The executive board of the International Monetary Fund (IMF) on Wednesday approved $282.8 million three-year loan for Equatorial Guinea under an extended fund facility (EFF) arrangement, with an immediate disbursement of $40.4 million.
“Disbursement of the remaining amount will be phased in over the duration of the program, subject to semi-annual reviews of the Fund-supported program by the Executive Board,” IMF said in a statement.
The IMF also explained why it approved a loan for an oil-rich central African nation with serious corruption issues.
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An extended fund facility (EFF) is a medium-term arrangement which allows countries to borrow a certain amount of money, typically over a three- to four-year period. The EFF aims to address structural problems within the macroeconomy that are causing chronic balance of payment inequities.
The Washington D.C.-based Fund said “The IMF-supported program aims at maintaining macroeconomic and financial stability, while improving social protection, fostering economic diversification, strengthening governance and fighting corruption”.
It added that the three-year loan would allow Equatorial Guinea build on the country’s efforts in recent years to reduce macroeconomic imbalances and address macro-critical governance and corruption challenges.
“Equatorial Guinea’s Fund-supported program will also serve as a mechanism to catalyze additional external resources as well as contribute to rebuilding the Economic and Monetary Community of Central Africa (CEMAC) regional reserves,” IMF said.
With recent reports against granting a loan to an oil-rich, corruption-filled country, Mr. Tao Zhang, Deputy Managing Director and Acting IMF chair attempted to provide an explanation on the loan.
“In recent years, the Equatoguinean economy has been impacted by a sharp decline in oil prices and a secular decline in hydrocarbon output, which led to large macroeconomic imbalances and negative economic growth,” Zhang said.
He added: “The economy has also been affected by longstanding governance and corruption problems. While the authorities have taken steps to address these challenges, a more comprehensive approach is needed to tackle them effectively and achieve sustainable and inclusive growth. Strict implementation of the authorities’ commitments and adherence to a firm timetable is essential.
“Against this background, the authorities’ program aims to: (i) preserve macroeconomic and financial stability; (ii) improve governance and fight corruption; (iii) support human capital development and improve social protection; and; (iv) promote economic diversification”.
Mr. Zhang said “increasing transparency, improving governance and fighting corruption are critical to improve socio-economic outcomes. Priority should be given to: (i) strengthening the anti-corruption framework by addressing conflict of interests and adopting and enforcing a robust asset declaration regime for senior public officials; (ii) fostering hydrocarbon sector transparency, including the publication of all active oil and gas contracts, the audits of GEPetrol and SONAGAS and reports on hydrocarbon sector data and information as well as through EITI membership; (iii) further improving public financial management (PFM); and (iv) strengthening the rule of law and the AML/CFT framework. In support of the program, the Fund will also conduct a fiscal safeguard review in early 2020. Strict and full implementation of these measures is essential”.
In addition, “sustained fiscal consolidation is necessary to address the permanent decline in hydrocarbon revenue, maintain debt sustainability, and strengthen the external position”.
Achieving all these goals “requires further reducing low-efficiency capital expenditures, increasing non-hydrocarbon revenue and continued improvement in PFM. At the same time, the composition of expenditure needs to shift away from capital outlays to create space for higher social spending,” Zhang said.
“Clearance of government domestic arrears will help reduce high non-performing loans and strengthen the banking system, boosting private confidence and allowing banks to support the recovery of the non-hydrocarbon sector. Early action is needed to address the issue of undercapitalized banks.
“Reforms to improve the business environment and promote economic diversification are also critical to support sustainable and inclusive economic growth,” he added.