Gabon Seeks to Diversify its Economy as Oil Revenues Decline

Oil price decline significant shock to the economy

Country needs to diversify economy, contain spending

Infrastructure crucial for economic transformation

In its annual assessment of the economy, the IMF also welcomed the government’s plan to improve the level and quality of infrastructure, and raise the quality of human capital—the key constraints to economic growth.

IMF Survey sat with Montfort Mlachila, IMF Mission Chief for Gabon, to discuss the country’s economic outlook and ways to adapt to the challenges it faces.

IMF Survey : The IMF just finished its annual assessment of the Gabonese economy. Could you tell us how is Gabon doing now?

Mlachila: The recent collapse in oil prices, following significant declines from the middle of 2014, is a major challenge for the Gabonese economy and its resilience. As you know, oil prices have declined by about 75 percent over the past 18 months. They used to be a little over $100 per barrel. Now they’re about $30 per barrel. It’s a significant shock for the economy. It also means that government revenues have declined significantly, and so have exports.

In practice, there’s less money circulating in the economy and that has affected the growth rate of the economy, which has declined to about 4 percent in 2015. And this year it is expected to decline further to just over 3 percent—about 3.2 percent. So, the overall effect is quite significant compared to the level of growth rates that were observed before 2014. Between 2010 and 2014, the growth rate was around 6 percent, so it has had a significant impact for the Gabonese economy.

IMF Survey : In these circumstances, how should Gabon adapt to this new environment?

Mlachila: The impact, obviously, has been mostly on government revenues, and the authorities are fully aware of the issues. The government can adapt in several ways. The key strategic objective over the long run is to diversify the economy so that it is less dependent on oil, which will make the economy more resilient. In the short run, the government needs to live within its means by doing two things.

First, it needs to raise additional revenue outside of the oil sector, notably, for example, by reducing the extent of tax exemptions; and then on the spending side the government can take a number of measures to control better the growth of the wage bill.

Second, it needs to reprioritize capital spending to focus on projects that have the highest benefits or the highest economic...