AFRICAN DEVELOPMENT BANK

PROJECT : PUBLIC FINANCE MODERNISATION SUPPORT

PROJECT (PAMFP) COUNTRY : REPUBLIC OF EQUATORIAL GUINEA APPRAISAL REPORT

ECGF/RDGC

May 2019

Translated Document

TABLE OF CONTENTS

Project Information Sheet ...................................................................................................................................... iv Project Summary .................................................................................................................................................... vi Results-Based Logical Framework ....................................................................................................................... vii Provisional Project Implementation Schedule ....................................................................................................... xi I. STRATEGIC THRUST AND RATIONALE ............................................................................................... 1

1.1 Project Linkages with Country Strategies and Objectives ..................................................................... 1 1.2 Rationale for Bank's Involvement ......................................................................................................... 2 1.3 Aid Coordination ................................................................................................................................... 4

II. PROJECT DESCRIPTION ........................................................................................................................... 5

2.1. Project Objectives and Components ...................................................................................................... 5 2.2 Technical Solution Adopted and Alternatives Explored ....................................................................... 8 2.3 Project Type........................................................................................................................................... 8 2.4 Project Cost and Financing Arrangements ............................................................................................ 9 2.5 Project Target Area and Beneficiaries ..................................................................................................10 2.6 Participatory Approach for Project Identification, Design and Implementation ..................................11 2.7 Bank Group Experience and Lessons Reflected in Project Design ......................................................11 2.8 Key Performance Indicators .................................................................................................................12

III. PROJECT FEASIBILITY.........................................................................................................................13

3.1 Economic Benefits ................................................................................................................................13 3.2 Environmental and Social Impact .........................................................................................................13

IV. PROJECT IMPLEMENTATION .............................................................................................................14 4.1 Implementation Arrangements .............................................................................................................14 4.2 Monitoring and Evaluation ...................................................................................................................16 4.3 Governance ...........................................................................................................................................17 4.4 Sustainability ........................................................................................................................................17 4.5 Risk Management .................................................................................................................................17 4.6 Knowledge Building .............................................................................................................................18

V. LEGAL FRAMEWORK ..............................................................................................................................18

5.1 Legal instrument: the proposed financing instrument is an EUR 26.5436 million loan granted to the Republic of Equatorial Guinea. ............................................................................................................18 5.2 Conditions for Bank Intervention .........................................................................................................18 5.3 Compliance with Bank Policies ...........................................................................................................19

VI. RECOMMENDATION ............................................................................................................................20

Appendix I: Equatorial Guinea’s Comparative Macroeconomic Indicators ....................................................... I Appendix II: Comparative Socio-economic Indicators ..................................................................................... II Appendix III: Table of AfDB Portfolio in the Republic of Equatorial Guinea as at 31 March 2019 .............. III Appendix IV: Map of Project Area .................................................................................................. IV Appendix V: Operations of Key Technical and Financial Partners ...................................................V Appendix VI: Justification of the minimization of Equatorial Guinea's counterpart funds ............. VI

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LIST OF TABLES

Table 1: Complementarity between the IMF Interim Programme and PAMFP Table 2.1: Detailed Description of Activities by Component (in USD Thousand) Table 2.2: Cost Estimates by Component (in CFAF and EUR Thousand) Table 2.3: Source of Project Financing (in EUR Thousand) Table 2.4.1: Project Cost Estimates by Expenditure Category (in EUR Thousand) Table 2.4.2: Summary of Project Cost Estimates by Expenditure Category (in UA Thousand) Table 2.5: Expenditure Schedule by Component (in CFAF Thousand) Table 3.1: Monitoring of Milestones and Feedback Loop Table 3.2: Risks and Mitigation Measures

This report was drafted by A. C. TOTO SAME, Principal Public Finance Management Officer, ECGF/RDGC4.1, and includes contributions from THIOYE-DIALLO, N'DEYE MAYE, Regional Financial Management Coordinator, COCM/SNFI.2; DIGUEMBA, TILENGAR, Procurement Officer, COCD/SNFI.1; OLLAME,BEKALE, Operations Analyst, RDGC.0, and EUGENE, NYAMBAL, Senior Consultant, ECGF, following an appraisal mission conducted in Malabo from 4 to 20 July 2018. Questions on this report should be referred to O. DORE, Director-General, RDGC (Ext. 4902), A. COULIBALY, Manager, ECGF (Ext. 2536), and Achille TOTO SAME, Project Task Manager (Ext. 2379).

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CURRENCY EQUIVALENTS

March 2019

UA 1 = EUR 1.20653 EUR 1 = UA 0.83139 EUR 1 = XAF 655.957

Fiscal Year

1 January to 31 December

Weights and Measures

1 metric tonne = 2,204 pounds 1 kilogramme (kg) = 2.200 pounds 1 metre (m) = 3.28 feet 1 millimetre (mm) = 0.03937 inch 1 kilometre (Km) = 0.62 mile 1 hectare (ha) = 2.471 acres km² = Square kilometre m3 = Cubic metre m² = Square metre lm = linear metre

Mm3 = Million cubic metres m3/h = Cubic metre per hour l/s = litre per second l/d/inhab. = litre per day per capita

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ABBREVIATIONS AND ACRONYMS

ADF African Development Fund AfDB African Development Bank BDEAC Development Bank of Central African States BTP Construction and Public Works CAADP the Caisse Autonome d'Amortissement de la Dette Publique CBFF Congo Basin Forest Fund CEMAC Economic and Monetary Community of Central Africa CPIA Country Policy and Institutional Assessment CPPR Country Portfolio Performance Review CSP Country Strategy Paper DBDM AfDB Development Business Delivery Model DGPPE Directorate of Planning and Educational Programmes ECCAS Economic Community of Central African States EITI Extractive Industries Transparency Initiative ESW Economic and Sector Work EUAPEF University School of Agriculture, Fisheries and Forestry FAO Food and Agriculture Organisation GDP Gross domestic product HDI Human Development Index INPYDE National Institute for the Promotion and Development of Entrepreneurship IPP Provincial Polytechnic Institutes MDG Millennium Development Goal MENS Ministry of Higher Education and Research MIC-TAF Middle Income Countries Technical Assistance Fund PADSS Health Systems Development Support Project PAGFP Public Finance Management Support Project PCR Project Completion Report PFCMS Mid-Level and Senior Managers’ Training Programme PIU Project Implementation Unit PMU Project Management Unit PNDES National Economic and Social Development Programme PPIP Portfolio Performance Improvement Plan PPP Public-Private Partnership REC Regional Economic Community SAP Systems, Applications and Products SDGs Sustainable Development Goals SME Small- and Medium-sized Enterprises SMP Staff Monitoring Programme (supervision by IMF staff without financing) TFP Technical and Financial Partners UA Unit of Account

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PROJECT INFORMATION SHEET

BORROWER: REPUBLIC OF EQUATORIAL GUINEA EXECUTING AGENCY: Ministry of Finance, Economy and Planning Financing Plan

Source Amount (UA) Instrument ADB

EUR 26.5436 million

Loan

Other Govt. EUR 4.5751 million Government

TOTAL COST EUR 31.1187 million

Key Financial Information on the AfDB Loan

Loan Currency: Euro (EUR) [or any other acceptable currency]

Loan Type: Fully flexible loan

Maturity: 25 years

Grace period: 8 year

Average loan maturity **: 16.75 years

Reimbursements: Half-yearly payments at the end of the grace period

Interest rate: Base rate + Financing cost margin + Lending margin + Maturity premium This interest rate must be more than or equal to zero.

Base rate: Floating (6-month EURIBOR revised every 1 February and 1 August or any other acceptable rate), with a free-floating base rate option

Financing cost margin: The Bank's financing cost margin revised every 1 January and 1 July, and applied every 1 February and 1 August with the base rate.

Lending spread: 80 basis points (0.8%)

Maturity premium: To be determined:

- 0% if the weighted average maturity <= 12.75 years

- 0.10% if 12.75<weighted average maturity<=15

- 0.20% if the weighted average maturity >15 years

Front-end fees: 0.25% of the loan amount due upon approval of the loan by the Bank and payable latest 60 days from the loan effectiveness date and, in any case, prior to any loan disbursement.

Commitment fee: 0.25% annually on the undisbursed amount. It shall begin to accrue 60 days from the date of signature of the loan agreement and shall be payable on the interest due dates.

Base rate conversion option* : Besides the free fixing option, the Borrower may revert to the floating rate or reset the rate on all or part of the disbursed amount of its loan.

Transaction fees apply.

Rate cap or collar option* : The Borrower may cap or collar the base rate for all or part of the disbursed amount of its loan.

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Transaction fees apply.

Loan currency conversion option*: The Borrower may change the currency of all or part of its loan, whether disbursed or not, into another loan currency of the Bank.

Transaction fees apply

FRR, NPV (baseline scenario) NA ERR (baseline scenario) NA

*if applicable

Timeframe – Key Milestones (expected)

Concept Note approval

1/06/ 2018

Project approval 04/06/ 2019

Effectiveness 30/09/ 2019 Last disbursement 31/03/2024 Completion 31/12/2023

Last reimbursement

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PROJECT SUMMARY

Programme Overview

x Project name: Public Finance Management Modernisation Support Project (PAMFP) x Geographic reach: Nationwide x Overall implementation timeframe: 2019-2023 x Financing: EUR 26.5436 million loan from ADB resources. x Operational instrument: Institutional support project x Sector: Public finance

Needs Assessment

The weak institutional capacity in public finance management and public sector governance in general is a major constraint to the implementation of Equatorial Guinea's economic and social transformation policies. The commitment of the authorities to transform the Republic of Equatorial Guinea into an emerging country faces three major weaknesses in terms of steering and supporting change in the economic and financial sphere. Specifically, the effectiveness of public policies in Equatorial Guinea faces three types of obstacles: (i) a public financial management framework that is inadequate for dealing with the country's economic and social challenges, and which is not aligned with international best practices; (ii) weak planning, implementation, oversight, transparency and accountability procedures, as well as the predominance of manual processes in public finance; and (iii) weak institutional capacity and in particular the lack of qualified staff to design, implement and monitor public policies.

Target Beneficiaries

The entire country will benefit from the project beneficiary. The direct beneficiaries of this institutional support project are: the Directorate-General of Taxation (DGI), the Directorate-General of Customs (DGD), the Directorate-General of Budget (DGB), the Directorate-General of Financial Control (DGCF), the Directorate-General of the Treasury, the Directorate-General of Public Accounting, the Directorate-General of Autonomous Entities and Public Enterprises, the Directorate-General of Investment Planning, the Directorate General of the Autonomous Amortization Fund of Public Debt (CAAPD), and officers and executives of the Ministry of Finance, Economy and Planning. In a broader perspective, the country's entire population will benefit from this project. The people will benefit from the improved internal resource mobilization and increased transparency and efficiency in public expenditure management, as these would lead to greater efficiency in economic development financing and an improvement in the quality of life.

Bank’s comparative advantage and value added

The Bank’s comparative advantage and value added in this project stem from the experience that it has acquired over the years in designing and implementing institutional capacity building projects, especially in Public Finance Management. Moreover, the Bank actively participates in IMF discussions and supervision of the staff-monitored programme concluded with the authorities in May 2018. Thus, the Bank's value added lies mainly in the fact that a number of reforms identified by the IMF under the staff-monitored programme will be implemented through the PAMFP. In this regard, the PAMFP will help facilitate the conclusion of a programme financed by the IMF under the Extended Credit Facility and pave the way for potential budget support from the Bank.

Knowledge building

The project will help to enhance knowledge in Equatorial Guinea, particularly by modernising public finance management. Knowledge will be acquired through studies, training sessions, various workshops that will be organized and technical assistance intended to broaden the tax base, build capacity, and generally enhance the efficiency of revenue and expenditure management Departments of the Ministry of Finance, Economy and Planning. Knowledge will also be acquired through skills transfer from technical assistants and consultants to the staff of the project beneficiaries - with special emphasis on capacity building for women within the beneficiary structures – and through the various data and information platforms and user manuals. Lastly, knowledge gained from this project and its outcomes will be disseminated inside and outside the Bank through the establishment of a stringent monitoring and evaluation system for expected outputs and achievement, supervision missions, the project completion report as well as seminars and reports of the Bank's Independent Development Evaluation Department (IDEV).

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Results-Based Logical Framework

Country and Project Name: Republic of Equatorial Guinea – Public Finance Management Modernisation Support Project (PAMFP) Project Goal: The overall objective of the project is to help improve public finance management by increasing the effectiveness of revenue mobilization and ensuring greater efficiency in public expenditure management.

RESULTS-CHAINS PERFORMANCE INDICATORS MEANS OF VERIFICATION RISKS/MITIGATION

MEASURES

Indicator (including CSI) Baseline Target

IMPA

CT

Contribute to containing the budget deficit

Budget deficit reduced as a % of GDP.

-2.5% of GDP in 2017 1,3% of GDP in 2023 Report from the Ministry of Finance, Economy and Planning/ IMF

Risk 1: Introduction and ownership of reforms by the Government Mitigation Measure 1: The Government renews dialogue with donors, including the IMF for the signing of an agreement on an

Outcome 1: Enhanced effectiveness in revenue mobilization

Non-oil revenue mobilization (% of GDP)

4% of GDP in 2017

8.5% GDP in 2023

Report from the Ministry of Finance/ DGB/IMF

Outcome 2: Improved effectiveness and transparency in public expenditure management

The capacity of the internal (DGCF) (Audit Bench) oversight entities is built.

Weak internal and external oversight 2018

Enhanced internal and external oversight mechanisms are set up 2023

Ministry of Finance/DGB/IMF

OU

TPU

TS

COMPONENT I: SUPPORT TO ENHANCE THE MOBILISATION OF NON-OIL REVENUE OUTPUT I.1: Modernization of the revenue mobilization framework I.2 Capacity building for financial services

Diagnosis and action plan to broaden the tax base in key sectors of the economy (telecommunications, mining, tobacco, timber, fisheries)

No action plan for broadening the tax base (2018)

Action plan for broadening the tax base is developed (2020)

Report from the Directorate-General of Taxation/Ministry of Finance, Economy and Planning

Establishment of the unique taxpayer identification number (large enterprises and importers) to better control the tax base

No unique taxpayer identification system (2018)

A unique taxpayer identification system is developed (2020)

Report from the Directorate-General of Taxation/Ministry of Finance, Economy and Planning

Introduction of the online tax returns filing system

Obsolete IT infrastructure and no online filing (2018)

IT infrastructure upgraded and online tax returns filing effective (2021)

Report from the Directorate-General of the Budget and Customs/Ministry of Finance, Economy and Planning

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Installation of phase II of the ASYCUDA software in customs offices in Bata, Mongomo, Ebebiyin, Corista and Akurenam

The ASYCUDA software installed only in Malabo (2018)

The ASYCUDA software is installed in the other customs offices of the country Bata, Mongomo, Ebebiyin, Corisco, Akurenam Coho et Rio Campo) (2021)

Report from the Directorate-General of Customs/Ministry of Finance, Economy and Planning

economic and financial reforms programme Risk 2: Worsening of the macroeconomic situation due to falling oil prices Mitigation measure 2: The Government is implementing an internal fiscal adjustment policy with a focus on public expenditure, in accordance with the recommendations of the Heads of State Summit held in Yaoundé Risk 3: Weak institutional capacities of the country, due especially to lack of qualified human resources to implement the reforms. Mitigation measure 3: The government's commitment to facilitate the interventions of high-level experts for ad hoc and long-term missions in order to build the capacity of beneficiary entities. More active presence and closer monitoring of Bank teams on the ground

Interconnection between the DGI and the DGD to enhance revenue mobilization

No communication between DGI and DGD applications (2018)

IT connection between the DGI and the DGD (2021)

Report from the Directorate-General of Customs/Directorate-General of Taxation/Ministry of Finance, Economy and Planning

Computerization of the payment systems of the Directorate-General of the Treasury and interconnection with the Directorate-General of the Budget for better oversight of arrears management

Treasury payment system not computerized and not linked to the Directorate General of the Budget in 2018

Payment system computerized and linked to the DGB in 2021

Report from the Directorate-General of the Treasury and Directorate-General of the Budget/Ministry of Finance, Economy and Planning

COMPONENT II: SUPPORT TO ENHANCE PUBLIC EXPENDITURE EFFECTIVENESS AND OVERSIGHT No medium-term conceptual framework for budget programming. (2018)

New conceptual framework for budget programming in place

No medium-term conceptual framework for budget programming (2018)

The conceptual framework for budget programming is developed and operational (2021)

Report by the Ministry of Finance, Economy and Planning/DGP

Technical assistance for the implementation of the six CEMAC Directives: (i) State Accounting Plan; (ii) New Budget Nomenclature; (iii) Table of State Financial Transactions; (iv) Transparency Code; budget; and (vi) LOLF.

No executives trained on the CEMAC new public finance management standards (2018)

At least 100 executives trained in the new public finance management standards (2021) (30% of them women)

Report by the Budget/Ministry of Finance, Economy and Planning

Establishment of an integrated public expenditure management system (SIGFIP)

The management information system and processing are manually operated, and the DGB, DGT, DGI, DG Financial Control, DG Planning, DG Public Accounting are not interconnected (2018)

The integrated management of State operations through computerization is operational (2023)

Report from the Directorate-General of the Budget/Ministry of Finance, Economy and Planning

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Development of manuals of audit oversight procedures and guides with a focus on key sectors of the economy (hydrocarbons, mining, telecommunications, fisheries and forestry)

No procedures manual for the control of public resource management (2018)

A procedures manual developed for the staff of State control structures (2020)

Report from the DGCF and IGF/Ministry of Finance, Economy and Planning

Audit of domestic arrears and an Audit Plan

No audit and domestic arrears repayment plan (2017)

Arrears audit available Debt securitization action plan adopted (2020)

Report from the CAA/Ministry of Finance, Economy and Planning

computerized debt management system

debt managed almost manually

computerization of debt management (2021)

Report from the Ministry of Finance, Economy and Planning

Establishment of the Public Procurement Regulatory Authority

No Public Procurement Regulatory Authority (2018)

Public Procurement Regulatory Authority operational (2022)

Report from the Ministry of Finance, Economy and

Planning

Support for certification under the Extractive Industries Transparency Initiative (EITI)

No EITI certification in 2018

Action Plan for EITI certification is available in 2020 EITI Audit Reports available 2021

Report from the Ministry of Finance, Economy and Planning

Output II.2: Technical assistance and capacity building in public finance management

Development and implementation of a continuing education programme

No structured continuing education programme in the country in public financial management in 2018

A continuing education programme is developed and implemented in 2021

Report from the Ministry of Finance, Economy and Planning

Preparation for the establishment of the Public Financial Management Institute

Non-existence of a public finance management institution in 2018

The start-up action plan of the Public Finance Management Institute is drawn up in 2021

Report from the Ministry of Finance, Economy and Planning

x

Specialized training for executives of the DGI (excluding the DGE) by sector of activity (telecom, commercial and productive, banking and insurance sectors) for the broadening of the tax base

Few executives and officers of the DGI (excluding the DGE) trained in revenue mobilization by sector of activity: telecommunications, commercial and productive, banking and insurance sectors) in 2018

150 people trained at the DGI (excluding the DGE), of whom at least 30% are women, by sector of activity (telecommunications, commercial and productive, banking and insurance sectors) in 2022

Report from the Ministry of Finance, Economy and Planning

Training of inspectors of the Directorate-General of Taxation (DGI inspectors, officers and controllers)

Few DGI executives, officers and controllers trained for revenue mobilization in 2018

All executives, officers and controllers trained

Report by the Ministry of Finance, Economy and Planning DGI Report

Capacity building for the Department of Large Enterprises (DGE) located in Malabo, involving the training of 150 people

The capacity of the Department of Large Enterprises is weak (this department mobilized more than 90% of the tax revenue) in 2018

Training and equipment for 150 people (at least 30% of them women)

Report by the Ministry of Finance, Economy and Planning DGI Report

COMPONENTS COSTS IN EUR THOUSAND Component 1: Support to enhance mobilisation of non-oil revenue 11 801.6 Component 2: Support to enhance public expenditure effectiveness

11 400.6 Component 3: Project Management: Equipment and operation of the Project Management Unit. This component will also coordinate the recruitment of the external auditor. 3 341.4

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PROVISIONAL PROJECT IMPLEMENTATION SCHEDULE

Years

Activités / Mois J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J J F M A M J J A S O N DPrior to start-up

Board presentationLoan effectivenessSetting up of the Project TeamEstablishment of the CPP??Project launch mission

WorksBid invitations for worksRehabilitation of customs offices Fitting up of customs offices

Equipment and suppliesBid invitations for the supply of IT and office equip., and rolling stockProcurement of software / SIGFIPBid invitations for rolling stock Bid invitations for other equipmentDelivery of goods and start-up

ConsultantsPreparation CBDs consti.t of LR??

Launch of bid invitations, opening of bids, no-objection analysis and award

Delivery of consulting services Cap. building for DGI/DGD/DGT

Capacity building for CAA/ INEGE/ DGCFTraining for DGI/DGD/DGT/CAA

Capacity building Various Forms of Training

INEGE Court of Auditors, DGCFOperating expensesMid-term reviewMonitoring and evaluationSteering committee meeting

AuditAnnual accounts audit

20232019 2020 2021 2022

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MANAGEMENT’S REPORT AND RECOMMENDATION TO THE BOARD OF DIRECTORS CONCERNING A PROPOSAL TO GRANT A LOAN TO THE REPUBLIC OF EQUATORIAL GUINEA FOR THE PUBLIC FINANCE MODERNISATION SUPPORT PROJECT (PAMFP) This proposal submitted for Board approval concerns the granting of an EUR 26.5436 million loan from the ADB window to the Republic of Equatorial Guinea to finance the Public Finance Modernisation Support Project (PAMFP). This is an institution building operation to be implemented over the period 2019-2023, with a view to supporting the authorities in their efforts to enhance governance and modernize public finance management in the context of an IMF-supported economic and financial reform programme, in accordance with the resolutions of the CEMAC Heads of State Summit held in Yaoundé in 2016 on the restoration of the budgetary and external sustainability of the region.

I. STRATEGIC THRUST AND RATIONALE

1.1 Project Linkages with Country Strategies and Objectives

1.1.1 PAMFP is aligned with Equatorial Guinea's National Economic and Social Development Plan (PNDES), in a context characterized by falling oil prices, weak institutional capacity, persistent inequalities and low economic diversification. The PNDES focuses on four areas: (i) build excellent infrastructure to improve productivity and speed up economic growth; (ii) strengthen human capital and improve the quality of life for the people; (iii) build a diversified economy with support from the private sector; and (iv) institute good governance to serve the interests of the people. The first phase of implementation of the PNDES helped to provide the country with excellent infrastructure. That effort was interrupted by the collapse in international oil prices in mid-2014. PAMFP is aligned with two of the four PNDES priorities, namely the second priority: (ii) strengthening human capital and improving the quality of life for the people; and the fourth priority (iv) institute good governance to serve the interests of the people. In April and May 2019, with the support of the main donors, the Government has held a national economic conference to update the objectives of the PNDES in light of declining international oil prices and the need to better address the challenges of poverty eradication, social inclusion, industrialization, economic diversification and sustainable development.

1.1.2 PAMFP is also consistent with the Bank's Ten-Year Strategy covering the period 2013-2022, which aims to promote good governance and accountability by helping to enhance effectiveness in public finance management and bolster the country’s statistical system. PAGFP II is also in line with Pillar I (strengthen human capital and improve governance) of CSP 2018-2022 and supports the Bank's operational priorities to "Industrialize Africa" and "Improve the quality of life for the people of Africa". PAMFP is also aligned with Pillar I (Promote transparent, accountable and competent public resource management for inclusive and green growth) of the Governance Strategic Framework and Action Plan 2014-2018 (GAP II) and the Bank's Gender Strategy (2014-2018): "Investing in Gender Equality for Africa's Transformation", especially one of the three pillars thereof (Pillar III: "Knowledge Management and Capacity Building").

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1.2 Rationale for Bank's Involvement

1.2.1 Political context: Equatorial Guinea has been enjoying political stability for several decades. In power since 1979, the current President was re-elected for a seven-year term in the April 2016 presidential elections. A national dialogue, held in November 2014, resulted in an amnesty and the return of political forces to the country, some of which have come together under the Coalition of the Opposition for the Restoration of a Democratic State (CORED). The ruling party, the Democratic Party of Equatorial Guinea, also handily won the November 2017 legislative and municipal elections. However, it should be noted that the country fell victim to attacks by mercenaries in December 2017. The main opposition party, Citizens for Innovation (CI), was dissolved on 21 February 2018 and several of its members were convicted for undermining State security. In February 2018, the Head of State appointed a new Government, whose roadmap is aimed at finding solutions to end the crisis, with particular focus on strengthening public resource management effectiveness and combating unemployment. In this context, the Head of State launched a national dialogue with the main opposition parties on 16 July 2018 with a view to creating lasting conditions for reconciliation and peace.

1.2.2 Recent economic developments: Equatorial Guinea's economy was hit hard by the mid-2014 oil crisis. The sharp decline in oil prices has had a negative impact on economic growth, public finances and external accounts. In a few years, Equatorial Guinea became the third-largest oil producer in sub-Saharan Africa, after Nigeria and Angola, with GDP growing by an average of 18.6% over the period 2000-2007. However, after 2014, the prolonged downtrend in world oil prices and the roughly 2% decline in production volume per year over the past 10 years put an end to the period of large budgetary surpluses that were used to finance major investment programmes. As a result, after several years of sustained growth and rising per capita income, the economy went into a deep recession. According to the IMF, over the period 2013-2017, GDP declined by almost 57%. The recession remains significant, with GDP dropping 7.9% in 2018 and government revenue contracting by 45% (from XAF 2,694 billion to XAF 1,485 billion). The share of oil revenue in the economy dropped from 90% to 71% of GDP between 2013 and 2017, while the budget shrank by 56% over that period. As a result, the budget deficit rose sharply, from 7.6% of GDP in 2014 to 12% in 2016, and public debt jumped from 12.7% of GDP in 2014 to 43.4% in 2016 (including a spike in domestic arrears,1 representing 25% of GDP in 2017). In response, the country has been making adjustment efforts, which helped it to keep the budget deficit at 2.5% of GDP in 2017 and 0.9% of GDP in 2018, and to bring public debt down to 38% of GDP in 2017 and 35.8% of GDP in 2018.

1.2.3 The prolonged recession has had an impact on the financial health of banks, with bad loans rising from 19% of total loans in 2014 to around 30% in mid-2017 and 28.4% in 2018, mainly due to the Government's arrears in payments to domestic suppliers who had themselves taken out bank loans. At the structural level, despite the extensive infrastructure modernization programme undertaken over the past two decades, economic diversification is yet to materialize. Externally, the current account deficit increased from 4% of GDP in 2014 to 10% in 2016. Thanks to adjustment efforts, it fell from 5.9% in 2017 to 2.4% in 2018. Despite signs of recovery in oil prices, economic growth remains negative, due to the decline

1 According to IMF estimates, the arrears represented CFAF 1,300 billion at end-2017. They have a negative impact on the

banking and real estate sectors, weaken the financial health of banks and deprive businesses of credit that is indispensable for economic recovery and job creation.

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in oil and gas production. The external current account has improved, thanks to budgetary adjustment and higher oil prices. However, Equatorial Guinea still needs to replenish its external assets and increase its contribution to BEAC’s international reserves. The IMF has recommended that the authorities continue to implement reforms with a view to stabilizing public finances, containing the growth of public debt, and laying the foundation for sustainable and inclusive growth based on a more diversified economy.

1.2.4 Budgetary policy and public finance situation: The authorities have implemented a number of measures to enhance revenue mobilization and improve public expenditure management, in order to mitigate the effects of the crisis associated with the collapse in oil prices. To maximize non-oil revenue in a context of economic recession, the authorities have been implementing measures since 2015 to combat tax fraud, broaden the tax base2, eliminate numerous customs exemptions, and generate exceptional income through the sale of State property, including real estate. Non-oil revenue increased from XAF 247 billion in 2013 to XAF 425 billion in 2017, while oil revenue fell from XAF 2446 billion in 2013 to XAF 860 billion in 2017. The authorities have also implemented measures to cut spending. The estimated wage bill of XAF 146 billion in 2017 represents 8% of spending and 34% of non-oil revenue. These ratios are satisfactory when compared with the CEMAC convergence criteria. Investment projects have also been prioritized through the fee-based technical assistance of the World Bank, with a focus on the importance of completing existing projects rather than launching new ones. Hence, the public investment programme went from XAF 2,457 billion in 2013 to XAF 953 billion, down 61%. It is worth noting that the construction of Djibloho, the new city in the middle of the country, has accounted for about 50% of the State's investment spending since 2014.

1.2.5 Public finance management and governance: In implementing its economic and social transformation policy, Equatorial Guinea faces structural capacity weaknesses in public finance management and governance. In their commitment to transform Equatorial Guinea into an emerging country, the authorities face several challenges related to the inability of the administration to manage and support economic and financial change. Specifically, the following obstacles limit the effectiveness of public policy: (i) a public finance management framework that does not comply with international best practices, making it difficult to have a reliable and exhaustive budget preparation, execution and control process; (ii) absence of a programming framework articulated in a manner that is consistent with development priorities, thus creating difficulties in making the transition to multi-year budgeting that can be transposed to annual budgets; (iii) weak procedures for planning, execution, oversight, transparency and accountability in public finance management, and predominance of manual processes in the processing of files and interconnections between financial authorities (DGB, DGI, DGT, DGD, DGD, DGCF); (iv) weak budgetary oversight, which limits efficiency and transparency in the use and management of public resources (lack of IT equipment, manuals and guides for overseeing and evaluating the use of resources in key areas of the economy); (v) absence of public procurement systems, which increases the cost of public procurement and reduces competition, transparency and the impact of public spending; (vi) low maturity of public investment and failure to consider the budgetary risks associated with the recurrent cost of public assets; (vii) weak oversight mechanisms for public enterprises and autonomous entities, which could aggravate budget deficits if the State does not take appropriate measures to improve the management of the fiduciary risks inherent in these institutions; (viii) weak institutional capacity and, in particular, lack of qualified personnel to ensure efficient management and implementation of public policy; and (ix) difficulty in generating and 2 This expansion concerns businesses operating in the informal sector and small traders.

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collecting the statistical data needed for decision-making in public finance management (see. technical annex).

1.2.6 Measures to improve governance. To modernize the public finance management framework, the Government has drafted a bill on the internalization of CEMAC directives.3 These reforms are mainly designed to improve the budgetary process (streamlining of budgetary procedures, improved classification and recording of public expenditure). Progress has also been noted in terms of transparency, with the establishment of an Audit Bench and an anti-corruption squad. Equatorial Guinea ratified the United Nations Convention against Corruption in May 2018. With the Bank's assistance, the authorities started the ASYCUDA pilot experiment at Malabo customs. The one-stop shop for business creation has been set up and is operational. In accordance with the commitments made with the IMF under the staff-monitored programme for enhancing transparency in the oil and gas sector, an audit firm was selected to conduct an audit of the oil sector. The authorities have also made considerable progress towards re-joining the Extractive Industries Transparency Initiative (EITI) as soon as possible. A mission has submitted a membership request for EITI certification and the two parties have restored bilateral relations. Given the weak institutional capacity to implement reforms, the Government has negotiated an agreement with the World Bank for refundable technical assistance for the generation of national accounts and the organization of the new statistical agency (INEGE). Equatorial Guinea ranked 48th out of 54 countries for governance in Africa in 2018, according to the Mo Ibrahim Foundation.

1.2.7 Main development issues targeted by the project: Given the fall in oil prices, the Bank's commitment is justified by the need to support the authorities in their effort to establish greater discipline and transparency in public finance management, and to make the transition from a growth model based on oil and gas and public investment to one based on more diversified, inclusive and job-generating growth. In this context, the Bank plans to support the authorities in their public finance modernization and budgetary adjustment efforts by strengthening non-oil resources mobilization and improving public expenditure management, with a view to restoring the fiscal space needed to diversify the economy. Therefore, the Bank's involvement will help to modernize the framework for mobilizing non-oil revenue, strengthen the effectiveness of financial authorities, computerize and interconnect the main public finance management departments, modernize the public finance management framework, improve transparency and efficiency in public spending, and build public financial programming and management capacity. The Bank's involvement is also justified by the need to support efforts by the authorities to enhance governance and modernize public finance management as part of the IMF-supported reform programme.

1.3 Aid Coordination

1.3.1 Activities of development partners in the country and donor coordination mechanisms: PAMFP was prepared in close cooperation with technical and financial partners. The World Bank provided capacity-building support for the National Institute of Statistics, and contributed to the diagnosis of the business climate and the capacity-building needs of government entities and the social sector. PAMFP will have a complementary approach designed to strengthen and deepen the results of the PAGFP, while creating synergies with the

3 Six CEMAC Directives on public finance modernization: (i) Directive on the Transparency and Good

Governance Code; (ii) Directive on Finance Acts; (iii) Directive on the State’s Budgetary Nomenclature; (iv) Directive on the State’s Accounting Plan; (v) Directive on the State’s Table of Financial Operations; and (vi) Directive on the General Regulation of Public Accounting.

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World Bank's interventions and with the economic and financial reform programme currently being negotiated with the IMF. In preparing the PAMFP, the Bank's teams also consulted with a number of bilateral technical partners, including the United States, Germany, France and Spain. In the framework of the dialogue with the authorities, it is envisaged to set up a formal coordination mechanism with technical development partners working in Equatorial Guinea. 1.3.2 In May 2018, the Government of Equatorial Guinea agreed with the IMF on a staff-monitored programme, aimed at reducing the budget deficit while preserving social spending and addressing the structural weaknesses in the management of public finances. The satisfactory implementation of this programme could lead to the agreement of an IMF-financed programme under the Extended Credit Facility4 by the end of 2019. The first review of the staff-monitored programme by IMF teams in July 2018 deemed the country’s performance satisfactory. Despite significant economic difficulties, the authorities have made progress in implementing their economic and financial reform programme, including by boosting non-oil revenue, cutting the non-oil primary deficit in the first four months of 2018, and implementing structural measures scheduled for the end of July, such as the ratification of the United Nations Convention against Corruption in May 2018 and enhanced public expenditure oversight and monitoring. In addition, the revised 2018 budget was approved by the Cabinet and adopted by Parliament at the end of July 2018. The authorities' commitment to reforms appears to be stronger, partly due to the satisfactory performance under the staff-monitored programme with the IMF and the Government's decision to acquire fee-based services from the World Bank. PAMFP will support the implementation of the reforms agreed with the Government under the programme with the IMF.

Table 1 – Complementarity between the IMF Interim Programme and PAMFP

Measures proposed by the IMF within the context of the programme with

Equatorial Guinea Reforms supported by

PAMFP Introduce a unique taxpayer identification number Yes Take steps to increase non-oil revenue Yes Build capacity and computerize the Directorate-General of Customs Yes Take steps to enhance cash management and spending oversight No Hire an internationally-renowned firm to audit the domestic debt Yes Conduct an audit of the main banks operating in Equatorial Guinea (COBAC) No Take steps to operationalize the Court of Auditors Yes

II. PROJECT DESCRIPTION

2.1. Project Objectives and Components

2.1.1 The overall objective of the project is to help improve public finance management by increasing the effectiveness of revenue mobilization and ensuring greater efficiency in public expenditure management. The specific objectives are as follows: (i) modernize the public finance management regulatory framework to ensure that the Government’s actions are performance-and results-oriented; (ii) computerize and interconnect revenue and Public Finance Management departments and other departments of the Ministry of Finance, Economy

4 As part of the resolutions of the Heads of State Summit held in Yaoundé, all CEMAC member countries have benefitted

from a three-year IMF programme supported by the Extended Credit Facility, except for Congo, which is currently negotiating with the Fund, and Equatorial Guinea, which has been placed in the six-month staff-monitored programme that will likely lead to a three-year programme financed by the IMF.

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and Planning to enhance rigor, transparency, control and efficiency in the management of public resources; and (iii) build public finance management capacity.

2.1.2 Detailed project description: PAMFP will comprise three components: (i) Support to enhance the mobilization of non-oil revenue; (ii) Support to enhance the public expenditure effectiveness and control; and (iii) Project management. The first component will help improve non-oil resources mobilization to enable the country to gradually exit from dependency on oil resources, and reduce vulnerability to abrupt and prolonged changes in oil prices. The second component will help enhance public expenditure effectiveness, transparency, control, accountability and capacity for managing the economy. Lastly, the third component will ensure the effective implementation of the project.

Table 2.1- Detailed of Description Activities by Components (in EUR million)

No. Project Sub-Components-

Amount Description of Components

I Component I: Support to strengthen non-oil revenue mobilisation

I.1

I.1. Modernisation of the revenue mobilisation framework EUR 1.75316

million

x Broadening of the tax base. The main activities will focus on: (i) the update and dissemination of the General Tax Code; (ii) support for the introduction of a unique identification number for all taxpayers (NIF) - (DGD -DGI); (iii) the drafting of a Code of Ethics for DGI officials; (iv) the Tax Procedures Manual; (v) the building of DGI capacity for better implementation of the system for collecting value added tax (VAT) and new excise duties payable on alcoholic beverages, soft drinks, hotel stay, auto insurance, tobacco, telecommunications, fisheries and timber; and (vi) communication.

I.2

I.2 Build the capacity of financial services

EUR 9.38040 million

x Establishment of an integrated tax revenue management system: The goal is to improve the level of collection (oversight of the revenue collection system, consultation and publication of statements, interconnection of departments in charge of revenue mobilization and expenditure management, comprising the DGI, DGD, Treasury, DGB, Public Accounting, and training of users).

x Modernization of the Directorate-General of Taxation: The main activities will focus on: (i) building the capacity of the Department of Large Enterprises (DGE) located in Malabo (IT equipment, office furniture and technical assistance for 150 people); and (ii) computerization of the Directorate of Taxation, including archiving.

x Building the capacity of the Directorate-General of Customs: The main activities will focus on: (i) the implementation of Phase II of the ASYCUDA software outside Malabo (Bata, Mongomo, Ebebiyin, Corisco, Aconibe, Cogo and Rio Campo) + technical assistance for the maintenance of the ASYCUDA platform and the training of users as part of the expertise transfer effort (ASYCUDA Phase II Convention); (ii) IT equipment and network for the deployment of ASYCUDA outside Malabo; (iii) rehabilitation of customs offices located outside Malabo (Bata, Mongomo, Ebebiyin, Corisco, Akurenam, Cogo and Rio Campo); and (iv) support for the inspection and oversight squads responsible for combating fraud and corruption (GPS equipment, vehicles and training).

x Building the capacity of the Directorate-General of the Treasury: The main

activities will focus on: (i) compatibility diagnosis and migration from the SAGE system to prepare for interconnection with other systems; (ii) technical assistance to support and enable the start-up of the new system; (iii) training to upgrade the skills of executives, especially in the issuance of Treasury bills; (iv) technical assistance to improve the rating process to reduce Equatorial Guinea’s country risk perception in the issuance of Treasury bills (Treasury and CAA) by 2022 and; (v) support for the development of Treasury plans.

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II Component II: Support to strengthen public expenditure effectiveness and control

II.1

II.1 Improve public expenditure transparency and effectiveness

EUR 9.21554 million

x Establishment of an integrated public expenditure management system, mainly comprising: (i) computerising and interconnecting the public expenditure control process (systematic verification of the availability of appropriations and the level of Government expenditure commitment, control of the expenditure circuit, consultation and real-time publication of financial statements, and interconnection of the various directorates of the expenditure circuit, including the Treasury, the General Directorate of Budget (DGB), the General Directorate of Financial Control (DGCF), Public Accounting, the General Directorate of Autonomous Entities, the General Directorate of Taxation (DGI), the General Directorate of Investment Planning, user training, etc.), and SIGFIP; (ii) establishing an intranet platform in the Ministry of Finance, Economy and Planning; and (iii) training senior officers, especially in investment budgeting and planning.

x Building the capacity of internal control entities (DGCF), comprising: (i) the preparation of DGCF’s procedures manuals and control audit guides; (ii) capacity building (training of controllers, training and deployment of staff in sector ministries and equipment); and (iii) establishing an archiving system.

x Support for the implementation of CEMAC directives on the modernization

of the public finance management framework, comprising: (i) training in the implementation of CEMAC directives (30 persons/module); (ii) training in the preparation of a new public expenditure conceptual framework for designing a medium-term expenditure framework/results-based programme budget; (iii) training in budget forecasting and framework; and (iv) providing support for the reorganization of the Directorate of Budget (technical assistance, study tours and preparation of the procedures manual).

x Building debt management capacity, comprising: (i) internal debt auditing;

(ii) establishing a debt management information system (SYGAD), including training; (iii) training senior officers in debt portfolio management; (iv) auditing the general operation of the Autonomous Sinking Fund (CAA); (v) establishing an internal audit unit in Bata (procedures manual, vehicles, computer hardware and office automation); (vi) preparing the CAA procedures manual; and (vii) training CAA staff (45 senior officers).

x Support for building the capacity of the General Directorate of

Autonomous Entities and Public Enterprises to reduce budget risks, comprising: (i) inventory of the State portfolio and the framework for monitoring public enterprises and autonomous entities; (ii) developing tools for monitoring the performance of public enterprises; (iii) training the staff of the Directorate in charge of Monitoring Autonomous Entities; and (iv) building the capacity of auditors of autonomous entities (training in auditing, finance, accounting and public finance).

x Support for the reform of the public procurement system, comprising: (i)

providing support for the establishment of a public procurement regulatory authority; and (ii) training actors and disseminating updated texts.

x Support for certification under the Extractive Industries Transparency

Initiative (EITI), comprising: (i) preparing a certification action plan, including management of environmental and climate change issues; (ii) preparing and publishing audit reports; and (iii) supporting the EITI National Secretariat.

II.2

II.2 Technical assistance and public finance

EUR 1.53974 million

x Support for the establishment of a specific public finance management training system, comprising: (i) developing a specific programme for the continuous training of senior officers of the Ministry of Finance, Economy and Planning with a view to establishing the Institute of Public Finance Management; (ii) specialized training (150 people excluding DGE staff) by sector of activity

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management capacity building

(telecom, trade and production, banking and insurance, and hydrocarbons); (iii) training inspectors by type of taxes (VAT, personal income tax, corporate taxes, local taxes, land taxes and special taxes); (iv) training inspectors of the General Directorate of Taxation (DGI inspectors, workers and controllers); and (v) training to upgrade senior officers, especially in the issuance of treasury bills.

x Secondment of public finance management experts (taxation, customs, large companies, etc.) to train trainers.

Component III: Project Management

III

Component III- Project management and coordination

EUR 3.15236 million

x This component will finance project management and implementation costs, including PIU staff allowances, staff training, project audit and miscellaneous operating costs.

Contingencies 6% EUR 1.5025

million

2.2 Technical Solution Adopted and Alternatives Explored

2.2.1 The technical solution adopted for this project was presented in § 1.1.1, 1.1.2, 1.2.6, 1.2.7, 2.1.1 and 2.1.2. PAMFP is in line with the National Economic and Social Development Programme (PNDES) 2016-2020. It aims to assist the authorities in their efforts to enhance governance and the modernization of public finance management under an IMF-backed reforms programme, with a view to increased mobilization of non-oil revenue and efficient public expenditure management. It also seeks to consolidate the achievements of Bank interventions. PAMFP will adopt a complementary approach to strengthen and deepen the outcomes of PAGFP, especially with respect to the extension and deployment of the ASYCUDA IT platform to the country's major towns, in addition to creating synergies with World Bank operations and the economic and financial reforms programme being negotiated with the IMF. In light of the foregoing, no alternative was explored because the government has expressed its willingness and commitment to implement a reform programme aimed at modernizing public finance in Equatorial Guinea, gradually reducing its dependency on oil resources and supporting the implementation of measures agreed with the IMF and other donors under various support operations requested by the authorities.

2.3 Project Type

2.3.1 PAMFP is an institutional support project financed with an ADB loan. This type of operation has been given preference in a bid to contribute to modernizing and improving public finance management, to enhance the effectiveness of non-oil revenue mobilization and the efficiency of public expenditure management mainly by: (i) supporting the broadening of the tax base; (ii) modernizing the General Directorate of Taxation; (iii) building the capacity of the General Directorate of Customs; (iv) building the capacity of the General Directorate of Treasury; (v) supporting the establishment of an integrated public expenditure management system; (vi) building the capacity of internal (DGCF) and external control entities; (vii) supporting the reform of the procurement system; and (viii) building public finance management capacity through coaching, technical assistance and the development of training modules. This holistic approach has been adopted to support the authorities' commitment to implement ambitious reforms to deal with the crisis sparked by the fall in oil prices, consolidate the progress made and deepen dialogue with donors. It also takes into account the financial sector’s weak capacity by providing international expertise and long-term technical assistance to the beneficiary entities and the project implementation unit, in order to ensure the transfer of expertise and the smooth execution of activities. Lastly, Bank teams sensitized the

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authorities on the need to set up an active steering committee to ensure strategic project oversight and to remove any obstacles that might affect the implementation schedule as soon as possible.

2.4 Project Cost and Financing Arrangements

2.4.1 The total project cost, net of customs duties and taxes, is estimated at EUR 31.1187 million. The ADB will provide EUR 26.5436 million while the Government will make a contribution in kind worth approximately EUR 4.751 million or 15% of the total project cost, "in accordance with the provisions of CSP 2018-2022, Annex 11: Note on Equatorial Guinea’s Financial Parameters". To avoid having a negative impact on the implementation of project activities, this in-kind contribution will be made through the accounting valuation of work in progress to provide the institutions in charge of revenue and expenditure management with the premises needed to house the equipment and information systems financed by the PAMFP project as part of the modernization of public finances.

Table 2.2: Estimated Project Cost by Component (in XAF and EUR Thousand)

Table 2.2. Estimated Project Cost by Component (in XAF and EUR Thousand) Cost in XAF Thousand Cost in EUR Thousand

Components F.E. L.C. Total F.E. L.C. Total % Component I: Strengthen Non-oil Revenue Mobilization 5 842 512.0 1 460 628.0 7 303 140.0 8 906.9 2 226.7 11 136.6 42% Component II: Support to Strengthen Public Expenditure Effectiveness and Control 2 822 000.0 4 233 000.0 7 055 000.0 4 302.1 6 453.2 10 755.3 41%

Component III: Project Management and Coordination 827 124.0 1 240 686.0 2 067 810.0 1 260.9 1 891.4 3 152.3 12%

Total Base Cost 9 491 636.0 6 934 314.0 16 425 950.0 14 469.9 10 571.2 25 041.2 94% Provisions for Physical Contingencies 4% 459 926.7 197 111.4 657 038.0 400.7 601 1 001.6 4% Provisions for Price Escalation 2% 164 259.5 164 259.5 328 519.0 200.3 300.5 500.8 2%

Total Project Cost 10 115 822.2 7 295 684.9 17 411 507.0 15 070.9 11 472.7 26 543.6 100%

Table 2.3: Sources of Financing (in EUR Thousand)

Table 2.3: Sources of Financing (in EUR Thousand)

Sources of Financing Cost in Foreign Exchange Cost in Local Currency Total % of Total

ADB 15 070.9 11 472.7 26 543.6 85% Government - 4 575.1 4 575.1 15% Total Cost 15 070.9 16 047.8 31 118.7 100%

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Table 2.4.1: Estimated Costs by Expenditure Category (in EUR Thousand)

Table 2.4.1: Estimated Cost by Expenditure Category (in EUR Thousand)

Expenditure Category ADB

F.E. L.C. Total A. Works 0.0 1 160.8 1 160.8 B. Goods 3 752.7 565.6 4 318.3 C. Services 8 326.8 5 918.0 14 244.8 D. Operation 0.0 2 329.2 2 329.2 E. Training 2 390.4 597.6 2 988 Total Base Cost 14 469.9 10 571.2 25 041.1 Provisions (Physical Contingencies + Price Escalation 9%) 601.0 901.5 1 502.5 Total Project Cost 15 070.9 11 472.7 26 543.6

Table 2.4.2: Summary of Estimated Costs by Expenditure Category (in UA Thousand)

Table 2.4.2: Summary of Estimated Costs by Expenditure Category (in UA Thousand)

Expenditure Category ADB

F.E. L.C. Total A. Works 0.0 972.9 972.9 B. Goods 2 863.3 715.8 3 579.1 C. Services 9 445.2 2 361.3 11 806.5 D. Operation 0.0 1 919.7 1 919.7 E. Training 1 238.2 1 238.3 2 476.5 Total Base Cost 13 546.7 7 208.0 20 754.7 Provisions (Physical Contingencies + Price Escalation 9%) 812.8 432.5 1 245.3 Total Project Cost 14 359.5 7 640.5 22 000.0

Table 2.5: Expenditure Schedule by Component (in XAF Thousand)

Table 2.5: Expenditure Schedule by Component (in XAF Thousand)

Components Year 1 Year 2 Year 3 Year 4 Total

Component I: Strengthen Non-Oil Revenue Mobilization 1 460 628.0 2 190 942.0 2 190 942.0 1 460 628.1 7 303 140.0

Component II: Support to Strengthen Public Expenditure Effectiveness and Control 1 411 000.0 2 116 500.0 2 116 500.0 1 411 000.0 7 055 000.0

Component III: Project Management and Coordination 413 561.9 620 342.9 620 343.0 413 562.0 2 067 810.0 Total Base Cost 3 285 189.9 4 927 784.9 4 927 785.0 3 285 190.1 16 425 950.0 Provisions for Contingencies 8% 197 111.4 295 667.1 295 667.1 197 111.4 985 557.0

Total Project Cost 3 482 301.3 5 223 452.0 5 223 452.1 3 482 301.5 17 411 507.0

2.5 Project Target Area and Beneficiaries

2.5.1 Target beneficiaries: the project will benefit the entire country. The direct institutional support beneficiaries are: the DGI, the DGD, the DGB, the DGCF, the General Directorate of Treasury, the Directorate of Public Accounting, the General Directorate of Public Enterprises and Autonomous Entities, the General Directorate of Investment Planning, the Autonomous Amortization Fund for Public Debt (CAAPD) and the workers and senior officers of the Ministry of Finance, Economy and Planning. The end beneficiaries of the project are the country’s entire population, who will benefit from increased domestic resource mobilization as well as transparent and efficient public expenditure management for effective economic

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development financing and improved quality of life. The enhanced transparency and accountability in public finance management will also contribute to better use of the resources mobilized.

2.6 Participatory Approach for Project Identification, Design and Implementation

2.6.1 During project design, the preparation team carried out a broad-based consultation with the main direct project beneficiaries, notably the DGI, the DGD, the DGCF, the General Directorate of Treasury, the Autonomous Sinking Fund (CAA), the General Directorate of Autonomous Entities and Public Enterprises. The PAMFP preparation team participated in the missions of the IMF staff-monitored programme – (a non-disbursement programme) – as well as in discussions on the country's possible graduation from the staff-monitored programme to an IMF-supported economic and financial reforms programme under the Extended Credit Facility. Most of the reforms identified by the IMF will be implemented under PAMFP. Consultations were also held with the World Bank and bilateral technical partners, including the US, Germany, France and Spain.

2.7 Bank Group Experience and Lessons Reflected in Project Design

2.7.1 Lessons learned from previous Bank Group activities in the sector: the Bank financed the Public Finance Management Support Project (PAGFP) implemented in 2008. The main achievements of PAGFP include the establishment of a training programme in economics and finance for a group of senior officers from the Ministry of Finance as well as the installation of the ASYCUDA software at the Malabo Customs Office by UNCTAD, which plans to deploy this software in the rest of the country under PAMFP. The implementation of PAGFP activities was hampered by the tepid commitment of the authorities to the reforms, the weak human capacity, difficulties encountered by the international experts (visas, marginal involvement of international experts) and the Bank’s weak presence in a middle-income country with the institutional capacity of a fragile country. Considering that the context in which the project was prepared in 2008 had changed significantly and that the timeframes were insufficient for the deployment of the second phase of ASYCUDA, the authorities requested the Bank to cancel PAGFP to better support the fiscal adjustment and public finance modernization efforts in a new context marked by falling oil prices and the resumption of dialogue with the IMF and other technical development partners. In this regard, the authorities submitted a request to the Bank in June 2016 for a new project to be prepared. The experience acquired from cooperation between Equatorial Guinea and the Bank shows the need for both parties to make efforts and for technical assistance to be strengthened in order to improve project performance.

2.7.2 For the Bank, reflection of lessons learned consists in: (i) ensuring ownership of project activities by the various government services and entities involved in the project; (ii) focusing on technical support, advise and expertise in order to build project coordination and preparation capacity, thus helping the country to effectively implement its development vision; (iii) building the capacity of project staff through training in financial management, procurement, disbursement and project implementation, and organizing fiduciary clinics; (iv) deploying in the field long-term technical assistance with in-depth knowledge of the country's realities; and (v) ensuring that Bank task managers closely monitor their projects while reducing to a maximum the time taken to respond to no-objection requests. Moreover, the Bank should strengthen its field presence in the REG, given the overall weak institutional capacity that directly affects strategy development and project appraisal.

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2.7.3 For the Government, the key lessons learned from collaboration with the Bank include the need to: (i) have senior political authorities validate the activities to be supported by a project to avoid their being called into question during the signing of contracts; (ii) facilitate the issuing of REG entry visas to consultants and issue visas to Bank staff directly at the airport; (iii) strengthen the project monitoring and implementation system by speeding up the signing of contracts and ensuring a more regular organization of steering and coordination committee meetings; and (iv) increase the number of experienced experts in project management units. With regard to project implementation units, it is necessary to: (a) select appropriate profiles for projects slated for implementation; (b) speed up the preparation and submission to the Bank of the various project files requiring its no-objection opinion (NOO); and (c) ensure regular monitoring of contracts and visa applications pending in the various administrative services.

2.7.4 Composition and Size of the Portfolio: As of March 31, 2019, the active portfolio consists of a single active operation, the PRI-funded Private Sector Promotion Support Project, amounting to UA 0.8 million. , disbursed at 7.3%. In fact, at the request of the authorities, the Bank extended the PRI grant to support the private sector, while restructuring it to, inter alia, accompany the updating of the national strategy after 2020. The indicative lending program of the year 2019 comprises the following four operations: (i) Public Finance Modernization Support Project, (ii) Agro-Industry Fisheries Value Chain Project, (iii) Budget Support Program I, and (iii) (iv) Road Maintenance Reform Support Project.

2.7.5 The portfolio review in 2019 shows that the performance of the portfolio was unsatisfactory. In line with current guidelines, the portfolio performance rating covers only active public sector projects. The overall rating of the portfolio's performance increased from 1.78 in 2013 to 2.06 in 2015 and then declined again in 2017 to 1.43. The main constraints encountered are: (i) the weak capacity of project implementation units (PIUs) to prepare procurement and field activity implementation dossiers; (ii) non-compliance with procurement procedures; (iii) the long process for signing contracts, which involves many ministries; (iv) difficulties in granting entry and residence visas for project consultants, which does not facilitate service delivery, or smooth and continuous implementation monitoring; (v) delays reported by PIUs in the processing of project dossiers at the Bank; (vii) the unapproved use of pre-financing practices; and (ix) significant delays in the recruitment of auditors and submission of annual audit reports to the Bank. These portfolio management constraints have been taken into account in PAMFP design and all measures taken to ensure efficient project implementation.

2.8 Key Performance Indicators

2.8.1 The logical framework will be the benchmark for project monitoring and evaluation. The key indicators selected for monitoring project outcomes for the period 2018-2022 are: (i) support for the adoption of a single identifier number for all taxpayers (DGD-DGI); (ii) the deployment of Phase II of the ASYCUDA software outside Malabo; (iii) the establishment of the Department of Large Enterprises within the General Directorate of Large Enterprises located in Malabo, which generates about 90% of revenue; (iv)) the establishment of an integrated public finance management system (SIGFIP), including DGT; (v) the conduct of the internal debt audit; and (vi) the training of 300 tax officers.

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III. PROJECT FEASIBILITY

3.1 Economic Benefits

3.1.1 Owing to its nature as an institutional capacity-building project, PAMFP is not the type of productive project that seeks immediate financial return or return on investment. Thus, the usual project financial analysis is not applicable under this project because institutional capacity building does not generate cash flows (expenses and income) required for financial analysis. As a result and given the nature and specific objectives of the project, economic analysis alone reflects the overall economic benefits generated by the project and their distribution among beneficiaries.

3.1.2 PAMFP will contribute to increased domestic resource mobilization, notably non-oil resources, and the streamlining and control of public expenditure for greater efficiency of PNDES financing. The project will also contribute to strengthening accountability with a view to greater transparency. The combined effect of these aspects will improve public resource allocation and use, and the management of public finance in general, and the internal debt in particular. Sound public finance management will create headroom for supporting the necessary economic diversification. In the long run, this will considerably reduce the negative impact that the importation of almost all daily consumer goods has on the current account balance.

3.2 Environmental and Social Impact

3.2.1 Environment: the project will have no negative impact on the environment. As a result, it has been classified under Environmental Category III.

3.2.2 Climate change: Equatorial Guinea is a country vulnerable to climate change, with a particular impact on agricultural systems, water resources, increasingly degraded forests and human health. The main national issues are uncertainties in land use and conservation for other uses, poorly designed legal arrangements, weaknesses in forest law enforcement, lack of capacity and lack of transparency. Project activities geared towards strengthening human and institutional capacities are not vulnerable to climate change. However, in choosing options to improve the transparency and efficiency of public spending, it is important to take into account the country's commitment through its nationally determined contribution (CDN), to reduce its emissions greenhouse gas (GHG) by 13% by 2030, in the sectors of Agriculture, Forestry, Energy, Water Resources, Coastal Zones, Livestock, Fisheries and Mines. The modernization of the revenue mobilization framework should ensure the resilience of actions in the fisheries and forestry sectors.

3.2.3 Gender issues: Equatorial Guinea has made considerable progress in terms of gender equality. However, there are lingering inequalities in educational levels, which are quite low, with the rate of access to primary education of 51% for boys and 49% for girls in 2017. The proportion of women in the labour force is very small, with 39% of them having jobs (both formal and informal sectors), compared to 61% of men with paid jobs. There are still geographic disparities in access to jobs, as 26.8% of women in the island region (Malabo) are employed in the formal sector and 19% in informal sector, compared to 18.9% and 16.5% respectively on the mainland. Out of the 70 Senate seats, 60 are occupied by men, an indication that the authorities need to make more efforts to honour the commitments made under the National Development Plan. Gender equality and women's empowerment require a gradual change in behaviour, recognition and full respect for women's rights, awareness-raising

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campaigns and the promotion of appropriate policies. There is no legal discrimination against women with regard to land ownership or women's access to bank loans, but the de facto situation clearly shows some discriminatory practices. At least 30% of training programmes will be reserved for women under PAMFP.

3.2.4 Social issues: PAMFP will contribute to increasing domestic resource mobilization and enhancing accountability. The combined effect of these two aspects will improve public resource allocation and use. Increased budgetary allocations through better resource mobilization will help to significantly increase resources to basic social sectors (health and education). Eventually, this will contribute to reducing infant mortality and creating opportunities, particularly for women, through better education. Lastly, the project will provide training opportunities for women and youths.

3.2.5 Involuntary resettlement: The project will not entail any population displacement.

IV. PROJECT IMPLEMENTATION

4.1 Implementation Arrangements

4.1.1 The project will be placed under the supervision of the Ministry of Finance, Economy and Planning, which plays a key role in public finance management. The project implementation mechanism will be significantly strengthened to take into account lessons learnt from the implementation of the PAGFP. The Steering Committee will be more active in order to guarantee the authorities' commitment to reforms and finally the Bank will be more present through more frequent supervision missions.

4.1.2 Project Steering Committee (PSC): to ensure the efficient orientation and coordination of PAMFP’s activities, the PSC will oversee and monitor project implementation. In this respect, it will validate the budgets and progress reports prepared by the Project Implementation Unit (PIU). The PSC will comprise: (i) the Minister of Finance, Economy and Planning or his/her representative, who will be the Chairperson; (ii) the Director-General of the Autonomous Sinking Fund (CAA) or his/her representative; (iii) the PIU Coordinator; (iv) the Director-General of Taxation (DGI) or his/her representative; (v) the Director-General of Customs (DGD) or his/her representative; (vi) the Director-General of Budget or his/her representative; (vii) the Director of the Treasury or his/her representative; (viii) the Director-General of Financial Control (DGCF) or his/her representative; (ix) the Director-General of Autonomous Entities or his/her representative; (x) the Director-General of Investment Planning or his/her representative; and (xi) the Director-General of Public Accounting or his/her representative. The PIU will serve as the Project Steering Committee secretariat. The establishment of this entity is a condition precedent to first disbursement.

4.1.3 The Project Implementation Unit (PIU) will be the project management operational entity. It will be responsible for overseeing the implementation of all project components and preparing periodic project progress reports. In this regard, the project management team will comprise: (i) a project coordinator; (ii) a procurement expert; (iii) an administrative and financial officer; (iv) an accountant; (v) an IT expert; (vi) a public finance expert; (vii) a monitoring and evaluation expert; (viii) an administrative assistant; (ix) a driver; and (x) a messenger. PIU staff will be recruited through an open call for applications. The results will be submitted for the Bank’s “no objection” opinion. Based on the lessons learned from PAGFP implementation, the PIU will, if necessary, be reinforced by long-term technical

15

assistance to ensure efficient project implementation. The recruitment of PIU staff and designation of focal points are conditions precedent to first disbursement.

4.1.4 Financial management: the PIU will be responsible for overall oversight, technical coordination and financial management of the project. It will establish an internal control mechanism to ensure the efficient and judicious use of project funds. The unit will comply with the Bank’s project/programme financial management requirements, namely: (i) update the administrative, accounting and financial procedures manual prepared under the Public Finance Management Support Project (PAGFP) and mainstream the innovations of the revised OHADA Accounting System (SYSCOHADA) that came into force in January 2018; (ii) prepare a project implementation manual which presents the project organizational chart and all the actors involved in its implementation, the roles, responsibilities and activities of each actor, as well as the objectives and expected outcomes of each activity; (iii) update and configure the integrated management system (TOM2PRO) previously procured by PAGFP. The financial management arrangements, including risk assessment and financial management capacity, are presented in detail in Technical Annex B.4.

4.1.5 Procurement Arrangements

4.1.5.1 Applicable procurement policy and framework: all procurements of goods, works and consultancy services financed with Bank resources will be done in accordance with the Procurement Policy for Bank Group-financed Operations (“AfDB Procurement Policy”), October 2015 edition, using the procurement methods and procedures described in the Bank Group’s Procurement Operations Manual. The implementation of procurement operations (system, cost, schedule, method, and type of review) agreed upon between the Borrower and the Bank are presented in detail in Technical Annex B.5.

4.1.5.2 Organization of procurement operations: Procurement of the project activities will be implemented by the procurement expert of the Project Management Unit. This expert will be recruited prior to the first disbursement of the loan to implement procurement activities as set forth in Technical Annex B5.

4.1.5.3 Procurement Risk and Capacity Assessment (PRCA): to factor in project specificities, the Bank assessed: (i) risks at the national, sector and project level; and (ii) the capacity of executing agencies. The outcomes of these assessments indicated a high procurement risk and helped to determine, subject to the implementation of the mitigation measures proposed in paragraph 5.9 of Annex B.5 that all project procurements will be carried out, keeping with the Bank’s system.

4.1.6 Disbursements: the disbursement of ADB resources under this project will be done in accordance with the provisions of the Bank’s Disbursement Handbook. The disbursement methods proposed for the project are: (a) the special account for PIU operating expenses; (b) direct payment for the procurement of goods, services and works; and (c) reimbursement in the event of the pre-financing by the national counterpart of expenses chargeable to ADB resources and authorized beforehand by the Bank. The special account will be opened in the name of the project in a commercial bank acceptable to AfDB and mainly intended to receive ADB resources. It will be a local currency (XAF) account activated through a double signature, including that of the Coordinator and the administrative and financial officer, whose names and signatures will be communicated to the Bank. The provision of evidence of opening the special account is a condition precedent to first disbursement of grant resources.

16

4.1.7 Audit arrangements: annual audits will be conducted by an independent external audit firm to be recruited on a competitive basis and in accordance with Bank standard terms of reference. The PIU-PAGFP will be responsible for the recruitment of the external auditor. The expenses related to audit activities will be borne by the project. The external auditor’s terms of reference will be tailored to take into account the specificities of PAMFP in order to recruit an independent firm with experience in the auditing of Bank-funded projects. Audits will be conducted in accordance with ISA/ISSAI international standards. The financial statements audited by the independent audit firm will be transmitted to the Bank within six months following the end of the financial year under review.

4.2 Monitoring and Evaluation

4.2.1 The monitoring and evaluation system will hinge on: (i) i) the recruitment of a monitoring and evaluation expert who will be in charge of preparing tools for collecting and using information for efficient monitoring of project activities and impact; (ii) the conduct of periodic supervision missions at the rate of two or more per year, and the drafting of periodic reports as well as the conduct of audits by the Project Management Unit (PMU); (iii) the conduct of a mid-term review to assess project implementation performance; and (iv) the conduct of regular supervision missions by ECGF. The supervision missions will be carried out preferably in coordination with other development partners and should result in the systematic preparation of an Implementation Progress and Results Report (IPR) after each mission. A monitoring and evaluation mechanism will be set up to reflect the nature and specificities of the project, and quarterly progress reports will be prepared. The table below presents the major indicative monitoring stages.

Table 3.1: Monitoring Stages and Feedback Loop

Schedule Milestones Monitoring Activities/Feedback Loop June 2019 Loan approval by the Board Notification to the Government

Aug. 2019 Loan effectiveness Signature of Grant/Loan Agreements and fulfilment of conditions precedent to first disbursement

Oct. 2019 Launching mission Training of project officers Sept. 2019 NGA and NSA UNDB; national and regional newspapers

Sept. 2019 Fulfilment of conditions precedent to first disbursement

Opening of special accounts; setting up and appointment of Permanent Project Team (PPT) members

Oct. 2019 Launching of the first activities Preparation of work programme and training of the Project Implementation Unit

Sept. 2019 Preparation and launching of competitive bids (CBs)

Preparation by beneficiary entities and the Project Implementation Unit

Dec. 2019 Bid analysis and award of contracts Analysis by the Project Implementation Unit and approval by the relevant bodies

2019-2024 Implementation of project activities; other project activities Quarterly and annual progress reports

2019-2024 Launching, supervision and mid-term review missions Mission reports

2020-2025 Annual project audits Audit reports June 2025 Project completion Completion report

17

4.3 Governance

4.3.1 Governance problems (fraud and corruption), particularly fiduciary management, could crop up during the project implementation phase. The procurement risk will be mitigated through the following measures: for international competitive bidding and selection of consultants, the Bank will carry out ex ante review at each stage of the procurement process by issuing its “no objection” opinions on procurement documents, contract award proposals and contracts. The PAGFP PIU will be authorized to conduct the procurement process. Internal administrative and technical control, and complaints and claims management mechanisms will be reinforced to ensure the continuous promotion and expansion of fraud control and anti-corruption mechanisms. Regarding financial governance, the appropriate financial management and audit arrangements are outlined in § 4.1.4, § 4.1.6 and § 4.1.7

4.4 Sustainability

4.4.1 Commitment to and ownership of the project by the country and support policy: PAMFP is in keeping with the National Economic and Social Development Plan (PNDES) 2016-2020. In addition, the slump in oil prices in 2014 mirrored a vicious circle marked by a sharp fall in tax revenue, a slowdown in growth, an increase in the fiscal deficit, a drop in foreign exchange reserves and the rapid accumulation of external and domestic debt, which impede private sector development. The Bank’s commitment is justified by the need to assist the authorities in their effort to strengthen governance and modernize public finance management under the IMF-backed reforms programme. PAMFP will be implemented within a context of falling oil prices, necessitating the introduction of reforms to maintain social peace. It is in line with the dialogue held with the IMF and the request for budget support submitted by the authorities to the World Bank and AfDB. Lastly, the authorities have reaffirmed their commitment to implement reforms, particularly due to Government’s decision to contract World Bank fee-based services and IMF’s preliminary assessment indicating that Government’s performance under the Interim Programme exceeds set targets (particularly the reduction of the fiscal deficit). Therefore, PAMFP will contribute to restoring macroeconomic stability and growth.

4.5 Risk Management

4.5.1 Measures have been taken to address risks related to poor governance, especially as regards procurement, financial management and disbursement conditions (see. annexes B.4 and B.5). In addition, risks related to lack of commitment and ownership of reforms by the Government and the country’s weak institutional capacity, particularly due to shortage of skilled human resources to implement reforms, will be mitigated by several factors: Government’s resumption of dialogue with donors, notably the IMF, with a view to signing an economic and financial reforms programme; Government’s commitment to facilitate the interventions of high-level experts through ad hoc and long-term missions to build the capacity of beneficiary entities; and closer presence and monitoring of Bank teams on the ground.

18

Table 3.2: Risks and Mitigation Measures

4.6 Knowledge Building

4.6.1 The project will contribute to building knowledge in Equatorial Guinea, particularly in the area of public finance management to support the modernization of public finance. Technical assistance experts and consultants to the staff of project beneficiary institutions, especially women, will acquire knowledge through the transfer of skills. Furthermore, skills will be transferred through various data and information platforms and user manuals, as well as the various user training sessions and workshops that will be organized. The knowledge acquired through this project and the Independent Development Evaluation Department (IDEV) will be disseminated within and outside the Bank through the rigorous monitoring and evaluation of expected outputs and outcomes, supervision missions, project completion report, seminars and reports the outcomes achieved.

V. LEGAL FRAMEWORK

5.1 Legal instrument: An ADB loan agreement of EUR 26.5436 million will be signed between the African Development Bank and the Republic of Equatorial Guinea.

5.2 Conditions for Bank Intervention

A. Conditions Precedent to Loan Effectiveness

5.2.1 The Government shall fulfil the conditions applicable to loan and guarantee agreements that set out the standard terms and principles governing financing by the African Development Bank Group.

B. Conditions Precedent to First Disbursement of Loan Resources

5.2.2 In addition to effectiveness of the loan agreement, the first disbursement of loan resources by the AfDB shall be subject to the Borrower’s fulfilment of the following conditions, to the satisfaction of the African Development Bank Group:

x provide proof of the adoption of the Ministerial Order establishing the Project Steering Committee and the designation of its members (§ 4.1.2);

Risks Risk Level Mitigation Measures x Risk 1: Commitment and

ownership of reforms by the Government

Moderate x Mitigation measure 1: the Government has resumed dialogue with donors, notably the IMF, by implementing a staff-monitored programme and initiating negotiations for the signing of an economic and financial reforms programme under the Extended Credit Facility.

x Deterioration of the macroeconomic situation due to falling oil prices

Moderate x The Government’s commitment to implement internal fiscal adjustment and reforms in line with the recommendations of the Summit of Central African Heads of State held in Yaoundé.

x The country’s weak institutional capacity, particularly the lack of skilled human resources to implement reforms

High x The Government’s commitment to facilitate the interventions of high-level experts through ad hoc and long-term missions to build the capacity of beneficiary entities.

x Closer presence and monitoring by Bank teams on the ground.

19

x provide evidence of the setting up of the Project Implementation Unit (PIU) and recruitment within the PIU (a) of a project coordinator; (b) a procurement expert and; (c) an administrative and financial officer (RAF); and whose qualifications and experience have been acceptable to the Bank (§ 4.1.3);

x provide evidence of the adoption of the Ministerial Order designating within the PIU

the following focal points: (a) a representative of the Minister of Finance, Economy and Planning; (b) a representative of the Caisse Autonome d'Amortissement de la Dette Publique (CAADP); (c) a representative of the Directorate General of Taxes (DGI); (d) a representative of the General Directorate of Customs (DGD); (e) a representative of the Directorate General of Budget (DGB); (f) a representative of the Treasury Department; (g) a representative of the Directorate General of Financial Control (DGCF); (h) a representative of the Directorate General of Independent Entities; (i) a representative of the Investment Planning Branch; (j) a representative of the General Directorate of Public Accounts; (k) a representative of the General Directorate of Public Enterprises and Autonomous Entities (§ 4.1.3)

x Provide evidence of establishing the Project Steering Committee (PSC) and appointing its members (§ 4.1.2);

x Provide evidence of setting up and recruiting the staff of the PIU to serve as interlocutor to the Bank and designating focal points in each entity involved in the project to serve as interlocutor to the PIU (§ 4.1.3);

x Provide evidence of opening a special account in a bank acceptable to AfDB to receive the loan resources (§ 4.1.6).

5.2.3 Other conditions: the Borrower shall also provide to the Bank’s satisfaction:

x a) within three (3) months of the first disbursement, submit to the Bank the Manual for Administrative, Financial and Accounting Procedures of the Project and the Project Organizational Chart;

x (b) within three (3) months of the first disbursement, acquire and adapt the TOM2PRO financial and accounting management software for the Project;

x (c) within six (6) months following the first disbursement, recruit within the PIU (i) an expert IT engineer; (ii) an expert in public finance management; and (iii) an expert in monitoring and evaluation, dedicated to the Project and whose qualifications and experience are deemed acceptable to the Bank;

x (d) for the duration of the Project, keep the PIU and the CPP operational; and modify the structure, composition, roles and responsibilities and qualifications and experience required of key members only with the prior approval of the Bank; and

x (e) prepare, acquire and update all manuals necessary for the sound management of the Project.

5.3 Compliance with Bank Policies

5.3.1 This project complies with all applicable Bank policies, particularly those relating to project financial management, procurement, disbursement and expenditure eligible for Bank financing. No exception is recommended.

20

VI. RECOMMENDATION

Management recommends that the Board of Directors approve the proposal to grant in EUR 26.5436 million loan under the ADB window to the Republic of Equatorial Guinea for the purpose and under the conditions set forth in this report.

I

Appendix I: Equatorial Guinea’s Comparative Macroeconomic Indicators

Indicators Unit 2000 2013 2014 2015 2016 2017 (e) 2018 (p)

National Accounts

NY.GNP.MKTP.CDNY.GNP.MKTP.CDGNI at Current Prices Million US $ 403 10,864 10,548 8,037 6,244 ... ...NY.GNP.PCAP.CD.ADB

NY GNI per Capita US$ 760 13,630 12,850 9,510 7,180 ... ...

NY.GDP.MKTP.CD.ADBNY.GDP.MKTP.CDGDP at Current Prices Million US $ 1,178 21,949 21,771 13,187 11,253 12,162 12,007NY.GDP.MKTP.KD.ADBNY.GDP.MKTP.KDGDP at 2000 Constant prices Million US $ 1,178 6,028 6,053 5,503 5,031 4,907 4,607NY.GDP.MKTP.KD.ZG.ADBNY.GDP.MKTP.KD.ZGReal GDP Growth Rate % 18.2 -4.1 0.4 -9.1 -8.6 -2.5 -6.1NY.GDP.PCAP.KD.ZG.ADBNY.GDP.PCAP.KD.ZGReal per Capita GDP Growth Rate % 14.3 -6.9 -2.5 -11.7 -11.2 -5.2 -8.7NE.GDI.TOTL.ZS.WEO

NE Gross Domestic Investment % GDP 61.9 30.3 28.7 24.7 16.6 14.4 14.0

NE.GDI.FPUB.ZS.WEONE Public Investment % GDP 5.4 22.7 22.8 21.5 13.9 11.9 11.7

DeductionNE Private Investment % GDP 56.5 7.6 6.0 3.2 2.6 2.5 2.4

NY.GNS.TOTL.ZS.WEONY Gross National Savings % GDP 48.6 27.8 25.2 4.0 -1.5 6.5 6.6

Prices and MoneyFP.CPI.TOTL.ZG.ADBF

P Inflation (CPI) % 4.6 3.2 4.3 1.7 1.4 1.1 1.2PA.NUS.FCRF.ADBPA.NUS.FCRFExchange Rate (Annual Average) local currency/US$ 712.0 493.9 493.6 591.2 593.1 582.1 558.1FM.LBL.MONY.ZG.ADBF

M Monetary Growth (M2) % 60.8 6.9 -12.1 -8.2 -14.0 17.8 ...FM.LBL.GDP.MQMY.ZS.ADB

FM Money and Quasi Money as % of GDP % 6.7 18.7 16.6 21.0 21.1 23.4 ...

Government FinanceGB.RVC.IGRT.ZS.WEOG

C Total Revenue and Grants % GDP 20.7 24.9 24.0 26.6 17.2 17.9 17.1GB.XPD.TOTL.ZS.WEOG

C Total Expenditure and Net Lending % GDP 12.1 30.7 28.9 29.9 20.9 20.2 20.4GB.FIS.IGRT.ZS.WEOG

C Overall Deficit (-) / Surplus (+) % GDP 8.6 -5.9 -4.8 -3.3 -3.7 -2.3 -3.3

External SectorTX.QTY.MRCH.ZG.WEOTG.WEO.TXG_R.ZGExports Volume Growth (Goods) % -36.1 -4.0 6.5 4.6 -13.5 -24.5 -15.8TM.QTY..MRCH.ZG.WEOTG.WEO.TMG_R.ZGImports Volume Growth (Goods) % -71.3 -17.4 -8.5 -15.9 -24.1 -31.2 7.5TT.PRI.MRCH.ZG.WEOTG.WEO.TTT.ZGTerms of Trade Growth % 42.2 -26.2 -18.9 -43.7 8.3 19.7 20.8BN.CAB.FUND.CD.WEOBG.CAB.CDCurrent Account Balance Million US $ -196 -547 -930 -2,151 -64 378 -365BN.CAB.GDP.ZS.WEOBG.WEO.ADB.CAB.GDP.ZSCurrent Account Balance % GDP -16.7 -2.5 -4.3 -16.3 -0.6 3.1 -3.0FI.RES.IGLD.MM.ADBFI.RES.TOTL.MOExternal Reserves months of imports 0.2 6.0 3.9 2.5 0.2 0.0 0.2

Debt and Financial FlowsDT.SRV.ANTE.ZS.WEODT.WEO.TDS.PAI.EXP.ZSDebt Service % exports 0.8 2.8 2.6 3.4 5.5 3.1 5.0DT.DOD.DECT.GDP.ZSG.WEODT.WEO.ADB.DOD.GDP.ZSExternal Debt % GDP 37.0 6.2 5.6 9.6 10.0 10.5 12.0DT.NFL.TOTL.CD.ADBDC.DAC.NTF.CDNet Total Financial Flows Million US $ 22 184 180 -109 -108 ... ...DT.ODA.ALLD.CD.ADBDC.DAC.ODA.CDNet Official Development Assistance Million US $ 21 5 1 7 7 ... ...BN.KLT.DINV.CD.ADBDC.UNC.PVF.FDI.CDNet Foreign Direct Investment Million US $ 154 731 320 316 54 ... ...

Source : AfDB Statistics Department; IMF: World Economic Outlook,April 2018 and International Financial Statistics, April 2018; AfDB Statistics Department: Development Data Portal Database, April 2018. United Nations: OECD, Reporting System Division.Notes: … Data Not Available ( e ) Estimations ( p ) Projections Last Update: May 2018

-15.0-10.0

-5.00.05.0

10.015.020.025.030.0

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

%

Real GDP Growth Rate, 2006-2018

0

1

2

3

4

5

6

7

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Inflation (CPI), 2006-2018

-25.0-20.0-15.0-10.0-5.00.05.0

10.015.0

2,006

2,007

2,008

2,009

2,010

2,011

2,012

2,013

2,014

2,015

2,016

2,017

2,018

Current Account Balance as % of GDP,2006-2018

II

Appendix II: Comparative Socio-economic Indicators

YearEquatorial

GuineaAfrica

Develo- ping

Countries

Develo- ped

CountriesBasic IndicatorsArea ( '000 Km²) 2018 28 30,067 92,017 40,008Total Population (millions) 2018 1.3 1,286.2 6,432.7 1,197.2Urban Population (% of Total) 2018 72.1 42.5 50.4 81.5Population Density (per Km²) 2018 32.8 43.8 71.9 31.6GNI per Capita (US $) 2017 7 050 1 767 4 456 40 142Labor Force Participation *- Total (%) 2018 83.1 65.9 62.1 60.1Labor Force Participation **- Female (%) 2018 72.0 55.5 47.6 52.2Sex Ratio (per 100 female) 2018 124.3 99.8 102.3 99.3Human Dev elop. Index (Rank among 189 countries) 2017 141 ... … …Popul. Liv ing Below $ 1.90 a Day (% of Population) 2007-2017 … ... 11.9 0.7

Demographic IndicatorsPopulation Grow th Rate - Total (%) 2018 3.6 2.5 1.2 0.5Population Grow th Rate - Urban (%) 2018 4.4 3.6 2.3 0.7Population < 15 y ears (%) 2018 37.0 40.6 27.5 16.5Population 15-24 y ears (%) 2018 18.7 19.2 16.3 11.7Population >= 65 y ears (%) 2018 2.8 3.5 7.2 18.0Dependency Ratio (%) 2018 72.8 79.2 53.2 52.8Female Population 15-49 y ears (% of total population) 2018 22.0 24.1 25.4 22.2Life Ex pectancy at Birth - Total (y ears) 2018 58.2 63.1 67.1 81.3Life Ex pectancy at Birth - Female (y ears) 2018 59.7 64.9 69.2 83.8Crude Birth Rate (per 1,000) 2018 33.1 33.4 26.4 10.9Crude Death Rate (per 1,000) 2018 9.9 8.3 7.7 8.8Infant Mortality Rate (per 1,000) 2017 65.3 47.7 32.0 4.6Child Mortality Rate (per 1,000) 2017 89.6 68.6 42.8 5.4Total Fertility Rate (per w oman) 2018 4.5 4.4 3.5 1.7Maternal Mortality Rate (per 100,000) 2015 342.0 444.1 237.0 10.0Women Using Contraception (%) 2018 18.0 38.3 61.8 …

Health & Nutrition IndicatorsPhy sicians (per 100,000 people) 2010-2016 … 33.6 117.8 300.8Nurses and midw iv es (per 100,000 people) 2010-2016 … 123.3 232.6 868.4Births attended by Trained Health Personnel (%) 2010-2017 68.3 61.7 78.3 99.0Access to Safe Water (% of Population) 2015 47.9 71.6 89.4 99.5Access to Sanitation (% of Population) 2015 74.5 39.4 61.5 99.4Percent. of Adults (aged 15-49) Liv ing w ith HIV/AIDS 2017 6.5 3.4 1.1 …Incidence of Tuberculosis (per 100,000) 2016 181.0 221.7 163.0 12.0Child Immunization Against Tuberculosis (%) 2017 63.0 82.1 84.9 95.8Child Immunization Against Measles (%) 2017 30.0 74.4 84.0 93.7Underw eight Children (% of children under 5 y ears) 2010-2016 5.6 17.5 15.0 0.9Prev alence of stunding 2010-2016 26.2 34.0 24.6 2.5Prev alence of undernourishment (% of pop.) 2016 … 18.5 12.4 2.7Public Ex penditure on Health (as % of GDP) 2014 2.9 2.6 3.0 7.7

Education Indicators Gross Enrolment Ratio (%) Primary School - Total 2010-2017 61.6 99.5 102.8 102.6 Primary School - Female 2010-2017 61.3 97.4 102.0 102.5 Secondary School - Total 2010-2017 … 51.9 59.5 108.5 Secondary School - Female 2010-2017 … 49.5 57.9 108.3Primary School Female Teaching Staff (% of Total) 2010-2017 44.4 48.7 53.0 81.5Adult literacy Rate - Total (%) 2010-2017 95.0 65.5 73.1 ...Adult literacy Rate - Male (%) 2010-2017 97.3 77.0 79.1 ...Adult literacy Rate - Female (%) 2010-2017 92.4 62.6 67.2 ...Percentage of GDP Spent on Education 2010-2015 4.9 4.1 5.2

Environmental IndicatorsLand Use (Arable Land as % of Total Land Area) 2016 4.3 8.0 11.3 10.4Agricultural Land (as % of land area) 2016 10.1 38.2 37.8 36.5Forest (As % of Land Area) 2016 55.5 22.0 32.6 27.6Per Capita CO2 Emissions (metric tons) 2014 4.7 1.1 3.5 11.0

Sources : AfDB Statistics Department Databases; World Bank: World Development Indicators; last update :UNAIDS; UNSD; WHO, UNICEF, UNDP; Country Reports.

Note : n.a. : Not Applicable ; … : Data Not Available. * Labor force participation rate, total (% of total population ages 15+)** Labor force participation rate, female (% of female population ages 15+)

COMPARATIVE SOCIO-ECONOMIC INDICATORSEquatorial Guinea

Febuary 2019

0

20

40

60

80

100

120

2000

2007

2011

2012

2013

2014

2015

2016

2017

Infant Mortality Rate( Per 1000 )

Equator ial Guinea

Af rica

0

2000

4000

6000

8000

10000

12000

2000

2007

2011

2012

2013

2014

2015

2016

2017

GNI Per Capita US $

Equator ial Guinea Af rica

0.00.51.01.52.02.53.03.54.04.55.0

2000

2007

2012

2013

2014

2015

2016

2017

2018

Population Growth Rate (%)

Equatori al G ui nea Afr ica

01020304050607080

2000

2007

2012

2013

2014

2015

2016

2017

2018

Life Expectancy at Birth (years)

Equator ial Guinea Af rica

III

Appendix III: Table of AfDB Portfolio in the Republic of Equatorial Guinea as at 31 Mars 2019

Project N° IP/SAP Approval date Effectiveness

date Closing date

Age (an)

Approved amount (MUC)(*)

Disbursed date (MUC)

Disbursement (%) 28 February 2017

Funding source

6. Project to support the promotion of the private sector

P-GQ-K00-007

12/12/2014 10/02/2016 1/12/2019 4,5 0,8 0,059 7,36 MIC-Grant

TOTAL 4,5 0,8 0,059 7,36

IV

Appendix IV: Map of Project Area

V

Appendix V: Operations of Key Technical and Financial Partners

WORLD BANK IMF AfDB BDEAC CHINA USA BRAZIL PORTUGAL UNITED

NATIONS SPAIN FRANCE

Governance x x x x x x

Public Finance x x x x x x x

Statistics x x x

Health x x x

Education and Vocational Training

x x x x x x

Fisheries x x

Culture/ Language x x x x x x

VI

Appendix VI : Justification of the minimization of Equatorial Guinea's counterpart funds

For the financing of the Modernization of Public Finance Support Project (PAMFP), the Government of Equatorial Guinea requested a waiver to limit its counterpart funds for the project financed by the Bank. This national counterpart is estimated at EUR 4.5751 million, representing 15% of the total project cost estimated at EUR 31.1177 million. The Bank's estimated contribution of EUR 26.5436 million is more than 50% of the project cost as required by the Bank Group's Eligible Expenditure Policy for the Bank’s Financing of sovereign operations under the ADB sovereign window. Thus, in accordance with the provision of Section 4.2.2 of the Bank Group's Eligible Expenditure Policy (Revised Version of March 19, 2008), the justification for this level of government counterpart funding was based on of the following three criteria:

a. The country's commitment to implementing its development agenda

PAMFP is aligned with Equatorial Guinea's National Economic and Social Development Plan (PNDES), in a context characterized by falling oil prices, weak institutional capacity, persistent inequalities and low economic diversification. The PNDES focuses on four areas: (i) build excellent infrastructure to improve productivity and speed up economic growth; (ii) strengthen human capital and improve the quality of life for the people; (iii) build a diversified economy with support from the private sector; and (iv) institute good governance to serve the interests of the people. The first phase of implementation of the PNDES helped to provide the country with excellent infrastructure. That effort was interrupted by the collapse in international oil prices in mid-2014. PAMFP is aligned with two of the four PNDES priorities, namely the second priority: (ii) strengthening human capital and improving the quality of life for the people; and the fourth priority institute good governance to serve the interests of the people. The PNDES objectives align perfectly with the Sustainable Development Goals (SDGs) set for 2030. The first phase of implementation of the PNDES has enabled the country to acquire world-class infrastructure. This effort was interrupted by the fall in international prices in mid-2014. This reinforces the need to accelerate the implementation of public finance reforms.

To modernize the public finance management framework, the Government has drafted a bill on the internalization of CEMAC directives.5 These reforms are mainly designed to improve the budgetary process (streamlining of budgetary procedures, improved classification and recording of public expenditure). Progress has also been noted in terms of transparency, with the establishment of an Audit Bench and an anti-corruption squad. Equatorial Guinea ratified the United Nations Convention against Corruption in May 2018. With the Bank's assistance, the authorities started the ASYCUDA pilot experiment at Malabo customs. The one-stop shop for business creation has been set up and is fully operational. In accordance with the commitments made with the IMF under the staff-monitored programme for enhancing transparency in the oil and gas sector, an audit firm was selected to conduct an audit of the oil sector. The authorities have also made considerable progress towards re-joining the Extractive Industries Transparency Initiative (EITI) as soon as possible. A mission has submitted a membership request for EITI certification and the two parties have restored bilateral relations. The current public investment program (not exhaustive) shows that 80 projects

5 Six CEMAC Directives on public finance modernization: (i) Directive on the Transparency and Good Governance Code; (ii) Directive on

Finance Acts; (iii) Directive on the State’s Budgetary Nomenclature; (iv) Directive on the State’s Accounting Plan; (v) Directive on the State’s Table of Financial Operations; and (vi) Directive on the General Regulation of Public Accounting.

VII

were executed or in the course of implementation between 2013 and 2017 for an amount of about 925 billion CFA francs from the Government budget, ie an average of 185 billion a year.

b. Funding appropriated by the country to the sector targeted by the Bank’s assistance:

Since 2014, the fall in the price of oil has weakened the economic system and contributed to the deterioration of macroeconomic indicators and the decline in the volume of public investment. With regard to public finances, in the 2019 budget, the Government allocated more than CFAF 3 billion for audits in the hydrocarbons sector and the implementation of the second phase of ASYCUDA. Fiscal constraints related to the protracted recession that the country is experiencing do not allow the government to create the necessary room for maneuver to diversify the economy and support social sectors in a context where about 43.7% of the population lives below the threshold of poverty. In response to this situation, the Government requested the Bank to finance PAMFP. This request makes the Bank a strategic partner in the modernization of public finances in Equatorial Guinea.

c. The budgetary situation and the country’s level of indebtedness

Equatorial Guinea's economy was hit hard by the mid-2014 oil crisis. The sharp decline in oil prices has had a negative impact on economic growth, public finances and external accounts. In a few years, Equatorial Guinea became the third-largest oil producer in sub-Saharan Africa, after Nigeria and Angola, with GDP growing by an average of 18.6% over the period 2000-2007. However, the prolonged fall in world oil prices and the roughly 2% decline in production volume per year over the past 10 years put an end to the period of large budgetary surpluses that were used to finance major investment programmes.

After several years of sustained growth and rising per capita income, the economy went into a deep recession. According to the IMF, over the period 2013-2017, GDP declined by almost 57%. The recession remains significant, with GDP dropping 7.9% in 2018 and government revenue contracting by 45% (from XAF 2,694 billion to XAF 1,485 billion). The share of oil revenue in the economy dropped from 90% to 71% of GDP between 2013 and 2017, while the budget shrank by 56% over that period. As a result, the budget deficit rose sharply, from 7.6% of GDP in 2014 to 12% in 2016, and public debt jumped from 12.7% of GDP in 2014 to 43.4% in 2016 (including a spike in domestic arrears,6 representing 25% of GDP in 2017). In response, the country has been making adjustment efforts, which helped it to keep the budget deficit at 2.5% of GDP in 2017 and 0.9% of GDP in 2018, and to bring public debt down to 38% of GDP in 2017 and 35.8% of GDP in 2018.

Conclusion From the foregoing, there is a commitment by the Government of Equatorial Guinea for the implementation of its development program and priority is given to modernizing public finances. Also, against the backdrop of the current macroeconomic imbalances, Equatorial Guinea

6 According to IMF estimates, the arrears represented CFAF 1,300 billion at end-2017. They have a negative impact on the banking and real

estate sectors, weaken the financial health of banks and deprive businesses of credit that is indispensable for economic recovery and job creation.

VIII

has initiated a series of structural reforms to achieve inclusive and sustainable economic growth. These reforms concern both public finances, sectoral measures and the improvement of the business climate. As a result, fiscal space for counterpart funds is extremely small. At the request of the Government, it is proposed that the Government's counterpart be 15% of the project costs.