Economic performance and outlook: Economic growth continued despite the fall in oil prices, reaching 2.1% in 2016; however, it was estimated at less than 1% in 2017. In January 2017, authorities approved an economic revitalization plan to address the current economic crisis by containing macroeconomic and budgetary imbalances and stimulating growth. To tackle the economic shock that Gabon has been experiencing since 2014, the government has committed to revitalization measures, including implementing budgetary adjustments, developing infrastructure, and promoting the private sector as a driver of economic diversification and transformation.
Macroeconomic evolution: Since the decline in oil prices, Gabon has recorded revenue losses that have hurt public finances, the financial sector, and the productive sector. Despite adjustment efforts, the government has accumulated sizable budget deficits, particularly to pay a large wage bill (close to 40% of the budget) and support the investment program associated with the country’s vision of emergence. In combination with the accumulation of arrears, the decrease in public investment has hindered economic growth, job creation, and the nonoil sector. The balance of payments is in deficit, and government reserves with the Central Bank have decreased sharply.
Tailwinds: Gabon is determined to reduce its dependence on raw materials, particularly hydrocarbons, and transform its economy to become an emergent nation by 2025. It has established a credible industrial policy, including setting up special economic zones and attracting foreign direct investment. These measures are seen in the public-private partnership with the OLAM Corporation, whose objective is to promote subsistence- and export-oriented agriculture as a bridge to growth. To improve public administration, the government has launched reforms that streamline the number of civil servants, re-examined the roles of certain ministries, and retargeted public resources to meet results. The reforms are supported by the international community through a $655 million triennial agreement approved in June 2017 under the International Monetary Fund’s Extended Credit Facility, as well as through budgetary support from the African Development Bank, the World Bank, and the French Development Agency.
Headwinds: Membership in the monetary union helps Gabon maintain low inflation rates. But it limits its options for adjusting to negative shocks and ensuring external competitiveness. Limited economic diversification remains a major constraint and prevents gains from higher exports in non-oil sectors. Despite bringing civil service expenditure under control and refocusing public expenditure, the past three years have seen the government accrue significant arrears with the private sector. This situation hinders the development of the nonoil, is detrimental to employment, and runs the long-term risk of weakening the banking sector because of the accumulation of questionable loans. The level of public debt is also a concern because of the substantial increase in recent years, to approximately 59% of GDP in October 2017. The government needs to continue to invest heavily in infrastructure, particularly roads, to remain an attractive destination for foreign investment. The government needs to continue to invest substantially in infrastructure, particularly roads, to remain an attractive destination for foreign investment. But the financing strategy should preserve debt sustainability.
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 d’achat des obligations
Procedures for market participation
The BEAC organizes the auction on behalf of the states. 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|
|Standard and Poor’s||BB-||Stable|
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 payments.