Abstract
Guinea has implemented an impressive policy shift toward macroeconomic stabilization under the economic program. Executive Directors commended this development and stressed the need for tight fiscal and monetary policies and welcomed the debt sustainability analysis and implementation of the Extractive Industries Transparency Initiative. They emphasized the need for reinstating fiscal control, improving governance, implementing structural reforms, sustained assistance from the international community to boost economic growth, and encouraged the authorities to take necessary steps to reach the HIPC completion point and qualify for debt relief under these initiatives.
1. This statement reports on developments, including the status of the only remaining prior action, since the issuance of the staff report for the 2007 Article IV Consultation and the requests for a program under the PRGF and additional interim assistance under the Enhanced HIPC Initiative. The thrust of the staff appraisal has not changed.
2. On December 13th the central bank opened an account with the Bank for International Settlements that will be used to receive the PRGF disbursements. In doing so, the authorities have fully met all the prior actions for approval of the PRGF. On December 17th the Executive Board of the central bank ratified ex ante and ex post controls on the use of this account.
3. The latest available information suggests that the economy continues to stabilize. Year-on-year inflation was 15.3 percent at the end of November and is on track to meet the projected 15 percent at the end of the year. Since the beginning of November, the exchange rate used in commercial bank transactions has fluctuated in a range of 4,150 and 4,400 Guinean francs per U.S. dollar—about 30 percent stronger than during the same period last year. The premium on the parallel market exchange rate has declined to 2 to 3 percent.
4. Fiscal and monetary performance appear to be on track to meet the 2007 targets. Preliminary data as of October suggest that revenues were below the authorities' projections by 0.2 percentage points of GDP, because mining revenues fell short. In response, current spending was adjusted and the deficit outturn was lower than projected. Spending commitments were stopped at the end of November, as the law envisaged. This will make it easier for Guinea to meet this year's target for the basic primary balance. Reserve money increased by 10.2 percent in the first 10 months of 2007, which is in line with projections.
5. On December 7th the Parliament adopted the budget for 2008; budget projections are consistent with the 2008 program targets, most notably the basic primary balance and total noninterest expenditures. The large increase in public investment that was projected in the draft budget has been slightly reduced (by about 0.1 percentage points of GDP) to make room for more government purchases of goods and services, which were tightly compressed in 2007.
6. On December 5th the President of Guinea signed a decree to reorganize ministries and other government bodies. This removed a major impediment to reforming operations and improving public governance. The decree keeps the central bank under the administrative authority of the Presidency, in line with the current law; the authorities intend to submit to Parliament a new law to strengthen central bank independence—a structural performance criterion by the end of June 2008.