Gabon growth to decline to four percent: IMF Drop in oil prices has led to a reduction in activity in construction, services, transport and commerce, IMF says

President Ali Ben Bongo of Gabon

President Ali Ben Bongo of Gabon

ANKARA (AA) – The Gabonese economy is seeing slower growth, down to four percent in 2015 from an expected six percent, the International Monetary Fund (IMF) said in a statement late on Thursday.

“The recent collapse in oil prices is a major test to Gabon’s macroeconomic resilience. With oil production accounting for roughly one-third of GDP, contributing to 45 percent of government revenues, and about 85 percent of exports in 2014, the 40 percent decline in international oil prices since 2014 (in CFA franc terms) is a serious shock to the Gabonese economy,” the statement said.

“Gabon’s economic growth in 2015 is now expected to decline to 4 percent, below the nearly 6 percent level realized over 2010–14. Growth this year has been buoyed by oil production, which is expected to grow by 8 percent thanks to new wells and mature field productivity improvements,” the statement added.

“However, falling oil prices and revenue have prompted the public sector to rein in spending faster than previously anticipated, and oil companies are sharply curtailing exploration and operating expenditure,” the IMF pointed out.

“As a result, activity in construction, transport, commerce, and services has slowed, and the non-oil economy is forecast to decelerate to 4.0 percent in 2015. Inflation has come down sharply over the past year and expected to be about zero percent this year,” the statement said.

The Gabonese government has an official plan for the economy, known as the “Strategic Plan for Emerging Gabon”.

The IMF said that much-needed diversification of the economy away from dependence on oil exports is included in the plan.

“But the new outlook also imposes tighter financing constraints. Despite a significant fiscal adjustment since the second half of 2014, the fall in oil prices and its impact on government revenue and on nominal GDP have spurred public debt to rise above the government’s self-imposed ceiling of a debt-to-GDP ratio of 35 percent, and resulted in a decline in government deposits and foreign reserves.

“The external current account balance turned from a surplus of about 8 percent of GDP to a deficit of 2 percent of GDP,” the statement said.

“If the government can maintain sufficient resources for the plan, overall growth in Gabon could bounce back to an average of about 5 percent in 2016–20.

“The main risk to this outlook is an insufficient fiscal adjustment in response to weak oil prices. Higher-than-budgeted spending or lower-than-expected prices would force the government to substantially draw down deposits and/or significantly increase borrowing.

“An ancillary risk concerns a stronger-than-expected spillover of the oil price shock to non-oil economic activity,” the statement said.

“With oil price shock weighing on private sector activity, the growth and diversification objectives of the plan need to be protected and structural reforms accelerated.

“The focus should be on improving economic competitiveness and productivity, notably by strengthening education, infrastructure, and institutional capacity, rather than providing costly fiscal incentives to attract investors. In addition, business climate reforms should be accelerated along the lines of an action plan already developed with the International Finance Corporation.

“Finally, Gabon should advocate for deeper regional integration and explore opportunities for synergies from infrastructure projects underway in neighboring countries,” the statement said.

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