The team comprised P. van den Boogaerde (head), M. Nkusu (both AFR), R. Bhattacharya (FAD), J. Lin (FIN), J.G. Gasha (MFD), and M. Hussain (PDR). The team benefited from valuable insights from several World Bank and Fund colleagues.
Nonmining revenue rose by only a paltry 0.5 percent of GDP over 1997–2003 to 9 percent of GDP in 2003. With mining revenue falling from 3 percent of GDP in 1997 to 1.5 percent of GDP in 2003, the total revenue-to-GDP ratio decreased by 1 percentage point over the same period to 10 ½ percent of GDP.
For example, to observe the March 1997 criterion, normal expenditure procedures were suspended and replaced by a stringent control of cash outlays by a top-level Cash Management Committee, which cut all expenditure without prioritization, including in the social sectors. This situation repeated itself in 2000-01, when revenue shortfalls, coupled with overruns in defense spending, led to ad hoc revenue mobilization measures and to draconian expenditure compression that enabled the authorities to the meet primary balance performance criterion for end September 2001 and end-March 2002, respectively.
Public spending (current and development) on education and health in Guinea over the period 1998–2001 averaged 2.6 percent of GDP and 1.3 percent of GDP, respectively, compared with an average of 3.4 percent and 2.6 percent, respectively, in sub-Saharan Africa (2003 public expenditure review).
On a scale of 0-10, where 10 represents the most restrictive trade regime, Guinea and WAEMU countries score 3 and 3.5, respectively. Adopting the WAEMU’s CET (planned for 2005) would lower Guinea’s trade restrictiveness index to 2.
Since 1997, Guinea has incurred late payments to the Fund on 20 occasions. Recently, with the deterioration in the economic situation and financial difficulties in meeting external obligations, the payment record worsened, with four late payments already in 2004. However, Guinea made efforts to repay the Fund ahead of all other creditors.
Most of the reduction was done under the first arrangement of the 1997–2001 ESAF. Since then, the reduction has been of only about 2 percentage points. The 2003 World Bank PER indicated that efforts were needed to continue shifting resources from wages to nonwage outlays, including in the social sectors.
In 1997, the World Bank country assistance strategy had a judicial capacity building program in the base case scenario. However, it was dropped because Guinea moved to the low case scenario and because of lack of commitment from the authorities.
However, the Independent Evaluation Office argued that the Fund’s withdrawal from conditionality perceived to be responsibility of the World Bank has not been helpful in all cases. For example, public enterprise reform, while in the Bank’s area of competence, was critical for the PRGF-supported program. However, in practice, the different approaches to conditionality of the two institutions made it hard to coordinate effectively, even though there was broad agreement on the objectives.
Guinea’s political system consists of a strong presidential regime closely related to the army and lacks checks and balances as the opposition is weak and fragmented. Thus the commitment of the heads of the economic team directly involved in the negotiations with the Fund has often lacked support at the highest level of the government.
Guinea was also confronted with serious adverse external shocks during 1997–2004, namely the fall in the world prices of aluminum and the rebel attacks and influxes of refugees from neighboring countries, which continued to be a major burden on the country, negatively affecting private sector activity and budget execution.
It is difficult to distinguish quantitatively between the impact of exogenous shocks and failures in implementing critical policy measures to explain the slippages. Nonetheless, the delays in tackling the deep-rooted problems in the water and electricity sectors have subdued growth in these sectors and industrial activities, shaving an estimated 1 percentage point annually in 2000–03 from projected overall GDP growth. The absence of support in the marketing of fish products and the lack of progress in trade facilitation also lowered growth. The shortfall in exports during 1997–2003 has been almost 18 percent of projections or US$147 million on an annual average basis, mostly due to lower-than-anticipated prices of mining products, but also due to lack of new investments in the mining sector because of an investment-hostile environment.
The poor policies of the past two years, which have led to the suspension of budgetary assistance from many donors have been very onerous to the population. In particular, owing to the discretion of the political leadership and the lack of independence of the central bank, the government has continued its expansionary policies financed by monetary emission. This has fueled inflation, which has further hurt the poor.
The World Bank has indicated that, should the authorities demonstrate political will to fight corruption, it may, through its Capacity Building for Service Delivery (CBSD) program, support reforms to improve the judicial system.