Payments arrears build up.

Gabon has won backing from the IMF for its economic and financial programme for 1994. Owing to the continuing slump in oil revenues and a heavy debt burden, Gabon's economic and financial situation has become increasingly difficult.

Access to external financing has been sharply curtailed in the past two years, with a build-up of large domestic and external payments arrears. Progress has been slow in containing public spending, in strengthening non-oil receipts and in reforming public enterprises.

Financial strains and a lack of competitiveness have deterred non-oil private investment and have held back the country's growth.

Faced with this situation, the Gabonese government has formulated a programme to turn the economy around and to restore adequate and balanced growth. The key element of the programme is the realignment of the exchange rate of the CFA franc against the French franc, shifting the ratio from CFA50=FF1 to CFA100=FF1 in January.

Together with a package of supporting measures in the programme, this realignment should enhance competitiveness and should provide an opportunity to improve Gabon's growth prospects and to diversify the economic base of the country away from the predominant hydrocarbons sector.

Within this context, the medium-term objective is for real non-oil GDP growth of about 3.5%, or about 1% per capita. After an initial surge in 1994, inflation is expected to subside and to return to its previously low levels.

Control of spending

Fiscal policy in 1994 is focusing on a strict control of expenditure, thus achieving a significant increase in the primary surplus in 1994 and 1995.

To strengthen competition, Gabon's trade-liberalisation policy is being continued. In this context, the government has sharply reduced customs duties as part of a comprehensive reform of the tariff structure.

Non-tariff restrictions as well as tax and trade privileges granted to enterprises are to be reviewed this year. The management of public enterprises is to be strengthened, and their financial relations with the government are to be "clarified". In addition, the functioning of the labour market is to be improved.

To protect the poorest population groups, the government has introduced measures to limit the price increases for energy products and necessities and to improve the availability of basic social services in the areas of health, housing and education.

The 1994 budget allows for a temporary subsidisation of necessities such as bread, and improved distribution networks are also to contribute toward mitigating the adverse effects of price increases. Over the long term, Gabon needs to sustain a large and efficient investment effort in both the public and the private sectors. The authorities' strategy of successful fiscal adjustment should enable them to increase investment significantly and to improve the investment climate.

In the short term, however, financing difficulties remain, given the heavy external debt burden at a time of low world oil prices.

In view of these difficulties and the country's adjustment effort, the support of external donors and creditors over the medium term is crucial to the success of Gabon's economic strategy.

The latest increment of IMF backing amounts to SDR60.1m (about $85m), of which SDR38.6m is being made available under a one-year standby arrangement and the other SDR21.5m was disbursed in April under the Fund's compensatory and contingency financing facility (CCFF), in respect of reduced export earnings.