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Equatorial Guinea Country Risk Report 2015

Equatorial Guinea Country Risk Report 2015

Core Views

Equatorial Guinea faces a challenging decade ahead as subduedglobal oil prices and declining domestic hydrocarbons productionsqueeze government revenues, crucial for supporting fixed investment.

The authoritarian nature of the government and endemiccorruption are likely to continue deterring Western fixed investment,while rampant poverty holds back private consumption.

Equatorial Guinea will face significant macroeconomic pressure in2016 in the wake of suppressed oil prices and diminishing domesticoil supply. Equatorial Guinea's over-reliance on its hydrocarbonsector will provide significant headwinds to economic growth dueto significantly lower export earnings and fiscal revenues.

The Banque des Etats de l'Afrique Centrale will maintain the key policyrate at 2.45% throughout 2016 following the decision to leave therate unchanged at the November 2015 Monetary Policy Committeemeeting. This is due to a low inflation outlook, resulting from furtherdeclines in the oil price and a stable currency. We forecast inflationto average 4.0% in 2016, marginally higher than the CommunautéÉconomique et Monétaire de l'Afrique Centrale average, due to thecountry's high reliance on imported food and goods.

Equatorial Guinea's fiscal position will face significant pressure over2016 as oil revenues continue to plunge. We forecast EquatorialGuinea's fiscal deficit to remain sizeable at 15.7% of GDP in 2016driven by the continued slump in global oil prices.

Equatorial Guinea's current account will remain firmly in deficit in2016 due to continued oil price weakness. Low oil prices togetherwith domestic currency strength will significantly reduce exportearnings for the undiversified economy.

The country faces significant challenges over the coming decadein terms of political stability. While the autocratic government ofPresident Teodoro Obiang has effective control over the country'spolitical institutions and civil society, extreme wealth inequality andhigh poverty levels elevate the risk of social unrest, especially in theevent the 73-year-old president passes away in office.

Major Forecast Changes

We have revised our headline GDP growth forecasts for 2015 and2016 to reflect the substantial drop in oil prices and associated contractionin the economy. We now expect headline GDP to contractby 12.6% and 3.3% in 2015 and 2016 respectively.

Due to the collapse in global oil prices and over-reliance on oilexports, we have revised our current account forecasts downward.

We now expect the current account balance to remain sizeable at32.1% of GDP in 2016.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Continued Economic Contraction To Fuel Political Pressure
Political pressure in Equatorial Guinea is expected to rise, especially around the country's 2016 presidential election, as its economy
continues to contract and oil prices remain low. While we do not expect rising public unrest to culminate in the government's
overthrowal, President Teodoro Obiang's death could result in a violent power vacuum as factions compete to secure their interests.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Poverty And Inequality Key Risks To Regime
Equatorial Guinea will face significant challenges over the coming decade to maintain political stability. While the autocratic government
of President Teodoro Obiang has effective control over the country's political institutions and civil society, extreme wealth inequality and
high poverty levels elevate the risk of social unrest, especially in the event the 73-year-old president passes away in office.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Oil Over-reliance To Drive Economic Crisis
Equatorial Guinea will face significant macroeconomic pressure in 2016 in the wake of suppressed oil prices and diminishing domestic
oil supply. Equatorial Guinea's over-reliance on its hydrocarbon sector will provide significant headwinds to economic growth due to
significantly lower export earnings and fiscal revenues.
GDP By Expenditure Outlook
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Monetary Policy
Currency Peg To Keep Inflation Subdued
The Banque des Etats de l'Afrique Centrale will maintain the key policy rate at 2.45% throughout 2016 following the decision to leave the
rate unchanged at the November 2015 Monetary Policy Committee meeting. This is due to a low inflation outlook, resulting from further
declines in the oil price and a stable currency. We forecast inflation to average 4.0% in 2016, marginally higher than the Communauté
Économique et Monétaire de l'Afrique Centrale average due to the country's high reliance on imported food and goods.
Monetary Policy Framework
Fiscal Policy And Public Debt Outlook
Dwindling Revenue To Fuel Fiscal Crisis
Equatorial Guinea's fiscal position will face significant pressure over 2016 as oil revenues continue to plunge. We forecast Equatorial
Guinea's fiscal deficit to remain sizeable at 15.7% of GDP in 2016, driven by the continued slump in global oil prices.
Structural Fiscal Position
External Trade And Investment Outlook
Current Account Deficit To Remain Large
Equatorial Guinea's current account will remain firmly in deficit in 2016 due to continued oil price weakness. Low oil prices together with
domestic currency strength will significantly reduce export earnings for the undiversified economy.
Outlook On External Position
TABLE: TOP FIVE GOODS EXPORTS IN 2014
TABLE: TOP FIVE IMPORTS IN 2014
Long-Term Economic Outlook
Oil Reliant Economy Faces Challenging Decade
Equatorial Guinea faces a challenging decade ahead as subdued global oil prices and declining domestic hydrocarbons production
squeezes government revenues, crucial for supporting fixed investment. The authoritarian nature of the government and endemic
corruption are likely to continue deterring Western fixed investment, while rampant poverty holds back private consumption.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Demographic Outlook
Demographic Forecast
TABLE: POPULATION BY AGE GROUP
TABLE: POPULATION BY AGE GROUP %
TABLE: POPULATION HEADLINE INDICATORS
TABLE: KEY POPULATION RATIOS
TABLE: URBAN/RURAL POPULATION & LIFE EXPECTANCY
Chapter 4: BMI Global Macro Outlook
Global Macro Outlook
Unfinished Business In 2016
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %

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