Violence Has Ceased, Bongo Sworn In
Although there has not been any violence in the aftermath of the constitutional court’s affirmation of President Ali Bongo’s re-election, voting results show a divided nation. The opposition continues to reject the election outcome and Gabon is now headed into parliamentary elections come December of this year.
Unless the political situation quiets down, continued political uncertainties are very likely to detract from focusing on the much-needed reforms within the country, both in public finances and to improve the “Doing Business” indicators. Without reform, rating downgrades cannot be ruled out. And given the erosion of fiscal and external buffers since the fall in oil prices in mid-2014, this is all the more true.
This is also coupled with the inability of the Gabonese officials to use the exchange rate to counter the fiscal impact of lower export prices and public debt dynamics which in comparison, do not stack up in a favorable way against Gabon’s regional oil exporting peers. Although Gabonese bonds are still 3-4 points below pre-elections levels, any gains will likely remain unrealized amid the headwinds of parliamentary elections, at least for the time being.
Meanwhile, in the event of any downgrades, a move to the downside on traded external debt remains possible. “Watch out also for new issuance, which the incumbent president stated was possible post elections,” Raza Agha, Middle East and Africa economist with VTB Capital wrote in a note to clients in October.
Macro Outlook Mixed
In terms of the macro situation in Gabon, the picture is somewhat mixed. A more limited oil endowment and smaller production have helped underpin seemingly more successful diversification efforts and a relatively lower reliance on hydrocarbons. According to the International Monetary Fund (IMF), the oil economy’s share in nominal GDP has fallen from nearly 38% in 2014 to ~24% in 2016 and to ~20% in 2021.
Along those lines, the share of oil exports in total exports is seen falling from 84% in 2014 to under 68% in 2016 and to 60% by 2021. In addition, the share of oil revenues in total revenues is expected to fall from 44% in 2014 to less than 22% in 2016, and decline even more to 18.7% by 2021. “However, while these stats compare favorably with regional peers, it continues to highlight the centrality of the hydrocarbon sector,” Agha said.
Photo Credit: Government of Gabon