitment and determination of the government to actively reduce poverty.
Macroeconomic The Gabonese economy has been buffeted by economic headwinds. Economic activity benefited Stability from the one-off impetus given in 2015, from oil production through the exploitation of new deposits and an improvement in productivity which
should enable overall growth to remain at around 4% by 2015. However, the slowdown in non-oil activity continued, mainly due to weak demand in the construction, transport, trade and services sectors. This decline is also largely due to the fall in oil prices and oil-related government revenues, which reduces aggregate demand and encourages substantial fiscal consolidation. It is in this context that the deepening and implementation of coherent macroeconomic and sectoral policies pursued by the government through efforts to promote economic diversification, the continuation of fiscal adjustment in the face of the oil shock, and strengthening the stability of the financial sector will ultimately contain the fiscal deficit at a sustainable level. Moreover, the success of Gabon's incursion into the international financial market for Eurobonds in June 2015 reflects confidence in the ongoing economic and social reforms in Gabon and thus the national economic and social medium-term outlook These government consolidation efforts were welcomed by the IMF in the context of the 2015 Article IV consultations; The next consultation is scheduled for December 2016.
Satisfactory The fiduciary risk assessment of the public financial management system reveals residual fiduciary Fiduciary Risk risks of moderate level through the overall public finance management reforms implemented and Assessment more specifically improvement of the expenditure chain following previous recommendations of the different donors through the introduction of Programme-Based Budgeting (PBB). Reforms have been carried out (i) at the legislative and regulatory level, in particular through the transposition into national law of the CEMAC directives and the drafting of the texts already adopted, (ii) with reference to the preparation and implementation of the Budget and operationalization of the programs and (iii) the introduction of the performance approach in the administration. Other actions
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are ongoing. Nevertheless, there are priority areas for action to ensure the continuous improvement of the public finance management system.
Political Stability The political situation is characterized by relative institutional stability. The re-election of Ali Bongo in August 2016 triggered violent clashes between his supporters and those of the opposition candidate. The Constitutional Court confirmed the victory of the outgoing President in September 2016, which did not prevent the European Union observers from continuing to condemn the weakness of the Gabonese electoral system. The national dialogue initiated by the new Government in March 2017, but boycotted by part of the opposition recently ended without visibly undermining the main institutional balances. The conclusions of the dialogue recommend in particular no term-limit for elected officials including the President. A new inclusive Government including members of the political opposition was formed in August 2017 following dialogue initiated by the Government. This government received a roadmap focused on the implementation of the Emerging Gabon Strategic Plan (PSGE) underpinned by the Gabon CSP (2016-2020) as well as on the opening of political dialogue with the opposition in order to create a conducive environment for reconciliation. The legislative elections slated for December 2016 have been postpone to April 2018.
Harmonization The design of PAREF has benefited from strong coordination and collaboration with the World Bank and other development partners. Bank teams have worked closely with the World Bank which is planning to provide budget support of $100 million in 2017 with a particular focus on increasing spending efficiency in the social sectors and payroll. They also held several consultations with the IMF. In addition, PAREF will implement the PEFA recommendations prepared in 2013 and thus strengthen some public finance reforms initiated with the help of the World Bank and the IMF. Given the differentiated programming, the parallel -programme approach has emerged through better coordination by the government. Indeed, the coordination of foreign aid has improved since 2010 as a result of the establishment by the government of a regular system of general and thematic coordination, through Decree 00328 / PM of 27 April 2010 , creating, allocating, organizing and operating a Joint Government / Technical and financial Partners (TFP) Committee on External Assistance (CCOS). The eight joint thematic groups (Good Governance, Infrastructure, Aid Effectiveness, Education, Health, Natural Resources, Macroeconomics, Urban Development) meet on a monthly or bimonthly basis.
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