Abstract
This paper discusses key findings of the First Review Under the Poverty Reduction and Growth Facility (PRGF) for Guinea. All but two quantitative performance criteria (PC) were met. IMF staff supports the authorities’ requests for waivers of nonobservance, based on their remedial actions. Progress of structural reforms was broadly satisfactory and all structural PCs and benchmarks for end-December 2007 were met. However, several quantitative indicative targets for end-March 2008 were missed, in part on account of a delayed response to the financial pressures arising from higher fuel prices.
1. This statement reports on developments, including the status of the two prior actions, since finalizing the staff report for the first review under the three-year arrangement under the Poverty Reduction and Growth Facility (PRGF), request for waiver of nonobservance of performance criteria, modification of performance criteria, augmentation of access, and financing assurances review. The thrust of the staff appraisal has not changed.
2. The authorities have implemented both prior actions for the first review. On June 27th the Council of Ministers adopted the multiyear strategic plan for public finance management. The plan was disseminated to key donors, who met to coordinate support for its implementation. Also on June 27th, the Council of Ministers approved an emergency plan for the electricity company EDG. The plan focuses on improving collection rates—including by installing meters—and combating fraud. In addition, electricity tariffs for large users were raised between 63 and 74 percent on July 14 (effective May 1st, 2008), the first such increase since July 2006.
3. Available information as of end-May 2008, suggests that mid-year program fiscal and monetary targets are within reach. Government revenues are recovering from lows in the first quarter, reflecting mostly good performance in the mining sector, and spending remains under control. The central bank has tightened monetary policy, following higher-than-projected increases in monetary aggregates in the first quarter of 2008. Overdrafts of public enterprises in the central bank’s books were kept below the program ceiling. However, the twelve-month inflation rate rose to 25.1 percent in May on account of higher food and oil prices. The exchange rate has been hovering around 4,500 GNF per U.S. dollar since end-April 2008, following a depreciation of about 8 percent in the first four months of the year.
4. The Guinean authorities continue to engage their external creditors. Since the Paris Club (PC) agreement of January 2008, they have signed bilateral agreements with six PC members (Austria, Belgium, France, Italy, Norway, and the USA), and efforts are underway with the remaining ones. The authorities are also discussing with Saudi Arabia and Kuwait a debt agreement on comparable terms, and have tried to engage in similar discussions with other non-PC creditors with the assistance of the PC Secretariat.
5. The independent external auditor has certified the central bank’s 2007 financial statements, albeit with qualifications, noting improvements in accounting and control procedures. This is a major improvement from the adverse opinion expressed last year on the bank’s 2006 financial statements.