This 2004 Article IV Consultation highlights that Guinea-Bissau’s economic performance has weakened substantially in recent years. Real GDP declined by 7 percent in 2002 and was flat in 2003. Structural reforms stalled after the war; the private sector remained incapacitated because of the destruction of equipment and infrastructure caused by the conflict, and the loss of stocks owing to confiscating and looting. In 2003, the external current account deficit, excluding official transfers, halved relative to the previous year, to 6.7 percent of GDP, reflecting higher cashew nut exports and stagnating imports.
This statement contains information that has become available since the Staff Report was circulated to the Executive Board on November 3, 2004. This information does not alter the thrust of the staff appraisal.
1. The political situation remains fragile after the recent military mutiny. There have been no further incidents since early October. A main demand of the soldiers—the second payment for peace-keeping duty in Liberia—was met. However, recent nominations to the top posts in the Armed Forces included officers who acted as spokesmen for the mutineers, raising doubts about the distribution of political power between the Armed Forces and the government. The Economic Community of West African States and the Community of Portuguese Speaking Countries (CPLP) have established permanent representations in Bissau to support ongoing intermediation efforts; the CPLP is also supporting efforts to identify the need for military reform.
2. The revisions in the public sector wage scales in recent months are estimated to have resulted in an almost doubling of base wages, which was partly offset by eliminating non-wage benefits. In order to reduce tensions caused by unfulfilled promises made by the previous government, the authorities agreed to raise civil service salaries by an average of 67 percent and military wages by an average of 200 percent (bringing them broadly in line with similar positions in the civil service). Preliminary estimates of the net effect, including the offsetting measures, indicate that personnel costs would be more than 3 percent of GDP (€ 7.5 million) higher in 2005 than in 2004.