Economy of Gabon - Financial Problems

Financial Problems

Overspending on the Trans-Gabon (Transgabonais) Railway, the oil price of 1986, and the franc CFA devaluation of 1994 have caused debt problems. Gabon has earned a poor reputation with the Paris Club and the International Monetary Fund (IMF) for poor management of its debt and revenues. IMF missions (related to the now lapsed EFF program) have criticized the government for over-spending on off-budget items (in good years and bad), over-borrowing from the Central Bank, and slipping on the schedule for privatization and administrative reform.

Gabon's oil revenues have given it a strong per capita GDP of more than $10,000, extremely high for the region. On the other hand, a skewed income distribution and poor social indicators are evident. The economy is highly dependent on extraction of abundant primary materials. After oil, timber and manganese mining are the other major sectors. Gabon continues to face fluctuating prices for its oil, timber, manganese, and uranium exports. Foreign and Gabonese observers have consistently lamented the lack of transformation of primary materials in the Gabonese economy. Various factors have so far stymied more diversification (a small market of 1 million people, dependence on French imports, inability to capitalize on regional markets, lack of entrepreneurial zeal among the Gabonese, and the fairly regular stream of oil "rent"). The small processing and service sectors are largely dominated by just a few prominent local investors.

In 1992, the fiscal deficit widened to 2.4% of GDP, and Gabon failed to settle arrears on its bilateral debt, leading to a cancellation of rescheduling agreements with official and private creditors. Devaluation of its CFA franc by 50% on 12 January 1994 sparked a one-time inflationary surge, to 35%; the rate dropped to 6% in 1996. The IMF provided a one-year standby arrangement in 1994-1995 and a three-year Enhanced Financing Facility (EFF) at near commercial rates beginning in late 1995. Those agreements mandate progress in privatization and fiscal discipline. France provided additional financial support in January 1997 after Gabon had met IMF targets for mid-1996. In 1997, an IMF mission to Gabon criticized the government for overspending on off-budget items, over-borrowing from the central bank, and slipping on its schedule for privatization and administrative reform. The rebound of oil prices in 1999 helped growth, but drops in production hampered Gabon from fully realizing potential gains.