Abstract
This 2004 Article IV Consultation highlights that in 2003, Guinea’s economic situation deteriorated on account of exogenous conditions, as well as poor macroeconomic management and the lack of progress in key structural areas. Annual real GDP growth slowed down from 4.2 percent in 2002 to an estimated 1.2 percent. In the structural reform area, progress was mixed. The outlook for 2004 is plagued by poor performance in the first quarter of the year and by important downside risks, exogenous as well as policy related.
August 27, 2004
1. This statement reports on information that has become available since the staff report was issued. It does not change the thrust of the staff appraisal.
2. Year-on year inflation has been trending down, from double digits during most of 2003, to 9.8 percent in June 2004 (Figure 1). As efforts to stabilize the economy are very recent, the decline appears to be driven by seasonal factors.
Inflation, January 2002 - June 2004
(percent change)
Citation: IMF Staff Country Reports 2004, 392; 10.5089/9781451815245.002.A002
3. Performance in the fiscal area was mixed (Figure 2). Reflecting commendable efforts in the collection of nonmining revenue, overall revenue in the second quarter of 2004 was about 30 percent higher than in the first quarter. Nonetheless, for the first semester, total revenue was slightly below target, owing essentially to lower-than-projected mining revenue. On the expenditure side, there was a significant acceleration of social spending in the second quarter compared with the first quarter, albeit commitments fell short of projections. However, there were spending overruns, driven by domestically-financed investment and transfers. Accordingly, the fiscal deficit exceeded projections by 0.4 percent of GDP, and was financed by higher-than-projected arrears accumulation and recourse to bank financing.
Government Operations, Comparison Q1 2004 - Q2 2004
(in billions of Guinean francs)
Citation: IMF Staff Country Reports 2004, 392; 10.5089/9781451815245.002.A002
Fiscal Developments
(In billions of Guinean francs, cumulative)
Fiscal Developments
(In billions of Guinean francs, cumulative)
| 2004 | ||||
|---|---|---|---|---|
| March | June | |||
| Proj. | Est. | Proj. | Est. | |
| Revenue | 241.4 | 188.0 | 437.9 | 434.2 |
| o/w non mining revenue | 199.0 | 155.1 | 362.5 | 369.3 |
| Total expenditure | 335.7 | 281.1 | 615.5 | 636.6 |
| o/w current nonwage social spending | 13.9 | 1.5 | 30.1 | 21.8 |
| Primary balance (in percent of GDP) | 0.3 | 0.3 | 0.8 | 0.5 |
| Overall bal. (incl. grants), cash basis (In percent of GDP) |
-91.5 -1.1 |
-120.9 -1.4 |
-136.7 -1.6 |
-172.8 -2.0 |
Fiscal Developments
(In billions of Guinean francs, cumulative)
| 2004 | ||||
|---|---|---|---|---|
| March | June | |||
| Proj. | Est. | Proj. | Est. | |
| Revenue | 241.4 | 188.0 | 437.9 | 434.2 |
| o/w non mining revenue | 199.0 | 155.1 | 362.5 | 369.3 |
| Total expenditure | 335.7 | 281.1 | 615.5 | 636.6 |
| o/w current nonwage social spending | 13.9 | 1.5 | 30.1 | 21.8 |
| Primary balance (in percent of GDP) | 0.3 | 0.3 | 0.8 | 0.5 |
| Overall bal. (incl. grants), cash basis (In percent of GDP) |
-91.5 -1.1 |
-120.9 -1.4 |
-136.7 -1.6 |
-172.8 -2.0 |
4. Broad money grew by 37.9 percent over the 12-month period ended June 2004, largely driven by the banking system’s credit to the government. The central bank has stepped up the use of sterilization bills to control liquidity, but the impact has been limited because of the large financing needs of the government. The net foreign assets of the central bank improved slightly, though remaining negative.
5. The authorities have taken important steps to improve exchange rate management. In light of the staff’s recommendation that the de facto fixing of the official exchange rate be stopped and that the exchange rate be more flexible, the central bank resumed foreign exchange auctions in July, allowing the official rate to depreciate by 25 percent. The parallel market premium, which reached 25 percent in June, has since been reduced to almost 10 percent.
6. The government has adjusted retail prices of rice and petroleum products, in light of the rising world prices and the depreciation of the Guinean franc. The official price of rice was increased by 51 percent and the prices of petroleum products by about 70 percent. The cost of public transportation, which remained unchanged for a long time, has been increased proportionately to the petroleum price increase, exacerbating the hardships faced by a significant share of the population. To offset this, the government has announced a doubling of the transportation allowance for civil servants.
7. The government made efforts in the second quarter of 2004 to contain the accumulation of external arrears, despite the continued lack of external budgetary assistance. Arrears accumulated in 2003 amounted to US$18 million, as indicated in the staff report. On a net basis, US$11.2 million were accumulated in the first quarter of 2004, and an additional US$8 million in the second quarter, bringing the total arrears outstanding at end-June 2004 to almost US$37 million.
8. In the authorities’ effort to normalize relations with donors, a government delegation met with officials of the European Union (EU) in Brussels in late July, and presented a memorandum outlining steps envisaged by the Guinean government to address outstanding issues that have strained Guinea’s relations with the EU since mid-2002. In particular, the memorandum highlights steps the government envisage to promote human rights and democracy, including by restoring the political dialogue, liberalizing the media, and organizing free and transparent municipal elections in 2005 and legislative elections in 2007. An EU assessment mission will visit Conakry in coming months. A positive assessment could reopen access to 8th and 9th FED resources.
