Identifier
Created
Classification
Origin
06LIBREVILLE446
2006-07-05 15:19:00
CONFIDENTIAL
Embassy Libreville
Cable title:  

IMF AND GABON TALK OF A 3-YEAR PROGRAM

Tags:  EFIN ECON PGOV GB 
pdf how-to read a cable
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DE RUEHLC #0446/01 1861519
ZNY CCCCC ZZH
P 051519Z JUL 06
FM AMEMBASSY LIBREVILLE
TO RUEHC/SECSTATE WASHDC PRIORITY 9196
INFO RUEHLO/AMEMBASSY LONDON PRIORITY 0307
RUEHFR/AMEMBASSY PARIS PRIORITY 0811
RUEHYD/AMEMBASSY YAOUNDE PRIORITY 0688
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
C O N F I D E N T I A L LIBREVILLE 000446 

SIPDIS

SIPDIS

LONDON AND PARIS FOR AFRICA WATCHERS

E.O. 12958: DECL: 07/05/2016
TAGS: EFIN ECON PGOV GB
SUBJECT: IMF AND GABON TALK OF A 3-YEAR PROGRAM

REF: LIBREVILLE 167

Classified By: Michael Garcia, Economic Officer, for reasons 1.4(d)

C O N F I D E N T I A L LIBREVILLE 000446

SIPDIS

SIPDIS

LONDON AND PARIS FOR AFRICA WATCHERS

E.O. 12958: DECL: 07/05/2016
TAGS: EFIN ECON PGOV GB
SUBJECT: IMF AND GABON TALK OF A 3-YEAR PROGRAM

REF: LIBREVILLE 167

Classified By: Michael Garcia, Economic Officer, for reasons 1.4(d)


1. (SBU) Summary: After a June 19-30 visit, the IMF will
return to Gabon in September to assess the GoG's progress in
three areas: decreasing the non-oil budget deficit, improving
public finances, and accelerating the improvement of the
business climate. If sufficient progress is made, Gabon may
have its 3-year precautionary stand-by arrangement by the end
of 2006. Many observers believe the GoG will not be able to
carry out its stated intentions during an election year, and
an IMF program will be deferred once again. End Summary.


2. (U) An IMF delegation visited Gabon from June 19-30 at the
GoG's request to re-start negotiations on a 3-year
precautionary stand-by arrangement. EconOff met informally
with a member of the delegation (Anton A.F. Op de Beke, Sr.
Economist) on June 28 and the head of the delegation (Roger
Nord) briefed the donor community on June 30. Both outlined
the three objectives the GoG must meet before an agreement
can be reached on a new program.

--------------
Three Objectives
--------------


3. (SBU) The centerpiece of the IMF's engagement with Gabon
is the need to carry out adjustments so that Gabon can manage
its own deficit in the expected post-oil economy (Reftel).
(Estimates suggest that Gabon's oil production will decrease
by half in 20 years and be depleted in 30 years.) Gabon's
budget for 2006 features a non-oil deficit 12.5% of GDP.
Nord told donors that by the end of a three-year program
Gabon's non-oil deficit should be only 5.6% of GDP. To
demonstrate its commitment to tackle this issue, the GoG
should make immediate adjustments that will bring this to
8.5% by the end of 2006. According to Op de Beke, the GoG
will provide the IMF data in October that will demonstrate if
they are on the right track.


4. (U) The second objective is improvement in the GoG's
public finances, with a focus on transparency. The IMF wants
to see improvements in three particular areas. First, the
state should make public the bidding and awarding of public

works. This is particularly true with the "fetes
tournantes," infrastructure projects awarded with no
transparency and for which there is little if any
accountability. Second, the budget for the national day
celebrations should be made public and put on the books like
any other state expenditure. Finally, the GoG should account
for its fuel product subsidies in its budget and reduce (if
not eliminate) this subsidy overtime. These subsidies cost
the GoG CFA 70 billion ($140 million) in 2005 and the cost is
expected to reach CFA 100 billion ($200 million) in 2006
(Reftel). Nord stated that it would be up to the GoG to
decide how best to reduce this subsidy, but suggested they
could start by eliminating the jet kerosene subsidy that only
benefits the airlines.


5. (U) The final objective is accelerating improvement of the
business climate. According to Nord, there is no lack of
ideas in this respect, just lack of initiative. He hoped
that the privatization of Air Gabon and Gabon Telecom would
make significant progress by September. He stated that the
GoG's first EITI report was a good step and that the next
report (due at the end of this year) would be more complete
by including profit oil and revenues from the mining sector.

--------------
The Road Ahead
--------------


6. (U) In an informal meeting with EconOff, Op de Beke stated
an optimistic scenario could provide the GoG its 3-year
program by the end of 2006. He said the IMF team will return
in September for further talks and to assess the GoG's
progress in the three areas above. In October the IMF would
be provided the revised 2006 budget and the 2007 budget. If
all looks good, Gabon's program would go to the IMF Board for
review and could be approved in December with a retroactive
start date of October 2006.


7. (C) Op de Beke doubted that this optimistic scenario would
be realized. He said that, while the GoG has exercised
discipline in the past, the current climate is not optimal
for restraint. While spending associated with the "fetes
tournantes" have always been a problem, Op de Beke pointed to
the legislative elections in December as a bigger concern.
Moreover, Op de Beke pointed to the possible collapse of the
World Bank's forest program as a major concern. At the
moment the GoG has a $15 million budget support loan for
natural resource management on offer from the World Bank
contingent on forest sector reform (collection of taxes from
timber companies, dissolution of the state monopoly timber
company, etc.). To date the GoG has not made progress on
these reforms. According to Op de Beke, if this World Bank
program collapsed, it would be difficult to imagine the IMF
approving a program this year.


8. (C) Comment: While Gabon's oil production is declining,
the high price of oil has augmented the government's revenues
so that it can continue to pay off its debt and overspend for
political reasons. Reformers in government wish to use the
IMF to reign in spending and improve Gabon's position with
creditors (Paris Club),while preparing Gabon for future
declines in oil revenues. The reform agenda is made
difficult by the fact that there is no pressing need for the
GoG to reach an agreement with the IMF, or to cut spending;
in 2005, while the non-oil deficit rose to 12% of GDP, oil
revenues meant the overall budget was in surplus by 10% of
GDP, and the balance of payments was in surplus by 16% of
GDP. If, against the odds, the GoG is able to show enough
progress over the next few months to satisfy both the World
Bank and the IMF, it will indicate that the reformers have a
great deal more influence than was generally believed.
WALKLEY