Gabon’s fiscal position to remain challenging in 2019, Moody’s says

The government of Gabon recently foiled a coup attempt in the country. But President Ali Bongo is still not strong enough to lead. The uncertainty surrounding the president’s health, coupled with the country’s weak public finances management and tight liquidity poses credit risk for the southern African country.

Lucie Villa, a vice president and sovereign analyst at Moody’s says the biggest credit risk, however, would be to jeopardize the continuance of IMF support which Gabon has been enjoying.

The government balance sheet has deteriorated during the oil price shock with debt rising to 58 percent in 2018 from 31 percent of GDP in 2013 and fiscal strength is unlikely to be restored in the foreseeable future, according to Moody’s. But Gabon’s IMF program has been helping the government liquidity profile and policy credibility.

However, with the government’s limited track record of current external debt payments, Villa says Moody’s “Caa1 stable outlook for Gabon is commensurate” with the observed risk.

Despite the risks, Gabon still has credit strengths in its oil wealth, membership to the Economic and Monetary Union of Central Africa (CEMAC) which reduces external vulnerability risks. Whether these strengths are enough to help Gabon tackle its credit challenges remains to be seen as the country’s over-reliance on the oil sector coupled with weak fiscal, debt and liquidity management brought it to its present situation.

Moody’s expect the Gabonese government’s fiscal and liquidity positions to remain challenging in 2019, especially with delays in disbursements of financial support from the IMF and the rest of the international community likely.

Following the third review of Gabon’s Extended Arrangement in December, the IMF Executive Board had approved $99 million disbursement, bringing total IMF disbursements to Gabon to about $395.9 million.

The government’s reform program, supported by the IMF, aims to restore macroeconomic stability and lay the foundation for inclusive growth. It also seeks to attain debt sustainability at the national level and contribute to the external stability of the CEMAC.

Following the Executive Board discussion, Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair of the IMF said Gabon’s performance under the Extended Fund Facility (EFF) arrangement has improved.

“The authorities have taken important and difficult actions to keep the program on track despite the October 2018 legislative elections. However, the economic recovery remains fragile and further fiscal consolidation and decisive reforms are needed to achieve strong and sustainable growth.

“The authorities are committed to continuing with growth- friendly fiscal consolidation. This requires steadfast implementation of measures to boost non-oil revenues and contain non-priority spending, while protecting social and investment spending. Enhancing budgetary execution and oil revenue management, and further improving cash and debt management are also priorities.

“Safeguarding banking sector stability is essential for growth. The authorities plan to accelerate the liquidation of the three distressed banks and expeditiously tackle the NPL overhang to support financial stability, promote credit to the private sector, and growth,” Furusawa stated.

While he may not be healthy enough to return to work, President Bongo has appointed a prime minister to help shore up his political base and put uncertainties around succession to rest. The new Prime Minister Julien Nkoghe Bekale replaced Emmanuel Issoze-Ngondet, who has served since 2016.