The Executive Board of the International Monetary Fund (IMF) today approved a three-year, SDR 48.195 million (about US$75.2 million) arrangement under the Poverty Reduction and Growth Facility (PRGF) for Guinea in support of the government's economic program. The decision allows an immediate disbursement to Guinea of an amount equivalent to SDR 6.885 million (about US$10.7 million).

The Board also approved the disbursement of SDR 4.848 million (about US$7.6 million) in interim assistance under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative.

The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs are based on country-owned poverty and reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.

Following the Executive Board discussion, Mr. Murilo Portugal, Deputy Managing Director and acting Chairman, said:

“The Guinean government has implemented, since March 2007, an impressive policy shift toward macroeconomic stabilization, reversing the deterioration in economic performance and governance that occurred in 2006. This shift has already contributed to rapid disinflation and the appreciation of the Guinean Franc. Continued solid policy performance will promote economic growth and help improve Guinea's external situation.

“The authorities' program of economic and financial policies aims to further stabilize the economy and strengthen Guinea's external position. This will entail the maintenance of tight fiscal and monetary policies, including no new central bank financing of the budget. Achieving these results and meeting the associated ambitious targets set for non-mining revenues, will depend on improved revenue collection, and a broadening of the tax base. Normal budgetary procedures will be restored, in order to better manage public spending.

“The implementation of monetary policy will be facilitated by the introduction of indirect instruments. A targeted increase in 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 swift implementation of the central bank's action plan to strengthen internal controls and improve basic record keeping will help address important vulnerabilities in its safeguards framework.

“The authorities have set governance as a key priority. This and other reforms to improve the business environment are crucial to unlock Guinea's growth potential and reach the ambitious poverty reduction goals that have been set. Efforts to align the legal framework for mining activities with international best practices and continued implementation of the Extractive Industries Transparency Initiative are welcome steps in this direction, along with the rehabilitation of public utilities.

“Once Guinea has taken the necessary steps to qualify for the completion point of the HIPC initiative, the delivery of debt relief under the enhanced HIPC initiative and the Multilateral Debt Relief Initiative would bring external debt back to sustainable levels. In parallel, engagement with all external creditors will continue, including on debt relief from non-Paris Club creditors on HIPC terms. Restoring debt sustainability will also depend on reliance on limiting financing to grants and external borrowing on concessional terms,” Mr. Portugal said.