Constrained adjustment in a rentier state

Abstract

Equatorial Guinea is a rentier state within the CFA franc arrangement, a monetary union that provides exchange-rate stability but limits national control over exchange-rate, monetary and reserve policy. This study examines how CFA-related monetary constraints shaped the adjustment trajectory of Equatorial Guinea’s rentier regime in response to the 2014-2016 oil price shock, and with what distributional consequences. Combining Rentier State Theory with literature on macroeconomic policy space and shock absorption, the study analyses Equatorial Guinea as a rentier state whose macroeconomic policy space is institutionally constrained by its membership in the CFA franc arrangement. Using a qualitative single-case study and theoryguided process tracing, it reconstructs the theoretically expected causal process from preexisting CFA-related constraints, through the oil price shock, to fiscal adjustment and its distributional effects. The analysis shows that the fixed exchange rate, absence of a national central bank and limited autonomous control over foreign reserves narrowed the regime’s available monetary adjustment options. Adjustment therefore became primarily visible through fiscal policy, especially reductions and reprogramming of public investment, limited tax measures, debt accumulation and the accumulation of arrears. The distributional consequences were uneven and broadly consistent with rentier governance logics. Recurrent spending connected to the state apparatus and visible infrastructure projects were relatively protected, while basic services, rural development, non-hydrocarbon sectors and future fiscal space bore important costs. The study concludes that the shock narrowed rather than transformed Equatorial Guinea’s rentier model.