Equatorial Guinea: FATF Scrutiny Amidst Economic Challenges and Governance Concerns

Equatorial Guinea, an oil-rich nation in Central Africa, faces a double whammy of economic instability and governance challenges that have raised concerns for financial watchdogs.

Background

Macroeconomic troubles since 2014: compound annual decline in real GDP of 5%
Elevated hydrocarbon prices in 2022 improved economic situation but uncertain future due to declining production
Institutional improvements needed according to the World Bank’s WGI Indicators

Figure 1: Equatorial Guinea: Need for Institutional Improvements (WGI Indicators, 2022)

Recent Developments and Reform Progress

Fiscal surplus in 2022
Passage of an Anti-Corruption law
Implementation of IMF-recommended governance improvements

Macroeconomic Situation

Real GDP growth of 3.2% in 2022
Non-hydrocarbon sector growth due to lifted COVID-19 restrictions and temporary hydrocarbon production boost
Steep decline in hydrocarbon production in the first half of 2023 (18.9% year-on-year)
Decreased inflation from 4.9% year-on-year in 2022 to 2.3% through October 2023

Banking Sector Stress

Exceeding 55% of total loans as non-performing
Banks representing 60% of total assets significantly undercapitalized

Text Table 1: Equatorial Guinea: Banking Sector - Financial Soundness Indicators (2020–23)

Structural Reforms

Fuel subsidy phase-outs
Repayment of domestic arrears
Comprehensive domestic arrears clearance plan implementation
Improvement of public procurement and customs procedures
Fostering a non-hydrocarbon economy

Text Table 2: Equatorial Guinea: Selected Structural Reforms (2022–23)

Anti-Corruption Measures

Revised anti-corruption law
International auditor appointment for domestic arrears clearance plan oversight

Despite recent reform efforts, Equatorial Guinea continues to face economic instability due to its reliance on hydrocarbons and underlying governance challenges.

FATF Scrutiny and Implications

The Financial Action Task Force (FATF) closely monitors Equatorial Guinea’s commitment to financial reforms and anti-corruption measures.

The vulnerabilities in the banking sector, including high levels of non-performing loans and undercapitalization, can intensify economic instability and lead to financial contagion. The authorities’ focus on financial sector reforms and their efforts to implement a comprehensive domestic arrears clearance plan are important steps to mitigate these concerns.

The implementation of reforms and governance improvements is crucial for Equatorial Guinea to adapt to its changing economic reality and reduce its vulnerability to future shocks.