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.
Background
In March 2007, a pro-reform government took office, following widespread strikes and protests that brought the economy to a standstill in early 2007.
The government change comes after a period of slowing growth, increasing inflation, and deepening poverty in Guinea, in spite of the country's large economic potential in the extractive industries, as well as in agriculture, fishing, and forestry. Average annual real growth slowed to 2.9 percent in 2000–05, from 4.9 percent in 1995–99; inflation reached the double digits; and the incidence of poverty increased to 54 percent, from 49 percent.
The economic slide continued in 2006. Real growth slowed to 2.2 percent, and inflation accelerated to almost 40 percent. The overall fiscal deficit, excluding grants, deteriorated by almost 2 percentage points of GDP and the overall balance of payments deficit widened by a similar margin. Central bank financing of the budget drove a monetary base increase of more than 80 percent, fueling inflation and contributing to the depreciation of the Guinean franc. With external debt remaining at unsustainable levels, arrears to several external creditors have continued to accumulate.
On taking office, the new government promptly reestablished financial controls, put in place tight stabilization policies to reduce the fiscal deficit, phased out central bank financing of the budget, and curtailed monetary expansion to below nominal GDP growth. The government also launched an economic recovery plan and a new Poverty Reduction Strategy designed to improve transparency and governance (including at the central bank) and to strengthen the management of public resources.
The renewed economic discipline and the return of confidence in the currency are expected to bring inflation down to 15 percent at end-2007. Economic activity is projected to recover slowly from the impact of the strikes, with real GDP expected to grow by almost 5 percent in 2008, from 1½ percent in 2007, as prospects improve in the mining sector. This projection assumes that reforms advance as envisioned, with the ban on exports of foodstuff and fishing and forestry products being lifted promptly. As the economy stabilizes, Guinea's external situation from 2008 on should improve, as should its prospects of benefiting from international debt relief.
Executive Board Assessment
Executive Directors commended the new government for engineering an impressive shift in policies over the past eight months to support macroeconomic stabilization and reverse the deterioration in economic performance and governance that occurred in 2006. Directors noted that the recent improvement in economic discipline, including restored control of budget execution and avoiding monetary financing of the deficit, had contributed to rapid disinflation and a strengthening of the Guinean Franc. They viewed that continued solid policy performance would promote economic growth and help stabilize the external situation.
Directors agreed that the priorities set out in the authorities' new poverty reduction strategy are appropriate. Successful implementation of the strategy will depend on well-prioritized action plans, and close monitoring and evaluation. They underscored that the consolidation of macroeconomic stabilization, an improved business environment, the adoption of international best practices for the development of extractive industries, and targeted infrastructure investment will play a critical role in achieving growth targets. Directors stressed the importance of rehabilitating public utilities. They welcomed the authorities' implementation of the Extractive Industries Transparency Initiative.
Directors observed that an appropriately tight fiscal policy will be essential to further stabilizing the economy and shoring up Guinea's external position. In order to meet the ambitious targets set for non-mining revenues, revenue collection will need to be improved and the tax base broadened. The reinstatement of normal budgetary procedures will be essential to maintaining control over public spending and eliminating extrabudgetary outlays.
Directors viewed that the maintenance of a tight monetary policy will be critical to limiting inflationary pressures and improving Guinea's external position. The associated buildup of official reserves will help absorb external shocks, smooth daily fluctuations of the volatile exchange rate, and support the launching of a much-needed foreign exchange interbank market. The use of indirect instruments of monetary policy, along with close coordination with the Treasury, will provide needed support in limiting monetary expansion.
Directors underscored the importance of addressing the serious deficiencies revealed by the recent external audit of the central bank accounts and the safeguard assessment update. They welcomed the strong mitigating measures already taken, and encouraged the authorities to follow through with their action plan for addressing the remaining vulnerabilities in the safeguards framework. Directors looked forward to Guinea's participation in the FSAP, which will support the strengthening of the financial sector.
Directors concurred with the debt sustainability analysis prepared by the staffs of the Fund and of the World Bank, which shows that the delivery of debt relief under the enhanced HIPC and MDRI initiatives can bring external debt back to sustainable levels. They encouraged the authorities to take the necessary steps to promptly reach the HIPC completion point and qualify for debt relief under these initiatives. Directors emphasized that Guinea should persevere with efforts to engage all its external creditors and to seek debt relief from non-Paris Club creditors on HIPC terms. They also welcomed the authorities' intention to avoid external borrowing on nonconcessional terms.
Directors considered the current level of the real exchange rate to be adequate, given the prospective debt relief and the largely untapped sources of export and productivity growth. They encouraged the prompt removal of the remaining bans on exports of agricultural, forestry and fish products by year-end, in order to strengthen Guinea's external position and improve employment opportunities for the poor. Directors called for the elimination of the existing multiple currency practice.
Directors stressed the need for continued efforts to improve the provision of economic and financial data, in particular in the area of national accounts and balance of payments statistics.
Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.
Guinea: Selected Economic Indicators
Percent of broad money stock at the beginning of the period.
Includes expenditure for restructuring.
Guinea: Selected Economic Indicators
| 2005 | 2006 | 2007 | 2008 | ||||
|---|---|---|---|---|---|---|---|
| Est. | Est. | Proj. | Proj. | ||||
| (Annual percentage change, unless otherwise indicated) | |||||||
| Income | |||||||
| GDP at constant prices | 3.3 | 2.2 | 1.5 | 4.9 | |||
| GDP at current prices | 32.9 | 37.6 | 21.6 | 18.6 | |||
| GDP deflator | 28.6 | 34.7 | 19.8 | 13.1 | |||
| Consumer prices | |||||||
| Average | 31.4 | 34.7 | 23.4 | 13.8 | |||
| End of period | 29.7 | 39.1 | 15.0 | 10.0 | |||
| External sector | |||||||
| Exports, f.o.b. (US$ terms) | 12.4 | 20.2 | 6.8 | 6.2 | |||
| Imports, f.o.b. (US$ terms) | 4.7 | 24.8 | 27.0 | 14.2 | |||
| Terms of trade | −6.8 | 5.0 | −6.1 | −11.3 | |||
| Nominal effective exchange rate (depreciation = -) | −38.0 | −31.4 | … | … | |||
| Real effective exchange rate (depreciation = -) | −21.3 | −10.1 | … | … | |||
| Money and credit | |||||||
| Net foreign assets1 | 5.2 | 10.4 | 0.7 | 3.6 | |||
| Net domestic assets1 | 32.0 | 49.0 | 5.1 | 10.1 | |||
| Net claims on government1 | 7.9 | 42.7 | 5.6 | 2.9 | |||
| Credit to nongovernment sector1 | 15.2 | 12.8 | 3.3 | 4.7 | |||
| Broad money | 37.2 | 59.4 | 5.8 | 13.7 | |||
| Reserve money | 25.0 | 84.1 | 11.9 | 14.5 | |||
| (Percent of GDP, unless otherwise indicated) | |||||||
| Central government finances | |||||||
| Total revenue and grants | 13.7 | 14.7 | 14.9 | 15.9 | |||
| Revenue | 13.1 | 13.3 | 12.9 | 14.3 | |||
| Of which: nonmining revenue | 9.9 | 9.2 | 9.5 | 10.7 | |||
| Grants2 | 0.6 | 1.4 | 2.0 | 1.6 | |||
| Current expenditure | 11.0 | 13.4 | 10.8 | 11.6 | |||
| Of which: interest payments | 2.8 | 3.3 | 2.1 | 2.3 | |||
| Capital expenditure and net lending2 | 4.3 | 4.2 | 3.9 | 5.6 | |||
| Overall budget balance | |||||||
| Including grants (commitment) | −1.5 | −2.9 | 0.3 | −1.2 | |||
| Excluding grants (commitment) | −2.1 | −4.3 | −1.7 | −2.8 | |||
| Basic primary fiscal balance | 3.2 | 1.3 | 3.0 | 3.3 | |||
| Gross investment | 14.1 | 13.7 | 15.0 | 20.3 | |||
| Government (fixed capital formation) | 3.4 | 3.3 | 3.1 | 4.4 | |||
| Nongovernment | 10.7 | 10.4 | 11.9 | 15.9 | |||
| Domestic savings | 10.9 | 9.1 | 6.1 | 8.2 | |||
| Government | 4.7 | 3.4 | 4.2 | 4.7 | |||
| Nongovernment | 6.2 | 5.7 | 1.9 | 3.6 | |||
| External current account balance | |||||||
| Including official transfers | −4.5 | −5.9 | −9.5 | −12.8 | |||
| Excluding official transfers | −4.9 | −6.5 | −10.0 | −13.1 | |||
| Overall balance of payments | −0.9 | −2.7 | −1.3 | −1.7 | |||
| External public debt (percent of exports of GNFS) | 346.1 | 290.6 | 249.9 | 223.7 | |||
| Nominal GDP (GNF billions) | 11,869 | 16,330 | 19,852 | 23,552 | |||
Percent of broad money stock at the beginning of the period.
Includes expenditure for restructuring.
Guinea: Selected Economic Indicators
| 2005 | 2006 | 2007 | 2008 | ||||
|---|---|---|---|---|---|---|---|
| Est. | Est. | Proj. | Proj. | ||||
| (Annual percentage change, unless otherwise indicated) | |||||||
| Income | |||||||
| GDP at constant prices | 3.3 | 2.2 | 1.5 | 4.9 | |||
| GDP at current prices | 32.9 | 37.6 | 21.6 | 18.6 | |||
| GDP deflator | 28.6 | 34.7 | 19.8 | 13.1 | |||
| Consumer prices | |||||||
| Average | 31.4 | 34.7 | 23.4 | 13.8 | |||
| End of period | 29.7 | 39.1 | 15.0 | 10.0 | |||
| External sector | |||||||
| Exports, f.o.b. (US$ terms) | 12.4 | 20.2 | 6.8 | 6.2 | |||
| Imports, f.o.b. (US$ terms) | 4.7 | 24.8 | 27.0 | 14.2 | |||
| Terms of trade | −6.8 | 5.0 | −6.1 | −11.3 | |||
| Nominal effective exchange rate (depreciation = -) | −38.0 | −31.4 | … | … | |||
| Real effective exchange rate (depreciation = -) | −21.3 | −10.1 | … | … | |||
| Money and credit | |||||||
| Net foreign assets1 | 5.2 | 10.4 | 0.7 | 3.6 | |||
| Net domestic assets1 | 32.0 | 49.0 | 5.1 | 10.1 | |||
| Net claims on government1 | 7.9 | 42.7 | 5.6 | 2.9 | |||
| Credit to nongovernment sector1 | 15.2 | 12.8 | 3.3 | 4.7 | |||
| Broad money | 37.2 | 59.4 | 5.8 | 13.7 | |||
| Reserve money | 25.0 | 84.1 | 11.9 | 14.5 | |||
| (Percent of GDP, unless otherwise indicated) | |||||||
| Central government finances | |||||||
| Total revenue and grants | 13.7 | 14.7 | 14.9 | 15.9 | |||
| Revenue | 13.1 | 13.3 | 12.9 | 14.3 | |||
| Of which: nonmining revenue | 9.9 | 9.2 | 9.5 | 10.7 | |||
| Grants2 | 0.6 | 1.4 | 2.0 | 1.6 | |||
| Current expenditure | 11.0 | 13.4 | 10.8 | 11.6 | |||
| Of which: interest payments | 2.8 | 3.3 | 2.1 | 2.3 | |||
| Capital expenditure and net lending2 | 4.3 | 4.2 | 3.9 | 5.6 | |||
| Overall budget balance | |||||||
| Including grants (commitment) | −1.5 | −2.9 | 0.3 | −1.2 | |||
| Excluding grants (commitment) | −2.1 | −4.3 | −1.7 | −2.8 | |||
| Basic primary fiscal balance | 3.2 | 1.3 | 3.0 | 3.3 | |||
| Gross investment | 14.1 | 13.7 | 15.0 | 20.3 | |||
| Government (fixed capital formation) | 3.4 | 3.3 | 3.1 | 4.4 | |||
| Nongovernment | 10.7 | 10.4 | 11.9 | 15.9 | |||
| Domestic savings | 10.9 | 9.1 | 6.1 | 8.2 | |||
| Government | 4.7 | 3.4 | 4.2 | 4.7 | |||
| Nongovernment | 6.2 | 5.7 | 1.9 | 3.6 | |||
| External current account balance | |||||||
| Including official transfers | −4.5 | −5.9 | −9.5 | −12.8 | |||
| Excluding official transfers | −4.9 | −6.5 | −10.0 | −13.1 | |||
| Overall balance of payments | −0.9 | −2.7 | −1.3 | −1.7 | |||
| External public debt (percent of exports of GNFS) | 346.1 | 290.6 | 249.9 | 223.7 | |||
| Nominal GDP (GNF billions) | 11,869 | 16,330 | 19,852 | 23,552 | |||
Percent of broad money stock at the beginning of the period.
Includes expenditure for restructuring.
Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.