Toeing the line: Falling oil revenues prompt a rethink of fiscal policy

Against a backdrop of falling oil revenue, and despite sharp cuts in spending, and investment spending in particular, public finances slid into the red in 2015 with the country experiencing its first deficit in 17 years. However, both revenues and outlays are expected to recover slightly in 2016, and the authorities are seeking new ways to increase non-oil revenues and working with international backers to improve the management of state finances over the longer term.

Going Into The Red

According to IMF figures, in 2015 the Gabonese government ran an overall fiscal deficit of 2.4% of GDP and a primary deficit (excluding debt repayments) of 0.9% of national output. The shift into negative territory – the first deficit since 1998 – was due to in large part to a 41.7% slump in government oil receipts in 2015, following a 23% decline in mid-2014, as a result of the fall in international crude prices, according to the General Directorate of the Economy and Fiscal Policy (Direction Générale de l’Economie et de la Politique Fiscale, DGEPF). This brought about a wider a drop in overall government revenues in 2015, estimated by the Bank of Central African States (Banque des États de l’Afrique Centrale, BEAC) at 23.5%, down 10.4% from 2014.

Non-oil receipts also decreased 9.2% as reduced hydrocarbons revenues and a fall in confidence hit the wider economy, according to the DGEPF. The lurch towards deficit financing saw sovereign credit rating agency Fitch downgrade Gabon’s credit rating from “BB-” to “B+” in May 2015. Furthermore, In 2016 Standard and Poor’s and Moody’s followed with respective downgrades from “B+” to “B” in February and from “Ba3” to “B1” in May – in both cases the agencies attributed the rating changes to external pressures.


The government has worked aggressively to limit the deficit, making steep cuts in public expenditure of 14.1% in 2014 and a further 10.9% in 2015, according to the DGEPF. The bulk of cuts so far have been made to government investment spending, which is down 30.6% in 2014 and a further 31.6% in 2015. The authorities say they are maintaining investment in major projects already under way, including large road and hospital projects, while slimming down the pipeline for new initiatives. Downward revisions in capital expenditures are less difficult to execute than current spending cuts, particularly in Gabon, where public sector employment and a strong labour sector mean wages are often entrenched. However, they risk slowing efforts to diversify away from oil, which rely heavily on investment in infrastructure (see overview). The IMF has been urging the government to work to maintain investment expenditure in areas that promise to help develop and diversify the economy.

Current expenditure has in comparison been broadly protected from the cuts, dipping by a modest 1.9% in 2015, following a sharper drop of 4.2% in 2014. According to the DGEPF, the government plans to save a further CFA34bn (€51m) in operational spending in 2016 by reducing fuel subsidies and by cutting spending on diplomatic missions and events such as government-backed conferences. To this end, in February 2016 the state abolished subsidies for diesel and petrol in addition to bringing in a new automatic mechanism to determine the price of fuel.

Big Cuts

However, the biggest savings could potentially be gained by streamlining the public administration. During the early years of the current decade, when oil prices were high, the public sector wages bill rose by 70% over the five years to 2015, thanks in part to a 30% expansion in the number of civil servants, according to the IMF’s Article IV consultation for 2015. “The government employs more than 100,000 civil servants, which is a lot for a country the size of Gabon,” Yves Picard, director of the French Development Agency’s Gabon operations, told OBG. The size of the public sector workforce is to fall by 2.4% in 2016 through measures that include not replacing some retired staff and a voluntary redundancy programme. However, the issue is a very sensitive topic and the government of Gabon is looking at reducing the size of its workforce more drastically over the long term rather than immediately.

Rising Debt

The worsening of public finances in recent years has driven up public debt. The government issued a $500m eurobond in June 2015, following a $1.5bn bond in late 2013, which helped raise the total value of outstanding state debt by 19% year-on-year to CFA3.17trn (€4.8bn) in 2015, up from CFA2.66trn (€4bn), according to the DGEPF. In relative terms, the IMF put the value of 2015 debt at an estimated 43.9% of GDP, up from 32.2% in 2014 and 17.9% in 2011. Most of Gabon’s liabilities are made up of foreign currency debt, which rose by 17.5% over 2015 to CFA2.88trn (€4.3bn), while domestic debt rose 36% to CFA281.2bn (€421.8m), according to the DGEPF.

At the same time, the government has been stepping up repayments of debts. In 2015 debt repayments were equivalent to 27. ( 4% of the value of government revenues in 2015, up from 12.9% the previous year, according to the DGEPF. The government built up substantial arrears in repayment of domestic debts in recent years, which led to cash flow problems for many government contractors and for small and medium-sized enterprises in particular. However, in 2015 the authorities made a concerted effort to reduce such arrears, more than tripling repayments from CFA42.9bn (€64.4m) in 2014 to CFA147.9bn (€221.9m), and the situation is expected to continue improving significantly as a result.

Near-Term Outlook

Government revenues are expected to rise by around 3.3% in 2016, bolstered by efforts to boost non-oil income, with non-oil receipts forecast to grow by 21.5%. However, in the run-up to the 2016 election, the government did tend towards larger rises in outlays. The BEAC expects 2016 investment spending to expand by 27.9% and operational expenditures by 9.7%, for an overall spending increase of 13.9%. The authorities’ ability to persistently reign in investment spending is also limited by its need to finance infrastructure for the 2017 Africa Cup of Nations, which Gabon is hosting; 15% of total investment spending under the 2016 budget is earmarked for the construction of two new stadia.

Raising Revenues

With a view to diversifying receipts over the long term, the government is taking various measures to raise non-hydrocarbons income, including widening the tax base and steps to increase tax revenues by reducing the size of the large informal economy. The government is also working to reduce the number of tax exonerations and to raise revenues from Customs duties by, for example, upgrading Customs’ service information and IT systems and stepping up the frequency of Customs checks.


The authorities are also introducing measures to improve the management and efficiency of government spending procedures, with backing from multilateral institutions. In 2013 the EU and the IMF launched the Sectoral Governance Support Project, which includes €20.5m with which to support periodic reviews of public finances. The government is also implementing Budgeting by Programme Objectives, which aim to bring the execution of budgets more closely in line with government policy aims and to address what the IMF described as major weaknesses found by the country’s 2013 review under the Public Expenditure and Financial Accountability initiative. The programme, which was first implemented in 2015, includes a range of reforms such as the digitalisation of the expenditure chain and decentralising the implementation of state budgets. It appears to be having a positive impact, and in its most recent Article IV review the fund commended the country for it efforts to boost the management of public finances. Even so, much work remains to be done. Picard told OBG, “Public finance reform is under way, but it is a process that takes time, and it will be several years before fully allowing for transparent well-managed budgets.”