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IMF Executive Board Approves Three-Year US$23.9 million Extended Credit facility Arrangement for Guinea-Bissau and Concludes 2015 Article IV Consultation

Author(s):
International Monetary Fund. African Dept.
Published Date:
July 2015
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The Executive Board of the International Monetary Fund (IMF) today approved a three-year SDR 17.04 million (about US$23.9 million, 120 percent of quota) arrangement under the Extended Credit Facility (ECF)1 for Guinea-Bissau and also concluded the 2015 Article IV consultation.2 The approval enables the immediate disbursement of an amount equivalent to SDR 2.84 million (about US$4.0 million, 20 percent of Guinea Bissau’s quota).

The authorities’ program, which is anchored on the government’s Strategic Plan for 2014–18, aims to consolidate the fiscal position through better expenditure management and enhanced revenue mobilization, deepen institutional reforms, mitigate vulnerabilities, and develop the private sector to support growth and job creation. The program focuses on improving the policy framework by addressing governance and security issues, strengthening budgetary transparency as well as public investment and debt management, and improving compilation of statistics.

Following the Executive Board discussion on Guinea-Bissau, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, made the following statement:

“Guinea-Bissau’s new government has taken important steps to foster political stability and resume stalled reforms. The authorities’ economic program involves appropriately ambitious goals, notably strengthening the fiscal position, safeguarding financial stability, and improving the business environment. Nonetheless, the challenges ahead remain significant, and include an underfunded security sector reform, significant infrastructure gaps, and widespread poverty. The success of the program hinges on a satisfactory implementation of the authorities’ policy commitments, broad popular support, and continued assistance from Guinea-Bissau’s development partners.

“The authorities’ focus on fiscal reforms to improve budget execution and public financial management is welcome. Enhancing revenue mobilization will be important to create fiscal space for badly needed infrastructure and social spending. An effective debt management calls for a prompt upgrade of current practices and continued reliance on concessional borrowing.

“The authorities’ decision not to deploy scarce public resources to shore up troubled banks is in line with international best practice and welcomed. Safeguarding financial stability calls for heightened supervisory vigilance in the period ahead as well as closer collaboration with the WAEMU Banking Commission.

“Structural reforms will be necessary to promote economic diversification and more inclusive growth. Stepped up efforts to improve the business environment, including broader access to financial services, should boost Guinea-Bissau’s competitiveness and help reduce poverty. A bold overhaul or closure of the fund to promote agricultural development, in line with the findings from an audit underway, could pave the way for vigorous private sector development in a key sector.”

In November 2014, the IMF approved support for Guinea-Bissau under the Rapid Credit Facility to meet balance of payments financing needs and to catalyze additional development partner support. Since then, the newly-elected government has taken action to confront the country’s economic and social challenges, and development partner support has been re-kindred. The authorities instituted quick-win measures, including the setting up of a Treasury management committee and diverse measures to enhance domestic revenue mobilization. To mobilize development partner support for their Strategic Plan, the government organized a donor roundtable in Brussels in March this year, which yielded significant pledges from development partners.

Economic growth recovered in 2014, consumer price inflation declined, and external balances improved while the fiscal position deteriorated slightly. With a favorable cashew nuts harvest and a pickup in construction and telecommunication services, real GDP growth is estimated at 2½ percent in 2014 (up from 0.8 percent in 2013). Reflecting depressed domestic demand and weakening in global food and fuel prices, consumer prices were depressed, and average inflation declined to -1 percent. Economic activity is projected to pick up, with growth averaging around 4.7 percent in 2015–16, supported by the same drivers and pick-up in public investment.

The medium-term prospects for economic advancement and poverty reduction in Guinea Bissau hinge on addressing pervasive economic and political vulnerabilities. In addition to the security sector reform, this calls for structural reforms on a broad front to diversify the economy and improve governance and the business environment for private sector development and job creation.

The Executive Board also completed the 2015 Article IV consultation with Guinea-Bissau.

Executive Board Assessment3

“Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities for their determination to foster political and macroeconomic stability. However, noting that Guinea-Bissau still faces significant socio-economic challenges, Directors emphasized the need for continued strong commitment to prudent policies and comprehensive reforms. They agreed that the resumption of financial support from development partners will be critical to improving the country’s economic prospects and reducing poverty.

“Directors emphasized the importance of fiscal discipline and efficient public spending. They encouraged sustained efforts to strengthen revenue mobilization and create additional fiscal space to address Guinea-Bissau’s vast development shortfalls. In particular, Directors highlighted the need to strengthen public financial management, notably budget execution processes. They also called for continued progress with security sector reform.

“Directors emphasized the importance of securing a sustainable fiscal position by seeking financing on highly-concessional terms. Prudent borrowing will be essential in the light of Guinea-Bissau’s large public investment plans and its vulnerability to shocks.

“Directors agreed that financial sector stability is critical for growth. In this regard, they encouraged the authorities to reinforce the banking system especially by strengthening bank oversight and addressing non-performing loans. Steps to promote financial deepening in collaboration with the relevant monetary union institutions will also be important.

“Directors stressed that structural reforms are necessary to bolster competitiveness and achieve diversified and inclusive growth. They agreed that, in order to boost private sector activity, priority should be given to enhancing the business environment, and improving infrastructure and access to financial services. Directors welcomed the audit of the fund to promote agricultural development, and encouraged the authorities to overhaul its governance and operations in light of the findings.

“Directors stressed the importance of improving the quality and timeliness Guinea-Bissau’s economic statistics. They encouraged the authorities to improve coordination among the various institutions involved in data production and ensure that adequate resources are allocated to them.

“It is expected that the next Article IV Consultation with Guinea-Bissau will be held in accordance with the Executive Board decision on consultation cycle for members with Fund arrangements.”

Table 1.Guinea-Bissau: Selected Economic Indicators, 2012–20
Population (million)1.7
Quota (current, million SDR; % total)14.2 (0.01 percent)Per capita GDP (2014 $)639
Main products and exportsCashew nuts are about 90 percent of exportsLiteracy / Poverty Rate55/69.3
Key export marketsIndia and Europe
Sources: Guinea-Bissau authorities; and IMF staff estimates and projections.

Contribution to the growth of broad money in percent.

One-off revenues amounted to 0.9 percent of GDP in 2014 (due to FUNPI’s proceeds being transferred to the Treasury) and are expected to account for 0.5 percent of GDP in 2015 (due to the selling of 3G licenses) and 1.6 percent of GDP in 2016 (mostly due to revenue from the selling of seized illegal wood and the collection of associated taxes).

201220132014201520162017201820192020
RCFPrelim.RCFProj.Proj.
(Annual percentage change, unless otherwise indicated)
National accounts and prices
Real GDP at market prices−1.80.82.52.54.04.74.85.05.05.05.0
Real GDP per capita−4.0−1.40.30.31.72.42.52.72.72.72.7
GDP deflator−0.8−1.03.75.42.85.91.82.32.72.82.9
Consumer price index (annual average)2.10.8−0.8−1.03.31.32.32.73.03.03.0
External sector
Exports, f.o.b. (based on US$ values)−44.816.314.812.74.913.17.25.25.55.65.7
Imports, f.o.b. (based on US$ values)−24.40.626.224.74.27.910.48.78.110.110.6
Export volume−27.218.6−9.3−1.44.98.75.02.02.32.32.3
Import volume−26.01.530.930.97.426.19.86.76.99.610.4
Terms of trade (deterioration = -)−29.7−20.130.231.43.024.5−0.30.71.32.02.4
Real effective exchange rate (depreciation = -)4.9−7.6
Nominal exchange rate (CFAF per US$; average)510.2493.9493.5
Government finances
Domestic revenue (excluding grants)−12.5−10.639.559.4−0.617.117.9−2.19.89.89.8
Domestic revenue (excluding grants and one-offs)−12.5−10.626.047.710.020.99.510.19.89.89.8
Total expenditure−26.4−2.158.286.4−3.3−0.611.94.06.29.38.8
Current expenditure8.5−20.158.675.8−6.8−5.23.45.35.68.88.7
Current expenditure (excluding elections-related spending)8.5−20.141.957.25.66.13.45.35.68.88.7
Capital expenditure−80.4152.957.1115.46.59.428.21.87.210.19.1
Money and credit
Net domestic assets 114.08.4−1.1−4.27.3−6.8−7.6−5.5−3.2−2.50.6
Credit to government (net)11.30.38.20.50.01.8−0.60.00.00.00.0
Credit to the economy7.91.42.2−2.92.42.72.73.03.13.23.3
Velocity (GDP/broad money)3.12.72.52.22.42.22.22.12.12.12.1
(Percent of GDP, unless otherwise indicated)
Investments and savings
Gross investment7.37.07.110.87.112.413.613.213.113.413.5
Of which: government investment2.13.11.97.21.97.18.58.18.08.28.3
Gross domestic savings−3.9−0.7−2.71.1−2.72.12.41.41.00.4−0.4
Of which: government savings−2.6−2.2−8.0−4.0−6.8−1.20.5−0.5−0.10.10.2
Gross national savings−1.52.76.79.63.28.88.97.77.16.24.9
Government finances
Total revenue29.18.111.412.010.612.614.012.713.013.213.4
Total domestic primary expenditure12.39.715.315.518.413.714.313.413.413.413.3
Domestic primary balance−3.3−1.6−3.9−3.5−7.8−1.1−0.4−0.7−0.4−0.20.1
Overall balance (commitment basis)
Including grants−2.2−1.8−1.8−2.2−3.5−2.3−2.1−2.5−1.8−1.6−1.3
Excluding grants−4.6−5.3−10.0−11.2−8.7−8.3−8.0−8.6−8.1−8.1−8.0
External current account (including official current transfers)−8.8−4.4−0.4−1.2−3.9−3.6−4.7−5.5−6.0−7.2−8.6
Excluding official transfers−10.6−5.1−6.7−5.4−6.8−5.3−6.3−7.1−7.6−8.9−10.3
Nominal stock of public debt47.349.851.950.949.548.746.444.342.1
Of which: external debt17.916.617.218.016.615.916.216.817.5
(US$ millions, unless otherwise indicated)
Memorandum item:
Nominal GDP at market prices (CFAF billions)508.3507.2504.5548.4539.5608.0648.5696.5750.9810.5875.5
Sources: Guinea-Bissau authorities; and IMF staff estimates and projections.

Contribution to the growth of broad money in percent.

One-off revenues amounted to 0.9 percent of GDP in 2014 (due to FUNPI’s proceeds being transferred to the Treasury) and are expected to account for 0.5 percent of GDP in 2015 (due to the selling of 3G licenses) and 1.6 percent of GDP in 2016 (mostly due to revenue from the selling of seized illegal wood and the collection of associated taxes).

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

Contribution to the growth of broad money in percent.

One-off revenues amounted to 0.9 percent of GDP in 2014 (due to FUNPI’s proceeds being transferred to the Treasury) and are expected to account for 0.5 percent of GDP in 2015 (due to the selling of 3G licenses) and 1.6 percent of GDP in 2016 (mostly due to revenue from the selling of seized illegal wood and the collection of associated taxes).

1The ECF provides financial assistance to all countries eligible for support under the Fund’s Poverty reduction and Growth Trust (PRGT), and who have protracted balance of payments problems (i.e. when the resolution of the underlying macroeconomic imbalances would be expected to extend over the medium to long term). It supports the countries’ economic programs aimed at moving toward a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. Access to ECF financing is determined on a case-by-case basis, taking into account the country’s balance of payments need and strength of its economic program, and is guided by access norms. Financing under the ECF carries a zero interest through end-2016, has a grace period of 5½ years, and a final maturity of 10 years. The Fund reviews the level of interest rates for all concessional facilities under the PRGT every two years, with the next review expected to take place at end-2016.
2Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
3At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/eternal/np/sec/misc/qualifiers.htm.

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