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IMF Executive Board Concludes the 2016 Article IV Consultation with Guinea

Author(s):
International Monetary Fund. African Dept.
Published Date:
July 2016
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On July 22, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the 2016 Article IV consultation1 with Guinea.

Guinea’s economic performance over the past four years fell significantly short of the authorities’ ambitious projections. After a period of early gains (2012–13), the country was buffeted by the Ebola epidemic, a sharp decline in commodity prices, and political uncertainty. Economic growth averaged 1.8 percent during 2012–15, significantly below the performance of peers, and GDP per capita is estimated to have fallen, likely inducing an increase in poverty

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 broad-based and inclusive growth driven by 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.

Executive Board Assessment2

Executive Directors welcomed Guinea’s ongoing recovery from the Ebola epidemic and the authorities’ progress under their Fund supported program, including a strong fiscal adjustment in the first quarter of 2016. Nonetheless, the epidemic and the decline in commodity prices have caused a serious socio economic setback. Directors took note of the authorities’ plan to foster broad based growth and improve the population’s living conditions by scaling up public investment. They underscored the need to safeguard fiscal sustainability and urged implementation of structural reforms to strengthen resilience and bolster long term growth and poverty reduction.

Directors stressed the importance of implementing the planned fiscal adjustment this year to further strengthen fiscal buffers, including in view of fiscal risks from the energy sector. They emphasized the need to build fiscal space for priority investment and social spending by improving tax administration and compliance, tapping the unrealized tax potential, containing the government wage bill and energy subsidies, enhancing the efficiency of public spending, and pursuing improvements in public financial management. While better infrastructure services can help unlock higher growth, Directors recommended caution in undertaking large public investments, and urged the authorities to take into account available financing and the need for a strong process for selecting and managing investment projects. They noted the importance of limiting recourse to nonconcessional finance, welcoming in this regard the authorities’ intention to seek concessional financing to the extent possible. Directors urged the authorities to redouble efforts to strengthen debt management and reduce domestic arrears.

Directors supported the prudent monetary policy stance aimed at raising the international reserves cover and containing inflation. They welcomed the work on a draft central bank law intended to reduce fiscal dominance and facilitate the conduct of monetary policy, and encouraged the authorities to consider the other recommendations of the updated Safeguards Assessment. They welcomed the reform of the foreign exchange system and recommended moving ahead with the next steps of the reform in order to close the remaining exchange rate misalignment. They noted that transitioning to exchange rate flexibility in the medium term will help safeguard competitiveness and international reserves.

Directors called for enhancing risk-based supervision in the financial sector and improving financial intermediation and inclusion. They looked forward to the reform of the National Strategy for Financial Inclusion and a strengthening of the AML/CFT regime.

Directors emphasized the importance of addressing structural impediments to higher growth and diversification. They welcomed the authorities’ efforts to enact a new mining code and reform agriculture. They urged them to complete the reforms under the ECF-supported arrangement, and highlighted the need to continue to enhance the business climate, strengthen governance, and improve public service delivery.

Guinea: Selected Economic Indicators, 2013–21
201320142015201620172018201920202021
Est.Prog.1Proj.Proj.
Annual percentage change, unless otherwise indicated
National accounts and prices
GDP at constant prices2.31.10.14.03.74.34.54.85.04.8
Consumer price index (end of period)10.59.07.38.59.17.56.05.05.05.0
Money and credit
Net domestic assets214.420.631.24.84.36.64.54.33.93.5
Net claims on government210.27.517.2−0.9−0.91.8−1.0−1.0−1.4−0.9
Credit to non-government sector29.713.710.85.75.14.85.55.35.34.4
Broad money (M2)14.112.320.311.011.218.911.27.714.812.2
External sector
Gross available reserves (months of imports)33.03.72.13.03.03.23.43.73.84.0
Current account balance
Percent of GDP, unless otherwise indicated
Central government finances
Total revenue and grants19.921.919.024.323.523.924.324.524.624.3
Revenue18.417.917.520.319.719.820.120.320.320.4
Total expenditure and net lending25.126.127.825.624.724.824.924.824.824.6
Overall budget balance, incl. grants−5.2−4.1−8.7−1.3−1.2−0.9−0.6−0.3−0.2−0.3
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
Savings3.5−8.0−8.57.52.23.30.7−1.40.4−3.5
Debt
External public debt, incl. IMF21.825.525.428.428.430.731.431.230.628.4
Total public debt, incl. IMF41.943.149.144.748.648.146.444.442.138.6

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.

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.

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 summing ups can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.

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