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Thematic analysis: Structural transformation and natural resources

Author: Claude N’Kodia

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  • The economy may surge a projected 11.2% in 2014, mostly thanks to new oilfields coming into production.
  • The government will have to step up budget discipline to comply with the monitoring agreement signed with the International Monetary Fund in July 2013 and to reach completion point under the HIPC debt-relief facility by 2014.
  • More efficient and profitable global value chains and their extension to sectors with high potential will contribute to more inclusive growth and sustainable development.

The economy, which grew an estimated 3.4% in 2013, is expected to surge 11.2% in 2014, as new oilfields begin production and the outlook for harvests is good. Inflation began falling in 2012 and was 0.4% in 2013.

The government’s major challenge will be to proceed to proper implementation of the monitoring agreement signed in July 2013 with the International Monetary Fund (IMF). Good compliance with the recommendations will give access to a programme supported by the Fund’s Extended Credit Facility (ECF) and, if that goes well, completion point could be reached under the Heavily Indebted Poor Countries (HIPC) initiative by the end of 2014. This very much depends on credible budget reform and consolidation to make spending more effective and public finances more viable. Budget discipline will also help execution of the new 2013-15 national development plan, the priority programmes of which aim to improve living standards significantly, especially those of the poorest.

The government also needs to reduce the country’s dependence on fluctuating oil production,which was about one-third of gross domestic product (GDP) and provided more than 70% of tax revenue at the beginning of 2014. Greater diversification of growth sources is required, especially through creation of value chains in sectors where the country has clear comparative advantages,such as livestock, cotton, tourism, petrochemicals and gum arabic. This would help create many more jobs and also broaden the tax base through the higher budget revenue and better tax collection it is likely to induce.

Table 1: Macroeconomic indicators

Real GDP growth9.13.411.28.9
Real GDP per capita growth6.
CPI inflation7.70.44.23
Budget balance % GDP0.5-2.1-0.50.1
Current account balance % GDP-4.7-6.5-4-2.9

Source: Data from domestic authorities; estimates (e) and projections (p) based on authors’ calculations.