Equatorial Guinea Economic Update, 2nd Edition: Designing Fiscal Instruments for Sustainable Forestry

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Table of Contents

• List of Abbreviations 7
• Acknowlegment 9
• Recent Economic Developments and Outlook 11
• 1.1 Recent Economic Developments 17
• Global and regional recovery remains slow, with divergences across countries 17
• Recent Economic 17
• Developments and Outlook 17
• Equatorial Guinea reentered recession in 2023 amid a decline in hydrocarbon production and domestic demand 18
• The fiscal position has deteriorated amid a decline in commodity revenues, and public debt declined and remained sustainable 21
• Equatorial Guinea’s external position deteriorated on the back of declining export earnings 23
• Credit to the economy decreased significantly amid banking sector vulnerabilities and monetary tightening 23
• 1.2 Economic Outlook, Risks, Challenges, and Policies 24
• Global economic activity is expected to slow while SSA growth is forecast to accelerate in 2024 24
• The Equatoguinean economy is projected to remain in recession over the medium term 25
• Risks to the outlook are titled to the downside with the main risk being a faster-than-expected decline in the hydrocarbon sector 25
• Policy Watch, Structural Challenges, and Reform Priorities 25
• Designing Fiscal 35
• Instruments for 35
• Sustainable Forestry 35
• 2.2 The Importance of Forests: State of Forests and Economic contribution 38
• State and Trends of Forests in Equatorial Guinea 38
• The Role of Forests in Equatorial Guinea’s Economy and Climate Actions 40
• 2.3 Regional and International Context 44
• Financing for Sustainable Forest Management 44
• Implementation of the CEMAC Log export ban: a potential solution for increasing value added in the wood industry 45
• The EU Law on Deforestation-Free Products: A regulation that promotes sustainable forest management in the region? 47
• 2.4 The role of Environmental Fiscal Policy: Trade-offs in the Forestry sector 48
• 2.5 Survey of Forest-Fiscal Policy Instruments in Equatorial Guinea 51
• Recurrent Annual Charges 52
• Logging Licensing and the Auctioning of Forest Concessions 52
• Output taxes: royalties from harvested timber and stumpage yield taxes 52
• Business Income Taxes 54
• Tax Expenditures for Agriculture and VAT Exemptions for Farm Inputs 54
• 2.6 Opportunities for Climate-Smart Forest Fiscal Policy Reform in Equatorial Guinea 55
• Aligning the tax rates with the sustainability of timber production methods 55
• A ‘bonus-malus’ system in forestry: using taxes on non-sustainable production to finance tax benefits for sustainable practices 55
• References 61
• Box 1. The authorities highlighted their commitments to improve the sustainability of the Equatoguinean economy and public finances in the February 2024 Presidential decree 26
• Box 2. The digital economy offers a transformative opportunity for growth but is constrained by significant bottlenecks in Equatorial Guinea 28
• Box 3. What is REDD+? 42
• Box 4. An indicative trajectory of structural reform to transition from log exports to higher value-added processing 46
• Box 5. Cross-cutting issues in sustainable forest management 48
• Box 6. The impact of forest-related fiscal instruments on fiscal space 50
• Box 7. Lessons learned from fiscal reforms for forestry in Central Africa 57
• Table 1. Equatorial Guinea – Comparison in projections of key macroeconomic variables 19
• Table 2. Structural Indicators, Equatorial Guinea 31
• Table 3. Selected short term policy recommendations 33
• Table 4. Selected Approaches and Policy Instruments for Sustainable Forest Management 49
• Table 5. A selection of fiscal mechanism and their relative impact on incentives for sustainable forest management (SFM) 51
• Figure 1. Real GDP, percent change from previous year, 2021-2025 19
• Figure 2. Equatorial Guinea - Oil and Non-oil GDP growth (in percent), 2013-2023 19
• Figure 3. Equatorial Guinea and other CEMAC countries – Real GDP growth (in percent), 2021-2023 19
• Figure 4. Equatorial Guinea – Hydrocarbon production (in millions of barrels of oil equivalent), 2022-2023 21
• Figure 6. Equatorial Guinea – Contribution to Growth, supply (in percent) 21
• Figure 5. Equatorial Guinea – Growth in hydrocarbon production (y-o-y, in percent), 2023 21
• Figure 7. Equatorial Guinea – Contribution to Growth, demand (in percent) 21
• Figure 8. Equatorial Guinea – Composition and evolution of government spending, 2019-2023 22
• Figure 10. Equatorial Guinea – Public debt (in percent of GDP), 2019-2023 22
• Figure 9. Equatorial Guinea – Fiscal Balance, 2019-2023 22
• Figure 11. Equatorial Guinea – Current Account 23
• Figure 12. Equatorial Guinea – Composition of export value (in percent of total exports), 2022 23
• Figure 13. Credit to the economy in Equatorial Guinea, growth, 2014-2023 (in percent) 23
• Figure 14. Global growth (in percent), 1990-2025 24
• Figure 15. GDP growth in SSA and other regions (in percent), 2021-2025 24
• Figure 16. Equatorial Guinea and peers - Labor force participation rate, total (% of population ages 15-64), 2000-2022 27
• Figure 17. Equatorial Guinea and peers - Vulnerable employment by gender, (% of female or male employment), 2010-2022 27
• Figure 18. Equatorial Guinea and peers - Electricity access, percentage of the population, 2000-2021 28
• Figure 19. Equatorial Guinea and peers - Logistics Performance Index, 2018 28
• Figure 20. Equatorial Guinea and CEMAC – Worldwide Governance Indicators (percentile), 2022 29
• Figure 21. Domestic credit to private sector (in percent of GDP) and GDP per capita, 2021 30
• Figure 22. Equatorial Guinea and CEMAC countries - deforestation trend, percentage of total forest area, 2010-2020 39
• Figure 23. Equatorial Guinea - deforestation trend and categories, 2000-2022 39
• Figure 24. Forestry contribution to GDP in Equatorial Guinea 40
• Figure 25. Equatorial Guinea and selected countries - Wood product export value (US$ million), 2022 41
• Figure 27. Equatorial Guinea - GHG emissions by sector (million tons), 2020 41
• Figure 26. Equatorial Guinea - Wood products export value (US$ million), 2000-2022 41
• Figure 28. CAFI Budget transferred to countries million US$, 31 December 2022 44
• Figure 29. Equatorial Guinea, forest tax revenue, as a percentage of total tax revenue 53