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Guinea-Bissau: Staff Report for the 2004 Article IV Consultation

Author(s):
International Monetary Fund
Published Date:
March 2005
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I. Introduction

1. Guinea-Bissau has gone through a very difficult period in recent years. Political instability continued after the civil war in 1998-99 (Box 1). Economic activity failed to pick up because of the unstable political environment, a stalled reform effort, and large private sector wartime losses (Table 1). Fiscal problems mounted, reflecting a near doubling of wage expenditure after the war; weak expenditure management; declining revenue; and the suspension of donor assistance amid growing concerns about governance and unsatisfactory performance under the PRGF arrangement (Table 2). As a result, poverty has increased. Guinea-Bissau remains one of the poorest countries in the world with per capita income of US$185 (25 percent lower than in 1993) and a Human Development Index ranking that is among the ten lowest internationally.

Table 1.Guinea-Bissau: Selected Economic and Financial Indicators, 2000–2005
200020012002200320042005
Est.Proj.
(Annual percentage change, unless otherwise indicated)
National accounts and prices
Real GDP at market prices 1/7.50.2−7.20.61.73.4
Real GDP per capita 2/4.9−2.2−9.4−1.8−0.80.9
GDP deflator3.2−5.14.8−2.93.32.0
Consumer price index (annual average) 3/8.63.33.31.62.8
Consumer price index (end of period) 3/16.7−1.92.50.73.03.6
External sector
Exports, f.o.b.(based on U.S. dollar values)21.3−19.57.216.28.27.0
Imports, f.o.b. (based on U.S. dollar values)8.310.6−10.30.515.815.7
Export volume25.63.8−0.68.04.15.4
Import volume35.7−3.4−14.5−8.07.215.0
Terms of trade (deterioration -)−0.1−18.32.7−1.5−3.80.9
Real effective exchange rate (depreciation -)6.33.0−1.1−2.3....
Nominal exchange rate (CFA per U.S. dollar; average)712.0728.0697.8580.1....
Government finances
Domestic revenue (excluding grants) 4/23.4−16.9−11.6−0.220.2−8.9
Total expenditure56.3−10.5−22.810.030.7−17.7
Current expenditure 4/5/82.6−25.0−15.12.615.9−11.4
Capital expenditure 6/6.137.0−36.828.059.5−26.4
Money and credit 7/
Credit to government (net)17.8−0.74.9−4.2−4.3−1.3
Credit to the rest of the economy−62.2−1.2−5.1−37.016.45.5
Broad money67.79.924.113.628.55.5
Velocity (GDP/broad money)2.42.11.61.41.11.1
(In percent of GDP, unless otherwise indicated)
Investments and savings
Gross domestic investment11.314.48.911.115.215.0
Of which: government investment10.013.78.711.013.813.4
Gross domestic savings−8.5−20.1−12.5−2.90.2−3.3
Of which: government savings−14.9−11.0−8.9−10.5−14.5−7.2
Gross national savings5.6−8.0−1.88.915.99.8
Government finances
Budgetary revenue 4/19.216.815.315.617.815.4
Total domestic primary expenditure 4/30.321.519.419.923.620.7
Domestic primary balance−11.1−4.7−4.2−4.3−5.8−5.3
Overall balance (commitment basis)
Including grants−10.8−11.7−12.0−13.8−12.7−12.2
Excluding grants−24.9−26.2−18.1−21.5−28.3−20.6
External current account (including official current transfers)−5.6−22.3−10.7−2.30.7−5.2
Excluding official current transfers−17.2−31.3−12.7−5.6−6.6−7.5
Net present value of external debt/exports of goods and nonfactor services (in percent)9348241,2061,093881836
Memorandum items:(In millions of U.S. dollars, unless otherwise specified)
Current account balance (including official current transfers)−12.1−44.4−21.7−5.42.0−14.9
Overall balance of payments4.1−39.2−10.820.1−7.0−48.7
Nominal GDP at market prices (in billions of CFA francs)153.4145.9141.9138.7145.6153.7
Sources: Guinea-Bissau authorities; and staff estimates and projections.

The projections for 2004 take into account World Bank disbursement of US$4.3 million toward the mobilization and reintegration (PDRRI) and US$10.2 million for domestic arrears project (DASP) (5.3 percent of GDP in total), donor financial assistance for the emergency budget as of June (around 4 percent of GDP), and remuneration to Guinea-Bissau military personnel for participation in the UN peace keeping mission in Liberia (2 percent of GDP).

Projections based on population growth of 2.5 percent per year.

There is a break in the series in July 2002, when Guinea-Bissau adopted a new Harmonized CPI Index and the average CPI for 2003 is not

In 2004, domestic revenue includes CFAF 2,539 million in payment to Guinea-Bissau soldiers participating in the UN Liberia peace keeping mission. The same amount is recorded in current expenditure under salaries.

In 2004, includes an amount of CFAF 3.4 billion for legislative elections.

In 2003 and 2004, includes expenditure on foreign-financed demobilization and domestic arrears clearance programs.

In percent of beginning-of-period stock of broad money.

Sources: Guinea-Bissau authorities; and staff estimates and projections.

The projections for 2004 take into account World Bank disbursement of US$4.3 million toward the mobilization and reintegration (PDRRI) and US$10.2 million for domestic arrears project (DASP) (5.3 percent of GDP in total), donor financial assistance for the emergency budget as of June (around 4 percent of GDP), and remuneration to Guinea-Bissau military personnel for participation in the UN peace keeping mission in Liberia (2 percent of GDP).

Projections based on population growth of 2.5 percent per year.

There is a break in the series in July 2002, when Guinea-Bissau adopted a new Harmonized CPI Index and the average CPI for 2003 is not

In 2004, domestic revenue includes CFAF 2,539 million in payment to Guinea-Bissau soldiers participating in the UN Liberia peace keeping mission. The same amount is recorded in current expenditure under salaries.

In 2004, includes an amount of CFAF 3.4 billion for legislative elections.

In 2003 and 2004, includes expenditure on foreign-financed demobilization and domestic arrears clearance programs.

In percent of beginning-of-period stock of broad money.

Table 2.Guinea-Bissau: Central Government Operations, 2000–2009(In billions of CFA francs)
Budget EEMPBudget Revised
2000200120022003200420052006200720082009
Projections
Tax revenue and grants51.145.630.432.236.148.736.741.545.248.552.1
Budgetary revenue29.524.521.721.629.326.023.727.630.332.534.9
Tax revenue17.514.811.912.713.710.412.015.317.619.120.9
Nontax revenue 1/12.09.79.88.915.515.611.612.312.713.514.0
Grants21.621.18.710.66.922.813.013.914.916.017.2
Budget support12.68.31.91.10.07.20.00.00.00.00.0
Project grants 2/9.112.96.89.56.915.513.013.914.916.017.2
Total expenditure67.760.646.751.460.067.255.354.956.859.161.6
Current expenditure51.938.933.033.933.639.334.832.933.333.834.4
Wages and salaries 1/10.511.010.510.916.012.39.89.89.89.89.8
Goods and services10.95.27.77.07.98.18.48.99.410.010.7
Transfers5.37.27.45.04.97.27.47.57.67.77.8
Other current expenditures 2/3.91.80.70.50.54.75.11.82.02.12.3
Unregistered/Unallocated expenditures 3/12.51.50.34.00.00.80.00.00.00.00.0
Scheduled external interest8.811.66.16.04.15.73.94.64.23.93.6
Scheduled internal interest 4/0.00.60.40.50.40.40.30.30.30.30.3
Capital expenditure15.821.613.717.526.427.920.622.023.625.327.2
Public investments15.320.012.415.318.720.220.622.023.625.327.2
Domestically financed3.52.50.70.12.51.21.31.41.51.61.7
Foreign financed11.817.511.715.216.319.019.320.622.123.725.5
Demobilization expenditure (PDRRI)0.51.71.02.33.62.30.00.00.00.00.0
Domestic Arrears Clearance (DASP)0.00.00.30.04.15.50.00.00.00.00.0
Net Lending0.00.00.00.00.00.00.00.00.00.00.0
Overall balance, incl. grants (commitment basis)−16.5−14.9−16.4−19.2−23.9−18.5−18.7−13.4−11.6−10.6−9.5
Overall balance, excl. grants (commitment basis)−38.2−36.1−25.1−29.8−30.8−41.3−31.7−27.3−26.5−26.6−26.7
New external interest arrears−122.62.85.93.30.00.00.00.00.00.00.0
New domestic arrears2.15.69.415.80.09.40.00.00.00.00.0
Float, errors and omissions−0.2−8.4−1.9−1.60.00.00.00.00.00.00.0
Overall balance, including grants (cash basis)−137.2−14.9−3.0−1.8−23.9−9.1−18.7−13.4−11.6−10.6−9.5
Financing137.314.93.01.813.20.8−10.1−10.4−9.4−7.2−4.7
Domestic financing5.0−1.1−1.9−8.6−3.4−17.8−5.7−5.6−5.3−4.6−4.4
Bank financing4.4−3.03.2−4.7−0.4−4.5−2.0−2.4−2.1−1.4−1.2
Nonbank financing, incl. arrears0.61.9−5.1−3.9−3.0−13.3−3.6−3.2−3.2−3.2−3.2
Arrears 8/0.00.0−3.9−2.9−1.5−11.8−3.2−3.2−3.2−3.2−3.2
Financing from project accounts0.00.0−1.6−1.0−1.5−1.5−0.40.00.00.00.0
Privatization receipts (net)0.01.90.40.00.00.00.00.00.00.00.0
Foreign financing−2.3−10.0−2.35.17.013.3−10.2−11.5−11.4−9.5−7.3
Drawings10.24.64.98.017.114.66.36.77.27.78.3
Balance of payments loans7.40.00.02.37.77.80.00.00.00.00.0
Project loans2.74.64.95.79.46.86.36.77.27.78.3
Foreign liabilities transfer from BCGB 5/0.00.00.00.00.00.00.00.00.00.00.0
Amortization−12.5−17.4−18.6−16.5−20.9−18.7−16.4−18.2−18.6−17.3−15.6
Change in arrears 6/0.02.811.313.610.817.50.00.00.00.00.0
Debt relief134.626.07.25.39.65.35.76.77.26.97.0
Financing gap (+ = financing needs)0.00.00.00.010.78.328.823.821.117.714.3
Memorandum items:
Domestic primary balance 7/−17.0−4.7−5.6−5.9−2.4−8.5−8.2−1.70.11.32.7
(In percent of GDP)
Tax revenue and grants33.331.321.423.224.833.523.925.225.725.725.6
Budgetary revenue19.216.815.315.620.117.815.416.817.217.217.2
Tax revenue11.410.18.49.19.47.17.89.310.010.110.3
Nontax revenue 1/7.86.76.96.410.610.77.67.57.27.16.9
Grants 2/14.114.56.17.64.715.68.58.58.58.58.5
Total expenditure44.143.033.437.141.246.236.033.432.331.230.3
Current expenditure33.828.223.824.423.127.022.620.018.917.916.9
Current primary expenditure36.219.818.919.820.022.819.917.016.315.715.0
Of which: wages and salaries 1/6.87.57.47.911.08.46.45.95.55.24.8
Scheduled external interest5.78.04.34.32.83.92.52.82.42.11.8
Scheduled internal interest 4/0.00.40.50.30.20.20.20.20.20.20.1
Capital expenditure10.314.89.612.618.119.213.413.413.413.413.4
Public investments10.013.78.711.012.913.813.413.413.413.413.4
Domestically financed2.31.70.50.01.70.80.80.80.80.80.8
Foreign financed7.712.08.211.011.213.012.512.512.512.512.5
Demobilization expenditure (PDRRI)0.31.20.01.62.51.60.00.00.00.00.0
Domestic Arrears Clearance (DASP)0.00.00.90.02.83.80.00.00.00.00.0
Net Lending0.00.00.00.00.00.00.00.00.00.00.0
Overall balance, incl. grants (commitment basis)−10.8−11.7−12.0−13.8−16.4−12.7−12.2−8.1−6.6−5.6−4.7
Overall balance, excl. grants (commitment basis)−24.9−26.2−18.1−21.5−21.1−28.3−20.6−16.6−15.1−14.0−13.2
Overall balance, including grants (cash basis)−31.8−10.5−4.6−1.3−16.4−6.2−12.2−8.1−6.6−5.6−4.7
Financing31.810.54.61.39.00.5−6.6−6.3−5.3−3.8−2.3
Domestic financing3.3−0.5−0.2−6.2−2.3−12.2−3.7−3.4−3.0−2.4−2.2
Foreign financing28.511.04.83.74.89.1−6.6−7.0−6.5−5.0−3.6
Float, errors and omissions−2.1−1.91.7−1.20.00.00.00.00.00.00.0
Financing gap (+ = financing needs)0.00.00.00.07.45.718.814.512.09.47.0
Memorandum item:
Domestic primary balance 7/−11.1−4.7−4.2−4.3−1.6−5.8−5.3−1.10.00.71.3
Nominal GDP (in billions of CFA francs)153.4145.9141.9138.7145.6145.6153.7164.4176.1189.2203.3
Sources: Guinea-Bissau authorities; and staff estimates and projections.

In 2004, domestic revenue includes an amount of CFAF 2,539 million representing payment to Guinea-Bissau soldiers for services toward the peace keeping mission in Liberia. The same is recorded in current

In 2004, includes an amount of CFAF 3.4 billion in donor funding for legislative elections.

In 2000, the unallocated expenditures include those not authorized and paid with bons de virement (CFAF 10.8 billion) and cheques.

Interest and amortization on domestic debt does not include the servicing of debt stemming from the membership dues in the WAEMU. The authorities have agreed to begin repayment for these dues in 2005, fo billion per annum (recorded in transfers).

BCGB = Central Bank of Guinea-Bissau.

The amount in 2000 reflects payments due to bilateral, non-Paris Club creditors.

Defined as revenue (excluding grants) minus domestic interest, current and capital expenditure, excluding foreign financed expenditures and external interest payments.

After 2004, includes payment for capital contributions to WAEMU financed institutions.

Sources: Guinea-Bissau authorities; and staff estimates and projections.

In 2004, domestic revenue includes an amount of CFAF 2,539 million representing payment to Guinea-Bissau soldiers for services toward the peace keeping mission in Liberia. The same is recorded in current

In 2004, includes an amount of CFAF 3.4 billion in donor funding for legislative elections.

In 2000, the unallocated expenditures include those not authorized and paid with bons de virement (CFAF 10.8 billion) and cheques.

Interest and amortization on domestic debt does not include the servicing of debt stemming from the membership dues in the WAEMU. The authorities have agreed to begin repayment for these dues in 2005, fo billion per annum (recorded in transfers).

BCGB = Central Bank of Guinea-Bissau.

The amount in 2000 reflects payments due to bilateral, non-Paris Club creditors.

Defined as revenue (excluding grants) minus domestic interest, current and capital expenditure, excluding foreign financed expenditures and external interest payments.

After 2004, includes payment for capital contributions to WAEMU financed institutions.

Box 1.The 1998-99 Civil War and Its Aftermath

In June 1998, a power struggle between the President and the military escalated quickly into a much broader conflict, the roots of which lay in failed governance and a sense of exclusion among much of the population. The fighting was concentrated in the capital Bissau. It resulted in thousands of deaths, widespread damage to housing, infrastructure and government buildings and equipment, the virtual annihilation of the small industrial sector, and the departure abroad of many of the better educated.

The post-conflict strategy was based on an economic program supported under the PRGF, interim debt relief under the Initiative for Heavily Indebted Poor Countries (HIPC Initiative), and two key programs, financed by the World Bank, the European Union (EU) and bilateral donors, for (i) demobilization and reintegration of the military and veterans of the independence war (PDRRI); and (ii) clearance of public sector supplier arrears (DASP).

However, the country failed to attain political stability. The governing coalition fell quickly apart and oppression increased, while economic management was neglected. The PRGF-supported program went off track immediately because of expenditure overruns, and part of the interim debt relief and assistance to the PDRRI and the DASP was suspended.

Following delays beyond the constitutional deadline for holding elections, the military removed President Yalà in a bloodless coup in September 2003. A civilian national transition government organized parliamentary elections on March 28, 2004, which were won by the main opposition party, but without a majority in parliament. On October 6, 2004, some military units staged a rebellion—ostensibly to protest against corruption in the senior ranks of the army and bad living conditions in the barracks—killing, among others, the Chief of Staff of the Army. While the government reached an agreement with the mutineers quickly, mounting demands by the rebels and the emergence of different factions within the army raised tensions again later.

II. Recent Developments

2. Economic activity remained sluggish in 2003. After a sharp fall in 2002, agricultural production rebounded because of favorable weather conditions. However, activity in other sectors continued to decline, reflecting the lingering damage of the war, increasing political instability, and mounting public sector wage arrears. Real GDP growth is estimated to have stagnated in 2003 (Figure 2).1 Consumer prices remained flat during December 2002-03, reflecting falling domestic demand and adequate food harvests. The economic situation remained broadly unchanged in early-2004.

Figure 1a.Guinea-Bissau: Real GDP Growth and Inflation, 1998-2004 1/

(In percent)

Source: Guinea-Bissau authorities; and Fund staff estimates.

1/ 2004 ob servations are projections.

Figure 1b.Guinea-Bissau: Savings and Investment, 1998-2004 1/

(In percent of GDP)

Source: Guinea-Bissau authorities; and Fund staff estimates.

1/ 2004 observations are projections.

Figure 2.Guinea-Bissau: Money and Credit, 1998-2004 1/

(In percent of beginning-of-period money stock)

Source: Guinea-Bissau authorities; and Fund staff estimates;

1/ 2004 observations are projections.

3. The fiscal situation deteriorated further. With the possibility of elections, political interference in fiscal operations increased and control by the Ministry of Economy and Finance (MEF) collapsed during 2003. Provisional data indicate that the domestic primary deficit (on a commitment basis) remained around 4 percent of GDP.2 However, debt service to the IMF—which is paid automatically by the BCEAO from the government’s account—increased sharply compared to 2002 (Table 5), as did payments for domestic short-term debt and past arrears.3 The financing need was met by new domestic arrears. The salaries of most civil servants remained unpaid through the first nine months of 2003 as the authorities gave priority to paying for goods and services to promote political support (increasingly through netting out against tax liabilities). Consequently, the already severely weakened administration virtually collapsed as morale declined and strikes increased.

4. After the coup in September, the transition government formulated a donor-supported emergency plan for 2004 that had mixed results (Box 2). Expenditure control was strengthened and salaries eligible for donor financing were paid, albeit with delays. However, revenue remained considerably below expectations, reflecting a decline in imports and continuing administrative weaknesses. Moreover, the EU delayed disbursing the compensation for fishing rights—more than 20 percent of revenue—pending a review of its assistance to the sector, resulting in further arrears.

5. Guinea-Bissau’s financial systemremains very small. Only one small bank operates in Bissau as two larger banks remained closed after the civil war.4 Credit to the economy, mainly for import financing, declined in 2003, reflecting (corrected for accounting changes) the economic stagnation (Figure 3, Table 3).

Figure 3.Guinea-Bissau: Effective Exchange Rates, Jan 1990 - May 2004

(1990=100)

Source: IMF, Information Notice System (INS).

Table 3.Guinea-Bissau: Monetary Survey, 2000–2005
200020012002200320042005
Projections
(In billions of CFA francs)
Net foreign assets28.531.548.382.0107.8116.3
Central bank33.637.251.276.0103.3111.6
Deposit money banks−5.1−5.7−3.06.04.54.7
Assets6.02.85.56.04.54.7
Liabilities−11.0−8.5−8.40.00.00.0
Net domestic assets35.538.839.017.219.618.1
Net domestic credit20.319.823.017.814.012.5
Net claims on government20.319.823.017.814.012.5
Net claims on central government15.815.418.815.110.99.2
Central bank15.815.418.815.110.99.2
Claims20.420.320.217.914.913.5
Advances to treasury14.214.214.312.09.27.5
Statutory limit2.52.52.82.62.62.6
Use of Fund credit11.711.711.49.56.65.0
Consolidated loans6.26.15.95.85.76.0
Deposits−3.6−3.7−0.5−1.9−2.4−2.5
Deposit money banks−0.9−1.1−0.9−0.8−1.7−1.8
Claims0.00.00.30.50.00.0
Deposits−0.9−1.1−1.2−1.3−1.7−1.8
Credit to the economy4.54.44.22.73.13.3
Other items (net)15.219.016.0−0.65.75.7
Liabilities64.070.387.399.2127.4134.5
Broad money64.070.387.399.2127.4134.5
Local currency64.070.387.399.2127.4134.5
Currency in circulation44.253.171.190.0117.0123.4
Demand deposits and quasi money19.817.316.19.210.511.0
Demand deposits18.616.314.68.39.610.1
Quasi money0.90.81.30.60.60.6
Other deposits0.30.20.20.30.30.3
(In percent of beginning-of-period money stock, unless otherwise indicated)
Net foreign assets39.04.723.838.726.06.7
Net domestic assets28.65.10.3−25.02.5−1.2
Domestic credit−1.5−0.84.5−6.0−3.8−1.2
Credit to the government17.8−0.74.9−4.2−4.3−1.3
Credit to the economy (in percent)−62.2−1.2−5.1−37.016.45.5
Other items (net)30.15.9−4.3−19.06.30.0
Broad money67.79.924.113.628.55.5
Velocity (GDP/M2)2.42.11.61.41.11.1
Sources: Central Bank of West African States (BCEAO); and staff estimates and projections.
Sources: Central Bank of West African States (BCEAO); and staff estimates and projections.

6. Since Guinea-Bissau joined the WAEMU in 1997, its monetary and exchange rate policies are set for the Union as a whole. Inflation has been low and the real effective exchange rate depreciated through most of 2003 (Figure 4).

Figure 4.Guinea-Bissau: Exports, Imports, and Current Account Balance, 1998-2004 1/

(In percent of GDP)

Source: Guinea-Bissau authorities; and Fund staff estimates.

1/ 2004 observations are projections.

Box 2.The Emergency Economic Management Plan (EEMP)

The EEMP was based on an international partnership agreement proposed by the United Nations (UN) ECOSOC Ad Hoc Advisory Group for Guinea-Bissau to break the deadlock in donor assistance. The plan included political and financial governance policies and was submitted to donors by mid-December 2003. To add to donor confidence, the UN established an Emergency Economic Management Fund (EEMF), through which emergency budget support could be channeled and monitored. Assistance from the EEMF is provided for social sector and nonmilitary operating expenditure, conditional upon the implementation of the EEMP and the submission of detailed spending plans.

A key element of the EEMP was an emergency budget for 2004, that was prepared on the basis of “minimum needs” with technical assistance from the IMF, West AFRITAC, the World Bank, and the African Development Bank (AfDB). The main objective of the budget was to allow a basic functioning of the government by providing for wages and basic allocations for health and education. The EEMP included a treasury cash-flow plan for the period December 2003-June 2004 to facilitate fiscal management and allow close monitoring. External support for the emergency budget amounted to almost €7 million through June, slightly less than what had been requested.1/ The EEMP and the emergency budget were replaced by the government program for 2004-08 and a revised budget for 2004, accepted by parliament by end-July 2004.

1/ The countries of the West African Economic and Monetary Union (WAEMU) contributed about 40 percent. Other contributions came from Angola, China, France, Ghana, Italy, The Netherlands, Portugal, and Sweden.

7. The external current account balance continued to improve in 2003 (Table 4, Figure 5). The deficit on the trade balance narrowed, mostly on account of higher cashew nut exports. Imports declined as a ratio to GDP, with a large drop in rice imports—reflecting high stocks and a good domestic harvest—offsetting increases in other goods. The surplus on the capital account declined, partly reflecting lower capital transfers following the completion of an EU-financed infrastructure project.

Table 4.Guinea-Bissau: Balance of Payments, 2000–2009(In millions of U.S. dollars)
2000200120022003200420052006200720082009
Projections
(In millions of U.S. dollars)
Goods and services−42.7−68.6−43.6−33.6−40.8−52.4−59.3−66.3−73.0−80.0
Goods−8.9−28.6−16.9−8.6−14.7−22.8−27.8−32.7−37.2−42.0
Exports, f.o.b.62.150.053.662.267.372.077.182.688.594.9
Of which: cashew nuts60.047.247.455.859.964.468.973.879.184.7
Imports, f.o.b.−71.0−78.5−70.5−70.8−82.0−94.9−104.9−115.3−125.8−136.9
Services (net)−33.7−40.0−26.7−25.0−26.1−29.5−31.5−33.6−35.8−38.0
Credit6.47.37.38.614.410.311.111.912.813.8
Debit 1/−40.1−47.3−34.0−33.6−40.6−39.9−42.6−45.6−48.6−51.8
Income−12.4−16.0−8.7−10.3−10.7−7.2−8.7−7.9−7.3−6.8
Current transfers (net)42.940.130.638.453.544.746.949.953.457.3
Official 2/3/35.728.016.420.934.924.925.525.926.326.8
Of which: balance of payments support grants12.11.40.02.013.50.00.00.00.00.0
fishing license fees10.710.312.212.915.018.419.019.419.820.2
Private7.212.114.217.518.619.821.424.027.130.5
Of which: workers’ remittances2.29.913.917.218.219.421.023.626.630.1
Current account
Including official transfers−12.1−44.4−21.7−5.42.0−14.9−21.1−24.3−26.9−29.5
Excluding official transfers−37.1−62.2−25.9−13.5−18.0−21.4−27.6−30.8−33.5−36.1
Capital and financial balance−4.93.926.813.2−8.9−34.1−15.3−7.23.213.2
Capital account (including transfers)23.412.439.216.329.024.226.128.030.132.3
Financial account−28.4−8.4−12.4−3.1−37.9−58.3−41.5−35.2−26.9−19.1
Official medium-and long-term disbursements10.24.64.913.827.211.712.613.514.515.6
Balance of payments support7.40.00.03.914.50.00.00.00.00.0
Projects2.74.64.99.912.711.712.613.514.515.6
Scheduled amortization−17.6−23.9−26.6−28.8−32.9−28.9−32.5−33.2−30.7−27.7
Commercial banks’ net foreign assets−7.04.94.41.92.8−0.4−5.0−5.0−5.0−5.0
Private capital; other sectors’ NFA−14.06.05.010.0−35.0−40.7−16.6−10.5−5.7−2.0
Errors and omissions21.11.3−15.912.40.00.00.00.00.00.0
Overall balance4.1−39.2−10.820.1−7.0−48.7−36.4−31.4−23.6−16.1
Financing−4.139.210.8−20.17.048.736.431.423.616.1
Net foreign assets (increase -)−20.9−4.2−24.0−58.2−51.0−15.9−21.0−21.9−22.9−24.1
Of which: net IMF credit8.60.0−1.6−4.8−5.3−3.1−3.8−3.2−1.8−1.5
Debt relief189.135.710.29.19.910.612.513.613.013.2
Change in debt-service arrears (decrease -)−172.27.724.729.032.60.00.00.00.00.0
Financing gap (+)0.00.00.00.015.553.944.939.833.627.0
(In units indicated)
Memorandum items:
Scheduled debt service
In percent of exports and service credits43.572.846.347.546.738.941.138.532.126.8
Current account balance (in percent of GDP)
Including official transfers−5.6−22.3−10.7−2.30.7−5.2−6.8−7.4−7.6−7.7
Excluding official transfers−17.2−31.3−12.7−5.6−6.6−7.5−8.9−9.3−9.4−9.4
Sources: BCEAO; and Fund staff estimates and projections.

In 2004, includes an amount of US$4 million for services for elections, financed by US$ 6 million in donor grants.

Including food aid and technical assistance to projects

In 2004, includes US$ 4.7 million for remuneration to Guinea-Bissau soldiers for participation in the UN peace keeping mission in Liberia.

Sources: BCEAO; and Fund staff estimates and projections.

In 2004, includes an amount of US$4 million for services for elections, financed by US$ 6 million in donor grants.

Including food aid and technical assistance to projects

In 2004, includes US$ 4.7 million for remuneration to Guinea-Bissau soldiers for participation in the UN peace keeping mission in Liberia.

8. Guinea-Bissau is one of the most indebted poor countries (Table 6). It reached the decision point under the HIPC Initiative in December 2000, at which time the NPV of debt-to-exports and of debt-to-government revenue ratios stood at 1,029 and 1,254, respectively. Average required debt relief was calculated at 86 percent of the NPV of debt; the Fund and the World Bank would provide interim relief of 100 percent and Paris Club creditors of 90 percent of debt service falling due. However, following nonperformance under the PRGF-arrangement, interim relief from the IMF and Paris Club creditors automatically stopped after 2001. Debt to the IMF continues to be fully serviced; World Bank interim relief declined to 90 percent in January 2004—it will reach the statutory limit by end-2007—and the AfDB extended 100 percent relief through 2006.5 However, debt service to other creditors continues to fall into arrears (Table 7).6

Table 5.Guinea-Bissau: Obligations to the Fund, 2002-09(In SDR Millions)
20022003200420052006200720082009
Q1Q2Q3Q4TotalQ1Q2Q3Q4Total
Total1.413.611.300.691.290.423.701.020.240.680.232.172.632.201.271.03
Principal1.213.461.280.651.280.393.611.020.210.680.212.122.592.171.251.02
ESAF/PRGF0.951.860.840.210.840.212.100.840.210.680.211.942.592.171.251.02
Credit Tranche 1/0.271.600.440.440.440.181.510.180.000.000.000.180.000.000.000.00
Interest and Charges0.190.140.010.040.010.030.090.000.030.000.020.050.040.030.020.02
Net charges SDR Account0.020.010.000.000.000.000.010.000.000.000.000.010.010.010.010.01
Charges Credit Tranche0.100.070.010.010.000.000.020.000.000.000.000.000.000.000.000.00
Interest ESAF/PRGF0.070.070.000.030.000.030.050.000.020.000.020.040.030.020.010.01
Source: IMF Finance Department.

Post Conflict Assistance, 1999 and 2000.

Source: IMF Finance Department.

Post Conflict Assistance, 1999 and 2000.

Table 6.Guinea-Bissau: Nominal and Net Present Value (NPV) of Public and Publicly Guaranteed Debt Outstanding, 2003-09 1/(At end-period, in millions of U.S. dollars)
2003200420052006200720082009
Projections
Nominal stock of Total Public and Publicly Guaranteed Debt 2/900886874863613592573
Multilateral Creditors444425409395378359341
IDA238234229225219212205
African Development Group133128123118113110106
AfDB6555555
AfDF127122118113108104100
Islamic Development Bank151413121198
IMF1914963
IFAD8888777
BADEA131312121197
OPEC Fund8888865
EU/EIB8666653
ECOWAS2111111
Bilateral Creditors454461465469235233231
Paris Club Creditors314320323325185183181
Italy163162162160121120119
Portugal86889092262626
Brasil26272728131414
France16181919555
Belgium10111212666
Spain13131313131211
Germany1111000
Other Bilateral Creditors139141142143505050
Commercial1
NPV of Total Public and Publicly Guaranteed Debt768647647646407399391
Multilateral Creditors317187182175165159152
IDA158414244454647
African Development Group93908885828078
AfDB6666666
AfDF87848279767473
Islamic Development Bank131211111098
IMF14973000
IFAD6666655
BADEA131312121086
OPEC Fund8888754
EU/EIB10777654
ECOWAS2111111
Bilateral Creditors450458465470240239238
Paris Club Creditors325330334337192191189
Italy171171171170126125124
Portugal82858890282828
Brasil26272728141414
France19191920555
Belgium14141515777
Spain12121212121211
Germany1222111
Other Bilateral Creditors124127129131474747
Commercial1111111
Source: Guinea-Bissau authorities and staff estimates and projections.

Assuming a completion point under the Enhanced HIPC Initiative at end-October 2007. It also assumes for bilaterals (i) accumulation of arrears between January 2004 and September 2007, and (ii) forgiveness of 90 percent and rescheduling of ten percent of outstanding debt; and for multilaterals (i) reduction by 90 percent of IDA obligations and 100 percent of AfDB obligations.

Including arrears.

Source: Guinea-Bissau authorities and staff estimates and projections.

Assuming a completion point under the Enhanced HIPC Initiative at end-October 2007. It also assumes for bilaterals (i) accumulation of arrears between January 2004 and September 2007, and (ii) forgiveness of 90 percent and rescheduling of ten percent of outstanding debt; and for multilaterals (i) reduction by 90 percent of IDA obligations and 100 percent of AfDB obligations.

Including arrears.

Table 7.Guinea-Bissau: External Arrears Outstanding, 1999-2003 1/(In millions of U.S. dollars)
1999 2/2000200120022003
Est.Est.Est.
Total stock of arrears outstanding (end of year)139.1148.0156.6192.4176.4
Multilateral35.235.636.625.528.7
African Development Bank 3/1.71.81.90.00.0
African Development Fund3.64.55.20.00.0
Arab Bank for Economic Development in Africa5.55.55.68.08.3
Economic Community of West African States1.91.92.02.13.3
European Investment Bank / EU0.90.91.04.55.2
International Fund for Agricultural Development1.10.91.02.02.3
IDA0.00.00.00.00.0
Islamic Development Bank12.712.512.30.81.4
OPEC Fund7.77.67.68.28.2
IMF0.00.00.00.00.0
Bilateral103.9112.4120.0166.9147.7
Paris Club (cutoff date: December 1986)51.858.865.2111.184.2
Pre-cutoff date (rescheduled Paris Club III-1995)28.132.035.663.924.9
Belgium1.51.82.10.61.0
Brazil7.98.99.811.113.6
France2.12.52.96.26.9
Germany2.52.62.60.20.0
Italy7.17.17.130.63.4
Portugal7.19.111.115.117.6
Post-cutoff date23.726.829.647.259.3
Italy20.823.826.545.857.0
Spain2.93.03.11.52.3
Non-Paris Club52.153.654.855.863.5
Abu Dhabi Fund for Arab Economic Development0.20.20.20.20.2
Algeria1.41.51.57.78.3
Angola18.818.818.818.818.8
Kuwait17.817.917.91.63.4
Libya0.70.70.74.14.1
Pakistan1.31.31.31.61.8
Saudi Arabia4.64.74.87.28.0
Taiwan Province of China6.98.19.213.918.0
Nonsovereign (Banque Franco-Portugaise)0.40.40.40.60.7
Sources: Based on unreconcialed data provided by Guinea-Bissau authorities; and staff estimates.

Before application of traditional debt relief

Figures revised based on decision point calculations.

Includes Nigerian Trust Fund.

Sources: Based on unreconcialed data provided by Guinea-Bissau authorities; and staff estimates.

Before application of traditional debt relief

Figures revised based on decision point calculations.

Includes Nigerian Trust Fund.

9. Guinea-Bissau lost all special bilateral donor relationships, but multilateral donors are resuming disbursements. The Netherlands decided to end its special aid relationship with Guinea-Bissau shortly before the coup in 2003, completing the exodus of major bilateral donors following a long history of governance problems (although several contributed, with relatively small amounts, to the EEMF). However, based on the EEMP, the World Bank—in the context of its special approach to low-income countries under stress (LICUS)—resumed disbursements for demobilization and arrears clearance in March 2004 (for a total of US$15 million—5 percent of GDP). It is also developing an Interim Support Strategy for the period until end-2005. The EU withdrew from the arrears-clearance program in early-2004, citing governance issues with its implementation, but the funds have been reallocated to budget support. Following progress under a mandatory post-coup political dialogue, discussions on disbursement of the EU’s remaining budget support have started. A donor Round Table conference is tentatively planned for December 15, 2004.

III. Report on the Discussions

10. The discussions took place against the background of a stagnating economy, severe fiscal problems, and a virtually collapsed public administration. The government was preparing its program for 2004-08.7 The authorities and staff agreed that the immediate challenge was to rebuild the administration and to avoid further domestic budgetary arrears while laying the foundations for higher economic growth; consequently, the discussions focused on short-term policies. Medium-term policies and structural reforms would need to be fleshed out and implemented as administrative capacity was strengthened.

A. Short-Term Outlook and Policies

11. The short-term macroeconomic framework assumes an improvement in economic activity, reflecting donor assistance and a more positive policy environment. World Bank disbursements and payments by the UN for soldiers that participated in the peace-keeping force in Liberia, amounted to almost 6 percent of GDP by mid-2004.8 Based on their positive effect on domestic demand and a favorable outlook for agricultural production, real GDP is estimated to increase by 1-2 percent in 2004 and by around 3 percent in 2005. End-period inflation is expected to remain within the WAEMU’s target of less than 3 percent by the end of 2004. Reflecting low imports in the first half of the year, the external current account balance, including official transfers, is projected to become slightly positive in 2004.

12. The authorities’ main priority was restoring administrative capacity and rule-based fiscal management. They would give the highest priority to paying government salaries on time. Furthermore, they intended to pay the electricity bill monthly and provide regular, albeit necessarily small, amounts for operating costs to the ministries, allowing the administration to restart basic operations. The organization of the ministries will be strengthened following a review of the respective laws. Measures already taken to improve financial management included centralizing all revenue in the treasury account at the BCEAO; requiring MEF approval for all expenditure commitments; and applying public procurement regulations. Political appointees had been replaced by experienced technicians at the head of the revenue departments. On the expenditure side, the travel budget had been cut. Moreover, a revised budget for 2004, broadly as discussed with the staff, was approved by parliament on July 29, restoring a normal framework for expenditure allocations; further improvements toward a normal budget process would be made, with technical assistance financed by the UNDP, in the context of the budget for 2005.

13. Despite the measures, the fiscal situation will remain difficult (Table 10). Tax revenue is not expected to recover significantly in the second half of the year. Nontax revenue will be boosted by the EU’s compensation for fishing rights, but the expenditure, that was originally planned to be financed from this revenue, has also been carried over into the second half of the year. Moreover, the authorities intend to make up for the under-funding of the social sectors and of food for the military in the first half of the year. Outlays on parliament will also be higher than originally expected (although lower than in previous years). Consequently, the domestic primary deficit is projected to amount to almost 3 percent of GDP for July-December 2004.

Table 8.Guinea-Bissau: Medium-Term Projections, 2004–09 1/(Annual percentage change, unless otherwise indicated)
200420052006200720082009
Projections
(Annual percentage change, unless otherwise indicated)
National accounts and prices
Real GDP at market prices1.73.43.84.04.34.3
Real GDP per capita−0.80.91.31.41.71.7
Consumer price index (annual average)1.62.83.03.03.03.0
External sector
Exports, f.o.b.(based on U.S. dollar values)8.27.07.17.17.27.2
Imports, f.o.b. (based on U.S. dollar values)15.815.710.69.99.18.8
Export volume4.15.45.15.15.15.1
Import volume7.215.010.08.97.87.5
Government finances
Domestic revenue (excluding grants)20.2−8.916.59.97.47.3
Total expenditure30.7−17.7−0.93.64.04.3
Current expenditure15.9−11.4−5.51.21.61.9
Capital expenditure59.5−26.47.07.17.57.5
(In percent of GDP, unless otherwise indicated)
Investments and savings
Gross domestic investment15.215.015.115.215.315.4
Of which: government investment13.813.413.413.413.413.4
Gross domestic savings0.2−3.3−4.1−4.9−5.3−5.6
Of which: government savings−14.5−7.2−3.2−1.7−0.70.2
Gross national savings15.99.88.27.87.77.6
Government finances
Budgetary revenue17.815.416.817.217.217.2
Total domestic primary expenditure23.620.717.817.216.515.9
Domestic primary balance−5.8−5.3−1.10.00.71.3
Overall balance (commitment basis)
Including grants−12.7−12.2−8.1−6.6−5.6−4.7
Excluding grants−28.3−20.6−16.6−15.1−14.0−13.2
External current account (including official current transfers)0.7−5.2−6.8−7.4−7.6−7.7
Excluding official current transfers−6.6−7.5−8.9−9.3−9.4−9.4
Net present value of external debt/exports of goods and nonfactor services (in percent)881.3836.1757.1685.6622.0565.8
Memorandum items:(In millions of U.S. dollars, unless otherwise specified)
Current account balance (including official current transfers)2.0−14.9−21.1−24.3−26.9−29.5
Overall balance of payments−7.0−48.7−36.4−31.4−23.6−16.1
Nominal GDP at market prices (in billions of CFA francs)145.6153.7164.4176.1189.2203.3
Sources: Guinea-Bissau authorities; and staff estimates and projections.
Sources: Guinea-Bissau authorities; and staff estimates and projections.
Table 9.Guinea-Bissau: Millennium Development Goals
19901995200120022010
Target 1/
Goal 1. Eradicate extreme poverty and hunger
Target 1: Halve between 1990 and 2015, the proportion of people whose income is less than one dollar a day.
1. Population below US$ 1 a day (percent)........
2. Poverty gap ratio at US$ 1 a day (percent)........
3. Share of income or consumption held by poorest 20 percent (percent)..5.2....
Target 2: Halve, between 1990 and 2015, the proportion of people suffering hunger
4. Prevalence of child malnutrition (percent of children under 5)....25.0..
5. Population below minimum level of dietary energy consumption (percent)........
Goal 2. Achieve universal primary education
Target 3: Ensure that, by 2015, children will be able to complete a full course of primary schooling
6. Net primary enrollment ratio (percent of relevant age group)....53.5....
7. Percentage of cohort reaching grade 5........
8. Youth literacy rate (percent age 15-24)44.151.059.560.8
Goal 3. Promote gender equality and empower women
Target 4: Eliminate gender disparity in primary and secondary education preferably by 2005 and to all levels of education by 2015
9. Ratio of girls to boys in primary and secondary education (percent)....64.9..
10. Ratio of young literate females to males (percent ages 15-24)42.551.061.863.6..
11. Share of women employed in the nonagricultural sector (percent)..........
12. Proportion of seats held by women in the national parliament (percent)20.010.08.08.0
Goal 4. Reduce child mortality
Target 5: reduce by two-thirds between 1990 and 2015, the under-five mortality rate
13. Under-five mortality rate (per 1,000)253.0235.0211.0205.0
14. Infant mortality rate (per 1,000 live births)153.0143.0130.0122.0..
15. Immunization against measles (percent of children under 12-months)........
Goal 5. Improve maternal health
Target 6: Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio.
16. Maternal mortality ratio (modeled estimate, per 100,000 live births)..910.0......
17. Proportion of births attended by skilled health personnel..25.0....
Goal 6. Combat HIV/AIDS, malaria and other diseases
Target 7: Halt by 2015, and begin to reverse, the spread of HIV/AIDS
18. HIV prevalence among females (percent ages 15-24)....3.0....
19. Contraceptive prevalence rate (percent of women ages 15-49)..........
20. Number of children orphaned by HIV/AIDS....4,300....
Target 8: Halt by 2015, and begin to reverse, the incidence of malaria and other major diseases
21. Prevalence of death associated with malaria........
22. Share of population in malaria risk areas using effective prevention and treatment........
23. Incidence of tuberculosis (per 100,000 people)....271.1....
24. Tuberculosis cases detected under DOTS (percent)....37.0....
Goal 7. Ensure environmental sustainability
Target 9: Integrate the principles of sustainable development into policies and programs. Reverse the loss of environmental resources
25. Forest area (percent of total land area)85.5..77.8....
26. Nationally protected areas (percent of total land area)..........
27. GDP per unit of energy use (PPP $ per kg oil equivalent)..........
28. CO2 emissions (metric tons per capita)0.80.80.2....
29. Proportion of population using solid fuels..........
Target 10: Halve by 2015 proportion of people without access to safe drinking water
30. Access to improved water source (percent of population)....56.0....
Target 11: Achieve by 2020 significant improvement for at least 100 million slum dwellers
31. Access to improved sanitation (percent of population)44.0..2wqa....
32. Access to secure tenure (percent of population)..........
Goal 8. Develop a Global Partnership for Development 2/
Target 16: Develop and implement strategies for productive work for youth.
45. Unemployment rate of population ages 15-24 (total)
Female..........
Male..........
Target 17: Provide access to affordable essential drugs
46. Proportion of population access with access to affordable essential drugs..........
Target 18: Make available new technologies, especially information and communications
47. Fixed line and mobile telephones (per 1,000 people)..........
48. Personal computers (per 1,000 people)..........
Sources: World Bank; and Guinea-Bissau authorities.

The target reported corresponds to the authorities’ own objectives in the draft PRSP.

Targets 12-15 and indicators 33-44 are excluded because they can not be measured on a country specific basis. These are related to official development assistance, market access, and the HIPC initiative.

Sources: World Bank; and Guinea-Bissau authorities.

The target reported corresponds to the authorities’ own objectives in the draft PRSP.

Targets 12-15 and indicators 33-44 are excluded because they can not be measured on a country specific basis. These are related to official development assistance, market access, and the HIPC initiative.

Table 10.Summary of Government Operations, 2004-2005 1/(In billions of CFA francs)
2004 Jan-Jun Est.Jul-Dec Revised BudgetYear Revised Budget2005 Proj.
Revenue8.514.923.523.7
Tax4.95.510.412.0
Nontax 2/3.79.413.111.6
Domestic primary expenditure12.919.131.931.8
Wage and wage-related exp. 2/3/6.28.414.516.1
Goods and services1.75.37.07.2
Transfers0.34.04.33.0
Other current expenditure4.20.74.94.3
Domestically-financed capital exp.0.50.81.21.3
Domestic primary balance (commitment basis)−4.3−4.1−8.5−8.2
Current year arrears10.5−4.56.00.0
Domestic primary balance (cash basis)6.2−8.6−2.5−8.2
Debt and financing−4.2−3.6−7.9−20.5
External debt service and financing (net)5.50.66.1−16.2
Budget support grants8.72.010.60.0
External debt service (net paid/due)−3.2−1.4−4.5−16.2
Domestic debt service and financing (net)−9.7−4.3−14.0−4.3
BCEAO−0.5−0.3−0.7−0.7
Project accounts−0.9−0.6−1.5−0.4
Arrears previous year(s)−8.3−3.4−11.8−3.2
Financing gap2.0−12.3−10.3−28.8
Memorandum items:
Domestic primary balance (commitment; in perce−3.0−2.8−5.8−5.3
External debt arrears (in billions of CFAF)17.5
Source: Guinea-Bissau authorities; and Fund staff estimates and projections.

Excluding expenditure and offsetting financing of foreign-financed projects.

Excludes CFAF 2.5 billion for the peace keeping mission in Liberia.

Includes wages, pensions, food for the military and police, and transfers to parliament and semi-autonomous government organizations.

Source: Guinea-Bissau authorities; and Fund staff estimates and projections.

Excluding expenditure and offsetting financing of foreign-financed projects.

Excludes CFAF 2.5 billion for the peace keeping mission in Liberia.

Includes wages, pensions, food for the military and police, and transfers to parliament and semi-autonomous government organizations.

14. The authorities felt that there was little scope for substantial revenue or expenditure measures at this time. The weak economy was not conducive for tax increases, and it would take time to strengthen tax administration. They agreed that there was considerable scope for reducing personnel expenditure. However, as alternative employment was not available, reductions in staffing would need to be prepared under a medium-term public sector reform program. They agreed, however, with the staff’s suggestion to complement a file-by-file review of the civil service with an immediate census to establish the actual number of public servants.

15. Including payment of arrears incurred during January-June and debt service, the budget’s financing need amounts to almost 6 percent of GDP (€15 million) for the second half of 2004. The authorities intend to clear all 2004 wage arrears and to start paying the remaining debt to project accounts. External debt service will be limited mainly to the Fund and the World Bank. With regard to financing, the remaining funds in the EEMF amounted to about €2 million at end-June. Up to €10 million could be provided by the EU, but it is not clear if Guinea-Bissau’s weak administration can meet the accounting requirements for the use of these funds.9 In case the gap cannot be closed, the authorities intend to give priority to wages and debt service to the Fund and the World Bank to avoid interruption in new assistance; they will also seek further cuts in operating expenditure, but if the financing shortfalls prove to be substantial, further wage arrears would be likely.

16. The authorities indicated their intention to harmonize salaries across the public sector. Following widening differences in remuneration between politicians and the military, the previous government approved a ten-fold salary increase for the latter, which was, however, never implemented. The authorities agreed with staff that it would be impossible to finance that increase. As an alternative, they intended to harmonize public sector salaries based on a reduction in the remuneration for politicians. Staff agreed with this approach, but stressed the need to maintain the overall wage bill within budget.10

17. The authorities intended to cooperate closely with the World Bank on revitalizing the economy, including by reducing the still excessive regulation of the economy and rehabilitating the electricity sector. They regretted the decision of the EU to withdraw from the DASP; they intended to seek alternative donor financing since rebuilding the private sector’s strength was crucial for the economy.

B. Medium-Term Outlook and Policies

18. Medium-term policies should emphasize exploiting Guinea-Bissau’s excellent growth potential in agriculture and fisheries. There is adequate supply of fertile land and rainfall is good; the offshore waters are estimated to be among the most productive for fishing in West Africa. Nevertheless, past policies focused on developing industrial activity around Bissau, benefiting the political and military elite but providing little incentives for the rural areas to improve agricultural productivity. Similarly, the local fishing sector remains undeveloped. As a result, poverty remains endemic,11 and the economy remains highly vulnerable to external shocks as more than 90 percent of exports, about 20-25 percent of GDP, and more than 10 percent of fiscal revenue depend on cashew nuts, and a further 35-40 percent of revenue comes from fishing licenses to foreign operators.

19. The discussions on the medium-term outlook and policies were of a preliminary nature. The government’s program provides the main medium-term objectives: accelerating economic growth, reducing poverty, and stabilizing the fiscal situation. However, the policies remain to be detailed and costed, and basic data improved, before a realistic medium-term framework can be prepared.

20. The authorities and staff agreed that present trends were unsustainable, and the discussions focused on a tentative medium-term scenario, based on strong action to strengthen the fiscal position and on structural reforms to boost productivity growth (Box 3). A combination of revenue and expenditure measures would be required to move the budget’s domestic primary deficit from 5 percent of GDP in 2005 (including cost of elections equivalent to 2 percent of GDP) to zero by 2007:

  • Guinea-Bissau’s low tax revenue-to-GDP ratio—almost half the WAEMU-area average—indicates significant scope for revenue enhancement. A recent review of the tax system by the World Bank found that domestic tax rates are generally higher than in the rest of the region, indicating that additional revenue would have to come from widening the tax base and improving administration.12 Other technical assistance reports indicate that there are ample opportunities for this, but it will take time, and technical assistance, for these to be realized.
  • Wage and wage-related expenditure claim almost 70 percent of revenue, double the WAEMU target, indicating the possibility of substantial savings. Assuming the implementation of a comprehensive public sector reform program, the wage bill has been projected to remain constant in nominal terms at the level prevailing in recent years. In the absence of a completed PRSP and costed policies, poverty reduction expenditure has been projected at a constant ratio to GDP.

While this scenario would allow the government to finance domestic primary expenditure from domestic resources by 2007, there would still be significant financing gaps in the interim, reflecting the primary deficit and Guinea-Bissau’s high debt burden. Moreover, despite the assumed resumption of HIPC debt relief, financing gaps would remain—although at a much lower level—after 2007.

21. The authorities noted that the medium-term structural reform program—although still at a preliminary stage—provided a good basis for boosting growth along the lines envisaged in the scenario. These policies build on programs that were supported by the Fund and the World Bank in the 1990s, and on recent technical assistance reports. Important elements include improving the legal system and investment regulations, reducing inefficient taxes and regulations, and completing the privatization program. The World Bank is providing assistance in many of these areas. Furthermore, the World Bank, the EU, and the AfDB are providing assistance to the fisheries sector, including for strengthening surveillance, research, and development of local fisheries, while the EU continues to provide support for road infrastructure.

Box 3.Medium-term Scenarios, 2004–2009

Without strong policy adjustment, recent trends indicate low growth and a persistent substantial deficit on the budget’s primary balance. The lack of reform would discourage donors to reengage. Consequently, new (wage) arrears would be likely, making this scenario economically and politically unsustainable.

The reform scenario assumes political stability and structural reform as well as strong measures to improve revenue performance and contain personnel costs. It aims at a possible new PRGF arrangement and full interim debt relief under the HIPC Initiative by early 2007, and attainment of the completion point by end-2007. The fiscal financing gaps are assumed to be filled by renewed donor support.

200420052006200720082009
Estm.Projections
(In billions of CFAF)
Low case (present trends) 1/
Revenue23.523.724.926.127.428.8
Domestic primary expenditure31.933.435.136.938.840.8
Debt service 2/35.020.622.021.223.321.3
Balance−43.4−30.4−32.3−32.0−34.7−33.3
In percent of GDP−29.8−19.9−20.1−19.0−19.6−17.9
Reform scenario 3/
Revenue23.523.727.630.332.534.9
Domestic primary expenditure31.931.929.330.231.232.2
Debt service 2/35.020.622.06.67.58.7
Balance−43.4−28.8−23.7−6.5−6.2−6.1
In percent of GDP−29.8−18.8−14.5−3.7−3.3−3.0
Sources: Guinea-Bissau authorities; and Fund staff estimates and projections.

Assumes real GDP growth of 2 percent per year; revenue and domestic primary expenditure constant in terms of GDP; World Bank interim relief to end after 2007.

Scheduled external and domestic debt service minus HIPC interim relief World Bank and AfDB (preliminary data).

Assumes annual real GDP growth to increase gradually to 4.3 percent by 2009; strong improvements in tax administration; wage bill constant in nominal terms; resumption HIPC interim relief in 2007 and completion point by end-2007.

Sources: Guinea-Bissau authorities; and Fund staff estimates and projections.

Assumes real GDP growth of 2 percent per year; revenue and domestic primary expenditure constant in terms of GDP; World Bank interim relief to end after 2007.

Scheduled external and domestic debt service minus HIPC interim relief World Bank and AfDB (preliminary data).

Assumes annual real GDP growth to increase gradually to 4.3 percent by 2009; strong improvements in tax administration; wage bill constant in nominal terms; resumption HIPC interim relief in 2007 and completion point by end-2007.

22. Rebuilding the financial sector will be an important element in enhancing growth prospects. The authorities shared staff’s concern that the WAEMU’s common minimum capital requirement could be excessive for the small market of Guinea-Bissau, discouraging new banks. They had therefore relaxed the requirement for Guinea-Bissau, and a second commercial bank was expected by end-2004, at the same time as the WAEMU’s regional microfinance bank.

23. There are considerable downside risks in the medium-term scenario. First, reflecting the many years of instability, and evidenced by the recent military uprising, the risk of new political problems will remain high for some time to come, especially in view of presidential elections in the first half of 2005. Second, limited administrative capacity and the political need to keep urban interest groups satisfied could divert resources from much-needed investment in agriculture, finance and basic infrastructure, possibly jeopardizing growth prospects. Third, financing for the short- and medium-term budget gap remains uncertain, and severe expenditure cuts or renewed wage arrears would greatly undermine the ability of the government to implement its reform program, continuing a vicious circle of low performance and declining donor assistance.13

24. Staff and authorities agreed that the successful implementation of short- and medium-term policies envisaged would require considerable technical assistance. In the Fund’s area of competence, there is an urgent need for strengthening a broad range of functions of the MEF, including macroeconomic statistics. In this regard, staff urged the authorities to rapidly finalize a technical assistance master plan for the MEF for submission to donors, requesting assistance to complement efforts already under way.14 Staff also suggested that the authorities prepare a broad national technical assistance plan.

25. The authorities attach great importance to the PRSP. They agreed with staff that the latest draft lacked important elements, including prioritization and costing of the policies, and a monitoring system. However, while work would continue, they felt that, in view of the long delay since the Interim-PRSP in 2000 and the upcoming Round Table conference, it would be important to finalize the document soon. They intend to submit the PRSP to the Fund and the World Bank before end-2004, following which missing elements could be added as technical capacity is strengthened.

C. Ex-Post Assessment and Future Fund Involvement

26. The authorities broadly agreed with the EPA. They indicated that the key issue of improving the political situation would be addressed in the context of the government’s emphasis on good governance and transparency. They would also strengthen fiscal management further, while reducing regulations to minimize possibilities for corruption. The judiciary would be strengthened and transparency would be increased, including by reviving consultation mechanisms with social partners and civil society. They acknowledged that progress in these areas would also be crucial for promoting the much needed resumption of foreign assistance, as donors would require strong proof that the causes of the poor results of past support were being addressed. They welcomed close international monitoring of, and technical assistance in, these areas.

27. The authorities preferred an early return to a PRGF arrangement, so that interim debt relief could be resumed and progress made toward the HIPC Initiative’s completion point.15 However, given the negative experience with the 2000-03 arrangement, they acknowledged that it would be important to first build implementation capacity for a PRGF-supported program. Nevertheless, they felt that a financial program with the Fund would be crucial because of the urgent financial needs and its expected catalytic effect on other assistance. In this regard, they agreed with the recommendation in the EPA that renewed emergency post-conflict assistance (EPCA) would be the best option (Box 4).

Box 4.Renewed Access under EPCA to Guinea-Bissau

Guinea-Bissau made purchases under the EPCA in September 1999 and January 2000 for an amount equivalent to 25 percent of quota, but failed to successfully make the transition from EPCA to a PRGF arrangement. This reflected the fact that the conflict reemerged after the initiation of the EPCA and did not end until the military coup in September 2003 (though recent events suggest that the conflict may be still ongoing). This was also due to the fact that Guinea-Bissau continued to lack the institutional and administrative capacity necessary to develop and implement a comprehensive economic program that could be supported by a Fund arrangement. Despite the adverse consequences of the weak economic performance in the past few years and the sizeable buildup of domestic arrears, including to the civil service, Guinea-Bissau has remained current in its debt service obligations to the Fund, unlike other external creditors that stopped interim debt relief.

Against this background, renewed Fund support under the EPCA appears to be the most suitable way for the Fund to support the ongoing UN-led efforts to promote stabilization in Guinea-Bissau, subject to satisfactory resolution of the recent uprising. Consistent with the spirit of the Board decision in April 2004, in the context of its discussion of the Fund’s role in low-income countries, to extend “the length of EPCA-supported programs, in total, to as long as three years”1 (www.imf.org), the staff proposes to initiate in due course discussions on an EPCA-supported program covering up to an additional two-year period, for a total of three, albeit noncontiguous, years. Possible further access to Fund resources under the EPCA would be restricted to an amount not to exceed a total of 50 percent of quota in outstanding purchases under the EPCA. Moreover, in order to safeguard Fund resources, there would be a stronger presumption that renewed access to Fund resources under the EPCA would be tranched.

In considering purchases of EPCA after such an interruption, stronger justification would be needed than for the earlier purchases, including a more thorough assessment of the risks to program implementation. Also, to help foster program implementation and to strengthen assurances to donors, each purchase would be supported by a clear assessment of Guinea-Bissau’s commitment to reform, and of progress in rebuilding administrative and program implementation capacity.

1/ “The Fund’s Role in Low-Income Countries—Considerations on Instruments and Financing” (www.imf.org., February 24, 2004).

IV. Staff Appraisal

28. Guinea-Bissau has gone through a very difficult time in recent years. With hindsight, the political-military conflict of 1998-99 did not end in 1999 but reemerged in the form of political instability in the following years. Consequently, the reforms stalled, administrative capacity declined further, economic and fiscal problems deepened, and poverty increased.

29. The orderly transition from military coup to a government elected on the basis of a broad reform platform was encouraging, but enormous challenges lie ahead. The government’s minority status in parliament, next year’s presidential elections, and the painful measures required by the deep financial problems, will put a heavy burden on the country’s young democracy, and the political situation can be expected to remain fragile for some time to come. As discussed in more detail in the EPA, a key cause in Guinea-Bissau’s development failure during the last thirty years has been the emphasis on policies serving the interests of the political and military elite in Bissau. In this regard, the staff strongly supports the combined UN Security Council/ECOSOC mission to Guinea-Bissau of June 2004 in urging all parties to put the national interest above short-term political considerations.

30. The government program forms a good basis for addressing Guinea-Bissau’s economic and financial problems, but the authorities’ ability to implement it remains uncertain. Initial measures indicate strong commitment to the program’s objectives, including with regard to restoring rule-based government and good management. Nevertheless, as shown by the outcome of the recent discussions on public sector wages and the military uprising, national consensus on the program is still lacking despite its approval by parliament.

31. The staff welcomes the initial measures to restore fiscal control, although the recent increase in the wage bill was disappointing. With regard to the latter, the staff urges the authorities to seek further offsetting measures, including by rapidly following up on the civil service census, ensuring that wages are only paid to workers who are actually present. Staff acknowledges that the scope for substantial revenue and expenditure measures is limited in the immediate future because of the need to build administrative capacity and to prepare a public sector reform program. In the meantime, the authorities should continue strong efforts to find additional resources and to reduce nonessential expenditure.

32. Medium-term policies will need to focus on strengthening the fiscal position. Tax administration should be improved and the tax base widened. The public sector wage bill should be brought under control on a durable basis through public sector reform. Such a program will require considerable technical assistance to strengthen capacity, as well as financial support, from donors.

33. The emphasis of the authorities’ medium-term structural policies on boosting growth through deregulation and improvements in the investment climate, is encouraging. While many policies will take time to prepare, the staff recommends that the still excessive regulation of the economy be reduced rapidly, which is a low cost measure that could quickly yield results. Membership of the WAEMU has been beneficial to Guinea-Bissau as it allowed maintaining price and exchange rate stability despite the serious fiscal problems, but the fixed exchange rate system makes structural reforms all the more important for maintaining and improving external competitiveness.

34. Guinea-Bissau’s unsustainable external debt and mounting debt service arrears can only be addressed in the context of the HIPC Initiative. Until then, the staff recommends that the authorities continue servicing debt to multilateral institutions so as not to interrupt ongoing and possible new support, and to resume discussions with other creditors on interim solutions. In order not to add to the already excessive debt, new assistance should be mainly in the form of grants.

35. It is understandable that, four years after the Interim-PRSP, the authorities prefer to submit a full PRSP without further delay. The staff realizes that it will take time for Guinea-Bissau to build technical capacity to complete a locally-owned PRSP that covers all areas expected in such a document. Nevertheless, while detailed costings and a monitoring system could be included in coming updates, the staff urges the authorities to ensure that, in addition to prioritization of the policies, the PRSP reflect a broad domestic consultation process.

36. Continued strong policy implementation will have to be complemented by considerable donor support for Guinea-Bissau to be able to solve its problems in a reasonable timeframe. In view of the weak institutions and technical capacity, substantial technical assistance will be required in implementing the needed policies. In this regard, the staff welcomes the strong emphasis of the government program on good governance and transparency, which is crucial for restoring relations with the donors.

37. The staff supports the recommendation in the EPA that renewed EPCA would be the appropriate next step in Fund engagement with Guinea-Bissau. The economic and financial situation and the disruption of administrative capacity are worse than in 1999–2000 and financial assistance is urgently needed. However, Guinea-Bissau is not expected to be ready to implement the strong policies that can be supported under the PRGF for some time. In the interim, EPCA would provide time for donors to fully reengage, alleviate the heavy burden of debt service to the Fund, and assist the government in strengthening administrative capacity so as to gradually demonstrate its ability to effectively implement a new PRGF arrangement. Nevertheless, the recent events indicate that the conflict may be continuing. Therefore, staff will need to continue to evaluate the situation and complete discussions on an EPCA-supported program only if it can establish that the recent military uprising has been satisfactorily resolved and that the government is able to implement the program’s policies.

38. In view of the broad range of problems, new Fund EPCA can only be successful in the context of a concerted international effort. As indicated in the EPA, such an effort should be based on strong donor coordination, and should include the regional institutions that have been key in assisting the country in maintaining stability over the last twelve months. The resumption of assistance by the World Bank and the EU, the broad donor participation in the EEMF, and recent discussions in UN organizations, are positive indicators for donor interest. Nevertheless, also in light of the recent military uprising, the extent of a new concerted effort remains to be confirmed in a donor conference, which should precede the approval of new EPCA.

39. New external assistance should emphasize institution and capacity building. In this regard, staff urges the authorities to rapidly seek assistance with the preparation of a country-wide technical assistance plan. It also supports the authorities’ request for additional technical assistance in the Fund’s area of competence.

40. Staff proposes that the next Article IV consultation with Guinea-Bissau be held on the standard 12-month cycle.

APPENDIX I: Guinea-Bissau: Relations with the Fund

(As of September 30, 2004)

I. Membership Status: Joined: March 24, 1977; Article VIII

II. General Resources Account:

SDR Million%Quota
Quota14.20100.00
Fund holdings of currency14.56102.50
Reserve Position0.000.00

III. SDR Department:

SDR Million%Allocation
Net cumulative allocation1.21100.00
Holdings0.4436.53

IV. Outstanding Purchases and Loans:

SDR Million%Quota
First Credit Tranche0.362.50
PRGF Arrangements10.2071.82

V. Latest Financial Arrangements:

TypeApproval DateExpiration DateAmount Approved (SDR Million)Amount Drawn (SDR Million)
PRGFDec 15, 2000Dec 14, 200314.205.08
PRGFJan 18, 1995Jul 24, 199810.5010.50
SAFOct 14, 1987Oct 13, 19905.253.75

VI. Projected Payments to Fund

(SDR Million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20042005200620072008
Principal3.612.122.592.171.25
Charges/Interest0.090.060.050.040.03
Total3.702.182.642.211.28

VII. Implementation of HIPC Initiative:

I.Commitment of HIPC assistanceEnhanced

Framework
Decision point dateDec 2000
Assistance committed by all creditors (US$ Million) 1/416.00
Of which: IMF assistance (US$ million)11.91
(SDR equivalent in millions)9.20
Completion point dateFloating
II.Disbursement of IMF assistance (SDR Million)
Assistance disbursed to the member0.54
Interim assistance0.54
Completion point balance−-
Additional disbursement of interest income 2/−-
Total disbursements0.54

Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts can not be added.

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts can not be added.

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

Decision point - point at which the IMF and the World Bank determine whether a country qualifies for assistance under the HIPC Initiative and decide on the amount of assistance to be committed.

Interim assistance - amount disbursed to a country during the period between decision and completion points, up to 20 percent annually and 60 percent in total of the assistance committed at the decision point (or 25 percent and 75 percent, respectively, in exceptional circumstances).

Completion point - point at which a country receives the remaining balance of its assistance committed at the decision point, together with an additional disbursement of interest income as defined in footnote 2 above. The timing of the completion point is linked to the implementation of pre-agreed key structural reforms (i.e., floating completion point).

VIII. Safeguards Assessments:

Under the Fund’s safeguards assessment policy, the BCEAO is subject to a full safeguards assessment. An off-site safeguards assessment of the BCEAO was completed on July 25, 2001. The assessment concluded that high risks may exist in the financial reporting framework and recommended an on-site assessment. An on-site safeguards assessment of the BCEAO was completed on March 5, 2002. BCEAO authorities and Fund staff have reached an understanding regarding the implementation of key recommendations related to financial reporting and internal control.

IX. Exchange System and Exchange Rate Arrangement

Guinea-Bissau accepted the obligations of Article VIII, Sections 2, 3, and 4 with effect from January 1, 1997. Guinea-Bissau joined the West African Economic and Monetary Union (WAEMU) in 1997, and the exchange system common to all members of the union is free of restrictions on payments and transfers for current international transactions. Starting on January 1, 1999, the CFA franc has been pegged to the euro at a fixed rate of EUR l=CFAF 655.95. On October 29, 2004, the rate of the CFA franc in terms of the SDR was CFAF 768.49=SDR 1.

X. Article IV Consultation

Guinea-Bissau is on the standard 12-month consultation cycle. The last Article IV consultation discussions with Guinea-Bissau were held in Bissau during March 7-20, 2002. The staff report (IMF Country Report No. 02/153) was discussed by the Executive Board on July 24, 2002. A statistical annex (IMF Country Report No. 02/152) was also circulated to the Board.

XI. Technical Assistance

DepartmentType of AssistanceTime of DeliveryPurpose
MAEExpertMarch 20-July 23, 1994Assisting in banking supervision
MAEExpertJune 6, 1994-January 26, 1997Assisting in monetary policy
MAEExpertJune-December 1995Advising on bank accounting
STAStaffMarch 4-15, 1996Assessing the quality of monetary, balance of payments, and government statistics
FADStaffSeptember 8-24, 1996Advising on tax administration and tax policy
FADStaffMarch 9-25, 1997Advising on import tariff reform and the design of a general sales tax (GST)
MAEExpertJune-September 1997 (three short-term missions)Assisting in the transformation of the central bank into a branch of the Central Bank of West African States (BCEAO)
FADExpertSeptember 8-24, 1997Assisting in the design and the implementation of GST and in strengthening fiscal control
FADExpertOctober 19, 1997-April 10, 1998Assisting in GST implementation
FADExpertJune 3-15, 1998Assisting in GST implementation
FADExpertJanuary 1, 1999-March 2, 1999Tax administration advisor
FADExpertApril 15, 1999-June 14, 1999Tax administration advisor
FADStaffJuly 13-27, 1999Assessing budget management and the tax system
FADExpertJanuary 24, 2000-March 5, 2000Tax administration advisor
FADExpertJanuary 2001Tax administration advisor
FADExpertFebruary 2001Peripatetic public expenditure management advisor
FADExpertJuly 2001Peripatetic public expenditure management advisor
FADStaffApril 2003Expenditure management
STAExpertMarch 2003GDDS—Real Sector Statistics
STAExpertMay 2003GDDS—Fiscal Statistics
WEST AFRITACExpertNovember 2003Public Expenditure Management
WEST AFRITACExpertFebruary 2004Tax Administration
WEST AFRITACExpertMarch 2004Customs Administration
WEST AFRITACExpertMay 2004Tax Administration
WEST AFRITACExpertJune 2004Budget Preparation and Execution

XII. Resident Representative

The post of resident representative was opened in September 1997 and is covered by the Resident Representative in Senegal, Mr. Ousmane Doré.

APPENDIX II: Guinea-Bissau: Relations with the World Bank Group

1. As of August 18, 2004, IDA had approved 28 credits for Guinea-Bissau. Eight credits had been in the transport and infrastructure sector, three in the energy sector, three for strengthening the country’s management capability (Technical Assistance (TA)/Economic Management), two for financing urgently needed imports in support of the government’s economic recovery program, one in the agricultural sector, three in the health sector, two in the education sector, one social sector project, three for structural adjustment, one for economic rehabilitation and recovery, and one for private sector rehabilitation and development. The total value of these projects amounts to about US$277.2 million equivalent, of which US$242.8 million has been disbursed. As of end-July 2004, the undisbursed balance was US$59.0 million.

Structural adjustment credits

2. IDA has approved a total of US$ 63.4 million for structural adjustment operations. These include two Structural Adjustment Credits (SACs), one supplementary SAC, and one Economic Rehabilitation and Recovery Credit (ERRC). The SACs supported the government’s program in the areas of economic liberalization and reform of the public administration and public enterprise sectors, and the ERRC supports peace building following the political unrest, promotes the revival of the economy and encourages the pursuit of reforms. Parallel financing of the SACs came from Switzerland (US$5.3 million equivalent), the Saudi Fund for development (US$3.2 million equivalent), the International Fund for Agricultural Development (US$5.3 million equivalent), the African Development Fund (US$ 23.3 million equivalent), the Netherlands (US$7.5 million equivalent), the U.S. Agency for International Development (USAID) (US$4.5 million), and Japan (US$2 million equivalent).

Lending program

3. For the fiscal year (FY) 2005, IDA approved an HIV/AIDS project and has in the pipeline a Coastal and Biodiversity Management Project. The IDA also proposes to support an energy and water project during the FY 2005. The World Bank is assisting the country with the Initiative for the Heavily Indebted Poor Countries (HIPC Initiative). An Interim Support Strategy (ISS) is being prepared and is planned for FY2005.

Nonlending program

The Bank prepared a Public Expenditure Review (PER) in 2003. Bank staff participated, with the IMF, in the development of an Emergency Economic Management Program (EEMP) toward end-2003. The Bank will also continue to provide advice on public expenditure management in the context of upcoming ISS. If all goes well, the Bank will carry out a Poverty Assessment (PA), and a Country Financial Accountability Assessment (CFAA) in FY05. For FY06, the Bank plans to carry out a Development Policy Review (DPR) and a Country Procurement Assessment Review (CPAR). The DPR aims to highlight the main economic issues including debt sustainability and national capacity affecting the country’s performance. The CPAR will address the main fiduciary issues and make recommendations.

International Finance Corporation (IFC)

4. The IFC’s current portfolio consists of two investments: one in agribusiness (US$0.25 million), and one in the financial sector (US$0.28 million) to support a commercial bank (Banco da África). All these two loans have been fully disbursed.

Operations Portfolio IDA
Closed Projects20
IBRD/IDA*
Total Disbursed (Active)28.69
of which has been repaid0.00
Total Disbursed (Closed)248.51
of which has been repaid23.50
Total Disbursed (Active + Closed)277.19
of which has been repaid23.50
Total Undisbursed (Active)34.84
Total Undisbursed (Closed)0.00
Total Undisbursed (Active + Closed34.84
Active Projects
Project IDProject NameFiscal YearIDAUndisb.
P001015Basic Education199714.32.4
P073442GW-HIV/AIDS Global Mitigation Support20047.06.8
P035688National Health Dev. Prog.199811.73.3
P001001Privat Sector Rehab. & Develop. Project200226.022.3
Overall Result59.034.8
Operations Portfolio IFC
Statement of IFC’s

Held and Disbursed Portfolio

(As of June 30, 2004; in millions of U.S. dollars)
HeldDisbursed
FY ApprovalCompanyLoanEquityQuasiParticLoanEquityQuasiParticipation
1998 Banco de Africa00.280000.2800
Total Portfolio:00.280000.2800
APPENDIX III: Guinea-Bissau: Statistical Issues

1. Before the 1998-99 civil war, Guinea Bissau’s statistical database was comprehensive, but significant weaknesses remained, particularly in the areas of national accounts, the consumer price index (CPI), and the balance of payments. During the war, much of the country’s computer equipment was severely damaged, and many key technicians left the country; as a result, data collection was severely impaired, except for trade data and consumer prices. In early 1999, the authorities made a determined effort to reestablish their data capacities and were able to recover most information related to production, government finances, and monetary and balance of payments developments. This recovery was carried out with the assistance of various institutions, including UN agencies and the World Bank, which provided equipment and data.

2. Guinea-Bissau is a participant in the General Data Dissemination System (GDDS). Its GDDS metadata have been posted on the Fund’s Dissemination Standards Bulletin Board since November 2001.

Outstanding statistical issues

3. In March 1994, the International Financial Statistics (IFS) introduced a country page for Guinea-Bissau. Updates on exchange rates and monetary data are reported in a timely manner. However, external trade and fiscal sector statistics have not been reported to STA for publication in the IFS since 1997. Annual national accounts reports have improved, with current price data being reported up to 2002. However, constant price GDP estimates remain seriously out of date.

The authorities’ stance on statistical matters

4. The Guinea-Bissau authorities are aware of the shortcomings of the country’s database and have been receptive to the staff’s recommendations on how to effect improvements. They are also committed to making the basic national statistics, publicly available.

National accounts

5. Inadequate data sources for national accounts statistics remain the major hurdle to improving the country’s databases. The GDP aggregate is mostly based on crude assumptions and coefficients derived from the 1986 benchmark-year estimates. The INEC has been seriously affected by the armed conflict, and requires substantial technical assistance to rebuild capacity to compile production statistics. Implementation of the recommendations of the STA/GDDS mission of March 2003 would provide the foundation for rebuilding national accounts to a standard that could allow for adequate analysis of real sector developments in the country.

Consumer prices

6. Since July 2002, an harmonized CPI is compiled, based on the same structure as in other WAEMU countries. However, the price data are collected only for the capital Bissau.

Government finance

7. The most recently annual data in the Government Finance Statistics Yearbook (GFSY) are for 1989. Between 2000-02, the authorities made substantial progress in preparing timely reports on monthly and quarterly budget executions. These fiscal data reports were widely circulated to relevant national institutions, however, they have not been prepared since early 2003. Moreover, the quarterly reports are no longer submitted for publication in IFS. The March 1996 STA mission suggested adjustments to the fiscal data that would make them suitable for publication in both IFS and the GFSY. There were, however, setbacks as a result of the armed conflict. To address the main shortcomings, the authorities requested technical assistance from donors. Since 2002, the French government has provided two experts to the Ministry of Economy and Finance (MEF)—one on expenditure (this position is vacant since January 2004) and the other providing IT support. The EU has also financed several experts.

8. In March and April 2003, two Fund missions from Fiscal Affairs Department of the IMF—one in revenue administration and the other in expenditure management—visited Guinea-Bissau to assist the authorities in identifying weaknesses and to make recommendations to overcome shortcomings in their respective areas. A third mission during the same period—in the context of the regional GDDS project—made recommendations on improving fiscal data. Two experts from West AFRITAC visited Bissau in February and March 2004, to begin implementation of the recommendations of the April 2003 mission on revenue administration, the first regarding the setting up of a Unit for monitoring of large enterprises in the Domestic Tax Department of the Ministry of Economy and Finance (MEF), and the latter in the area of customs administration. In November 2003, a mission from the African Department (AFR) of the IMF assisted the authorities with preparing an Emergency Economic Management Plan and an emergency budget and a treasury cash plan for 2004. Two AFR missions, in January and March 2004, have provided further assistance in implementing, updating and monitoring the cash flow plan.

Monetary accounts

9. Since Guinea-Bissau’s entry in the WAEMU on May 1, 1997, the BCEAO assumes responsibility for compiling and reporting to STA monetary data for Guinea-Bissau, as is the practice for other member countries in the Union. Guinea-Bissau has adopted the new accounting and reporting procedures for monetary and financial statistics in accordance with the BCEAO’s guidelines. Monthly data on monetary statistics for Guinea Bissau are reported on a regular basis for publication in IFS, although with some delays. Data for the monetary authorities and the deposit money banks through May 2004 are published in the September 2004 issue of IFS. The accuracy of monetary statistics is affected by large cross-border movements of currency among BCEAO member countries and delays of up to two years in their recording.

10. The monetary and financial statistics mission that visited the headquarters of the BCEAO in May 2001 provided technical assistance in addressing the main shortcomings pertaining to coverage, methodology, and timeliness of monetary statistics. The mission discussed and agreed with the authorities on an action plan for the implementation of the Monetary and Financial Statistics Manual (MFSM) and for the introduction of an area-wide page in IFS for the WAEMU. The new page was subsequently introduced in the January 2003 issue of IFS.

11. Following the recommendations of the 2001 monetary and financial statistics mission, a regional seminar on monetary and financial statistics was organized by the BCEAO in Dakar during April 22-25, 2003. STA staff participated in the seminar. Participants agreed to set up a working group consisting of representatives from the National Agencies and various departments of the BCEAO’s headquarters; the working group will follow up on the implementation of the seminar’s recommendations to foster implementation of the MFSM.

Balance of payments

12. Guinea-Bissau reports trade data to AFR for operational purposes using information from customs. Nevertheless, balance of payments data remain weak, due mostly to substantial nonregistered trade and inconsistencies between data on net foreign assets as reported by the BCEAO and other economic indicators. Data on workers’ remittances and official transfers are available and reliable. The authorities have requested technical assistance from the Fund to improve their balance of payments statistics. In August 2004, an AFRISTAT balance of payments expert visited Bissau to assess the priority needs for technical assistance and assist the authorities with the preparation of a work plan for improving compilation of balance of payments and international investment position statistics.

External debt

13. During the civil war, the computer system processing debt data was severely damaged, and no progress was made in rehabilitating it. As a result, debt data have not been compiled since mid-1998. The basis for the current external debt database is the 2000 debt sustainability analysis, which the authorities have used to keep track of the debt situation. However, this is an excel-based database and a more sophisticated system is required to improve day-to-day debt management. Moreover, the Debt Division of the Ministry of Finance faces serious capacity constraints, both technical and material.

Recent technical assistance in statistics

14. In March 2003, an STA/AFRISTAT technical assistance mission visited Guinea-Bissau to assess progress in the implementation of the GDDS project and to identify areas where the Fund, through AFRISTAT, could offer further technical assistance to improve the country’s national accounts. The mission proposed a two-faceted approach, recommending a series of short-term and medium-term projects. The short-term proposals include projects to: (i) carry out a general population census (2002); (ii) establish an index of industrial production; (iii) establish a price index based on the WAEMU harmonized index; and (iv) create an internet site for INEC for data dissemination. For the medium-term, the major recommendation is adoption of the Systems of National Accounts (1993). The mission also made recommendations for technical assistance: for the short term, it recommended assistance to build capacity for implementation of the various projects, while for the medium-term, it recommended assistance in the formation of personnel for the establishment of the SNA 1993, and acquisition of material and IT needs.

Guinea-Bissau: Core Statistical Indicators(As of Sept. 28, 2004)
Exchange RatesInternational ReservesReserve/Base MoneyCentral Bank Balance SheetBroad MoneyInterest RatesConsumer Price IndexExports/ImportsCurrent Account BalanceOverall Government BalanceGDP/GNPExternal Debt
Date of latest Observation9/28/046/30/046/30/046/30/046/30/046/30/048/31/0812/31/0312/31/0312/31/0312/31/0312/31/03
Date received9/28/048/15/048/15/048/15/048/15/048/15/049/15/048/15/048/15/048/15/048/15/048/15/04
Frequency of data 1/DMMMMMMAAQAQ
Frequency of reporting 1/DMMMMMMAAQAQ
Source of data 2/BCEAOBCEAOBCEAOBCEAOBCEAOBCEAOBCEAOBCEAOBCEAOMinistry of Economy and FinanceMinistry of Economy and FinanceMinistry of Economy and Finance
Mode of reportingStaffStaff/e-mailStaff/e-mailStaff/e-mailStaff/e-mailStaff/e-mailStaffStaffStaffStaffStaffStaff
ConfidentialityNo3/3/3/3/NoNo3/3/3/3/3/
Frequency of publication 1/DMMMMMMAAAAA

Frequency of data, reporting, and publication: D= daily; M= monthly; Q= quarterly; and A= annually.

Source of data: BCEAO= Central Bank of West African States.

Preliminary use for staff only; actual data unrestricted.

Frequency of data, reporting, and publication: D= daily; M= monthly; Q= quarterly; and A= annually.

Source of data: BCEAO= Central Bank of West African States.

Preliminary use for staff only; actual data unrestricted.

APPENDIX IV: Guinea-Bissau—Progress Toward Meeting the Conditions (Other Than Macroeconomic Performance) for Achieving the Floating Completion Point Under the HIPC Initiative

PRSP Requirement: prepare a full PRSP and implement it for at least one year.

  • Status: The preparation of the PRSP was delayed because of the unstable political situation and the need to conduct a new household budget survey. A first draft PRSP, including the results of the poverty survey of 2002, was finalized in April 2003. A second draft was presented to the government in March 2004. Elaboration of the macroeconomic framework and costings still need to be finalized. Moreover, the authorities need to ensure the technical and political internalization, given the lack of institutional anchorage of the process at present. The process has so far relied mostly on consultants and there has been limited input from civil society and the government. A comprehensive consultation involving all elements of society is thus not completed.

Governance Requirements: achieve progress in strengthening public expenditure management, including the release of comprehensive budget execution reports twice a year, to allow monitoring of expenditure in social sectors and the military; implement an action plan to reform the public procurement system and install the new system in all ministries; and submit to parliament the external audit of the 1997-99 budgets and implement an action plan of corrective measures.

  • Status: The audit of the 1997-99 budgets has been finalized. Substantial progress was made in the reform of the public procurement system after the civil war but public expenditure management deteriorated significantly through 2003. Regular reporting of budget execution, and monitoring of social sector and military expenditure stopped. The public procurement system needs to be rebuilt.

Social sectors and structural reforms Requirements: eliminate fees for school books for all primary education students (grades 1-4); implement the basic education action plan and increase the gross primary school enrollment ratio to 61 percent; implement the National Health Development Program, and fully vaccinate at least 40 percent of children under one year; adopt a plan to fight against malaria; adopt a strategy to fight against HIV/AIDS; make at least 50 percent of the risk population (ages 14-29) aware of transmission risks and prevention methods.

  • Status: Gross enrolment rate in primary education is estimated at 90 percent, exceeding the goal of 61 percent. This is a direct result of the elimination of tuition fees in primary education in 2002. Progress on the implementation of the basic education plan is uneven. Classroom construction and textbook distribution have progressed, but teacher training and capacity building activities have lagged. A thorough progress report on the implementation of the basic education action plan is being prepared; the recent multiple indicators cluster survey shows that only 11.4 percent of children under one year are fully vaccinated; World Bank support to the NHDP is focusing on basic service delivery programs; a strategic framework for the fight against HIV/AIDS is under preparation; latest data show that only 12 percent of 15-49 years old women are aware of HIV/AIDS prevention methods.

Demobilization program: Requirement: complete the demobilization of 5,000 soldiers and reinsert former combatants into civilian life as established in the demobilization and reinsertion program (PDRRI) supported by the World Bank and other donors.

  • Status: An audit to assess the eligibility of combatants for the program was completed in 2001 and the demobilization of 4,392 soldiers was finalized in mid-September 2002. Preparations for the third phase—reinsertion of the demobilized combatants—were delayed by the suspension of disbursements by donors. In 2003, the World Bank disbursed CFAF 2.3 billion, including CFAF 800 million in the context of a restructuring of its portfolio in Guinea-Bissau, to ensure continuity in the program. In February 2004, it disbursed the remaining tranche of CFAF 3.6 billion under the program.
APPENDIX V: Guinea-Bissau: Public Debt Sustainability Framework
Table 1a.Guinea-Bissau: Public Debt Sustainability Framework: Guinea Bissau: Public Sector Debt Sustainability Framework, Baseline Scenario, 2000-2023(In percent of GDP, unless otherwise indicated)
EstimateProjections
20002001200220032004200520062007200820132023
Public sector debt1/383.1435.2415.9381.4429.0389.3348.7313.8282.2200.8114.0
o/w foreign-currency denominated363.2410.7385.4342.9335.8303.1269.9242.1217.2161.5100.3
Change in public sector debt16.652.0−19.2−34.647.6−39.7−40.6−34.9−31.6−12.1−6.5
Identified debt-creating flows−94.822.4−62.2−59.6−11.3−24.0−34.9−31.2−29.0−16.5−7.7
Primary deficit5.02.27.39.58.89.65.34.23.53.13.4
Revenue and grants33.331.321.423.233.523.925.225.725.725.625.6
of which: grants14.114.56.17.615.68.58.58.58.58.58.5
Primary (noninterest) expenditure38.433.528.632.842.233.530.629.929.228.729.1
Automatic debt dynamics−3.949.9−51.3−53.4−3.6−19.3−25.1−20.7−19.7−13.3−7.2
Contribution from interest rate/growth differential−26.8−0.332.1−2.8−7.4−18.8−19.9−18.5−17.6−11.9−6.3
of which: contribution from average real interest rate−1.20.5−1.5−0.2−1.2−4.7−5.5−5.1−4.7−2.7−1.1
of which: contribution from real GDP growth−25.6−0.833.6−2.6−6.2−14.2−14.4−13.3−12.9−9.2−5.2
Contribution from real exchange rate depreciation22.950.2−83.4−50.63.9−0.5−5.2−2.3−2.1
Other identified debt-creating flows−95.9−29.7−18.2−15.7−16.5−14.4−15.1−14.7−12.8−6.4−3.9
Privatization receipts (negative)0.00.00.00.00.00.00.00.00.00.00.0
Recognition of implicit or contingent liabilities0.00.00.00.00.00.00.00.00.00.00.0
Debt relief (HIPC and other)−87.7−17.8−5.1−3.8−3.6−3.7−4.1−4.1−3.70.00.0
Other (specify, e.g. bank recapitalization)−8.1−11.9−13.1−11.9−12.9−10.7−11.1−10.5−9.1−6.4−3.9
Residual, including asset changes111.429.643.025.058.9−15.7−5.7−3.7−2.64.41.2
NPV of public sector debt304.5346.3332.5307.2356.3323.7290.2261.4235.2165.892.3
o/w foreign-currency denominated284.6321.8302.0268.6263.1237.5211.5189.7170.2126.578.6
o/w external284.6321.8302.0268.6263.1237.5211.5189.7170.2126.578.6
NPV of contingent liabilities (not included in public sector debt)
Gross financing need 2/10.810.211.513.816.412.28.16.65.64.74.7
NPV of public sector debt-to-revenue ratio (in percent) 3/913.51106.91554.41322.51064.61356.71150.41018.5916.5647.0360.1
o/w external853.71028.61411.81156.6786.0995.3838.2739.1663.2493.7306.6
Debt service-to-revenue ratio (in percent) 3/4/17.225.520.118.511.810.611.19.38.06.24.9
Primary deficit that stabilizes the debt-to-GDP ratio−11.5−49.826.544.1−38.949.446.039.135.115.29.9
Key macroeconomic and fiscal assumptions
Real GDP growth (in percent)7.50.2−7.20.61.73.43.84.04.34.54.5
Average nominal interest rate on forex debt (in percent)1.72.11.01.10.90.61.20.91.11.01.2
Average real interest rate on domestic currency debt (in percent)−0.2−1.3−3.7−2.7−3.5−2.6−2.4
Real exchange rate depreciation (in percent, + indicates depreciation)6.813.9−18.9−13.3
Inflation rate (GDP deflator, in percent)3.2−5.14.8−2.93.32.03.03.03.02.92.9
Growth of real primary spending (deflated by GDP deflator, in percent)65.3−12.5−20.715.131.0−18.0−5.21.71.94.64.6
Grant element of new external borrowing (in percent)0.60.60.60.60.60.60.60.60.60.60.6
Sources: Country authorities; and Fund staff estimates and projections.

General government debt on gross basis. Preliminary estimates, based on currently available data.

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues including grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

5/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.
Sources: Country authorities; and Fund staff estimates and projections.

General government debt on gross basis. Preliminary estimates, based on currently available data.

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues including grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

5/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.
Table 1b.Guinea Bissau: Sensitivity Analyses for Key Indicators of Public Sector Debt, 2003-2023
EstimateProjections
20032004200520062007200820132023
NPV of Debt-to-GDP Ratio
Baseline30735632429026123516692
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages307358330305284265231177
A2. Primary balance is unchanged from 2003307357324295270249206172
A3. Permanently lower GDP growth 1/307365340314291270231235
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2004-2005307408434395361331260196
B2. Primary balance is at historical average minus one standard deviations in 2004-200530735732429026123516591
B3. Combination of 2-3 using one half standard deviation shocks30738037333229626317476
B4. One time 30 percent real depreciation in 2004307477441401367335238131
B5. 10 percent of GDP increase in other debt-creating flows in 2004307378345310280253179100
NPV of Debt-to-Revenue Ratio 2/
Baseline13221065135711501018917647360
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages13201060135911731061977782489
A2. Primary balance is unchanged from 200313211067135911671053972804673
A3. Permanently lower GDP growth 1/13211079272−2211−1661−157614201219
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2004-2005132111451635141312731167918693
B2. Primary balance is at historical average minus one standard deviations in 2004-200513211066135611501017915644356
B3. Combination of 2-3 using one half standard deviation shocks13211098147212421090970643282
B4. One time 30 percent real depreciation in 2004132114261847159014291305928511
B5. 10 percent of GDP increase in other debt-creating flows in 200413211131144512291092986699390
Debt Service-to-Revenue Ratio 2/
Baseline191211119865
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages1912−10345−5
A2. Primary balance is unchanged from 200319127914162441
A3. Permanently lower GDP growth 1/191261111111638
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2004-20051913101819192237
B2. Primary balance is at historical average minus one standard deviations in 2004-20051912698764
B3. Combination of 2-3 using one half standard deviation shocks191223320−10
B4. One time 30 percent real depreciation in 20041914101715141111
B5. 10 percent of GDP increase in other debt-creating flows in 2004191244−1−5−71−8
Sources: Country authorities; and Fund staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of 20 (i.e., the length of the projection period).

Revenues are defined inclusive of grants.

Sources: Country authorities; and Fund staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of 20 (i.e., the length of the projection period).

Revenues are defined inclusive of grants.

Figure 1.Guinea Bissau: Indicators of Public Debt Under Alternative Scenarios, 2003-2023 1/

(In percent)
1Guinea-Bissau’s statistical database is very weak, and all accounts require significant staff adjustments and estimates (Appendix III).
2The domestic primary deficit is defined as revenue excluding grants, minus current expenditure excluding interest, plus domestically-financed capital expenditure.
3The increase in debt service to the Fund reflects maturing purchases under the 1999-2000 EPCA. Access under the PRGF arrangement had been set 25 percent of quota higher than normal in similar cases, with the understanding that the first, topped-up, drawing would be used to repurchase the EPCA; however, the authorities failed to make the repurchase. Guinea-Bissau continues to benefit from a subsidy on the charges on the EPCA.
4The remaining bank complies with the WAEMU’s prudential regulations.
5China and Cuba have cancelled all official debt, while Italy has forgiven US$60 million in arrears as of December 2000.
6Total scheduled debt service was estimated at US$44 million (19 percent of GDP) in 2003, of which US$5.1 million was paid to the Fund, US$9 million was covered by debt relief, and US$29 million added to arrears.
7Parliament approved the program, which was broadly in line with the policies discussed with the mission, by end-July.
8The second half of the UN payments was made on October 25, 2004.
9Moreover, because of noncompliance with these rules with regard to a disbursement of €5 million in 2001, virtually that entire amount has to be reimbursed before Guinea-Bissau can access the new funds (once repaid, these funds will be available again for new budget support). The EU is providing technical assistance to improve compliance with the expenditure accounting regulations.
10Recently, the authorities reached agreement on a substantial decrease in wages for the President, Ministers, and parliamentarians. However, minimum salaries in the civil service were raised by about 15 percent (to €26 per month), and preliminary information indicates that the wage bill for the military was almost tripled. The exact budgetary impact of these agreements, which is expected to be significant, and some offsetting measures, remains to be determined.
11About two-thirds of the population is living below the poverty line of US$2 per day. The illiteracy rate is 70 percent in rural areas. Life expectancy is 45 years; 3 percent of the population is estimated to be infected by HIV (Table 9 provides data in relation to the Millennium Development Goals).
12With regard to taxes on external trade, Guinea-Bissau applies the WAEMU’s common external tariff. There are no known exceptions to the tariff and the trade regime has remained unchanged in recent years; there are no known restrictions on the making of payments or transfers for current international transactions.
13Moreover, the EU is reviewing its fishing policies and the level and channel of future revenue from this source is uncertain after the expiration of the present Fishing Protocol in 2005.
14In addition to assistance from the EU, France, and the UNDP, West AFRITAC is following up on diagnostic reports from FAD and STA missions in 2003 in the areas of revenue and customs administration, expenditure management and budgeting, and national accounts and fiscal statistics.
15In addition to the implementation of a number of key policies and measures (Appendix IV), attainment of the completion point requires—reflecting Guinea-Bissau’s interrupted record of performance—the completion of one review of a PRGF-supported program, covering a period of policy implementation of at least six months immediately before the completion point.

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