Gabon: Selected Issues

This Selected Issues paper investigates the determinants of sovereign spreads in 50 Emerging Market and Developing Economies, using a fixed effects panel model and leverages the results to draw lessons for improving funding costs in Gabon. The analysis finds that weak governance, high public debt, weak economic performance, a poor government payment record of accomplishment, and social vulnerabilities are the main factors that increase Gabon’s spreads. Strengthening policies in these areas—by bringing indicators for government effectiveness, regulatory quality, and the fiscal position to the median for sovereigns rated Banks Board Bureau by Fitch, as well as clearing external government arrears—could help reduce spreads by at least 500 bp and save at least 0.4 percent of gross domestic product in annual interest costs. The results also give insights into what it might take Gabon to reach investment grade. Investment grade bond spreads are approximately 200 basis points, around 400 basis points below Gabon’s February 2024 level. Strengthening growth drivers and economic diversification is imperative to improve the long-term performance of the economy.