Gabon: IMF reach staff-level agreement on new programme
- IMF announce staff agreement on new three-year EFF, although no mention of programme size
- Agreement is no real surprise as programme discussions have been ongoing for some time
- Focus of the programme is fiscal and governance reforms, and restoring debt sustainability; retain Buy
The IMF announced yesterday that it had reached staff-level agreement on a new programme for Gabon, a three-year Extended Fund Facility (EFF). There was no mention however of the size of the arrangement. The programme is subject to Board approval, which is expected in the coming weeks.
Programme discussions are no surprise however and have been ongoing for some time (as we highlighted in our IMF Spring Meetings notes). Rather, perhaps the main surprise is that it's taken this long. Gabon's previous arrangement, a three-year US$642mn (215% of quota) EFF, expired last June and we think talks on a successor arrangement followed soon after.
The IMF statement noted that the authorities' IMF-supported home-grown programme aims at reducing fiscal and debt vulnerabilities and fostering highly sustainable, green, and inclusive private sector-led growth. It rests on five pillars: (i) fiscal consolidation; (ii) improving the fiscal framework and management; (iii) strengthening public debt management; (iv) enhancing financial sector stability and inclusion; and (v) promoting a business-friendly investment climate, improving governance and advancing the fight against corruption.
The IMF noted that "an ambitious growth-friendly fiscal consolidation is essential to put public debt on a firm downward trajectory". Gabon's public debt jumped by 13ppts last year, due to the pandemic, rising from 60% of GDP in 2019 to 73% in 2020 (according to the IMF's April WEO). The fiscal consolidation aims to increase non-oil revenue by reducing tax expenditure and improving tax administration. On the expenditure side, the reforms aim to contain current spending, improve public expenditure governance, while continuing to strengthen social protection for the most vulnerable.
However, we await board approval, and publication of the board paper, to see programme details. Bondholders will be particularly interested in the programme's fiscal commitments, and the ability of the government to implement the necessary fiscal and governance reforms, in order to restore debt sustainability. For now, the staff-level agreement – without, it seems, any explicit mention of prior actions – appears to demonstrate the country is going in the right direction.
Retain our Buy recommendation on GABON 2031s
We retain our Buy recommendation on GABON 2031s, with a yield of 6.2% (z-spread 498bps) on a mid-price basis as of cob 9 June on Bloomberg. The bonds have reversed their losses from the Taper Tantrum-induced generalised market sell-off earlier this year, when yields peaked at over 7%, but they remain 10bp wide of their end-2020 level and their c100bps spread over Cote d'Ivoire and Senegal – for which the IMF also recently approved a new programme (US$650mn 18-month joint SBA/SCF) – remains attractive (albeit with these spreads at or close to post-Covid tights). The IMF programme and stronger oil prices should continue to support the bonds in the near term.
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