Abstract
Guinea-Bissau’s 2010 Article IV Consultation and request for a Three-Year Arrangement under the Extended Credit Facility are discussed. Despite the difficult external environment and its political challenges, in 2009, Guinea-Bissau made progress in stabilizing its economy through the Emergency Post-Conflict Assistance-supported program. Real GDP growth reached 3 percent, driven by a favorable cashew harvest and a pickup in construction activity. The main risks relate to political instability, vulnerability to external shocks, and the possibility of inadequate donor support.
This statement provides an update of recent developments in Guinea-Bissau.
1. On April 1, soldiers briefly detained the Prime Minister and arrested the Chief of the Armed Forces. In light of these events and the uncertainties they created, Management decided to postpone consideration of the authorities’ request for an ECF-supported program, which the Executive Board was to discuss on April 2, 2010, pending clarification of the situation.
2. A staff team visited Bissau during April 15-18, 2010, to review the status of the economic reform program and consult with representatives of the international community, including key donors. In its meetings with the President, the Prime Minister, and the Minister of Finance, the authorities emphasized that the military incident was being resolved and had not affected the civilian government. They also reported that all government ministries and institutions as well as the Parliament were operating normally. The authorities reiterated their commitment to the reform program and renewed their request for support from the IMF under the ECF. The Prime Minister also sent a letter to the Managing Director stressing political stability and the importance of the ECF program for Guinea-Bissau.
3. Economic performance was satisfactory under the EPCA in 2009 and continued to be good in the first quarter of 2010. Except for the indicative target on social spending, for which data are not yet available, all quantitative targets for end-March were met. Fiscal revenues were 6 percent higher than programmed, and with expenditures well-contained, the target for domestic budget financing was met with a margin. Despite the delay in program approval, the authorities are moving ahead with structural reforms and have already made good progress against benchmarks established for mid-2010: the treasury committee became operational on March 22; norms to tighten the simplified spending procedure were approved by the Minister of Finance on April 22; and the Council of Ministers approved the legal framework for the one-stop shop to streamline the licensing of new businesses.
4. The staffs discussions with key donors in mid-April indicated that their commitments for both budget support and project financing remained in line with program assumptions. The AfDB approved on March 24 an operation of US$8.7 million, as envisaged under the program, with plans to disburse shortly after the ECF request is presented to the IMF Board. The World Bank fielded an overlapping mission to Bissau in April to finalize a budget support operation which is expected to be considered for approval by the end of May. We received indications in late April that the EU considered Guinea-Bissau eligible for support under the V-Flex in 2010. The authorities reiterated their commitment to take all necessary steps should a shortfall in financing materialize. Staff will discuss contingency measures in more detail during the next staff visit to Bissau in June.