IMF Concludes 2022 Article IV Consultation with Equatorial Guinea

On July 25, 2022, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1]with Equatorial Guinea.

Equatorial Guinea's oil-dependent economy is slowly emerging from the ravages of the COVID-19 pandemic and Bata explosions, but substantial challenges remain. The relaxation of pandemic containment measures and higher international oil prices are helping boost economic activity, government revenues, and export earnings. However, surging food prices and banking sector vulnerabilities cloud the short term, while real GDP and living standards are expected to decline over the medium term.

Following a contraction of 3.2 percent in 2021, real GDP is projected to grow by 5.8 percent in 2022 supported by hydrocarbon production and Bata reconstruction. Starting in 2023, the economy is projected to contract through the medium term, reflecting a reduction in hydrocarbon output together with a stalled structural reform agenda. Inflation is projected to rise to 6 percent by end-2022, driven by the pass-through from higher international oil and food prices¾owing to global recovery from the pandemic and supply shocks¾and to moderate over the medium term as these factors dissipate.

The balance of risks to the outlook is titled to the downside. On the upside, continued increase in hydrocarbon prices would further boost export earnings, improve fiscal balances, and external reserves; while stronger reform efforts would help reverse the medium-term decline in real GDP. On the downside, a further sustained surge in international food prices, a resurgence of the pandemic, lower oil prices, a spike in marine piracy incidents, further delays in addressing governance and corruption vulnerabilities, and worsening of banking sector stability indicators could further depress real GDP.

Executive Board Assessment[2]

Executive Directors agreed with the thrust of the staff appraisal. They noted that Equatorial Guinea's economy is slowly emerging from the ravages of the COVID-19 pandemic and Bata explosions, buoyed by higher oil prices, but severe challenges remain and significant risks to the outlook are tilted to the downside. In the near term, surging food prices have increased the risk of food insecurity for a substantial proportion of the population, while the ongoing secular decline in hydrocarbon output will drive a fall in output and living standards over the medium term. Against this background, Directors emphasized that the authorities must significantly strengthen their commitment to reinvigorate the stalled structural reform agenda, particularly to address serious governance vulnerabilities, to support sustainable, inclusive growth. The Fund stands ready to continue to support the authorities' efforts, including through capacity development.

Directors supported the authorities' near-term focus on measures to sustain external and fiscal sustainability while providing targeted support to the most vulnerable. They urged the authorities to use part of the windfall revenues from higher hydrocarbon prices to rebuild macroeconomic buffers, including via the accumulation of foreign reserves, as well as addressing social needs, especially food insecurity. Directors urged efforts to improve the efficiency of public spending and non-hydrocarbon revenue, while promoting inclusive growth and economic diversification over the medium term.

Directors emphasized the importance of tackling vulnerabilities in the banking sector. They welcomed measures to address high non-performing loans, undercapitalization, and low liquidity at some banks. Accelerating plans to settle domestic arrears would also help address banking sector stability concerns. Directors also endorsed efforts to strengthen the management of state-owned banks, as well as to develop mobile payments to improve financial access and inclusion.

Directors regretted the lack of progress in implementing macro-critical reforms to meet EFF and RFI commitments. They urged the authorities to substantially increase efforts to improve governance, enhance transparency, and fight corruption, which are essential to secure national development gains. Directors welcomed efforts to put in place the asset declaration regime for senior public officials, including the publication of the declarations. They also called for completion and publication of audits, including for state-owned hydrocarbon firms, regular publication of beneficial ownership information on emergency-related public spending, and publication of periodic implementation progress reports of the 2019 Good Governance and Anti-Corruption Action Plan. Directors also underscored the need to strengthen the effectiveness of the AML/CFT framework, and improve the timely publication of economic data.

Directors welcomed the authorities' commitment to economic diversification and sustainable inclusive growth. They highlighted the need to boost investment in basic healthcare, education, and sanitation to strengthen human capital and social outcomes. Directors urged the authorities to step up efforts to leverage existing public infrastructure to stimulate new economic activities, and welcomed the authorities' commitment to build a climate resilient economy.

It is expected that the next Article IV consultation with the Republic of Equatorial Guinea will be held in accordance with the Executive Board decision on consultation cycles for members with Fund arrangements.

Equatorial Guinea: Selected Economic and Financial Indicators, 2019-27

Sources: Data provided by the Equatoguinean authorities; and staff estimates and projections.

¹Including oil, LNG, LPG, butane, propane, and methanol.

² Includes a one-time clearance of outstanding arrears through securitization in 2022.

³Excluding oil revenues, and interest earned and paid.

⁴ Outstanding public debt includes domestic arrears, which amounted to 9.2 percent of GDP in 2021.

⁵The SDR allocation is not included in this figure.

⁶The local price of crude oil is the Brent and includes a quality discount.