Macroeconomic performance and outlook
Equatorial Guinea continues to struggle to emerge from the economic recession caused by the 2014 slump in oil prices. Real GDP is estimated to have shrunk by 4.1% in 2019 after a contraction of 6.1% in 2018 due to less activity in the oil sector. The inflation rate remains low, at 1.4% in 2019 versus 1.3% in 2018, below the CEMAC target of 3%.
In 2018, public finances improved thanks to imple- menting most of the benchmarking program measures signed with the IMF. Big cuts were made in public cap- ital spending (down 20.6%) and tax revenue collection improved, with nonoil revenues increasing by 7.2%. The budget balance, which showed a deficit of 2.6% of GDP in 2017, became a surplus (0.5% of GDP in 2018 and 1.3% in 2019). The current account deficit improved from 7.7% of GDP in 2018 to 5.6% in 2019 following a better trade balance due to the reduction in capital goods imports.
Progress in human development is below Equatorial Guinea’s economic potential. According to the human development index, the country went from 139 of 188 countries in 2016 to 141 of 187 in 2017. The gross enroll- ment rate in primary education was 80%, and the grade repetition rate 24%. Unemployment affected 25% of the working-age population in 2017, and the hydrocarbon sector employed only 4% of the workforce.
Tailwinds and headwinds
The oil windfall has enabled the country to modernize its infrastructure over the past two decades. Ambitious programs are being carried out in a variety of infrastruc- ture (roads, ports, airports, water supply, and electricity production, transmission, and distribution), which are generally new and in good condition.
Economic diversification, which is slow to materialize, remains an important goal for the country’s long-term
economic growth and stability. The agricultural sector, whose contribution to the national economy was less than 2% of GDP between 2014 and 2018, has good potential on 850,000 hectares of land (versus only 20,000 hectares currently in cultivation). The National Agricultural and Food and Nutrition Security Investment Plan 2015–20 emphasizes training farmers and creating small and medium agricultural enterprises.
The fisheries and aquaculture sector (0.2% of GDP between 2014 and 2018) could also be an important source of diversification thanks to the size of the coun- try’s exclusive economic zone (maritime territory).
The economy remains dominated by hydrocar- bons, even though nonoil activities increased from about 40% of GDP in 2013 to 56% in 2017. The coun- try’s overall economic outlook remains negative with a recession expected in 2020 along with a predicted decline in oil sector activity (down 6.8% in 2020). How- ever, inflationary pressures should remain moderate, with inflation rates of about 1.6% in 2020 and 1.4% in 2021.
To maintain the dynamism established to reduce economic imbalances and ensure the stability of the country’s macroeconomic framework in the medium term, the government has made the necessary efforts to implement the Benchmarking Program with the IMF, and negotiations for an Extended Credit Facility began in September 2019. This program is expected to focus on maintaining macroeconomic stability and strength- ening the banking sector, while promoting social wel- fare, economic diversification, good governance, and transparency. The budget balance should improve, recording surpluses of 1.4% of GDP in 2020 and 0.5% in 2021.
At the institutional level, the country is hampered by structural weakness in its ability to manage public finances and by governance in implementing its eco- nomic and social transformation policy.
Health sector preparedness
According to the World Health Organization, COVID–19 represents a high risk for Equatorial Guinea given the weak capacities of its health system, the lack of neces- sary equipment to fight the pandemic, poor hygienic and living conditions, overcrowding in large cities, and high morbidity rates which could lead to a greater severity of the disease. The country’s ability to diagnose and treat COVID–19 patients is insufficient. With a score of 16.2, the 2019 Global Health Security Index ranks Equatorial Guin- ea’s health system last of the 195 countries surveyed.
The government has implemented several measures in response to the crisis, closing borders and schools, imposing a curfew, and placing the country in full lock- down mode. It adopted a health response plan, which is expected to cost FCFA 402 million, and took measures to meet the population’s basic needs (health, employment, water, electricity, housing, transportation) and to support businesses affected by the COVID–19 crisis in the nonoil sector, especially small and medium offices and enter- prises The government will contribute FCFA 5 billion to the national COVID–19 emergency fund. The authorities are also counting on a rapid mobilization of technical and financial support from development partners to help the country respond to the health emergency and reduce the impact on the economy and the population.
The CEMAC securities yield curve extended to 5 years with 9 benchmark points along the curve (3m-6m-1-1.5-2-3-3.5-4 and 5 years).
The issuance strategy is based solely on funding the budget. Constructing the yield curve is not taken into account in the issuance strategy. The issuance methods used are the auction method and the underwriting method.
CEMAC states may issue new lines on the financial market in Libreville or in Douala. They can also use the auction market for government securities which is organized by the Central Bank, the Banque des Etats de l’Afrique Centrale (BEAC). The states have no proper debt strategy in place.
There are 9 benchmarks maturities for government securities in local currency in the CEMAC zone: 3m-6m-1-1.5-2-3-3.5-4 and 5 years.
Yield curve calculation models
The BEAC prepared its own in-house method for computing its yield curve: the implied yield curve.
The Brandt interpolation method is used in the CEMAC region.
Yield curve managed by
The BEAC is responsible for calculating the yield curve on a monthly basis.
Challenges in building an efficient yield curve
- Illiquid and limited secondary market: buy-and-hold investors
- Narrow investor base: only banks are involved in the bond market
- Coexistence of three agencies for issuing bonds and bills: the Douala Stock Exchange (DSX) and the Bourse des Valeurs Mobilières de l’Afrique Centrale (BVMAC) are in charge of syndication. The Banque des Etats de l’Afrique Centrale (BEAC) is responsible for auctions.
- Lack of issuance strategy in CEMAC states
- Lack of reliable data
- Lack of long-term maturity
- Two countries had never issued on the domestic market as of end-2015
Guide to Buying Bonds
Procedures for market participation
The auction takes place at the asking price. Orders are served retained interest rates or the price offered by the bidders within the maximum interest rate or maximum price decided by the government.
At the end of the auction, the general information, including the amount of bids expressed the amounts used and the rate and limit price selected are disseminated through the press.
The methods of creating, presenting and counting of the tenders shall be determined by agreements on the one hand, between BEAC and National Treasuries, and secondly, between the BEAC and the Primary Dealers (PD). Subscriptions to government securities are firm and irrevocable. They are paid in a single payment by debiting the account of the PDs at the BEAC and credited to a special Treasury account opened for this purpose.
Given that the debt market is under developed, the optimal schedule has been adopted as part of regular program.
The six National Treasures issue in turn at regular intervals. Each National Treasury will issue T-Bills weekly on Wednesday. The amounts are generally low to allow all states to issue at the same time, resulting in each State having fifty-two issues of T-Bills per year. Each National Treasury can issue T-Bonds monthly. The auctions are scheduled to take place every Wednesday. However, given the nature of the instrument and the expected volume of transactions in relation to the needs for public investment, treasuries are not able to issue on the set day.
A shift schedule was developed for planned Wednesday auction sessions:
- Cameroon: 1st Wednesday of the month
- Central Africa - Congo: 2nd Wednesday of the month
- Gabon: 3rd Wednesday of the month
- Equatorial Guinea-Chad: 4th Wednesday of the month
These emissions will occur at regular time intervals and are publicly known.
The total amount of the twelve issuances will be released in the Finance Act each year. For each fiscal year, this amount will be communicated to the market by the Minister of Finance no later than November 30th of the previous year. This communication from the Minister responsible for finance may take the form of a conference, briefing or a press release. The amount of the emission will not be announced at this time.
However, the amount to be raised for each auction is specified in the auction announcement in accordance with National Treasury issuance calendar.
On the secondary market, the T-Bills are traded OTC and the T-Bonds are traded on the DSX and the BVMAC.
The settlement of transactions takes place at T+3.
The level of taxation pursuant to Regulation No. 14/07 - UEAC-175-CM-15 instituting a specific tax regime applicable to the transactions listed on the Securities of Central Africa (BVMAC) "are exempt from income Tax Securities (IRVM) or any other taxes or levies of a similar nature, interest obligations of States for residents of the CEMAC." Subscribers residing outside the CEMAC zone must comply with income tax laws of their country of residence. The Issuer shall levy any withholding tax on loan repayments.
Rating Agency Current rating Outlook
Moody’s No rating No outlook
Fitch No rating No outlook
Standard and Poor’s No rating No outlook
Auctions of Government securities are exclusively reserved for Primary Dealers. Each CEMAC state has its own network of Primary Dealers. However, a credit institution, which meets the eligibility requirements, may be a Primary dealer only for the country they belong to or upon request, all the states. The Ministers of Finance, select Primary Dealers from all the credit institutions in CEMAC that meet specifications adopted by the Committee of Ministers, after consulting the Monetary Policy Committee.
Openness to international investors
Foreign investors can access the debt market under the same terms as nationals of the zone. There are no rules that discriminate foreign participants in the market.
This is no restriction on foreign ownership in the CEMAC zone.
Restrictions on FX and profit repatriation
There are no restrictions on obtaining foreign exchange.
The regional central bank, the BEAC, issues CFA for circulation among the members of the CEMAC. Although the Central African franc is at par with the West African CFA franc, the two currencies are not usually accepted for payment in each other’s zones.
Foreign investors have the right to repatriate earnings and the profits from sales of financial instruments. There are no restrictions on converting or transferring funds associated with investments, including remittances of investment capital, earnings, loan repayments, and lease p