GABON WILL SEEK EARLY PARIS CLUB REPAYMENT

C O N F I D E N T I A L LIBREVILLE 000224

SIPDIS

SIPDIS

E.O. 12958: DECL: 05/14/2017
TAGS: EFIN ECON PGOV GB
SUBJECT: GABON WILL SEEK EARLY PARIS CLUB REPAYMENT
FOLLOWING IMF AGREEMENT

REF: A. LIBREVILLE 126

B. 06 LIBREVILLE 446

C. 06 LIBREVILLE 167

Classified By: DCM: K. Dhanani. Reason: 1.4 (b) & (d).


1. (C) Summary: On May 10, the Gabonese Finance Minister
briefed the cabinet on Gabon's new three-year IMF agreement,
and said the GoG will now seek early repayment of Paris Club
debt. Gabon's external debt burden is moderate and
declining, thanks to high oil prices, although new borrowing
is up sharply over the last two years. The Paris Club is
unlikely to offer Gabon a deep discount, but the GoG will
(with justification) tout any Paris Club deal as the
consequence of the current government's wise policy choices.
End summary.


2. (U) Finance Minister Paul Toungui briefed his government
colleagues on Gabon's three-year Stand-By Arrangement (SBA)
with the IMF (Ref A) during the GoG's May 10 cabinet meeting.
The cabinet's press release reported that the SBA was based
on three pillars: consolidation of sound macroeconomic
management, with a sustainable non-oil budget deficit;
strengthened public expenditure management; and acceleration
of structural reform to establish a foundation for private
sector led development. For domestic public consumption, the
GoG has stressed the SBA's provision of $117 million in
drawing rights, without noting that these are precautionary
only, i.e. there is no expectation that Gabon will use or
require any financing from the IMF. According to the press
release, the cabinet's discussion of the SBA concluded with
the statement that Gabon will shortly request negotiations
with the Paris Club to arrange an early repayment of Gabonese
debt, at a "significant discount."


3. (C) Since Gabon doesn't need IMF funding, the GoG's
motivation for seeking an SBA (and thereby tying its own
hands) is not immediately evident. Reformers in government,
including Minister Toungui, have sought a formal arrangement
with the IMF in order to safeguard sound fiscal policy and
build momentum for institutional change. The IMF reports
that a desire to negotiate with the Paris Club has also been
a major factor underlying Gabon's persistent pursuit of an
SBA (Ref C); Paris Club rules require that debtors have an
agreement with the IMF before they request debt treatment.


4. (C) The GoG's desire to engage with the Paris Club is not
founded in debt sustainability problems. A recent GoG
briefing to donors on Gabon's official debt confirmed that
the country's debt burden is declining and sustainable.
Gabon's external public debt declined from 63% of GDP in 2002
to just 33% in 2006, and is projected to fall to 13% in 2010.
The debt-to-export ratio was 118% in 2002, 49% in 2006 and
is projected to decline to 23% in 2010. Debt service to
exports has declined similarly, from 27% in 2001 to just 11%
in 2005. IMF analysis suggests that swiftly declining debt
ratios are robust even if there are unfavorable surprises in
growth or interest rates. Debt will level off, rather than
decline, if petroleum prices or terms of trade deteriorate
sharply.


5. (C) During the donor briefing, both the GoG's Deputy
Director General of Public Accounts, Theophile Nkue Nguema,
and the IMF Resident Representative in Gabon expressed
concern about transparency of new debts taken on by the GoG.
Nguema admitted that his office has to monitor cabinet press
releases to learn about new GoG commitments, and often finds
out about new debt many months after it is contracted. He
said that Finance Ministry civil servants have no information
about any commitments to China in exchange for recent public
infrastructure investments. IMF staff report that Gabon may
have taken on a total of $800 million in commitments in the
last eighteen months (Ref C); this contrasts sharply with
only about $250 million in new borrowing between 2001 and

2005.


6. (C) Comment: The windfall of high oil prices has
exponentially multiplied the dividend of relatively
responsible macroeconomic policy in reducing the burden of
Gabonese public debt. There is some concern that new loans
contracted outside the regular budgetary process (including
U.S. Ex-Im Bank financing for a road project) threaten to
undermine this progress.


7. (C) Comment cont.: Post understands that the Paris Club is
likely to offer only a modest discount if Gabon pursues early
repayment. It is not clear to us whether Toungui and the
rest of the GoG share this understanding. In any case, we

anticipate that any early repayment of Paris Club debt will
be spun as a ringing endorsement of the policies of the
current government. While the Paris Club may not view early
repayment in those terms, the GoG does deserve credit for
resisting the temptation to squander the oil windfall on
current expenditures. Instead, Gabon's budget surplus in
2006 was over 10% of GDP, and represented a third of revenue.

WALKLEY