Front Matter

Front Matter Page

© 2006 International Monetary Fund

August 2006

IMF Country Report No. 06/312

Guinea-Bissau: 2006 Article IV Consultation, Review of Developments Under the 2005 Staff-Monitored Program, and New Staff-Monitored Program for 2006—Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Guinea-Bissau

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of a combined discussion of the 2006Article IV consultation with Guinea-Bissau, review of developments under the 2005 staff-monitored program, and new staff-monitored program for 2006, the following documents have been released and are included in this package:

  • the staff report for the 2006 Article IV consultation, Review of Developments Under the 2005 Staff-Monitored Program, and New Staff-Monitored Program for 2006, prepared by a staff team of the IMF, following discussions that ended on March 30, 2006, with the officials of Guinea-Bissau on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 19, 2006. 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 Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its July, 31, 2006 discussion of the staff report that concluded the Article IV consultation.

  • a statement by the Executive Director for Guinea-Bissau.

The documents listed below have been or will be separately released.

Letter of Intent sent to the IMF by the authorities of Guinea-Bissau*

Memorandum of Economic and Financial Policies by the authorities of Guinea-Bissau*

Selected Issues Paper and Statistical Appendix

Technical Memorandum of Understanding*

*Also included in the Staff Report.

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

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Staff Report for the 2006 Article IV Consultation, Review of Developments Under the 2005 Staff-Monitored Program, and New Staff-Monitored Program for 2006

Prepared by the African Department

(In consultation with other departments)

Approved by Sharmini Coorey and Anthony R. Boote

July 19, 2006

  • Discussions for the 2006 Article IV consultation and a staff-monitored program (SMP) for 2006 were held in Bissau during March 16-30, 2006. The staff team comprised Mr. Dore (Head), Ms. Ocampos, Mr. Saenz, Mr. Veyrune and Ms. Mendez (all AFR). The team liaised closely with a mission of the World Bank, and the European Union (EU).

  • The mission met with the President of the Republic; the Ministers for Finance, Economy, Commerce, Public Administration, and Justice; the Acting Governor and the National Director of the Central Bank of West African States (BCEAO); senior government officials; and representatives of the donor community.

  • After the last Article IV consultation was concluded on November 19, 2004, the Executive Directors also discussed the ex post assessment of performance under Fund-supported programs. They noted that the key challenges for the authorities were to restore fiscal discipline, rebuild public administration, and improve the investment climate. Most Directors agreed that the next step in the Fund’s engagement could be emergency post-conflict assistance as part of a concerted international effort.

  • In their letter of intent (Attachment I), the authorities of Guinea-Bissau request that the staff monitor their economic program for 2006 as described in the accompanying memorandum on economic and financial policies. The program aims to stabilize the fiscal situation by avoiding new domestic arrears for the year as a whole, strengthening institutions, building technical capacity, and implementing structural reforms to improve the investment climate.

  • Guinea-Bissau is on the standard 12-month consultation cycle and, like other members of the West African Economic and Monetary Union (WAEMU), has accepted the obligations of Article VIII, sections 2, 3, and 4 of the Fund’s Articles of Agreement. Guinea-Bissau maintains an exchange system that is free from multiple currency practices and restrictions on the making of payments and transfers for current international transactions.

  • The quality of data has hampered effective surveillance but efforts are underway in Guinea-Bissau to rebuild core statistical databases.


  • Executive Summary

  • I. Introduction

  • II. Recent Developments and Performance under the Staff-Monitored Program for April-December 2005

  • III. Report on the Article IV Consultation Discussions and on the Staff-Monitored Program

    • A. Medium-Term Prospects

    • B. Fiscal Policy and Reforms

    • C. Monetary, Exchange Rate and Financial Sector Issues

    • D. Structural Reforms

    • E. External Sector and Public Debt

    • F. Capacity Building and the PRSP Process

  • IV. The 2006 Staff-Monitored Program: Monitoring and Risks

  • V. Staff Appraisal

  • Text Boxes

  • 1. Oil Price Adjustment Mechanism

  • Figures

  • 1. Real GDP and Cashew Nut Production, 2000-05

  • 2. Current Account Balance and Grants, 2001-06

  • 3. Effective Exchange Rates, January 2000-February 2006

  • 4. Fiscal Indicators, 2000-06

  • 5. Recent Monetary Developments, 1995-2005

  • 6. Real Effective Exchange Rate

  • Text Tables

  • 1. Millennium Development Goals Selected Indicators

  • 2. Medium-Term Projection

  • 3. Financing Gap and Identified Budget Support

  • Tables

  • 1. Selected Economic and Financial Indicators, 2001-06

  • 2. Central Government Operations, 2001-06

  • 3. Monetary Survey, 2001-06

  • 4. Balance of Payments, 2001-06

  • 5. Obligations to the Fund, 2006-10

  • 6. External Debt Outstanding, 2004-10

  • 7. External Arrears Outstanding, 2004-10

  • 8. Millennium Development Goals, 1990-2004

  • Appendices

  • I. Letter of Intent

  • Attachment I. Memorandum on Economic and Financial Policies for 2006

  • Attachment II. Technical Memorandum of Understanding for the Staff-Monitored Program for 2006

  • II. Financial Position in the Fund

  • III. Relations with the World Bank Group

  • IV. Statistical Issues

  • V. External Debt Sustainability Analysis

Executive Summary

  • Guinea-Bissau has made major strides in overcoming the effects of a long period of political instability. The period began in 1998 with a civil war and ended in mid-2003 with a coup. The physical infrastructure was destroyed, the economy stagnated, government administrative capacity virtually collapsed, social conditions worsened, and poverty increased.

  • Parliamentary elections were held in March 2004 and presidential elections in July 2005. Though the process of rebuilding the administration and addressing the country’s economic problems has clearly begun in earnest, policy implementation must remain strong and be complemented by considerable donor support if the country is to solve its problems.

  • The main challenges now are to consolidate peace and political stability and to lay the foundation for sustainable high growth and significant poverty reduction. This will require Guinea-Bissau to achieve fiscal and debt sustainability and deepen structural reforms.

  • Staff expects a recovery over the medium term, but its strength and timing depend on how well the authorities can come to grips with the political, fiscal, and structural problems besetting the economy. Staff estimates that real GDP growth recovered to 3.5 percent in 2005, driven by improved agricultural output. The fiscal balance improved, but cash flow problems persisted throughout the year. The deficit (including grants) was lower than budgeted at 12 percent of GDP, compared to 15 percent in 2004, but new domestic arrears accumulated. The macroeconomic outlook for 2006 is favorable, with real GDP growth of about 4 percent and CPI inflation of about 2 percent, barring any major supply shocks.

  • Medium-term policies should focus on strengthening the fiscal position so as to broadly achieve public debt sustainability taking into account debt relief anticipated at the HIPC completion point. The fiscal program the government has adopted underscores the authorities’ resolve to bring public finances under control, but attaining the fiscal objectives depends critically on progress in keeping current spending in check and intensifying revenue mobilization. The emphasis on widening the tax base and reducing exemptions is appropriate, but spending must be effectively monitored from the commitment stage and a monthly cash flow plan, consistent with spending priorities, must be strictly adhered to.

  • The structural reform process, which has languished over the years, needs new impetus. An action plan for implementing the long-overdue civil service reform is urgently needed to produce a durable reduction in the excessive wage bill. The security reform to be launched with donor support, private sector development initiatives, and measures to rehabilitate roads, electricity, and water infrastructure should help enhance development prospects.

  • A staff-monitored program for April-December 2006 should enable Guinea-Bissau to demonstrate its ability to successfully implement an adjustment program and move to emergency post-conflict assistance as soon as concerted international assistance emerges, which is likely to be after October 2006.

Front Matter Page

Public Information Notice (PIN) No. 06/99


August 17, 2006

International Monetary Fund

700 19th Street, NW

Washington, D. C. 20431 USA

Guinea-Bissau: 2006 Article IV Consultation Review of Developments Under the 2005 Staff-Monitored Program and New Staff-Monitored Program for 2006 Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Guinea-Bissau
Author: International Monetary Fund