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© 2004 International Monetary Fund
December 2004
IMF Country Report No. 04/392
Guinea: 2004 Article IV Consultation—Staff Report; Staff Statement; and Public Information Notice on the Executive Board Discussion
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2004 Article IV consultation with Guinea, the following documents have been released and are included in this package:
the staff report for the 2004 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on May 23, 2004, with the officials of Guinea on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on August 4, 2004. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
a staff statement of August 27, 2004 updating information on recent developments.
a Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its August 27, 2004 discussion of the staff report that concluded the Article IV consultation.
The documents listed below have been or will be separately released.
Ex-Post Assessment of Longer-Term Program Engagement
Joint Staff Assessment of the Poverty Reduction Strategy Paper Progress Report
Poverty Reduction Strategy Paper Progress Report
Statistical Appendix
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org.
Copies of this report are available to the public from
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INTERNATIONAL MONETARY FUND
GUINEA
Staff Report for the 2004 Article IV Consultation
Prepared by the Staff Representatives for the 2004 Consultation with Guinea
Approved by Siddharth Tiwari and Mark Plant
August 4, 2004
The discussions on the 2004 Article IV consultation were conducted in Conakry during May 11-23, 2004, in parallel with World Bank and African Development Bank missions. The staff team consisted of Mr. van den Boogaerde (head), Ms. Nkusu, Mr. Blavy, Ms. Babihuga (all AFR), Mr. Verreydt (WHD) and Ms. Hotobah-During (Staff Assistant-AFR). It was assisted by Mr. Jones, the resident representative in Guinea, and Mr. Barry, the resident economist.
The Guinean representatives included Mr. Madikaba Camara, Minister of Economy and Finance; Mr. Mohamed Daffé, Governor of the Central Bank of the Republic of Guinea; Mr. Eugéne Camara, Minister of Planning; and several other Ministers and senior officials. The mission met also with the Minister Secretary-General at the Presidency, members of the National Assembly, the financial and business community, representatives of NGOs, the donor community, and the press.
Guinea has accepted the obligations under Article VIII, Sections 2, 3, and 4 of the Fund’s Articles of Agreement. Nonetheless, over the past year, the authorities have intensified multiple currency practices.
In December 2000, Guinea reached the decision point and was eligible for debt relief under the enhanced HIPC Initiative, and started to receive interim assistance. However, owing to poor performance under the PRGF-supported program, interim assistance from Paris Club members, the Fund, and the African Development Bank was suspended in 2003.
At the conclusion of the previous Article IV consultation on July 16, 2003, Directors expressed concern that expansionary fiscal, accommodative monetary policies, and an inflexible exchange rate policy aggravated macroeconomic imbalances, raised inflation, and lowered international reserves. They urged the restoration of fiscal and monetary discipline and a deepening of structural reforms to foster economic growth and reduce poverty.
Guinea’s political and security situation remains uncertain and fragile. President Conté was reelected in December 2003 for a new seven-year term, in elections boycotted by the opposition and criticized by most observers. A new government team was formed in March 2004, but the new Prime Minister resigned on April 30, citing difficulties in implementing reforms. On the security front, concerns remain over the instability in the region, especially in Liberia and Côte d’Ivoire, and the continued presence in Guinea of armed Liberian ex-rebel fighters.
Guinea’s relations with the IMF and the World Bank are summarized in Appendices I and II and statistical issues are discussed in Appendix III. Statistics are weak in Guinea, with major deficiencies in balance of payments, national accounts, price, and external debt data. Progress has been made in recent years, including with technical assistance from the Fund and AFRITAC-West, but further improvements are needed.
Contents
Executive Summary
I. Recent Developments
II. Report on the Discussions
A. The Ex-Post Assessment Report
B. Immediate Policy Challenges and Outlook for 2004
C. Exchange Rate Policy
D. Way Forward
E. Medium-Term Prospects and Challenges
III. Statistical and Technical Assistance Issues
IV. The PRSP Progress Report
V. Staff Appraisal
Boxes
1. WAEMU and WAMZ—Selected Economic Indicators, 1998-2003
2. Risks and Vulnerabilities
3. Guinea’s Position Relative to the Convergence Criteria for the Second Monetary Zone in West Africa (WAMZ).
Figures
1. Real Sector Developments, 1998-2003
2. Medium-Term Framework (Good-Policy Scenario), 2003-08
Tables
1. Selected Economic and Financial Indicators, 2002-07
2. Gross Domestic Product at Current Prices by Demand components, 2002-07
3. Gross Domestic Product at Constant 1996 Prices by Sectors, 2002-07
4. Financial Operations of the Government, 2002-07
5. Monetary Survey, 2002-04
6. Financial Soundness Indicators for the Banking Sector, 1999-2003
7. Balance of Payments, 2002-07
8. Millennium Development Goals
Appendices
I. Relations with the Fund
II. Relations with the World Bank Group
III. Statistical Issues
IV. Debt Sustainability Analysis
Appendix Figure
1. Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2003-23
Appendix Tables
1. External Debt Sustainability Framework, Baseline Scenario, 2000-23
2. Sensitivity Analyses for Key Indicators of Public and Publicly Guaranteed External Debt, 2003-23
Executive Summary
Guinea’s economic situation worsened in 2003 as GDP growth slowed down, reflecting exogenous shocks, inconsistent macroeconomic policies, and a significant decline in investment. Lax fiscal and accommodating monetary policies led to accelerating inflation. A continued de facto fixing of the official exchange rate resulted in a widening spread between the official and the parallel exchange rates and a loss in reserves. Progress on structural reforms also slowed down. Macroeconomic instability impaired poverty reduction efforts.
Important downside risks cast a shadow on the outlook for 2004 and the emergency program adopted in March 2004 will be insufficient to ease inflationary pressures. Growth is expected to remain relatively weak, at around 2.6 percent. In addition to rigorous fiscal policy and a tighter monetary policy, liberalizing the exchange rate and advancing structural measures are key to restoring a sound macroeconomic environment.
The medium-term framework should include sustained reform efforts to secure strong growth and poverty reduction, as the ex-post assessment report highlights. The report stresses the need for: (i) commitment at the highest level of government to a long-term development strategy, (ii) early and decisive progress in implementing structural reforms, (iii) improving governance, and (iv) setting realistic macroeconomic objectives.
With sound policies, the staff and the authorities agreed that the economy could return to a growth path of 5 percent by 2006, in line with the objectives of the poverty reduction strategy (PRS). Fiscal policies would increase revenue collection, gear expenditures toward social outlays, and strengthen public expenditure management, while monetary policy would strive to control inflation. The exchange rate would remain market-determined. An acceleration of structural reforms—including improving basic infrastructure, addressing governance issues, enhancing financial intermediation, and advancing privatization and trade liberalization—would promote private sector-led growth
The authorities finalized their first PRS progress report following a participatory process involving civil society. While Guinea remained committed to its PRS and progress was noted in social sectors, in particular education and health, sustained strong growth will be needed to achieve the goals of the strategy. The more realistic revised macroeconomic framework is a welcome step in that direction.
The absence of a mechanism to prevent the rates in the official and parallel exchange markets from diverging by more than 2 percent and the recent administrative allocation of foreign exchange have given rise to a new multiple currency practice (MCP). The staff do not recommend Board approval of Guinea’s MCP.
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Public Information Notice (PIN) No. 04/115
FOR IMMEDIATE RELEASE
October 3, 2004
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
