Journal Issue

Guinea: Staff Report for the 2016 Article IV Consultation

International Monetary Fund. African Dept.
Published Date:
July 2016
  • ShareShare
Show Summary Details

Context and Recent Developments

A. A Missed Opportunity

1. Guinea’s 2012 Article IV (AIV) consultation was held amidst a favorable environment and outlook. A long history of weak governance, thin state capacity and political instability had left the country as one of the poorest in the world, unable to tap its abundant natural resources and exit fragility. Guinea’s prospects improved markedly in 2011 with the inauguration of its first democratically-elected president amidst high and soaring prices of its natural resources (Text Figure 1). In addition, the government’s commitment to economic stability and structural transformation, the support of donors, the high appetite of mining investors searching for investment opportunities to meet an increasing demand from emerging markets, the receipt of a 15 percent of GDP revenue windfall (to settle a dispute over transactions on the Simandou iron-ore asset), and substantial debt relief under the HIPC/MDRI initiative paved the way for unlocking significant socioeconomic gains.

Text Figure 1.Guinea: Commodity Prices: 2012 Article IV Projections and Actual, 2009–151

(Iron ore, bauxite, alumina, gold)

Sources: WEO database, National Minerals Information Center and IMF Staff calculations.

1 Data for 2009 and 2010 are actual data.

2. However, economic performance fell short of expectations as a result of domestic and external factors. After a period of early gains (2012–13), Guinea was buffeted by a series of shocks that hampered growth, including the political turmoil ahead of the 2013 legislative and the 2015 presidential elections, the Ebola epidemic, and more recently a sharp decline in commodity prices. Economic growth averaged 1.8 percent during 2012–15 (Table 1), significantly below the performance of peers (Text Figure 2), including those hit by similar shocks. GDP per capita is estimated to have fallen, likely inducing an increase in poverty.1 Despite large investments in the energy sector, electricity provision remains low, as well as access to water services. While most of the growth underperformance can be attributed to the effects of the shocks, delayed policy decisions to unlock the Simandou project, policy slippages and delays in structural reform implementation also played a role (Box 1).

Text Figure 2.Guinea and Comparators: Average Real GDP Growth, 2012–15


Sources: WEO; Guinean authorities; and IMF Staff estimates.

Box 1.Explaining Guinea’s Growth Underperformance

Output in 2016 is estimated to be 22 percent smaller than projected at the time of the last Article IV. Although the Ebola epidemic and the fall in commodity prices were exogenous shocks, delays in the implementation of structural reforms and protracted negotiations to unlock the Simandou project, and policy slippages also played a role.

About half of the revisions to GDP forecasts are estimated to accrue from delays in the development of the Simandou iron-ore deposit. In 2011 the government signed a deal with Rio Tinto to start exporting iron ore by 2015. However, as negotiations over the conditions dragged (660 km of the trans-Guinea railway, majority ownership of the infrastructure, state enablers, etc), iron ore prices fell below the project’s breakeven price (estimated at around $70 per ton) in 2014. Investor appetite also declined reflecting lower emerging markets’ growth and higher country risk, effectively closing the 2011 window of opportunity. In May 2016, Rio Tinto announced a large downsizing of the project’s workforce after the release of its bankable feasibility study, with an $18 billion cost for the project. Developing the project under current market conditions will be difficult, unless new measures (shorter export routes for example) are taken to lower its cost. The entry on-stream of two other world-class projects in 2016 and China’s plans to reduce its annual steel capacity further limit the prospects for developing the project in the medium term. The decline in commodity prices has also affected other mining projects and none of the projects planned to be implemented at the time of the 2012 article IV has started operating.

Efforts to improve the economy’s competitiveness have also lagged. Despite early advances in structural reforms (Annex I), progress slowed down as a result of limited absorptive capacity and a weak institutional framework. Performance in implementing the structural reform agenda under the ECF arrangement was mixed at best. Guinea made no advances since 2002 in the CPIA rating (lower that the SSA IDA average), Doing Business indicators remain poor (Guinea ranks 165/189), and the country has ranked last in the World Economic Forum’s Competitiveness Index in the past two years. Access to finance, corruption, policy instability and an inadequately educated labor force are considered to be the major obstacles for doing business (Figure 4).

Guinea: Factor Estimates of Growth Underperformance, 2012-2016


Source: Guinean authorities, IMF staff.

Iron Ore Prices

(Index, Jan. 2012 = 100)

Source: IMF.

B. Recent Economic Developments

3. The economy is recovering from the effects of the Ebola outbreak (Table 1).2 Guinea was declared free of Ebola by the World Health Organization on June 1st 2016, 42 days after its last confirmed case. The disease claimed 2,544 lives and had devastating socioeconomic effects (Country Report 16/95). Growth is projected to rebound to 3.7 percent in 2016, on the back of higher electricity provision from the Kaleta hydroelectric dam (240 MW), a rapid increase in production from a bauxite company that started operations in 2015 (Box 2), and the execution of construction contracts (15 percent of GDP) signed in 2014–15. Inflation increased to 7.9 percent in April driven by stronger domestic demand, and a weaker exchange rate. Bank credit to the private sector continued to grow at rapid rates (24 percent on annual terms as of April 2016), and reserve buffers increased and stabilized at 2.4 months of imports, after significant losses in 2014–15.

4. Socio-political tensions remain elevated. Opposition parties are demanding the restructuring of the electoral commission to make it more independent before the local elections scheduled in the second half of 2016. Labor unions organized strikes against elements of the 2016 budget, and for a reduction in pump prices. Debates are ongoing on President Condé’s alleged interest in seeking a third term in office despite the constitutional two-term limit. Finally, the attacks in Mali, Burkina Faso, and Côte d’Ivoire have heightened the domestic security situation.

5. The government appointed in January 2016 is developing an ambitious five-year plan. Consultations within the government and with other stakeholders have led to the prioritization of the electricity and agriculture sectors and a consensus on priority projects for the medium-term. The Prime Minister outlined the economic strategy to the National Assembly on May 4, 2016 in his Statement of Economic Policies. The strategy, which foreshadows the forthcoming five-year plan expected by year-end, is more ambitious than its predecessors (PRSP, and post-Ebola recovery plan). It aims to transform Guinea’s economy into a modern emerging one on the back of large investment projects in electricity generation, roads, education and health.

6. Short-term risks to the outlook are tilted to the downside. The main risks stem from (i) the possible inability to deliver the adjustment planned for 2016 (Table 2) leading to a depletion of the central bank’s international reserves; (ii) further declines in commodity prices, which could jeopardize mining sector prospects; and (iii) increased political instability and country risk ahead of the local elections. A resurgence of Ebola could also derail economic prospects, while continued weakness in advanced (Euro zone) and emerging economies (China) could delay expansion projects in the mining sector, notably at SMB and CBG,3 and financing for public infrastructure projects. Additional sources of downside risks include the potential deterioration and spillover effects from the security dislocations in North Africa. These risks could be exacerbated if structural reforms continue to stall, especially in the PFM area.

Box 2.Guinea: When a Crisis is an Opportunity?

The Societé Miniere de Boké (SMB), a vertically integrated joint venture comprising Guinea’s UMS (logistics), Singapore’s Winning Africa Port (shipping) and ShanDong Weiqiao Group (China’s largest non-state aluminum producer) is the first new producer in Guinea’s bauxite sector in 15 years. The company started operations in July 2015 after an initial investment of $200 million. The investment decision was triggered by external and domestic factors. Indonesia’s 2014 ban on exports of bauxite ore and Australia’s environmental restrictions on bauxite mining led the Chinese partner company to seek alternative supply sources while Guinea’s new mining code enhanced the profitability of new mining ventures. Exports are projected to reach 10–13 million tons in 2016, which would make Guinea the 3rd largest bauxite producer in the world.1 While initial production forecasts pointed to 410k tons/month, SMB has accelerated its expansion and output has averaged 800k tons/month (partly owing to seasonal factors as the company stockpiles in advance of the rainy season). Company guidance indicates that 2016 production could reach 13 million tons, notwithstanding capacity constraints and labor tensions. Furthermore, the outlook for the aluminum market is still uncertain as suggested by China’s reported aluminum inventory overhang, Indonesia’s expected resumption of exports in the second half of 2016, and Malaysia’s recent ban on bauxite mining (to clear stockpiles, and address environmental damages).

Aluminum Prices

(LME Spot, Index, Jan. 2012 = 100)

Source: IMF.

1 Guinea currently ranks 5th after Australia, China, Brazil and Malaysia.

C. Program Implementation and Risks

7. The authorities are adhering to the agreed adjustment measures to successfully complete the ECF-supported arrangement. To redress the slippages that led to delays in the completion of the 6th review, the authorities adopted a significant fiscal adjustment and deep-rooted reforms to the foreign exchange (FX) market. The fiscal deficit is projected to contract to 0.4 percent of GDP in 2016 from 7.1 percent in 2015, the exchange rate has been allowed to depreciate by about 12 percent since January, and the introduction of a new bilateral FX auction mechanism eliminated the premium between the official and bureaus’ exchange rates. Preliminary data indicate that all end-March indicative targets were met with a sizable margin, with the exception of priority sector spending (Table 5).4 The end-June and end-2016 objectives are on track to being met if risks to the budget (¶9) are addressed.

8. The authorities delivered during the first quarter of 2016 a stronger fiscal consolidation than programmed. The basic fiscal balance posted a surplus of 1.2 percent of GDP (Text Table 1), 2.4 percent of GDP above the program target, because of financing constraints. Revenue was on target thanks to higher imports, a better yield on the VAT and improved revenue collection efforts. However, given delays in external financing and difficulties in rolling over domestic bank financing, the authorities curtailed spending, including on investment.

Text Table 1.Guinea: Central Government Operations, 2016Q1(Percent of GDP)
Revenue and grants5.14.4−0.7
o/w: Goods and services1.40.8−0.6
Domestic investment1.50.5−1.0
Basic fiscal balance−
Overall balance−
Financing 10.6−1.3−1.9
Errors and omissions 20.0−0.3−0.3
Sources: Guinean authorities and IMF staff calculations.

Excluding project grants and loans.

Includes errors and ommissions and accounting differences on central bank financing.

Sources: Guinean authorities and IMF staff calculations.

Excluding project grants and loans.

Includes errors and ommissions and accounting differences on central bank financing.

9. The energy sector is the source of the most significant risks to the budget. The 2016 budget was prepared under the assumption that oil prices would be in the range of $35–$40 per barrel. With current prices significantly above this range, revenue losses would emerge if pump prices remain unchanged.5 In addition, the authorities have increased the installed thermal electricity capacity to ensure a constant power supply during the dry season. At the current pace of electricity production, the total cost of electricity production would increase by 2.1 percent of GDP in 2016, which would translate into higher subsidies and/or arrears baring an increase in electricity tariffs.

10. The authorities have tightened monetary policy to meet the central bank’s target on net international reserves (Table 3). The BCRG increased gradually the interest rate on its new liquidity absorbing instrument, the Titres de Régulation Monétaire (TRM), from 6.5 percent to 8.5 percent, raised its main refinancing rate, the pension rate, from 11 to 12.5 percent, and maintained the reserve requirement ratio at 18 percent. The TRMs contributed to drying up banks’ excess liquidity which had already tightened with the depreciation of the GNF in early-2016.6 As a result of the tighter liquidity, interest rates on Treasury bills increased by 300bp, and banks increased massively their use of the BCRG refinancing facilities, including the Overnight window (Text Figure 3) to revamp their liquidity in local currency.

Text Figure 3.Guinea: Pension Operations and TPO

(Billion of GNF)

Sources: BCRG; and IMF staff calculations.

Note: Pension operations are generally for 7 days. For other operations, amounts are weighted based on maturity. The figure for April 2016 includes one overnight credit facility operation (TPO).

11. Financial soundness indicators deteriorated in 2015 as a result of the rapid credit expansion linked to the guaranteed loans program (Table 6). The NPL ratio reached a 6-year high in April reflecting partly the cascading effects of the rescheduling of loans guaranteed by the central bank and two years of weak economic growth. The rapid expansion in credit also reduced banks’ equity-to-risk weighted assets while liquidity indicators, including in foreign currency, deteriorated as evidenced by the nonobservance by several major banks of the FX liquidity ratio.7,8 However, net banking income (NBI) increased by more than 23 percent in 2015 on the back of the guaranteed loans program,9 as well as the associated waivers on equity capital and reserve requirements, and preferential refinancing rates.10

Medium-Term Outlook

12. The authorities’ baseline scenario envisions a strong economic recovery over the medium term. The authorities’ baseline projections, consistent with policies under the post-Ebola Recovery Plan (Box 3), assume growth would rebound to 5.1 percent from 2.2 percent on average during 2011–15. The growth performance is to be driven by improved infrastructure services—notably, health, energy and transport infrastructure—to reduce Guinea’s infrastructure service gap and catch up with peers (Figure 1), and continued support for the agricultural sector to exploit Guinea’s comparative advantage. Mining sector projections assume resumption in 2016 of operations at the Simandou iron ore project, and successful expansion projects for the two largest bauxite exporters (CBG and SMB). Inflation would decline gradually to 5 percent in 2019 and stabilize at that level onwards. The current account deficit would increase to around 17 percent of GDP reflecting the deterioration of Guinea’s terms of trade and imports linked to large mining projects, and would be financed by FDI. Reserve coverage would increase to 3.8 months of imports.

Box 3.Guinea: The Post-Ebola Recovery Plan, 2015–17

The post-Ebola recovery plan (40 percent of GDP) aims to repair the socio-economic damage of the Ebola epidemic and prepare Guinea for withstanding future health challenges. It complements the 2012–15 PRSP and will serve as basis for the preparation of the successor planning document. Its main objectives in the social sector are to upgrade the health system to meet immediate needs and challenges related to Ebola-like epidemics, and provide universal access to potable water, sanitation and hygiene for schools and health facilities. Priorities in the economic domain include improving the business environment, accelerating the diversification of the economy; renewing support for agricultural intensification; building economic infrastructure; supporting the processing and storage of agricultural products; and revitalizing and rationalizing advisory support, the organization of producers, and research in the agricultural sector. However, the plan is under-financed as identified financing covers less than half of the estimated costs, highlighting the need to step-up domestic revenue mobilization efforts. The authorities are drumming up support from donors, including by following up on financial pledges made in the context of the 2014–15 donor conferences in Washington, Conakry, and Brussels.

Cost and Funding of the PAPP (Post-Ebola Priority Action Plan) by Secto(Million of US$)
TotalPercentage of total
Health, Nutrition and Water, Sanitation, and Hygiene for All1,584.461.5
Governance, Peace Consolidation and Social Cohesion119.34.6
Civil service and protection, territorial administration, and communication74.82.9
Public funding44.51.7
Education, Social and Child Protection, and Basic Services290.211.3
Social action126.94.9
Socio-economic Revitalization583.422.6
Agriculture, livestock, fisheries, and environment187.07.3
Trade and industry and ICT214.18.3
Transportation and Public works182.37.1
Total Costs2,577.2100.0
Total Funding Obtained812.031.5
Government Contribution Fund231.79.0
Funding to be sought1,533.659.5
Source: Guinean authorities.
Source: Guinean authorities.

13. The authorities are also working on an alternative macroeconomic scenario that will reflect the new government’s objectives and development strategy (¶5). Under this scenario, growth is projected to reach 8.6 percent on average based on more ambitious investment plans.11 Compared with the authorities’ baseline scenario, the new PIP under the alternative scenario includes the Souapiti project (Box 4), faster upgrades of the country’s road infrastructure (3 percent of GDP), and higher investments in irrigation, land fertilization and agricultural equipment. The private sector would also play a role through the execution of 7 projects12 in the bauxite, iron-ore and gold sectors, the establishment of transformation units of agricultural products to increase the value added of Guinea’s exports, and the development of large residential housing projects and administrative buildings through PPPs. The authorities insist that an ambitious investment program is necessary to fulfill the population massive social demands (Figure 1). In addition, the authorities emphasize the importance of good public infrastructure services to attract private investment.

Figure 1.Guinea and Comparators: Human Development and Infrastructure Indicators

Sources: Human Development Report (2015); World Economic Forum, Global Competitiveness Report, 2015–16.

14. Staff’s more conservative scenario takes into account the limited financing available and structural bottlenecks to higher growth (Table 15). While higher public investment would indeed be desirable, the authorities’ ambitious new plan is not linked to any sustainable source of financing, leaving the projected overall budget deficit above 5 percent of GDP (Text Figure 4). In addition, deep-seated impediments to private investment that are holding back Guinea’s competitiveness need to be removed for a noticeable increase in private investment to be realistic. To support the policy discussions, staff prepared a more conservative scenario based on identified financing, the continuation of sound macroeconomic and structural policies (see section on policy discussions below) and capacity constraints.13 The scenario does not include the Simandou and Souapiti projects (the financing for the former is uncertain, and is under discussion for the latter), and assumes a less optimistic path for the expansion of capacity in several mining projects (notably SMB and CBG’s). Under this scenario, growth would average 4.5 percent over the next five years, and inflation would decline gradually to 5 percent by 2019 and remain at that level thereafter. Given historical external financing trends Guinea would only be able to maintain its public investment rate at 9 percent. The current account would deteriorate reflecting the worsening terms of trade and higher imports to sustain higher economic activity, and would be financed by debt and FDI. The overall balance will improve, allowing reserve coverage to increase gradually to around 3 months of imports.

Text Figure 4.Guinea: Medium-term Macroeconomic Scenarios, 2016–20

Sources: Guinean authorities; Fund staff estimates and projections.

15. The authorities are confident in their capacity to mobilize funding for their ambitious PIP. Over the medium term, they project tax revenue to increase significantly, buoyed by high growth, the full application of the VAT increase, the creation of the property taxation unit, higher mining sector revenue from the expansion of existing bauxite production capacity, and closer coordination between the Tax and Customs departments. Additional fiscal space would be mobilized thanks to savings on public pensions and electricity subsidies resulting from the biometric census of pensioners and the deployment of pre-paid electricity meters, respectively. The remaining financing would come from pledges under the Ebola Recovery Plan.

Box 4.Guinea: The Souapiti Hydroelectric Dam Project

The authorities have announced their plan to build the 450-MW hydroelectric Souapiti dam estimated to cost $1.567 billion (23 percent of GDP). The project will improve electricity services by tapping Guinea’s large hydroelectric potential and alleviate a major constraint to private investment and growth. Under the current plans, the project will have an 85/15 debt to equity component. A debt contract of $1.175 billion is being negotiated. The equity portion would be funded by a divesture of part of the government’s shares in the Kaleta dam.

Given its size, the project will have significant implications on fiscal sustainability. The results of the Debt, Investment and Growth model (see accompanying SIP)1 suggest strong fiscal adjustment will be needed to maintain debt at sustainable levels, even after taking into account the impact of the Souapiti dam on growth. For example, under optimistic assumptions that the dam will increase growth of GDP per capita by 1 percentage point over the next five years, the authorities would need to increase the VAT rate by 10 percentage points to keep debt sustainable. This would be equivalent to raising revenues (or reducing spending) by 2–4 percentage points of GDP in the short-run. An improvement in structural factors (higher efficiency of investment, higher rate of return and a higher rate of infrastructure user fees) would have a considerable impact on growth and keep debt below the baseline level, but would still require a large adjustment.

Unconstrained Tax Adjustment

1 This exercise supports the analysis undertaken in the Debt Sustainability Analysis conducted for the 6th and 7th Reviews under the ECF arrangement (Country Report 16/95).

Policy Discussions: Addressing Development Needs In a Context of Limited Financial Resources

Short-term policy discussions focused on policies to rebuild buffers. Medium term discussions centered on creating fiscal space to scale-up infrastructure spending and maintaining fiscal sustainability, sustaining exchange rate flexibility, and rebuilding the momentum for structural reforms to encourage private sector development and economic diversification.

A. Near-term Priorities: Rebuilding Policy Buffers

16. Authorities and staff concurred that the focus in the near-term should continue to be on rebuilding policy buffers. Given limited financing prospects, the ongoing fiscal consolidation (see ¶15-¶16 Country Report No. 16/95) will preserve macroeconomic stability while putting Guinea’s economy on a stronger footing for the medium-term. Staff advised the authorities to address the looming fiscal risks. The authorities ruled-out the possibility of cuts in fuel prices before the end of the year, but did not commit to raising fuel pump prices if international oil prices continue to increase.14 Staff welcomed their intention to raise electricity tariffs this year to contain electricity subsidies, and encouraged them to keep electricity production at levels consistent with available government support to the loss-making public electricity company. Authorities indicated the willingness to offset any potential revenue losses on petroleum revenue, and reducing arrears to the electricity company.15

17. Staff urged the authorities to continue negotiations to increase the grant element of a loan to finance the Souapiti dam, currently at 22 percent, and to invite other development partners to contribute to the project’s finance in order to limit its impact on Guinea’s fiscal and debt sustainability. The authorities indicated they will not sign the loan this year, and are considering hosting a donor roundtable to tap donors’ competencies and seek financial support. They will pursue discussions with the lender, while awaiting the results of the valuation of the Kaleta dam, which could reduce the residual financing requirement and debt.

18. The current monetary policy stance is appropriate. Staff and the authorities concurred that given the pick-up in inflation,16 the monetary policy stance should remain with a tightening bias. While a loosening of monetary policy would provide a stimulus to growth, it could fuel inflationary pressures and prevent the achievement of the end-year international reserve targets. Policy action to improve banks’ liquidity in local currency should be limited to allowing them to constitute reserves in FX on their FX-denominated deposits. Staff noted that maintaining excess reserves low (Text Figure 5) will improve the transmission of monetary policy and support an orderly adjustment of the exchange rate. This will also incite banks to tap alternative sources of GNF liquidity, including by (i) raising interest rates on deposits; (ii) using the BCRG’s credit facilities;17 (iii) tapping the nascent interbank market; and (iv) selling FX to the central bank against local currency.

Text Figure 5.Guinea: Required and Excess Reserves, Reserve Requirement and T-Bills Rates

(GNF billions and percent)

Sources: Guinean authorities; IMF staff calculations.

19. There are indications of overvaluation of the GNF. Staff’s external stability assessment points to a significant appreciation of Guinea’s real effective exchange rate (REER) since the last Article IV consultation (Annex II), largely due to the positive inflation differentials against its trading partners and non-price structural factors. As of end-2015, model-based assessments suggest an overvaluation of 17–32 percent that contributed to the depletion of official reserves and of the banking sector’s net foreign assets in 2015. However, about half of this misalignment was absorbed in early 2016 with the depreciation of the currency in the context of the reform of the exchange rate determination mechanism aimed at enhancing the role of market forces.18

20. Next steps in the reforms of the FX market should be geared toward developing it into a two-sided market. Against the backdrop of tighter liquidity, staff advised the central bank to launch a rules-based FX intervention strategy19 to rebuild reserve and facilitate an orderly correction of the residual exchange rate misalignment (about 12 percent as of April 2016). While this would transform the current market into a bi-lateral market and add new suppliers of FX, the central bank believes such a program could be interpreted by economic agents as signaling FX shortages. Staff advised improving the communication of the central bank on its policies and stressed that the immediate priority is to strictly limit central bank FX purchases to the established market, and discontinue purchases from FX bureaus, artisanal gold miners and private corporations. The BCRG requested TA to improve its capacity to monitor FX bureaus’ activities and ensure they are limited to retail transactions.

B. Medium-term Priorities: A Policy Framework to Support the Scaling-up of Infrastructure Services and Diversify the Economy

Fiscal Policy and Public Financial Management

21. In light of external financing constraints and the need to rebuild buffers, staff argued for maintaining the basic fiscal deficit around 0.5 percent of GDP over the medium term. This level of deficit will support Guinea’s potential growth by making room for private sector credit, and repaying domestic arrears to the private sector.20 The authorities concurred with the need to rebuild buffers, but would like to achieve this goal by boosting growth and exports through higher spending on infrastructure and human capital. They acknowledged the massive financing requirements and implications on debt sustainability of their ambitious growth strategy.21 They concurred with staff that rebuilding buffers and improving infrastructure services would require boosting domestic revenue mobilization (¶22 and Box 5), rationalizing expenditure, enhancing value for money of investment spending, and improving debt management. Advances in the area of PFM reforms, including stricter enforcement of existing regulations, will also be important.

22. Staff presented a blueprint for tax reform that would allow Guinea to tap its unrealized tax potential estimated at 3–5 percent of GDP (Box 5).22 The authorities stressed that efforts are underway in several areas, notably in improving the efficiency of the Tax Department, setting up mechanisms to cross-check and exploit the Customs and Tax databases, eliminating tax exemptions and designing policies to register informal commercial outlets. They also indicated the newly created property taxation unit should start delivering results soon. In view of these efforts and given the need for a strong political and social consensus for further reforms, the baseline scenario retains reforms that would deliver an improvement in revenue performance of 1 percentage point of GDP over the medium term. About half of the projected improvement will come from direct taxes collected from higher income quintiles of the population, and would have limited adverse impact on the poor. The other half would accrue from indirect taxes, including from fuel taxes, and would also be borne mostly by wealthier sectors of the population given the structure of consumption in Guinea.

Box 5.Guinea: Tapping a Large Tax Potential – A Blueprint for Tax Reform

A country’s tax potential is a function of the size of the tax base and its capacity to access and control it. Various factors affect these variables, such as income per capita, openness to trade and the share of manufacturing in the economy. A preliminary statistical analysis of the tax performance of Sub-Saharan (SSA) countries over the period 1980–2014, suggests that given Guinea’s economic characteristics, other SSA countries would have collected on average 1 to 2 percent of GDP more in indirect taxes, and 2 to 3 percent of GDP more in direct taxes, for a total of 3 to 5 percent of GDP in tax potential.

Tax Potential – Direct Taxes

Source: IMF staff calculations.

Tax Potential – Indirect Taxes

Source: IMF staff calculations.

Tightening the control of the commercial tax base will be a crucial element to tapping this potential. Available information suggests that over ¾ of commercial imports (on which duties are paid) do not show up in turnovers declared to the Tax Department, pointing to a large under-declaration of sales and likely distribution through informal and/or undeclared channels. Advances in taxpayer identification, information collection and strengthening of the audit procedures would improve tax compliance.

Income taxes will need to be simplified and expanded to new taxpayers and the rates and thresholds will need to be revised to increase revenue and correct the imbalances introduced in 2011. Excises will need to be streamlined and revised upwards, and fuel taxes safeguarded within a price structure that automatically adjusts to international prices. Selected additional revisions to mining conventions could be undertaken and the new mechanisms on transfer prices properly implemented. A rapid roll-out of real estate taxation and a gradual elimination of tax exemptions should also be considered.

23. Savings in the recurrent budget can free fiscal space to finance more investment. After large base salary adjustments since 2011, salaries as a share of GDP are now comparable to those of many African countries (Figure 3). The authorities concurred with staff that the wage bill should be kept below 6 percent of GDP to safeguard budget flexibility and allow savings on other spending items to be directed to public investment program, but pointed to the risks the ongoing reform of the public administration could put on the wage bill. Staff argued for developing as a priority a medium-term framework for wage negotiations with unions to contain volatility from ad-hoc wage adjustments, building from the recommendations of the 2014 AFRITAC West (AFW) technical assistance on wage policy. Other options for reducing current spending by up to 1 percent of GDP include cutting recurrent costs of fuel and travel, allowing EDG to automatically adjust electricity tariffs to cost recovery levels (0.5 percent of GDP), and streamlining subsidies for universities. Staff advised directing part of these resources to the nascent social safety net, primary education, and the health system.

24. Strengthening Public Investment Management (PIM) institutions will improve the rates of return of the planned investments. In light of budget rigidities and financing constraints, investment spending should be kept at around 5 percent until fiscal space from the above-mentioned measures materializes. Improving infrastructure services could be achieved by enhancing the quality of spending by implementing better investment processes. The first steps are to enforce the procurement code, including competitive bidding for investment projects,23 and reform the selection process of investment projects to ensure that projects eligible for public funding have undergone a cost-benefits analysis. The authorities agreed in principle with the policy proposals, but stressed the importance attached to the priority projects in the energy, agriculture and health sectors. Staff presented the results of the DIG model (see SIP) that show that fully implementing these projects would require an adjustment of the consumption tax rate from 20 percent to 25 percent, and increase debt from 49 percent in 2015 to 67 percent by 2036, despite the model’s optimistic assumptions in terms of the growth impact of these projects.

25. Staff advised continued reliance on concessional financing, and improved debt management to contain debt vulnerabilities. While Guinea continues to face a moderate risk of external debt distress, short term vulnerabilities have increased significantly (See Country Report 16/95), and could be exacerbated by the results of the ongoing audit of domestic arrears. It will be important to finalize the reform of the institutional framework for debt policy and management and empower the National Committee for Public Debt (CNDP) to ensure all new government borrowing is in line with the statement on national public debt policy.24 Staff encouraged the authorities to approve the PPP law by year-end, and strengthen capacity to conduct DSAs and annex them to the budgets, starting with the 2017 budget. The authorities indicated their intention to prioritize concessional financing as much as possible and requested technical assistance on the management of fiscal risks from PPPs.

26. Aligning PFM processes with the new public finance organic law (LORF) will improve transparency and help unlock donor support (Box 6). Staff suggested priority actions toward this goal and offered Fund support in the context of the new Capacity Building Framework (CBF) for fragile states.25 The authorities agreed with the thrust of the advice, and suggested that after the overhaul of the PFM framework, it is important to train users. The priority actions include:

  • Expanding the coverage of the Single Treasury Account to all government bodies collecting public revenue by mid-2017.

  • Rolling out the new budget nomenclature to improve the monitoring of priority spending with a view to protecting them from ad-hoc adjustments to financing shortfalls.

Increasing training activities, especially to enhance the capacity of line ministries in charge of social sectors to initiate and execute their budget appropriations according to the LORF.

Box 6.Guinea: Advancing the Public Financial Management Reform Agenda

In 2011 Guinea embarked in an ambitious overhaul of its Public Financial Management (PFM) framework. Key milestones included the revamping of the legal framework through the adoption of the Loi organique relative aux finances publiques (LORF) in 2012, the adoption of the General Regulations on Budget Management and Public Accounting (RGGBCP) in 2013, the adoption in May 2015 of the law on the management of public entities, the adoption in 2015 of a new procurement code, and the establishment of a Treasury Single Account (TSA). The new legislations have been complemented by regulations on fiscal policy formulation, budget preparation and classification, governance of parastatals, and public accounting. However, compliance with the new framework has lagged. Enforcing them fully will improve the efficiency of public spending and the delivery of public services, and facilitate the mobilization of donor support.

  • A first step is to adopt a medium term budget framework, based on a consensual medium-term macroeconomic framework that will anchor revenue projections and expenditure planning. Presently, macroeconomic forecasts are not harmonized, and revenue projections reflect historical performance and anecdotal factors instead of an accurate assessment of the tax base. Tracking of foreign aid involves a cumbersome process which increases uncertainty on disbursements. Moreover, the budget envelopes are not aligned with development plans, and hardly reflect stated priorities.

  • Second, budget management processes need to be streamlined. Derogatory procedures should be avoided, and all spending must be executed in line with the spending chain. This will involve delegating most budget execution tasks to line ministries.

  • Third, data management processes have to be strengthened. Information on budget execution is spread across several IT systems and stand-alone files, which are not always consistent with the approved budget. The core system dates to 2000 is not accessible by line ministries, and data entry can be significantly delayed or incomplete. Financial reporting and controls should be improved, notably through a better management of invoices and netting-out of standing balances.

  • Fourth, budget implementation should be fully anchored in the TSA. About 1,400 governmental bank accounts spread in commercial banks in 2012 have been redirected to the BCRG, but the TSA is not yet fully operational in large part due to the weak institutional framework. Many of the balances are not available or not used, and the record-keeping and forecasting functions have shown some deficiencies.

  • Finally, work remains to be done regarding the census of public entities and SOEs: the current count stands at 159, but many entities attached to line ministries have not been included.

Monetary, Financial Sector, and Exchange Rate Policies

27. Monetary policy should focus on reducing inflation to 5 percent and on rebuilding reserves to 3–4 months of imports. The level of reserves is in line with the ECOWAS goal and strikes a good balance between the costs and benefits of holding reserves (Box 7). Inflation is projected to be driven mainly by fiscal and monetary developments, given Guinea’s robust agricultural potential and projected food production. Against this backdrop, staff and the authorities concurred that loosening monetary policy should only be considered once the 2016 fiscal consolidation is effected and after international reserves reach the target of 3 months of imports. Other triggers for cutting the reserve requirement rate should be a drying up of banks liquidity combined with a slowdown in private sector credit growth below that of nominal GDP, in a context of downward trending inflation. In the meantime, banks should continue to use the BCRG’s refinancing facilities, interbank lending, and FX sales for their liquidity management. Staff stressed that transitioning to exchange rate flexibility over the medium term will support reserves, competitiveness, and economic diversification. Priority actions were specified in the December 2015 MCM technical assistance recommendations and include (i) developing liquidity forecasting based on sound calibration of the BCRG’s open market operations; (ii) supporting the development of a yield curve through more regular government security issuances and the publication of reference rates for interbank transactions; and (iii) addressing market segmentation by introducing a two-way FX auction and promoting collateralized transactions in the GNF interbank market to mitigate the perceived counterparty risk.

Box 7.Guinea: Estimates of Reserve Adequacy

This box presents estimates the optimal level of international reserves for Guinea using the new Fund approach for LICs, “Assessing Reserve Adequacy in Credit-Constrained-Economies” (ARA-CC)1.

The ARA-CC metric is based on an algorithm weighing the benefits of holding reserves against the opportunity cost of holding reserves. The marginal benefit of holding reserves depends on country characteristics: a resource-rich country and a fixed exchange rate regime, for instance, would require a higher level of reserves while a fragile state with a flexible exchange rate arguably would call for lower reserves. The net cost of holding reserves can be approximated either by the external funding cost (for countries with market access), the cost of sterilization, or the marginal product of capital.

Guinea is a fragile resource-based economy with an intermediate exchange rate regime. On average, the results (Text Table below) suggest that 3.3 months of imports could be considered an adequate level for Guinea. However, this level can be considered a lower-bound estimate for at least two reasons: (i) the net cost of holding reserves may be over-estimated given Guinea’s positive inflation differential against advanced economies, which implies the GNF may continue to depreciate; thereby reducing the cost of holding reserves; and (ii) the ARA-CC rests on the hypothesis of precautionary motives for holding reserves under risk neutrality, but authorities may wish to hold additional reserves, including because of risk aversion. A higher degree of risk aversion could alter the results. The Guinean authorities expressed a preference for a higher level of reserves in the medium term (between 4 and 5 months of imports) than what is derived from the ARA-CC approach, on the basis of higher risk aversion and macro-prudential motives.

Guinea: Reserve Adequacy Estimates(Months of Imports)
Fragile / Fixed
Marginal productivity of capital (MPK)2.922.51.62.1
Sterilization Rate (SR)
External Funding (ECF)
Resource Rich / Fixed
Marginal productivity of capital (MPK)
Sterilization Rate (SR)
External Funding (ECF)9.97.812.4
Fragile / Flexible
Marginal productivity of capital (MPK)1.00.810.70.8
Sterilization Rate (SR)1.30.710.8
External Funding (ECF)
Resource Rich / Flexible
Marginal productivity of capital (MPK)
Sterilization Rate (SR)
External Funding (ECF)
Total average3.3
Source: IMF Staff.
Source: IMF Staff.
1 IMF (2013), “Assessing Reserve Adequacy—Further Considerations,” IMF Policy Paper, February, Washington, International Monetary Fund.

28. Improvements in the quality of financial system supervision would allow a better intermediation of local savings. Staff advised the authorities to accelerate the adoption of risk-based supervision in line with the timeline agreed with AFRITAC West (AFW) and asked for strengthening the directorate of banking supervision. The BCRG reiterated its commitment to AFW’s recommendations and attributed the implementation delays to capacity constraints, including staffing shortages that are being resolved. Staff welcomed the recent cap on risk concentration to 100 percent of regulatory capital and the requirement to constitute exceptional provision of up to 15 percent of net banking income imposed on banks that breach the prudential norm on the division of risks.26 Staff pointed that the continued breaches of this norm by banks involved in food and fuel imports call for strengthening banks’ capital beyond the GNF 100 billion target of June 2016.

29. Improving competition in the banking sector and lifting structural impediments to microfinance will promote financial inclusion and the sharing of growth dividends. Despite a relatively large number of banks, Guinea’s financial system is one of the shallowest in the world. The credit-to-GDP ratio and the proportion of individuals and companies using financial services stand well below peers’.27 At the same time, Guinean banks rank amongst the most profitable in the world, given negative real interest rates on deposits, and high interest rate spreads and banking fees.28 This reflects low income levels, lack of competition,29 limited physical access to financial institutions, financial illiteracy, and other barriers to credit such as weak property rights and bankruptcy procedures. The reform by the authorities of the 2005 microfinance law and the National Strategy of Financial Inclusion (Box 8) under preparation will unlock the potential of this sector. Staff welcomed the strategy and the focus placed on enhancing the poor’s access to financial services rather than on keeping interest rates low, and on the stricter enforcement of prudential regulations to lift governance standards. The authorities concurred with the need to supplement the strategy with a comprehensive plan to reduce the cost of bank intermediation, including through reforms of the judicial system to reduce the risks faced by banks.

Box 8.Guinea: Advances in Promoting Financial Inclusion

In 2014, Guinea adopted a National Strategy for Financial Inclusion (Stratégie Nationale d’Inclusion Financière, SNFI), built around four pillars: the policy and regulatory framework of mobile-based financial services, the regulation frameworks, consumer literacy and protection, and data collection. The SNFI is being revised to broaden its approach, include in the discussions non-bank providers of financial services (insurance and mobile phone companies), and take into account lessons learned, like the Ebola epidemic.

Mobile banking and electronic money services penetration has been very rapid in Guinea thanks to the growth of mobile phone services (21 percent on average since 2010). The number of subscribers soared from 4.2 million in 2010 to 10.7 million in 2015. The BCRG adopted in March 2015 wide-ranging regulation to supervise the provision of e-money financial services. Accordingly, Electronic Money Institutions (EMIs) must now be registered at the central bank, are not allowed to remunerate deposits or supply credit, and must meet minimum social capital standards. Areas also covered include customer protection rights, security and traceability of operations, disclosure of tariff conditions, as well as quarterly reporting and external audit requirements. Amendments will also include: (i) new financial products (like transfer services, domiciliation of salaries, mobile banking, and distribution of insurance products); (ii) deposit protection; (iii) disclosures; and (iv) competition and taxation. Analyses to elaborate national policies of financial literacy are also in progress.

Finally, the central bank intends to develop a framework for the compilation of Financial Soundness Indicators (FSIs) to improve data collection, within the context of a three-year TA project.

30. Strengthening the operational independence of the Central bank will be critical for the success of these reforms. Key measures called for in the updated Safeguards Assessment include enforcing the legal limits to monetary financing of the budget, reforming the appointment rules of the BCRG’s board members, and reducing the concentration of power of the Governor. After consulting with staff, the BCRG submitted to Parliament amendments of its law to meet these goals. The central bank is, however, reluctant to ban civil servants from seating at its board, as this would shrink the already shallow pool of competencies. The BCRG consented that Board members holding positions in the economic ministries (budget, finance, planning) will not have voting rights. These reforms will play an important role in reducing fiscal dominance and facilitating the conduct of monetary policy.30

Structural Reforms

31. Discussions on structural reform focused on raising Guinea’s low indicators of governance, promoting economic diversification, and improving the delivery of public services. The authorities agreed on the need to finalize the pending set of the ECF arrangement’s structural reforms to improve the credibility of economic institutions by enforcing the public procurement code, implementing the Government’s action plan to reform the legal system and the AML/CFT framework. Staff encouraged them to fully enact the new mining code, considered by experts to be in line with international standards, advising caution in the introduction of additional pieces of regulation that could erode its comparative advantage. Reforms in the agriculture sector should be geared toward rolling out support mechanisms aimed at enhancing productivity and poor farmers’ income while reducing the need for government support over the medium term. Reforms of the support mechanisms for the education should also be contemplated with a view to aligning them with social returns and boosting human capital.

C. Other Issues

32. Data provision is broadly adequate for surveillance with some key data shortcomings in national accounts and fiscal statistics (see Informational Annex). Good progress was made with the approval of the 2013 national accounts statistics. In light with the significant differences with GDP estimates used for policy making, staff encouraged the authorities to swiftly reconcile the different sources of data. The authorities pointed to the significant underestimation of GDP in the data used in the context of the ECF arrangement and asked for AFW technical assistance to reconcile the databases. Staff stressed that improving the coordination between government agencies will be important to correct data discrepancies, and encouraged the authorities to develop indicators for intra-year updates of GDP forecasts. Staff advised updating the base year (2002) of CPI data as soon as the household survey is finalized and starting work to extend its coverage to outside Conakry. Finally, staff encouraged the authorities to modernize the compilation methodology of government financial operations, and ensure consistency with financing data available at the central bank.

33. Capacity building. Staff discussed with authorities the capacity building strategy, including commitments in the context of the Capacity Building Framework for fragile states, under which Guinea is a pilot country. The level of TA is expected to increase significantly in the years ahead, with key areas of assistance focusing on revenue mobilization, debt management, and expenditure rationalization, strengthening public investment processes, monetary and exchange rate policies, and macroeconomic statistics (including inflation, national accounts and balance of payments). The authorities welcomed the expected gains from the CBF in terms of absorptive capacity and called for more long-term experts and hands-on training on TA recommendations.

34. Article VIII. Staff reviewed compliance with Article VIII under the Articles of Agreement and, with respect to the multi-price auction, advised the central bank to avoid the occurrence of a multiple currency practice (MCP) by continuing to ensure that the exchange rates of accepted bids at the auction do not deviate by more than 2 percent. Staff also encouraged authorities to remove the MCP arising from the value of the official rate lagging the weighted average commercial bank rate on which it is based by one day. The central bank requested support from MCM to identify measures to remove the MCP.

35. Safeguards Assessment. An update of the 2012 assessment, completed in June 2016, noted limited progress in some areas. In particular, the recent case of misreporting following the issuance of large BCRG guarantees to commercial banks at the request of the government suggests fiscal dominance in relations between the government and the central bank. Staff’s key recommendations included that the BCRG Law be strengthened, oversight of internal controls and operations be enhanced through closer follow up by the Audit Committee, and external auditors continue to verify program monetary data at test dates. The central bank is in the process of finalizing a revised BCRG Law that takes account of staff’s recommendations for submission to Parliament.

Staff Appraisal

36. The authorities’ commitment to the ongoing fiscal adjustment is appropriate. Delivering the planned fiscal adjustment, rebuilding reserves to three months of imports, and finalizing the reform of the foreign exchange market will lay the basis for strong medium-term growth, improve Guinea’s track record and credibility of economic policies and help unlock further donor support.

37. Scaling-up of public investment should be carefully considered based on realistic assessment. Scaling up investment in the energy and transport sectors will increase Guinea’s long-term potential, only if they are effective and consistent with macroeconomic stability. The authorities should develop a realistic economic scenario and formulate policies that reflect available financing and capacity constraints. The authorities should implement these projects gradually, while keeping the deficit in line with available financing. Tapping the tax potential, enhancing the quality and value for money of public spending, and relying as much as possible on concessional borrowing will provide additional fiscal space for these priority projects. PPPs carry potentially large fiscal risks and should be used with caution.

38. Addressing structural impediments to growth should be a top priority. Tackling these will play a critical role in strengthening Guinea’s external competitiveness and its resilience to shocks. Creating an enabling environment for private sector activity would help Guinea achieve its macroeconomic objectives. In the short term, efforts should focus on finalizing the ECF arrangement reform agenda. For the medium term, reforms should focus on strengthening the electricity and agriculture sectors to boost growth, while safeguarding public resources.

39. A more independent central bank will help reduce fiscal dominance and support external stability. Monetary policy should focus on maintaining price stability and rebuilding external buffers to at least 3 months of imports. Authorities should consider publicly announcing an inflation objective to improve the conduct of monetary policy and accountability of the BCRG. The amendments of the central bank law are an important step forward, but delivering the expected benefits requires strict enforcement.

40. Financial sector policies should aim at increasing domestic savings by improving financial intermediation and inclusion. Strengthening financial supervision and introducing policies to lower the costs of intermediation would also strengthen resilience to economic shocks.

41. Staff’s analysis suggests that Guinea’s exchange rate remains somewhat overvalued. Staff encourages the authorities to allow more flexibility of the exchange rate, swiftly implement the pending reforms to the FX market, and consider launching a rules-based FX purchase program to rebuild reserves.

42. The authorities did not request and staff does not recommend approval of the multiple currency practice maintained inconsistent with Article VIII obligations. This multiple currency practice arises from the value of the official rate lagging by one day from the weighted average of commercial bank rates. Currently, the authorities have no plans for its removal.

43. The next Article IV consultation is expected to take place on a 24-month cycle.

Figure 2.Guinea: Recent Economic Developments

Sources: Guinean authorities; and IMF staff estimates.

Figure 3.Guinea: Fiscal Indicators

Sources: Guinean authorities; and IMF Staff calculations.

Figure 4.Guinea: Competitiveness Indicators

Sources: World Competitiveness Report; WEO IMF; World Bank Doing Business Indicators.

Figure 5.Guinea: 2012 Article IV Projections and Outturn

Sources: Guinean authorities; and IMF Staff calculations.

Figure 6.Guinea: Monetary and Financial Sector Developments

Sources: Guinean authorities and IMF Staff calculations.

Figure 7.Guinea: External Sector Developments

Sources: Guinean authorities; and IMF staff calculations.

Table 1.Guinea: Key Economic and Financial Indicators, 2013–21
Annual percentage change, unless otherwise indicated
National accounts and prices
GDP at constant prices2.
GDP deflator6.
GDP at market prices8.511.07.612.613.512.511.
Consumer prices (average)
End of period10.
External sector
Exports, f.o.b. (US$ terms)−3.74.7−15.35.611.
Imports, f.o.b. (US$ terms)−13.626.1−6.8−
Average effective exchange rate (depreciation -)
Nominal index2.91.16.0
Real index12.28.512.5….
Terms of trade8.45.515.120.19.3−1.40.0−0.2−0.30.7
Money and credit
Net foreign assets2−0.3−8.3−
Net domestic assets214.420.631.
Net claims on government210.27.517.2−0.9−0.91.8−1.0−1.0−1.4−0.9
Credit to non-government sector29.713.710.
Reserve money15.714.
Broad money (M2)14.112.320.311.011.218.911.27.714.812.2
Interest rate (short-term T-bill)9.89.811.5
Percent of GDP, unless otherwise indicated
Central government finances
Total revenue and grants19.921.919.024.323.523.924.324.524.624.3
Of which: Non-mining revenue14.314.114.517.116.616.616.817.017.017.1
Total expenditure and net lending25.126.127.825.624.724.824.924.824.824.6
Current expenditure16.217.618.116.015.514.914.814.714.714.6
Of which: Interest payments1.
Capital expenditure and net lending8.
Overall budget balance (cash basis)
Including grants−5.2−4.1−8.7−1.3−1.2−0.9−0.6−0.3−0.2−0.3
Excluding grants−6.7−8.2−10.3−5.3−5.0−5.0−4.9−4.5−4.4−4.2
Basic fiscal balance−2.8−6.4−6.9−0.4−0.5−0.7−0.3−0.2−0.2−0.3
National accounts
Gross capital formation20.39.310.220.616.916.516.516.516.516.5
Current account balance
Including official transfers−16.9−17.3−18.7−13.1−14.7−13.2−15.8−17.9−16.1−20.0
Excluding official transfers−17.3−19.1−18.9−14.5−16.1−14.6−17.2−19.3−17.5−21.3
Overall balance of payments0.5−0.9−
Memorandum items:
Exports, goods and services (US$ millions)1,928.61,958.01,674.01,507.61,895.22,074.02,256.22,444.62,653.02,859.9
Imports, goods and services (US$ millions)2,647.42,901.62,658.02,440.12,779.32,837.23,293.73,621.93,677.94,276.5
Overall balance of payments (US$ millions)29.0−61.7−347.4105.6104.0224.2130.587.9231.7287.9
Net foreign assets of the central bank (US$ millions)448.9453.4161.2259.5267.4484.4611.9698.1925.71,173.4
Gross available reserves (months of imports)
External public debt, incl. IMF (percent of GDP)21.825.525.428.428.430.731.431.230.628.4
Total public debt, incl. IMF (percent of GDP)41.943.149.144.748.648.146.444.442.138.6
Nominal GDP (GNF billions)42,97747,68351,31556,44858,23865,51372,70280,05988,27497,042.8
Sources: Guinean authorities; and Fund staff estimates and projections.

Program as established for the 6th and 7th ECF Review.

In percent of the broad money stock at the beginning of the period.

In months of the following year’s imports excluding imports for large foreign-financed mining projects.

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

Program as established for the 6th and 7th ECF Review.

In percent of the broad money stock at the beginning of the period.

In months of the following year’s imports excluding imports for large foreign-financed mining projects.

Table 2a.Guinea: Fiscal Operations of the Central Government, 2013–201(Billions of Guinean Francs, unless otherwise indicated)
Prog. 2Proj.Proj.
Total revenue and grants8,54410,4659,74913,71413,71415,64217,67719,61521,684
Tax revenue7,6198,0598,57910,83710,83712,46014,04815,61817,277
Mining sector1,4891,3481,5581,8141,8142,1012,3792,6462,917
Non-mining sector6,1306,7117,0219,0239,02310,35911,66912,97314,360
Direct taxes1,4841,3821,3761,6501,6501,9492,2712,5512,868
Indirect taxes4,6465,3285,6457,3737,3748,4109,39810,42211,491
Taxes on goods and services2,9433,3433,8245,1335,1325,8896,6017,3418,095
Taxes on international trade1,7031,9851,8212,2412,2412,5212,7983,0813,397
Non-tax revenue286478409635635500555611674
Project grants4623202491,4291,4291,7682,0602,2682,501
Budget support177845898138139141,0151,1171,232
Other earmarked grants763423
Expenditures and net lending10,78512,44314,28714,47614,40616,21518,13219,84121,858
Current expenditures6,9548,4159,2849,0329,0389,77310,76711,75212,940
Primary current expenditures6,4617,8198,7418,0568,0608,9869,88810,92812,136
Wages and salaries2,1022,3702,7213,2793,2803,6904,0954,5094,972
Goods and services2,4993,3683,3132,7792,7813,1603,5423,9394,431
Subsides and transfers1,8602,0812,7071,9971,9992,1362,2522,4802,734
Interest on debt493596543977978788878824804
Domestic debt421504433659666554607531490
External debt7292110318313234271293314
Capital expenditure3,8223,9394,9905,3835,3076,4277,3508,0758,903
Domestically financed2,2013,1953,3372,9512,9513,8394,3294,8885,526
Investment (central budget exec.)2,1843,1653,2902,8932,8933,8394,3294,8885,526
Capital transfers17314758580000
Externally financed1,6207431,6532,4322,3562,5893,0223,1873,377
Net lending and restructuring expenditures98913616115151415
Adjustment measures0
Basic fiscal balance3−1,188−3,070−3,535−254−265−433−236−132−216
Percent of GDP−2.8−6.4−6.9−0.4−0.5−0.7−0.3−0.2−0.2
Overall balance
Excluding grants−2,880−3,905−5,299−3,004−2,934−3,255−3,529−3,612−3,908
Including grants−2,241−1,978−4,538−762−692−573−454−226−175
Cash adjustments0663000000
Overall balance (cash basis)−2,241−1,972−4,475−762−692−573−454−226−175
Domestic financing1,0421,0873,011−301−391−967−937−870−891
Bank financing1,0111,1392,578−155−155360−237−258−400
Central bank9011,1161,804−305−305−284−284−284−284
Commercial banks110237741501506434726−116
Nonbank financing31−52433−147−236−1,327−701−612−491
Privatization revenue000000000
Borrowing/Amortization of domestic debt (net)200−101−150−115−204−1,327−701−612−491
Change in arrears−17845296−147−1470000
Other / Exceptional revenue942871151150000
External financing (net)1,2009201,4611,0631,0831,5401,3911,0951,066
Amortization due−341−419−388−553−515−632−496−692−613
Debt relief4033968118110000
Change in cap. arrears (- = reduction) 4264473−811−8110000
Change in int. arrears (- = reduction) 4086000000
Miscellaneous cash adjustments600000000
Errors and omissions−0−363000000
Financing gap000000000
Memorandum items:
Nominal GDP (GNF billion)42,97747,68351,31556,44858,23865,51372,70280,05988,274
Sources: Guinean authorities; Fund staff estimates and projections.

Based on GFSM 1986 due to data availability limitations.

Program as established for the 6th and 7th ECF Review.

Revenue minus expenditure excluding interest on external debt and foreign-financed investment.

For 2014 and 2015 (projected), debt relief is on outstanding loans fully in arrears owed to non-Paris club official and commercial creditors.

Sources: Guinean authorities; Fund staff estimates and projections.

Based on GFSM 1986 due to data availability limitations.

Program as established for the 6th and 7th ECF Review.

Revenue minus expenditure excluding interest on external debt and foreign-financed investment.

For 2014 and 2015 (projected), debt relief is on outstanding loans fully in arrears owed to non-Paris club official and commercial creditors.

Table 2b.Guinea: Fiscal Operations of the Central Government, 2013–20 1(Percent of GDP, unless otherwise indicated)
Total revenue and grants19.921.919.024.323.523.924.324.524.6
Tax revenue17.716.916.719.218.619.019.319.519.6
Mining sector3.
Non-mining sector14.314.113.716.015.515.816.116.216.3
Direct taxes3.
Indirect taxes10.811.
Taxes on goods and services6.
Taxes on international trade4.
Non-tax revenue0.
Project grants1.
Budget support0.
Other earmarked grants1.60.8
Expenditures and net lending25.126.127.825.624.724.824.924.824.8
Current expenditures16.217.618.116.015.514.914.814.714.7
Primary current expenditures15.016.417.014.313.813.713.613.613.7
Wages and salaries4.
Goods and services5.
Subsides and transfers4.
Interest on debt1.
Domestic debt1.
External debt0.
Capital expenditure8.
Domestically financed5.
Investment (central budget exec.)
Capital transfers0.
Externally financed3.
Net lending and restructuring expenditures0.
Adjustment measures0.0
Basic fiscal balance 3−2.8−6.4−6.9−0.4−0.5−0.7−0.3−0.2−0.2
Overall balance
Excluding grants−6.7−8.2−10.3−5.3−5.0−5.0−4.9−4.5−4.4
Including grants−5.2−4.1−8.8−1.3−1.2−0.9−0.6−0.3−0.2
Cash adjustments0.
Overall balance (cash basis)−5.2−4.1−8.7−1.3−1.2−0.9−0.6−0.3−0.2
Domestic financing2.42.35.9−0.5−0.7−1.5−1.3−1.1−1.0
Bank financing2.42.45.0−0.3−0.30.5−0.3−0.3−0.5
Central bank2.12.33.5−0.5−0.5−0.4−0.4−0.4−0.3
Commercial banks0.−0.1
Nonbank financing0.1−0.10.8−0.3−0.4−2.0−1.0−0.8−0.6
Privatization revenue0.
Borrowing/Amortization of domestic debt (net)0.5−0.2−0.3−0.2−0.4−2.0−1.0−0.8−0.6
Change in arrears−−0.3−
Other / Exceptional revenue0.
External financing (net)
Amortization due−0.8−0.9−0.8−1.0−0.9−1.0−0.7−0.9−0.7
Debt relief
Change in cap. arrears (- = reduction)−1.4−
Change in int. arrears (- = reduction)
Miscellaneous cash adjustments0.
HIPC-related financing0.
Errors and omissions−0.0−
Financing gap0.
Memorandum items:
Nominal GDP (GNF billion)42,97747,68351,31556,44858,23865,51372,70280,05988,274
Sources: Guinean authorities; Fund staff estimates and projections.

Based on GFSM 1986 due to data availability limitations.

Program as established for the 6th and 7th ECF Review.

Revenue minus expenditure excluding interest on external debt and foreign-financed investment.

For 2014 and 2015, debt relief is on outstanding loans fully in arrears owed to non-Paris club official and commercial creditors.

Sources: Guinean authorities; Fund staff estimates and projections.

Based on GFSM 1986 due to data availability limitations.

Program as established for the 6th and 7th ECF Review.

Revenue minus expenditure excluding interest on external debt and foreign-financed investment.

For 2014 and 2015, debt relief is on outstanding loans fully in arrears owed to non-Paris club official and commercial creditors.

Table 3a.Guinea: Central Bank and Deposit Money Banks Accounts, 2013–201(Billions of Guinean Francs, unless otherwise indicated)
Prog. 2Proj.Proj.
Central bank
Net foreign assets3,1633,2771,2902,3032,4244,7526,2487,34110,027
Net domestic assets3,8155,2447,4497,1487,1446,8606,5766,2936,009
Domestic credit4,4625,3957,4697,1697,1656,8816,5976,3146,030
Claims on central government (net)4,3975,3417,3537,0527,0486,7656,4816,1975,913
Of which: to the Treasury (PNT1)4,5665,5467,5077,2067,2026,9186,6346,3506,067
Claims on private sector5046115115115115115115115
Liabilities to deposit money banks (-)000000000
Claims on other public sector1572222222
Other items, net (assets +)−647−151−21−21−21−21−21−21−21
Reserve money6,9788,5218,7399,4509,56711,61312,82413,63416,036
Currency outside banks4,0524,3235,1785,6805,6906,7687,5268,1089,306
Bank reserves2,5083,7903,0963,3053,4124,3224,7174,8866,025
Required reserves1,7201,9882,1602,4202,4242,8883,2123,5083,974
Excess reserves3761,165231181284641626410983
Cash in vaults of deposit banks4136367047047047928799681,067
Private sector deposits418408465465465523580639705
Deposit money banks
Net foreign assets1,345128502585594680753829914
Bank reserves2,5083,7903,0963,3053,4124,3224,7174,8866,025
Deposits at the central bank2,0953,1532,3922,6012,7083,5303,8383,9184,958
Cash in vaults of deposits banks4136367047047047928799681,067
Claims on central bank000000000
Domestic credit6,0937,9259,96611,11511,02412,60713,93915,33916,703
Credit to the government (net)1,9081,9422,4572,6082,6073,2513,2983,3243,207
Claims on public enterprises906240454551576269
Claims on the private sector4,0965,9217,4698,4628,3719,30610,58411,95313,428
Other items, net (assets +)−1,349−1,902−1,563−1,563−1,563−1,563−1,563−1,563−1,563
Liabilities to the private sector (deposits)8,5989,94112,00113,44213,46716,04617,84619,49122,080
Memorandum items:
Net foreign assets of the central bank (US$ million)451453161260267484612698926
Net international reserves (GNF billion)3,9502,3311,2103,0452,5574,2085,6816,7579,426
Net international reserves (US$ million)564322151343282429556643870
Sources: Guinean authorities; and IMF staff estimates and projections.

End of period.

Program as established for the 6th and 7th ECF Review.

Sources: Guinean authorities; and IMF staff estimates and projections.

End of period.

Program as established for the 6th and 7th ECF Review.

Table 3b.Guinea: Monetary Survey, 2013–201(Billions of Guinean Francs, unless otherwise indicated)
Prog. 2Proj.Proj.
Net foreign assets4,4903,4041,7932,8883,0175,4327,0018,17010,941
Net domestic assets8,57811,26715,85216,69916,60517,90518,95220,06921,150
Domestic credit10,55313,32017,43518,28318,18919,48820,53621,65322,733
Claims on central government6,3057,2839,8119,6609,65610,0159,7789,5219,120
Claims on public enterprises1057041474753596471
Claims on private sector4,1445,9677,5838,5778,4869,42010,69912,06813,542
Other items, net (assets +)−1,975−2,053−1,584−1,584−1,584−1,584−1,584−1,584−1,584
Broad money (M2)13,06814,67217,64419,58719,62223,33725,95327,95932,091
(Year-on-year change in percent of beginning-of-period M2, unless otherwise indicated)
Memorandum items:
Net foreign assets−0.3−8.3−
Of which: central bank1.91.0−
Net domestic assets14.420.631.
Of which: central bank6.97.315.0−1.7−1.7−1.4−1.2−1.1−1.0
Domestic credit19.921.
Net claims on government10.27.517.2−0.9−0.91.8−1.0−1.0−1.4
Credit to the private sector9.713.710.
Broad money (M2)14.112.320.311.011.218.911.27.714.8
Reserve money (annual percentage change)15.714.
Commercial bank credit to the private sector
(Annual percentage change)35.444.526.113.312.111.213.712.912.3
Money multiplier (M2/reserve money)
Velocity (GDP/average M2)
Velocity (GDP/M2, EOP)
Consumer prices (Annual percentage change, EOP)
Real GDP (Annual percentage change)
Nominal GDP (Annual percentage change)8.711.07.612.613.512.511.010.110.3
Sources: Guinean authorities; and IMF staff estimates and projections.

End of period.

Program as established for the 6th and 7th ECF Review.

Sources: Guinean authorities; and IMF staff estimates and projections.

End of period.

Program as established for the 6th and 7th ECF Review.

Table 4.Guinea: Balance of Payments, 2013–20(Millions of US Dollars, unless otherwise indicated)
Exports, f.o.b.1,8251,9111,6181,3721,8111,9832,1572,3362,534
Mining products1,6481,7361,4411,2101,6261,8271,9862,1462,323
Imports, f.o.b.−1,861−2,348−2,189−1,782−2,204−2,282−2,478−2,710−3,000
Food products−243−295−275−249−284−314−322−331−341
Other consumption goods−263−310−289−285−300−318−338−361−396
Petroleum products−402−533−497−224−443−537−583−635−690
Intermediate and capital goods−953−1,209−1,127−1,023−1,176−1,113−1,235−1,383−1,574
Services trade balance−683−506−414−523−492−464−717−803−559
Services exports1044756136849199109119
Services imports−786−554−469−658−576−556−816−912−678
Income balance−599−416−292−190−281−332−338−443−588
Of which: Interest on public debt−10−13 0−15−37−36−25−27−28−29
Of which:
Net private transfers24264−171678289125131168
Official transfers2612012959496101108115
Current account
Including official transfers−1,050−1,175−1,281−860−989−910−1,150−1,382−1,330
Excluding official transfers−1,076−1,296−1,293−955−1,083−1,006−1,251−1,490−1,445
Capital account796179182182202223236252
Public transfers674633166166185206219234
Financial account9397997917849129321,0571,2331,309
Public (medium and long-term)169119172124125162139106100
Project-related loans1836018711710786968982
Program financing35118367178142938475
Amortization due−49−60−52−64−60−66−50−67−57
Public (short-term)000000000
Direct and other private investment (net)1316885335224347354361368
Private short-term639612535325562423564767841
Errors and omissions6125463000000
Overall balance29−62−34710610422413188232
Change in net official reserves−3450387−156−104−224−131−88−232
Of which:
Use of Fund resources (net)289633023000−4
Change in gross official reserves (- = increase)−61−47291−156−149−224−131−88−228
Change in arrears (- = reduction) 24711−94−940000
Debt relief 2151394940000
Financing gap00051230000
Expected Fund disbursement00051230000
Memorandum items:
Current account balance (percent of GDP)
Including official transfers−16.9−17.3−18.7−13.1−14.7−13.2−15.8−17.9−16.1
Excluding official transfers−17.3−19.1−18.9−14.5−16.1−14.6−17.2−19.3−17.5
Overall balance (percent of GDP)0.5−0.9−
Exports-GDP ratio (percent)31.028.824.422.928.
Imports-GDP ratio (percent)−42.6−42.7−38.8−37.1−41.2−41.3−45.4−46.9−44.5
FDI-GDP ratio (percent)
Gross available reserves (US$ millions)7057524616176108349651,0531,280
Gross available reserves (months of imports)
Nominal GDP (US$ millions)6,2196,7976,8526,5746,7476,8717,2637,7258,270
National currency per US dollar (avg.)6,9107,0157,489
Sources: Guinean authorities; and IMF staff estimates and projections.

Program as established for the 6th and 7th ECF Review.

For 2015 projected clearance of outstanding debt arrears to non-Paris Club official creditors and commercial creditors through debt relief.

Sources: Guinean authorities; and IMF staff estimates and projections.

Program as established for the 6th and 7th ECF Review.

For 2015 projected clearance of outstanding debt arrears to non-Paris Club official creditors and commercial creditors through debt relief.

Table 5.Guinea: External Financing Requirements and Sources, 2013–20(Millions of US Dollars)
Est.Prog. 1Proj.Proj.
1. Gross financing requirements1,1431,2839941,2541,3931,2801,4141,6271,708
External current account deficit1,0761,2961,2939551,0831,0061,2511,4901,445
Capital account balance 2−12−15−16−16−16−17−17−18−18
Debt amortization496052646066506757
Change in arrears, net 3−4−7−1194940000
Gross reserves accumulation6147−29115614922413188228
IMF Repayments 4−28−96−33023000−4
2. Available financing1,1431,2839971,2031,3251,2801,4141,6271,716
Foreign direct investment, net 57706806206607867719181,1281,209
Identified disbursements311345269449445509496499507
Other flows6125466000000
Debt relief 2,3154394940000
3. Residual financing00−35168000−8
ECF and RCF disbursement2896−351230000
Sources: Guinean authorities; and IMF staff estimates and projections.

Program as established for the 6th and 7th ECF Review.

Excludes public transfers and capital grant from IMF CCR Trust for debt cancellation.

Projected clearance of outstanding debt arrears to non-Paris Club official creditors and commercial creditors through debt relief.

In 2015 includes debt cancellation (under IMF repayments) and debt relief provided under the IMF’s CCR Trust.

Includes private short-term capital flows.

Sources: Guinean authorities; and IMF staff estimates and projections.

Program as established for the 6th and 7th ECF Review.

Excludes public transfers and capital grant from IMF CCR Trust for debt cancellation.

Projected clearance of outstanding debt arrears to non-Paris Club official creditors and commercial creditors through debt relief.

In 2015 includes debt cancellation (under IMF repayments) and debt relief provided under the IMF’s CCR Trust.

Includes private short-term capital flows.

Table 6.Guinea: Financial Soundness Indicators, 2010–15
Capital Adequacy
Total bank regulatory capital to risk-weighted assets17.0%14.6%18.2%15.6%17.3%16.5%
Percentage of banks greater or equal to 10 percent100.0%83.3%92.3%93.0%93.0%100.0%
Share of these banks/total banking system assets100.0%58.8%98.5%94.5%94.2%100.0%
Percentage of banks below 10 and above 6 percent minimum0.0%16.7%7.7%7.0%7.0%0.0%
Share of these banks/total banking system assets0.0%41.2%1.5%5.0%5.8%0.0%
Percentage of banks below 6 percent minimum0.0%0.0%0.0%0.0%0.0%0.0%
Total capital (net worth) to assets7.8%8.2%11.6%11.8%12.5%11.5%
Asset Quality
Non-performing loans to total loans5.9%3.2%4.8%6.5%4.1%6.2%
Non-performing loans net of provision to capital2.5%3.5%3.5%11.2%12.6%9.9%
FX loans to total loans36.0%48.1%22.6%23.1%28.1%30.7%
Earnings and Profitability
Net income to average assets (ROA)2.0%2.5%2.2%2.2%1.8%2.2%
Net income to average capital (ROE)35.1%41.3%28.8%27.8%21.2%27.4%
Non interest expense to gross income14.0%24.5%57.9%93.1%133.8%156.5%
Personnel expense to gross income22.0%18.5%20.7%21.1%21.1%20.3%
Non interest income to gross income48.0%55.7%91.1%124.8%164.7%182.4%
Liquid assets to total assets75.9%69.0%67.3%62.3%56.6%46.6%
Liquid assets to short-term liabilities86.1%74.1%77.4%72.5%67.1%60.2%
Liquid assets/total deposits91.4%91.1%85.5%80.6%74.8%66.7%
Sensitivity to market/FX risk
Foreign exchange liabilities/total liabilities22.0%28.0%33.0%26.5%23.2%23.9%
Foreign currency deposits/official reserves89.0%36.0%55.0%
Source: BCRG.
Source: BCRG.
Table 7.Guinea: Performance Criteria and Indicative Targets, ECF Arrangement 2015–161
PCAdj. PCPrel.StatusIndicative TargetsAdj. ITPrel.StatusIndicative TargetsAdj. ITPrel.StatusPC
Quantitative performance criteria
Basic fiscal balance (floor; cumulative change for the year)−1,276−1,278−1,373Not Met−2,101−2,115−3,022Not Met−743−531664Met−682
Net domestic assets of the central bank (ceiling; stock)4,6284,5106,604Not Met5,1094,6507,437Not Met7,4148,3087,312Met7,329
Net domestic bank financing of the government (ceiling; cumulative change for the year)7946761,074Not Met1,1947362,535Not Met−135759−627Met−186
Net international reserves of the central bank (floor; stock); US$ million 241942093Not Met36937577Not Met248151238Met256
New non-concessional medium or long-term external debt contracted or guaranteed by the government or central bank (ceiling); US$ million 3, 48080152Not Met 58080152Not Met 5000Met0
Stock of outstanding short-term external debt contracted or guaranteed by the government or the central bank (ceiling); US$ million 4000Met000Met000Met0
New external arrears (ceiling) 4000Met000Met000Met0
Indicative targets
Expenditure in priority sectors (floor) 62,6162,6162,121Not Met4,1244,1242,461Not Met1,2521,252508Not Met2,849
Memorandum items:
New concessional external debt contracted or guaranteed by the government or central bank (cumulative); US$ million780n.a.780
Reserve money6,7608,7876,8898,8579,0168,7879,072
Net external assistance4044143173861,1931351,371
of which, Ebola-related grants and loans259268
Change in the float−7535−113290−100−147−147
Sources: Guinean authorities; and IMF staff estimates and projections.

Definitions and adjustors are included in the Technical Memorandum of Understanding (TMU).

Calculated using program exchange rates.

External debt contracted or guaranteed other than with a grant element equivalent to 35 percent or more, calculated using a discount rate based on the OECD commercial interest rates. Excludes borrowing from the IMF.

Continuous performance criterion.

Corresponds to the issuance of a EUR65 million guarantee on a non-concessional loan for the Kankan-Kissidougou road project and of the EUR79 million new debt to finance the Kaleta hydroelectric dam - Conakry transmission line project.

Priority sectors include education, health, agriculture, energy, justice, social affairs, and public works (as defined in the TMU).

Sources: Guinean authorities; and IMF staff estimates and projections.

Definitions and adjustors are included in the Technical Memorandum of Understanding (TMU).

Calculated using program exchange rates.

External debt contracted or guaranteed other than with a grant element equivalent to 35 percent or more, calculated using a discount rate based on the OECD commercial interest rates. Excludes borrowing from the IMF.

Continuous performance criterion.

Corresponds to the issuance of a EUR65 million guarantee on a non-concessional loan for the Kankan-Kissidougou road project and of the EUR79 million new debt to finance the Kaleta hydroelectric dam - Conakry transmission line project.

Priority sectors include education, health, agriculture, energy, justice, social affairs, and public works (as defined in the TMU).

Table 8.Guinea: Structural Benchmarks under the ECF-Supported Program, 2016
MeasureDateStatus of ExecutionMacroeconomic Rationale
Approve a timetable for clearing domestic payment arrears, distinguishing between arrears from budget years 2011–13 and those from 2005–10.End-April 2016Not met. Ongoing.Support the Guinean private sector and enhance government credibility.
Bring budget and accounting management of government agencies benefiting from revenues allocated into compliance with the provisions of the LORF and the RGGBCP.End-August 2016Ongoing.Ensure the integrity of the government’s budget and improve its cash management.
Adopt a civil service reform plan, based on the results of the ongoing biometric survey and the action plan for the program to reform the State and modernize the government.End-August 2016Ongoing.Restrain the wage bill and improve the productivity of public administration.
Table 9.Guinea: Risk Assessment Matrix (RAM)
Sources of RisksRelative LikelihoodImpact If RealizedPolicy Response if Materialized
Tighter or more volatile global financial conditions (surge in the US dollar).HighMediumAdvance the structural reform agenda to remove bottlenecks and allow greater exchange rate flexibility.
Competitiveness could be further impaired, and strain reserve buffers.
Sharper-than-expected global growth slowdown.High/Medium



HighIntensify structural reform to improve the business climate. Allow the exchange rate to adjust.
Investment in large-scale mining projects (iron ore, bauxite) would likely be delayed, lowering medium-term growth prospects.
Heightened risk of fragmentation/security dislocation in the Middle East, Africa, and Europe.HighMediumIntensify structural reform to remove bottlenecks to growth, and protect buffers. Fiscal policy to focus on revenue mobilization, and delivery of public services.
Large-scale investment projects would likely be postponed. Progress out of fragility would be in doubt.
Deterioration of the domestic socio-political and security situationMediumHighRefocus reform on areas less sensitive to socio-political environment. Aim to maintain fiscal control.
Investment and growth would be affected; poverty could increase; Implementation of program could weaken. Macroeconomic stability would be at risk.
Resurgence of EbolaLowHighIntensify structural reform. Fiscal accommodation should remain within the limits of available financing, and focus on priority sector spending.
Additional to the human toll, investor sentiment and consumer confidence would deteriorate further. Mining investments would be delayed.
Annex I. Status of the 2012 Article IV Main Recommendations
Policy AreaKey Policy RecommendationsStatus


Prepare the economy to manage the prospective large inflows of mining resources and avoid Dutch disease-type effects. Consolidate macroeconomic stabilization, and lay the basis for higher and diversified growth.Expected inflows did not materialize. Per capita GDP fell despite early advances in structural reform, as political instability, terms of trade shocks and the Ebola epidemic impaired GDP growth prospects.
Monetary and Exchange Rate PolicyReduce inflation, and maintain a market-determined exchange rate.Inflation fell from 19 percent in end-2011 to 7.3 percent in end-2015. Reforms introduced in 2015 improved the role of market forces in the FX market.
Fiscal PolicyContain the budget deficit, and improve PFM and the quality of spending while increasing allocations to priority sectors. Key measures are: reform the tax administration, control the wage bill, limit subsidies by improving the efficiency of public utilities and reforming support to the agricultural sector.After significant progress during 2012–13, the Ebola epidemic and policy slippages erased some of the gains. PFM, wage bill and subsidies reforms have been lagging mainly due to lack of capacity implementation. Priority sector spending indicative targets have been frequently missed.
Debt Restructuring and SustainabilityReach the completion point under the enhanced Heavily Indebted Poor Countries Initiative (HIPC) as soon as possible, and ensure post-HIPC debt sustainability.The HIPC completion point was reached in September 2012. The most recent DSA concludes that Guinea continues to face a moderate risk of debt distress, but external debt vulnerability to adverse shocks has increased. Other commitments under HIPC, such as the audit of large public procurement contracts and the poverty database remain to be finalized.
Structural ReformsImprove the business climate and remove deep-rooted bottlenecks to investment and growth, including poor governance, a weak judicial system, severe power shortages, and an inadequate road infrastructure.The lack of competitiveness and enabling business environment continue to pose significant challenges. However, some progress has been made in increasing the electricity supply since 2015H2, thanks to the completion of the Kaleta Dam project.
Annex II. External Stability Assessment

Model-based assessments of the exchange rate using the IMF’s External Balance Assessment (EBA-lite) methodology suggest a sizeable misalignment of the real effective exchange rate between 16.2 and 32 percent. By end-2015, the overvaluation of the currency had led to a sharp depletion of usable official reserves and of the banking sector’s net foreign asset position. The January 2016 reform of the FX market has reduced the misalignment by about 15 percentage points. Further FX market reforms, the reduction of the fiscal deficit in 2016, and structural reforms will contribute to closing the residual gap.

A. Balance of Payments and Exchange Rate Developments

1. Guinea’s external current account deficit deteriorated slightly in 2015, standing at 18.7 percent of GDP. This has been driven by a small decrease in exports because of lower exports of bauxite and artisanal gold. Imports slightly decreased too, due to the decline in imports of services in part due to the impact of the Ebola epidemic and the related decline in economic activity.

2. The external current account is expected to improve in 2016 due to the depreciation of the exchange rate which will reduce imports before widening again over the medium term. By 2021, the current account deficit is expected to reach 20.1 percent of GDP, primarily due to an increase in imports. Imports are expected to grow by 9.2 percent per year on average between 2017 and 2021, primarily to support the construction of infrastructure projects, while exports are projected to grow by almost 8.6 percent per year on average over the same period, reflecting an increase in bauxite extraction and agriculture production.

3. Guinea’s real effective exchange rate (REER) has appreciated since the last Article IV consultation in 2012. The appreciation of the REER was largely due to the inflation differential with trading partners, while the nominal effective exchange rate (NEER) was broadly stable until mid-2014 when it began to appreciate because of the depreciation of the euro against Guinean franc (GNF), after which depreciated as GNF weakened against the US dollar. In early 2016, significant reforms to improve the role of market forces in, and the flexibility of, the foreign exchange market resulted in a sharp depreciation of the GNF that has translated into a depreciation of both effective exchange rates.

B. Model-Based Real Exchange Rate Assessments

4. Model-based exchange rate assessments using the IMF’s External Balance Assessment (EBA-lite) methodology suggest a sizeable misalignment of the real effective exchange rate.

The assessments use the current account and REER approaches:

  • The current account approach suggests that the real exchange rate is overvalued by 16.5 percent in 2015. A model-based analysis indicates a norm of -6.6 percent of GDP for the cyclically-adjusted current account deficit.1 Assuming an elasticity of the current account balance with respect to the real exchange rate of -0.73 (Tokarick, 2010), the exchange rate adjustment necessary to eliminate the gap between the norm and the actual current account is estimated at 16.5 percent (see Figure 2).

  • The REER approach indicates that the real exchange rate is overvalued by 32 percent in 2015. Similar to the current account approach, the REER model is based on a reduced form equation of the REER.2 The ‘fitted’ real effective exchange rate is then computed as a product of the level of economic fundamentals to the coefficients of a panel regression. There is an exchange rate misalignment if the real effective exchange rate level cannot be explained by the level of fundamentals using the coefficients of the regression detailed above.

Table 1.Summary of EBA-lite FindingsPercent of GDP, unless otherwise stated
(1)Current account: Actual−18.7%
(2)Current account: Fitted−6.7%
(3)Policy Gap0.0%
(4)=(2)-(3)Current account: norm−6.6%
(5)=(1)-(4)Current account: gap−12.1%
(6)Elasticity of CA to REER (ratio)−0.73
(7)=(5)/(6)Real exchange rate gap (percent)16.5%

5. While these estimates are subject to some error they lead to the conclusion that the external position was substantially weaker than fundamentals in 2015. The models somewhat overstate the magnitude of the overvaluation because of one-off effect of the Ebola outbreak that is not captured.4 In the context of the fight against the Ebola outbreak, imports for medicines and medical equipment increased significantly in 2015 and widened the current account deficit. However, the counterpart donor financing of these operations, are underreported in the balance of payments and the fiscal accounts. However, these one-off issues cannot offset the size of the estimated misalignment, which reflect weaknesses stemming from two factors. First, the authorities’ intervention policies through the official foreign exchange auctions prevented the exchange rate correction to its market value (Figure 1), and depleted reserves. Second, the expansionary stance of fiscal policy with the overall fiscal deficit rising almost 5 percentage points in 2015. Non-price factors, such as governance and infrastructure quality, also explain part of the misalignment.

6. The authorities took the right steps to correct the misalignment, but further efforts are required. The authorities reformed in January 2016 the operation of the foreign exchange auction mechanism and allowed the exchange rate to fluctuate more freely. As a result, the premium between the official exchange rate and the unconstrained bureau exchange rate has been reduced to below 1 percent; and between December 2015 and April 2016, the real effective exchange rate had depreciated by 12.2 percent. A full adjustment of the exchange rate misalignment will be supported by further reforms in the foreign exchange market, including the possibility of foreign exchange purchases through two-way (buy-sell) auctions. Central bank purchases of foreign exchange, consistent with the international reserve target, leading to downward pressure on the domestic currency would help reduce the exchange rate misalignment. A correction of the misalignment will also be supported by the sizeable contraction in the fiscal deficit targeted in 2016—the overall deficit (after grants) is projected to be cut by 7½ percent of GDP.

Figure 1.Guinea: Official and Bureaus rates; Premium

(GNF in USD)

7. A sustained improvement in competitiveness will also require an improvement in non-price factors. Indicators of Guinea’s non price competitiveness are weak (see Section below) and only a slight improvement has been achieved in recent years, stressing the need to accelerate reforms to improve these indicators, including by boosting infrastructure.

Structural Competitiveness

8. Guinea’s non-price indicators of competiveness have slightly improved since 2012 but further progress is needed. According to the Global Competitiveness Index (GCI 2016), Guinea ranked last out of 140 countries, from 141 out of 144 in 2012. In almost all the categories, Guinea performs worse than the Sub Saharan Africa average and is often among the worst performers, except in labor market efficiency. In addition, the performance of Guinea worsened in almost all sectors (except macroeconomic environment) between 2012 and 2015. However, Guinea has slightly improved its rankings in the World Bank’s survey-based “Doing Business Index” moving from the 171th position to the 165th position in 2016. In addition, the performance of Guinea improved in almost all sectors between the 2012 and 2016 reports.

9. Guinea ranks 135th out of 138th countries in the Enabling Trade index prepared by the World Economic Forum. In terms of constraints to exporting and importing identified by firms, access to trade finance is the most problematic factor for exporting whereas burdensome imports procedures are the most problematic factors for importing.

10. Various indicators continue to point to a weak governance situation in Guinea. According to the 2015 Mo Ibrahim index of African Governance, Guinea ranks 40th over 54 in Africa. The 2014 Transparency International report ranks Guinea 139th out of 174 in terms of Corruption Perception Index (CPI). According to the 2016 Index of Economic Freedom, Guinea falls within the category of mostly unfree economy, with a rank of 136th out of 165 countries overall.

Figure 2.Guinea: External Assessment

Sources: Guinean authorities; and IMF staff estimates.

Figure 3.Guinea: Competitiveness Indicators

Figure 3.Guinea: Competitiveness Indicators

Appendix I. Draft Press Release

Press Release No. 16/xx


July [], 2016

International Monetary Fund

700 19th Street, NW

Washington, D. C. 20431 USA

IMF Executive Board Concludes Article IV Consultation with Guinea

On [July 22, 2016], the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Guinea.

Guinea’s GDP per capita remained broadly flat over the last four years, significantly short of the authorities’ ambitious projections at the time of the last article IV consultation. After a period of early gains (2012–13), the country was buffeted by the Ebola epidemic, a sharp decline in commodity prices, and political unrest. While most of the low growth can be attributed to these shocks, delayed policy decisions to unlock new mining projects, policy slippages and delays in structural reform implementation also played a role.

The economy is recovering from the effects of the Ebola epidemic. Growth is projected to rebound to 3.7 percent in 2016, on the back of higher electricity provision from the Kaleta hydroelectric dam and a strong increase in bauxite production. Inflation increased to 7.9 percent in April 2016 driven by stronger domestic demand, and a weaker exchange rate. Bank credit to the private sector continued to grow at rapid rates, and reserve buffers increased and stabilized at 2.4 months of imports, after significant losses in 2014–15.

The medium-term outlook is favorable, but continues to be clouded by downside risks. Growth is projected to average 4.5 percent over the next five years, and inflation would decline gradually to 5 percent by 2019. The basic fiscal balance is projected to remain around ½ percent of GDP, reflecting financing constraints and prudent policies to strengthen reserves. The main risks to the outlook stem from a sharper-than expected global growth slowdown that would delay mining projects, a deterioration in the region’s security, a resurgence of the Ebola epidemic, and political uncertainty.

The authorities’ economic strategy for 2016–22 under preparation aims at unlocking shared and broad-based growth on the back of investments in electricity, roads, and agriculture. The private sector would also play a role through new mining projects, new transformation units of agricultural products, and large residential housing projects and administrative buildings through PPPs. Achieving these ambitious results will depend crucially on the authorities’ success in resuscitating reform momentum and attracting private investors.

Executive Board Assessment2

< >

Poverty was estimated at 55.2 percent in 2012. No household survey was conducted since then.

Guinea was first declared Ebola-free in end-2015, but seven new cases occurred in end-March and early April 2016. On June 1, Guinea was declared Ebola-free for a second time.

Compagnie des Bauxites de Guinée, a joint venture between the Guinean government, Alcoa and Rio Tinto, plans a $752 million expansion to increase its production capacity by 40 percent to 18.5 million tons per year by 2018.

The end-April structural benchmark on the audit of domestic arrears was not met, but prospects for implementing the measure are good.

A $2 increase in oil prices roughly translates into a 0.1 percent of GDP loss in revenue, ceteris paribus.

For banks holding foreign currency deposits, a depreciation of the GNF mechanically raises reserve requirements as these are constituted in local currency.

Part of these liquidity problems result from rescheduling of FX loans guaranteed by the central bank. For instance, as of early May, the Treasury owed 2.6 million euro to a bank due mid-April 2016, and $20.8 million to another bank falling due early March 2016.

On-site inspections are envisioned to examine the nature of the problem and take corrective measures.

Banks generated income mainly from credit with their clientele (representing 41 percent of the NBI in 2015). Other contributions to the NBI in 2015 included: banking fees (26 percent, mainly on FX operations); cash and interbank transactions (22 percent, notably interest on Treasury bills); and other products (11 percent).

Banks involved in the central bank-guaranteed loans for a road project obtained uncollateralized refinancing at the central bank at 6 percent interest rates, compared with 11 percent for other banks. Some of these banks were also granted waivers for non-compliance on the reserve requirements.

As spelled out in the Prime Minister’s statement of economic policies to the National Assembly. The projects underpinning this strategy as regards the agriculture sector, the Souapiti project, and the education and health sectors were also presented by the relevant ministers to the mission as priority projects for the years ahead.

By 2021, these projects would lead to (i) a doubling of the current 20 million tons installed bauxite production capacity; (ii) a slight increase in the installed capacity for gold production; and (iii) the ramping up of iron ore production from 0 to 16 million tons. The cost of these projects is estimated at $17 billion (260 percent of 2016 GDP).

The scenario includes only projects for which financing has been secured. The Souapiti project was not included in the scenario, as the financing structure has not been finalized.

In February 2016 the authorities and labor unions agreed that fuel prices will not be raised in 2016.

In 2014, the ministry of finance put on the government’s books a domestic debt (0.5 percent of GDP) contracted by the electricity company. The debt—to be paid off by 2018 in three equal tranches—was not included in the 2016 budget, will be included in the 2016 supplementary budget.

Mostly reflecting the weakening of the exchange rate, increases in the value-added tax and supply shocks in the food sector.

Including the pensions facility (term repo) and the new TPO (Taux des Pensions Overnight). Banks hold enough Treasury bills to use as collateral, and the central bank has recently extended the set of eligible securities.

The authorities introduced in January 2016 a multiple price two-way FX auction; abolished the +/- 4 percent band outside of which banks were not allowed to transact; and allowed banks to freely purchase and sell FX from and to their clients. Some measures still have to be implemented including the adoption of a rule-based strategy to calibrate central bank’s interventions on the MEBD; the limitation of FX bureaus’ activities to retail transactions; and the replacement of central bank’s currency purchases from FX bureaus, artisanal gold miners, and large companies by a purchase program on the MEBD.

The FX intervention strategy would use in the decision making the last auction price, the marginal price of the current auction, the amounts of gross and liquid reserves, and the expected off-market FX flows as exogenous variables, as well as an intervention trigger in terms of exchange rate volatility and the foreign reserves target as endogenous variables. An illustration of this strategy is presented in the MCM TA report “Guinea – Foreign Exchange Operations and Liquidity Management in Transition Toward Exchange Rate Flexibility, March 2016.

An audit of domestic arrears is being conducted by the authorities who plan to adopt a schedule of reimbursement of these arrears (structural benchmark under the ECF arrangement). These arrears feature as an important stumbling block for unleashing the potential of the private sector.

See Selected Issues Paper on the application of the Debt Investment Growth nexus model to Guinea.

A fuller discussion of Guinea’s tax potential can be found in the Selected Issues Paper: “Revenue needs, tax potential and revenue mobilization in Guinea”.

An audit report on large procurement contracts is being finalized. The preliminary findings of the report suggest that the majority of large contracts awarded during the 2014–15 did not abide with the procurement code.

Several measures are nearing completion, including the National Public Debt Policy Statement, a manual of operational procedures in the debt department, and the adoption of a medium-term debt strategy (2015–19).

The IMF Executive Board endorsed on May 22, 2015 a proposal to pilot a more structured approach for capacity development activities in fragile states referred to as CBF. The CBF, under which Guinea has agreed to be a pilot country, involves agreeing with authorities and key stakeholders on a medium-term program for capacity development with specific deliverables and periodic monitoring.

The number of waivers concerning the division of risks stabilized as the central bank decided to limit their granting to the financing of oil imports and essential foodstuffs.

See accompanying Selected Issues Paper on Financial Inclusion.

Banks argue that about 40 percent of their labor force is unproductive, which could explain the large intermediation costs but not necessarily the high profitability.

Three banks hold about 75 percent of total assets of the banking system.

The BCRG sent a letter on November 2015 to the Ministry of Finance to initiate discussions on the reimbursement of the 2014-15 central bank advances, and on the modalities of its recapitalization.

The current account approach estimates the exchange rate adjustment necessary to eliminate the gap between the current account norm and the actual current account. The current account norm is made of the policy gap (the gap between a country’s actual policies and its optimal policies) and the fitted current account (a product of the level of economic fundamentals to the coefficients of a regression panel). The regression panel, estimated on a sample of 49 developed and emerging market economies over the period [1986–2010], includes a set of traditional fundamentals, financial factors, cyclical/temporary factors and policy-related regressors, most of these variables being computed as a country’s deviation from the ‘world’ counterpart (see IMF WP/13/272).

The explanatory variables of this model can be grouped into policy variables and non-policy fundamentals. The policy variables include: FX intervention, interest rates, private credit, and capital controls. The non-policy fundamentals are productivity, financial home bias, terms of trade, trade openness, NFA, output gap, aid and remittances.

See Office of United Nations Special Envoy on Ebola, Resources for Results V, October 2015 for data on the size and distribution of aid flows.

Under 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.

At 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:

Other Resources Citing This Publication