Guinea-Bissau
Enhanced Initiative for Heavily Indebted Poor Countries-Completion Point Document and Multilateral Debt Relief Initiative

According to IMF and IDA authorities, Guinea-Bissau had met the requirements for reaching the decision point under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. The authorities appreciated the country’s tremendous efforts to reestablish economic, social, and institutional stability. In view of this, in addition to debt relief agreed at the decision point under the Enhanced Initiative for HIPC, they also agreed to topping up assistance at the completion point.

Abstract

According to IMF and IDA authorities, Guinea-Bissau had met the requirements for reaching the decision point under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. The authorities appreciated the country’s tremendous efforts to reestablish economic, social, and institutional stability. In view of this, in addition to debt relief agreed at the decision point under the Enhanced Initiative for HIPC, they also agreed to topping up assistance at the completion point.

I. Introduction

1. This paper discusses Guinea-Bissau’s progress under the HIPC Initiative. IMF and IDA staffs consider that progress has been sufficient to recommend to their respective Boards of Executive Directors the approval of the completion point for Guinea-Bissau under the HIPC Initiative. The authorities have implemented 10 of the 11 completion point triggers identified in the December 2000 decision point document. The authorities are requesting a waiver for the remaining trigger, based on satisfactory progress achieved recently.

2. In December 2000, the Boards of Directors of the IMF and IDA agreed that Guinea-Bissau had met the requirements for reaching the HIPC decision point.1 Executive Directors also determined that the floating completion point would be reached when key reforms and objectives described in Box 1 below had been achieved. The amount of debt relief committed at the decision point was US$415.9 million in PV terms, calculated as of end-1999. Such relief represented an overall reduction of 85.4 percent in the PV of all public and publicly guaranteed external debt as of end-1999 after the application of traditional debt relief mechanisms. At the same time, the two Boards approved interim debt relief to Guinea-Bissau. The IMF’s interim HIPC relief lapsed at end-2001 after Guinea-Bissau’s program under the Poverty Reduction and Growth Facility went off track. The Fund resumed interim relief in 2010 following approval of the Extended Credit Facility. IDA has provided continuous interim relief since Guinea-Bissau reached decision point in December 2000.2

3. This paper is organized as follows. Section II assesses Guinea-Bissau’s performance in meeting the requirement for reaching the completion point under the HIPC Initiative. Section III provides an updated debt relief and debt sustainability analysis (DSA), including the status of creditor participation and delivery of debt relief under the HIPC Initiative and MDRI. Section III also assesses the sensitivity of debt indicators to changes in key economic variables and discusses the case for topping-up assistance at completion point. Section IV summarizes the main conclusions, and Section V presents issues for discussion by Executive Directors.

II. Assessment of Requirements for Reaching the Completion Point

4. In the view of the staffs of the IMF and IDA, Guinea-Bissau has implemented 10 of the 11 triggers for reaching the completion point (Box 1). The authorities have implemented triggers related to the country’s poverty reduction strategy (trigger 1), macroeconomic stability (trigger 2), the education sector (triggers 6-7), the health sector (triggers 8-9), HIV/AIDS (trigger 10), and demobilization (trigger 11). With respect to triggers 3-5 in the area of governance, the long gap between decision point and completion point has led to changing contexts and government approaches, which has rendered assessment of the triggers more difficult. In particular, trigger 4, in its original form, is no longer relevant, as the action plan referred to in this trigger was superseded by a new strategy developed with the donor community. Based on the implementation of the latest relevant strategy, staffs have concluded that the underlying objectives of the trigger have been met. The first trigger in the area of governance (trigger 3) has not been fully implemented. However, staffs are of the view that the authorities have made satisfactory progress recently, and therefore staffs support the authorities’ request for a waiver.

Status of Floating Completion Point Triggers

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A. Poverty Reduction Strategy Paper

Trigger 1: A full PRSP has been prepared through a participatory process and satisfactorily implemented for one year, as evidenced by the joint staff assessment of the country’s annual progress report.

5. With the frequent political disruptions and economic instability that characterized much of the past decade, the PRSP process was unusually slow to take off. The process had been initiated early on after 1999, and the first draft PRSP was produced through a broadly consultative process involving numerous representatives from civil society and the private sector, as well as through broader consultations with the public at large. However, the rapid succession of administrations repeatedly stalled the formulation process, leading successive governments to postpone the formal completion and issuance of the strategy. The PRSP itself was formally issued and presented to the international community in September 2006, with implementation beginning in 2007. The PRSP has been built on four pillars: (i) strengthening governance, modernizing the public administration and ensuring macroeconomic stability, (ii) enhancing economic growth and job creation, (iii) increasing access to social services and basic infrastructure, and (iv) improving the living conditions of vulnerable groups.

6. Progress during the first two years of the implementation period was below expectations. The first APR on implementation of the PRSP, completed in 2009, was candid in its assessment of the government’s initially insufficient efforts to implement the policies described in the strategy. Implementation was hindered by a combination of political developments, the related problem of high institutional turnover, particularly among key senior staff, and ongoing government financial difficulties. These factors were compounded by structural weaknesses in the PRSP itself, especially its lack of adequately specified instrumental goals and realistic policy guidance, and by insufficient political ownership of the strategy.

7. The political situation continued to be tense over 2008 and the first half of 2009. The parliamentary elections that took place on November 16, 2008, were deemed fair and transparent by international observers; voter turnout was high, and all political parties were involved. The African Party for the Independence of Guinea and Cape Verde (PAIGC) won with a strong electoral mandate, garnering 67 of the legislature’s 100 seats with just under 50 percent of the popular vote. The assassinations of former President Vieira and the army chief of staff in March 2009 raised serious concerns of a return to violent conflict; however, these fears ultimately never materialized. Instead, an interim president was sworn in according to the provisions of the Constitution, and within three months the first round of new presidential elections had been organized. Malam Bacai Sanha of the PAIGC was elected by a substantial margin and assumed office in early September 2009.

8. Yet in spite of the protracted political instability, the government was able to make progress towards its PRSP objectives. The presidential assassination, as well as several subsequent political shocks, did not meaningfully disrupt the continuity of administrative operations or interfere with the policy process. As a result, the government was able to gradually put its organizational and managerial capacity back to work, reestablish basic macroeconomic stability, and create the conditions for a number of positive economic and social achievements.

9. The new government demonstrated an impressive willingness to recognize and address the challenges encountered during the first part of the implementation period, and from mid-2009 through 2010 it made strides in advancing the objectives of the PRSP. The second APR and accompanying JSAN3 describe progress achieved during the past year. Strong progress has been observed, especially in pillars (i) and (ii) of the PRSP. During this period the authorities developed and promulgated a series of long-term, sector-specific policy frameworks—each backed by a body of new legislation—as part of a broad-based reform process covering each of the PRSP’s target areas (policies for growth, access to social services, and economic governance). At the same time, previous efforts to reestablish macroeconomic stability and promote private sector growth have begun to produce measurable results. On the financial governance front, the government also accelerated long overdue reforms. In particular, drawing in part on the Public Expenditure Management and Financial Accountability Review (PEMFAR) prepared by several of its partners, including the World Bank, the government implemented a new institutional framework for the budget consistent with the organic framework for public expenditure management applicable in the West African Economic and Monetary Union (WAEMU) that Guinea-Bissau had joined in 1997.

10. The government has implemented a set of initiatives designed to improve the conditions for private sector growth. Over the middle years of the decade, the government achieved some, albeit slow, progress in its privatization program: 31 out of 44 small and medium state-owned enterprises (SOEs) were privatized or liquidated. A range of important regulatory and business reforms were also undertaken, with the adoption in 2008 of the nine Organization for the Harmonization of Business Law in Africa (OHADA) Acts, the establishment of a Commercial Tribunal, the adoption of a draft Public-Private Partnerships (PPP) Law, and the adoption of a new Investment Code. The latter, developed with assistance from the Bank’s Foreign Investment Advisory Services (FIAS), is aimed at removing distortions, excess costs, and discretion from the government’s private investment promotion policy. In the period reviewed in the second APR, the government accelerated reforms aimed at improving the business environment, notably with the simplification of procedures for business registration, the passage of a decree establishing a one-stop shop (Centro de Formalização de Empresas (CFE) – “guichet unique”) for business registration, and the enactment by the National People’s Assembly (ANP) of the Telecommunications Law.

11. Despite the limited observable achievements in the early years of implementation, the increasingly stable administrative environment provided the foundation for important progress on the social sector objectives of the PRSP. As summarized in Box 1 and described in detail in the sector-specific sections below, key indicators in public health and education, many of which had remained stagnant or even declined since the end of the civil war, began to rise significantly in recent years. These positive developments reflect the return of administrative continuity and macroeconomic stability, as well as crucial complementary and stability-dependent efforts by the donor community, local and international nongovernmental organizations, and an unusually strong contribution from the private sector, with the coverage of private schools and clinics expanding rapidly in recent years.

12. Progress has been also achieved in the reform of public administration. In 2009, the government launched its far-reaching administrative reform program, supported by an EU-funded project (PARAP) and implemented under the joint leadership of the Ministries of Finance and Public Administration. The government is aware that the size and cost of the civil service is neither financially sustainable nor conducive to the development of an efficient, effective public sector. The objectives of the program are to strengthen control over the wage bill, reduce the size of the public service, and rationalize the management of human resources. A biometric census of the public administration employees was completed at the end of August 2009. The results provided the exact number of active public administration employees, identified several hundred “double dippers” (officials holding multiple posts) and “ghost workers” (individuals receiving unearned salaries), and allowed the government to accelerate the process of purging ineligible recipients from the payroll. To consolidate the regularization of personnel expenses, the government has launched the installation of a new payroll system that will be operational in 2011. In addition, a number of initiatives designed to increase the government’s administrative capacity are currently underway, and the existing Center for Training and Administration (CENFA) has been reorganized into a new National School of Public Administration (ENA) dedicated to providing more targeted and specialized training to the civil service.

13. These efforts were also accompanied by a renewed focus on data collection and analysis and a commitment to strengthening Monitoring and Evaluation (M&E) mechanisms. These were areas in which the PRSP had been especially deficient, both in design and in implementation, and the limitations on available data were partially responsible for the lack of observable progress during the implementation period. The Ministry of Economy, Planning and Regional Integration (MEPIR) and the National Institute of Statistics and Census (INEC) have already begun producing new data on major economic sectors, and the Court of Accounts has resumed its accounting duties defined in the PRSP as part of a broader initiative to improve public financial management. In addition to the biometric survey described above, the government has recently initiated or completed a number of surveys and information-gathering processes—in particular the Demographic Census, the Multiple Indicators Cluster Survey (MICS), and the second Rapid Poverty Assessment Survey ILAP (Inquerito Ligeiro de Avaliacao de Pobreza)—designed to measure the status of its PRSP objectives and to provide a baseline for the development of a second PRSP. The results of these surveys have thus far demonstrated strong and highly encouraging gains in social indicators, including the achievement of all HIPC completion point triggers in the health and education sectors.

14. Based on these achievements, the staffs of IDA and the IMF conclude that the trigger on preparation and satisfactory implementation of a full PRSP has been implemented. The government has made satisfactory progress in advancing the objectives of the PRSP over the last year, as confirmed by the JSAN reviewing the government’s second APR covering the period July 2009 to July 2010. Despite the considerable obstacles encountered throughout the PRSP preparation process and the initially slow progress observed during the early implementation period, the government was ultimately largely successful in achieving the substantive goals of the PRSP. The reestablishment of administrative stability and the economic program’s demonstrated resilience to political and external economic shocks allowed for some acceleration in private-sector growth, while the government’s commitment to a far-reaching institutional reform program and increasingly sophisticated collaboration with the international community enabled it to make headway in macroeconomic management and achieve impressive gains in a variety of key social indicators. A second PRSP is being prepared, with a tentative publication date of March 2011.

B. Macroeconomic Stability

Trigger 2: Continued maintenance of macroeconomic stability as evidenced by satisfactory implementation of the PRGF-supported program.

15. Macroeconomic performance was poor in the years immediately following the decision point in 2000. The armed conflict of 1998–99 left several thousand dead, displaced most of the capital’s population, and caused widespread damage to infrastructure. Immediately following the end of the conflict, a PRGF-supported program was put in place, and Guinea-Bissau reached the HIPC decision later in the year. However, divisive and erratic policies led to further political tension and, combined with fragile institutions and little technical capacity, to increasing fiscal problems. The PRGF expired at end-2003 without a review being concluded. The main reasons for Guinea-Bissau’s performance shortcomings earlier in the decade were: (i) constant changes in government and senior staff; (ii) lack of ownership and commitment to economic policies at the highest levels of government; (iii) political interference in expenditure management; and (iv) fragilities in technical capacity for fiscal and macroeconomic management.

16. In recent years, macroeconomic performance has improved markedly. Following the expiration of the PRGF, the IMF helped build capacity with two staff-monitored programs (SMPs; 2006 and 2007) and Emergency Post-Conflict Assistance (EPCA; 2008 and 2009). Solid performance under the 2009 EPCA-supported program led to a stabilization of the economy. Growth was resilient, with real GDP reaching 3 percent, despite external and political challenges. Inflation slowed and budgetary stability was regained. Progress on structural reforms accelerated: the government completed the biometric survey of civil servants, approved the Annual Progress Report on the PRSP, produced an action plan for public financial management, and enacted a new investment code. Guinea-Bissau’s success in stabilizing the economic situation and rebuilding technical and administrative capacity created conditions for renewed donor support and paved the way for approval of the ECF.

Table 1.

Guinea-Bissau: Selected Economic Indicators, 2006–10

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Sources: Guinea-Bissau authorities; and IMF staff estimates and projections.

Based on new GDP figures which doubled the previous GDP level due to broader coverage of the economy, consistent with System of National Accounts 1993.

17. Performance under the current ECF arrangement has been satisfactory. The government has made further progress stabilizing its economy under the ECF-supported program despite a significant shortfall in budget support and challenging political circumstances. Economic growth has been resilient, with real GDP accelerating slightly to an estimated 3.5 percent in 2010 from 3.0 percent in 2009. Strong revenue performance, lower current primary spending, and an underexecution of the public investment program offset shortfalls in donor support in the first half of the year. As of end-June 2010, the domestic primary surplus reached 0.5 percent of GDP, about 2 percentage points of GDP higher than envisaged under the ECF. The government is committed to further efforts to reduce spending, or recover more revenues, to make up for any further financing shortfalls. Average inflation in 2010 is expected to remain below the WAEMU target of 3 percent. The current account deficit has narrowed, driven by higher prices of cashew nuts, the country’s main export. Lower prices for imported food products and stable net remittances have also contributed to an improvement in the external position. All structural benchmarks under the ECF have been met, including measures to strengthen budget planning and execution, increase revenue collection, and improve the business environment.

18. IMF and IDA staffs conclude that the trigger on macroeconomic stability has been implemented. Although macroeconomic performance has been mixed since the decision point, it has improved markedly in recent years, including satisfactory performance under the current ECF arrangement.

C. Governance

Trigger 3: Satisfactory progress in strengthening public expenditure management assessed by the release to the Parliament and the public, twice a year starting in 2001, of comprehensive budget execution reports. These reports also will allow monitoring of basic education, primary health care and military expenditures.

19. In 2002, the executive agencies released comprehensive, biannual budget execution reports—covering spending on basic health care, primary education, and the military—to both the legislature and the public. This process was halted in 2003 due to extreme political instability and rapid administrative turnover; however, the government resumed the reporting schedule in 2008 as part of its broader public financial management reform agenda, the success of which has in many ways surpassed the level of managerial sophistication implied by the provisions of the HIPC trigger.

20. Public financial management has been at the core of government’s reform efforts over the past two years, and IDA and IMF staffs consider the HIPC completion point trigger to have been adequately implemented. With the resumption of administrative continuity in 2009, the government formulated and adopted a priority action plan for public financial management based on a new institutional framework governing the budget cycle, including a new legal framework and the introduction of information technology (IT) systems for budget execution. These reforms are designed to improve the efficiency, transparency, and accountability of public expenditure management. Staffs consider the reforms both appropriate to the government’s objectives under the PRSP and consistent with the relevant HIPC completion point trigger.

21. In 2009 and 2010, the government adopted an Organic Law for Budgeting and a Public Accounting Decree, which together define the legal framework of the new public finance management system. The government also passed complementary legislation regulating the role of the different government entities responsible for budget formulation, execution, and oversight. The legislation separated the execution and oversight functions through the creation of the Office of Financial Controller, and reorganized the General Budget Directorate to clearly define the roles of the administrative and financial officers in each of its ministries and public entities. In addition, the Ministry of Finance (MoF) issued a manual of procedures for budget execution, harmonizing budget procedures for all line ministries. Once the necessary legislation was put in place, the government prepared the budgets for 2009 and 2010 according to the new WAEMU-based budget classification system, substantially improving the clarity and transparency of budget allocations.4

22. The government has also made significant progress in the use of IT tools to enhance the efficiency and security of budget transactions. The introduction of the Integrated System for Public Financial Management (SIGFIP) has been a landmark achievement in the modernization of the country’s public finance system. The progressive incorporation of the budget preparation, financial execution, and accounting modules have enabled the MoF to produce quarterly budget execution reports and annual state-of-accounts reports in a timely manner. In 2009, the government prepared an annual budget execution report for 2008 and two semiannual reports for 2009. These reports were published with the following year’s budget proposals. Since the beginning of 2010 the MoF has published quarterly budget execution reports while at the same time providing the Court of Accounts with the Annual Statement of Accounts for 2009. In 2010, two quarterly reports, for the first and second quarters, were submitted to the Parliament and published in the local press. Taken together, these reforms have yielded significant gains in the transparency and oversight of budget execution in a remarkably short time.

23. The government is continuing to improve public financial management, including through the introduction of a computerized debt management system (SYGADE) and the upgrading of the automated customs administration (ASYCUDA) with the support of the United Nations Conference on Trade and Development (UNCTAD). The government has also made significant progress enhancing the efficiency, control, and security of budget transactions.

24. In 2009, the government prepared a medium-term plan to address domestic arrears. The plan consists of two phases. The first phase addresses arrears that have already been identified and officially recognized. These include arrears owed to commercial banks and the BCEAO, which are the most costly, as well as wage arrears from 2008 and arrears owed to the private sector that predate the civil war. These arrears are now being settled through a combination of cash payments and rescheduling. All remaining post-civil war arrears are currently being audited; once they have been fully verified, the government will address them. The government will begin by identifying its existing creditors; it will then offset its stock of arrears against any tax arrears owed by those creditors to the government. The strict control of expenditure execution through the SIGFIP system and the prohibition of expenditure commitments that are not included in the budget should help prevent new arrears.

25. IDA and IMF staffs support the authorities’ request for a waiver for lack of continuous implementation since 2001. The government has made significant progress in strengthening public expenditure management notwithstanding its inability to produce continuously since 2001 the budget execution reports identified in the original trigger. The staffs recommend that a waiver of the specific provision of continuous reporting be granted on the basis of the satisfactory progress achieved recently.

Trigger 4: The action plan to reform the public procurement system has been implemented and the new system has been installed in all ministries.

26. A comprehensive overhaul of the procurement system in line with WAEMU has been implemented under a 2009 action plan. Based on PEMFAR (mentioned above), the government initiated a comprehensive restructuring of its procurement system, backed by a set of legislative reforms passed in 2010. These reforms included the adoption of a new procurement code conforming to WAEMU standards, as well as related oversight and enforcement measures.

27. In line with WAEMU directives, which envisage a regulatory body comprising representatives from the public and private sectors and civil society, the authorities approved the creation of a regulatory authority for public procurement (Autoridade Regulatória de Concursos Públicos, ARCP) as the appellate mechanism for dealing with complaints by contract bidders as part of its effort to guarantee fair competition in government purchases. The government created a central procurement unit (Unidade Central de Compras Públicas, UCCP) at the MEPIR charged with determining the requirements of line ministries, overseeing the bidding process, and making purchases. In addition, the government vested the general procurement directorate (Diretoria Geral de Compras Públicas, DGCP) at the MoF with oversight authority and responsibility for the auditing of public procurement transactions.

28. These measures built upon the experience of the Procurement Reform Pilot Program, which was prepared in 2006 and implemented through 2009 with the support of a Low-Income Countries Under Stress (LICUS) grant from IDA. Reforms and capacity-building activities pursued under this program envisaged the installation of procurement units in all ministries. The pilot program covered the five ministries that account for the majority of government purchases (Education, Health, Finance, Agriculture, and Infrastructure). Activities under this pilot experience included the training of ministry staff, the preparation of procurement guidelines for procurement executing units, and the provision of necessary equipment and supplies.

29. The government subsequently decided to pursue a more pragmatic, centralized approach to procurement, in agreement with IDA. Due to budget constraints, the number of procurement transactions and total purchase volumes proved to be limited and did not justify the establishment of procurement units for each ministry. (The number of procurement transactions was small even in the five ministries mentioned above.) As a result, the government opted for a more pragmatic system in which a central procurement unit reviews and approves the procurement plans prepared by the newly trained staff of the line ministries. Not only is this arrangement more appropriate to the size of the procurement budget, it is also expected to promote scale economies and greater transparency, as larger and consolidated purchases can result in lower prices and oversight authority can focus on a single procurement authority rather than attempting to simultaneously monitor the operations of each ministry.

30. By establishing a revised legal and regulatory framework that conforms to international good practice, the government is developing the necessary administrative mechanisms and institutional capacity to support the new code and fulfill the provisions of related legislation, including the establishment and staffing of the UCCP, the DGCP, and ARCP. All key staff in the new procurement institutions have already been appointed, and the government is currently seeking international support to provide equipment for its new units.

31. Based on these achievements, IDA and IMF staffs conclude that the trigger on public procurement reforms has been implemented. The requirement to establish public procurement units in all ministries was superseded by a new strategy agreed with IDA to pursue a more pragmatic, centralized approach to procurement.

Trigger 5: The findings of the external audit of the 1997–99 budget outturns have been submitted to Parliament and an action plan of corrective measures has been adopted.

32. In 2002, the external audit of the budget outturns for 1997–2001 was completed and submitted to the Court of Accounts (Tribunal de Contas), the supreme audit institution in Guinea-Bissau that supports Parliament.5 The audit made a number of recommendations to improve budget execution and transparency, including preparing an inventory of government domestic bond debt; applying existing public financial management rules more rigorously in order to strengthen budget execution, transparency and control; and updating the existing legal framework of public financial management to bring it in line with WAEMU standards.

33. The government implemented the audit’s recommendations, although the process was uneven and protracted. The inventory of the domestic debt was initiated in 2003, interrupted in 2005, and ultimately completed in 2008 with support from the European Union. The inventory revealed irregularities in the process by which domestic debt was issued in 1997–98.

34. The transition to the new public expenditure management system in line with WAEMU standards also suffered significant delays due to the prevailing climate of political instability. Only in the last two years has the government implemented measures to transition the public expenditure management system to WAEMU standards (see paragraphs 20–23 above) and addressed the core of the original audit’s recommendations regarding the establishment of sound financial governance, including budget transparency and control.6

35. As the political situation has stabilized over the past year, the government has been able to renew its efforts to regularize the audit process and adopt appropriate budget-management reforms. In particular, the general administrative accounts for 2009—the first year in which the new WAEMU-consistent organic statutes for public expenditure management applied—were prepared with technical assistance and submitted to the Court of Accounts in September 2010.

36. IDA and IMF staffs conclude that this trigger has been implemented. The submission of the original audit to the Court of Accounts, the series of actions taken to transition to a new public expenditure management system in line with WAEMU standards, and the recent resumption of the auditing process constitute evidence that the trigger has been met.

D. Education Sector

Trigger 6: Elimination of fees for school books for all primary education students (grades 1–4) implemented in public schools.

37. Free primary education was established in all public schools in 2002. Enrollment fees were eliminated and textbooks are now distributed free of charge to all primary school students. The abolition of school fees and the introduction of a school feeding program in the majority of primary schools have had an impressive impact on enrollment—particularly on girls’ enrollment in rural areas, with the literacy rate for young women having risen to 40 percent. The total number of students enrolled in primary school increased from 150,000 in 2001 to 270,000 in 2006 and reached 300,000 in 2009.

38. However, while the abolition of school fees has had a positive effect on enrollment, the loss of this revenue source coupled with the rapid increase in the number of students has adversely impacted the quality of the learning environment. Due to severe budgetary constraints, the government remains unable to adequately equip the public schools to meet the needs of growing student bodies. Textbooks and other teaching materials are sorely lacking, and no new books have been given to students since 2004, when the IDA-financed Basic Education Support Project (BESP) closed. The ratio of one textbook per student in the principal subjects that had been achieved in the 2002–2003 academic year has since vanished. The government is working closely with development partners to address this situation.

39. IDA and IMF staffs conclude that this trigger has been implemented.

Trigger 7: Satisfactory implementation of the basic education action plan, measured by an increase in the gross primary school enrollment ratio to 61 percent.

40. Due in large part to the elimination of school fees, the gross enrollment rate for primary schools has increased dramatically, rising from 53 percent in 1996 to a remarkable 104 percent in 2009.7 The net enrollment rate, by contrast, remains relatively low at 67.4 percent for primary schools. Gross and net enrollment rates are highly divergent because enrollment in and completion of primary education is frequently delayed. While the theoretical age group for children in the primary cycle is 7 to 12 years, the actual age group of students in this cycle ranges from about 6 to 18 years.

41. In parallel with its efforts to increase enrollment, the government has recently made dramatic strides in education reform by combining long-term strategic planning with specific legislation targeting various key aspects of the education system. In order to develop a strong and consistent education-sector policy framework, the government in September 2009 approved the Letter on Education Policy (LEP) 2010–20, which describes the government’s overall objectives for the sector. The LEP laid the foundation for the development of an interim Education Sector Plan (ESP) 2011–13, which was approved by the government in August 2010 and endorsed by Guinea-Bissau’s cooperating partners in September 2010, allowing the country to formally join the Education for All Fast Track Initiative (EFA-FTI). The LEP focuses on priority interventions aimed at increasing school access and student retention, improving education quality in primary schools, and strengthening the administrative and managerial capacity of the education sector. The government is currently preparing a Fast Track Initiative Catalytic Fund Request to cover the additional resources necessary for full implementation of the ESP. Further legislation and sector policy reforms include the new Law on the Organization of the Education System (Lei de Bases do Sistema Educativo), approved in March 2010, which introduces important changes to the current structure of the education system by expanding the length of primary education from 6 years to 9; the Law on Teaching Careers (Carreira Docente), which restructures the hiring and career advancement system for teachers; and the establishment of a unified teacher-training school by merging the three existing schools.

42. IDA and IMF staffs conclude that this trigger has been implemented.

E. Health Sector

Trigger 8: Satisfactory implementation of the National Health Development Program, measured by an increase to at least 40 percent in the proportion of children under one year old fully vaccinated.

43. A great deal of effort has been made to improve health services over the past two years, including vaccination initiatives, antenatal care, malaria control, and improvements in healthcare facilities. High-quality time-series data are not available for all health indicators, but based on data provided by United Nations (UN) agencies and household surveys conducted by the government, substantial progress is being achieved. Sixty-two percent of children under 1 year old were fully vaccinated by end-2007, whereas less than 25 percent had been fully vaccinated in 1999. Provisional analysis of the 2010 MICS shows that under-five mortality and infant mortality have both improved over the past eight years, despite exhibiting worsening trends in the first part of the decade. Under-five mortality rates rose from 203 per thousand live births in 2002 to 223 in 2006, but then fell to 155 in 2010. Infant mortality rates increased from 124 per thousand live births in 2002 to 138 in 2006, but dropped to 104 in 2010. This is still a long way from the Millennium Development Goal (MDG) target of 47.3 per thousand, but it appears likely that the government will be able to make further progress in reducing infant mortality over the near term.

44. According to the 2010 MICS survey, vaccination rates have improved significantly. Current data includes (i) the anti-tuberculosis BCG vaccination rate at 93.5 percent; (ii) polio 1 at 91 percent; (iii) polio 3 at 74.5 percent; (iv) the anti-hepatitis DPT 1 at 92.0 percent; (v) DPT 3 at 76.2 percent; (vi) measles at 60.6 percent; and (vii) yellow fever at 48.9 percent. This improvement is due in large part to the implementation of the government’s 2005–09 immunization plan, which was followed by an intensive vaccination training program in 2009–10 involving public sector specialists, community practitioners (traditional healers) and religious groups. The immunization plan also supported the construction of solar-powered cold-chain facilities to ensure proper storage of vaccines.

45. The government’s second National Health Development Plan (NHDP) for 2011–17, adopted in May 2010, builds on recent progress and outlines strategies to attain the health-sector MDGs by 2020. Specific actions completed in 2009 include the construction of four new health centers, the rehabilitation of a number of other health centers as well as two major hospitals and operating theaters, the hiring and training of 115 new healthcare professionals, and providing incentive pay and moving allowances for health personnel working in remote areas.

46. IDA and IMF staffs conclude that this trigger has been implemented.

Trigger 9: Adoption of an action plan for malaria and its satisfactory implementation measured by an increase to 15 percent in use of insecticide impregnated bed nets by pregnant women.

47. A malaria action plan adopted and implemented in 2002 dramatically increased the use of insecticide-impregnated bed nets by vulnerable groups such as children under 5 and pregnant women. Eighty-one percent of children under 5 and 72 percent of pregnant women were reported to be sleeping under insecticide-treated bed nets by end-2007. Over 85 percent of families now have at least one mosquito net according to the 2010 MICS survey.

48. The government recognizes the importance of reducing the incidence of malaria and updated its anti-malaria strategy in 2008. Actions undertaken in 2009 and 2010 to reduce the incidence of malaria included improving the availability of anti-malarial medications in health clinics, as well as public awareness campaigns using radio and other media.

49. IDA and IMF staffs conclude that this trigger has been implemented.

F. HIV/AIDS

Trigger 10: Adoption of a strategic framework to fight against HIV/AIDS. At least 50 percent of the population at increased risk (age 14–29) made aware of transmission and prevention methods.

50. Significant progress has been made in the national response to HIV/AIDS. The government prepared the National Aids Control Programme (NACP) for the period 2003–05 which has been extended up to now. The program encompassed prevention of HIV/AIDS sexual transmission among highly vulnerable groups, reduction of blood and mother to child HIV/AIDS transmission, increasing treatment for infected population and reduction of psychological, economic and social impact on infected population. The implementation of this program has been supported by the international community, in particular the Global Fund to Fight Aids, Tuberculosis and Malaria (GFATM) through three grants during 2003–2010. According to the grants performance reports, implementation has been broadly adequate.

51. The technical committee responsible for program monitoring and evaluation and for directing the National Forum on HIV/AIDS has been established, and its website, http://www.sida.guine-bissau.org, is now operational. Forty-three partnership and financing agreements have been concluded to pursue efforts to combat the spread of HIV/AIDS. Thirty-five local institutions are involved, including 19 civil-society organizations, 12 national public institutions, and four private businesses. Female sex workers are actively involved in prevention and treatment programs. In 2009, 22 specialized units were set up to provide counseling and voluntary testing services, and 10 additional units were revamped along the same lines. As a result, over 29,000 people were tested during that period. In June 2010, an additional 24,300 people in the Bissau Autonomous District were tested as part of the region’s voluntary screening campaign.

52. The most recent statistical data available, the 2010 MICS, indicate that HIV/AIDS information, education, and communication activities have now reached a very large proportion of the population. About 91 percent of women aged 15 to 49 years have heard of HIV/AIDS about 52 percent of women aged 15–49 know at least one method of prevention, 34 percent are aware of three methods, and 64 percent know that HIV/AIDS can be transmitted from mother to child. In 2009 and 2010 training was provided for antiretroviral (ARV) treatment and for treatment of opportunistic infections to a total of 57 health professionals, while another 22 received updated training on the dispensing of medications. The number of ARV treatment centers grew from 12 in 2008 to 26 in 2009. As of December 2009, the country had a total of 2,764 patients receiving ARV treatment (29 percent men, 67 percent women, and 4 percent children).

53. IDA and IMF staffs conclude that this trigger has been implemented.

G. Demobilization Program

Trigger 11: Demobilization has been successfully completed and discharged combatants are being reinserted into civilian life as established in the DRRP.

54. Despite the considerable difficulties imposed by a volatile political climate, the government’s Demobilization, Reinsertion and Reintegration Program (DRRP) was launched in 2002 and completed in 2006. The program involved the demobilization and social reintegration of ex-combatants from the civil war of 1998–99 and the war of independence against Portuguese colonial forces in the 1970s. According to a census of security forces carried out under the DRRP, the size of all military, paramilitary and militia personnel in 2002 was 12,595 (7,835 military, 2,709 paramilitary, and 2,051 militia). The demobilization program was carried out on a decentralized basis, at the unit level for military and paramilitary personnel and in specially identified demobilization centers for militia members. The operation began in July 2002; by June 2004 the program had demobilized 4,392 former combatants (1,950 from the military, 391 from the paramilitaries, and all 2,051 militia members). By June 2004 the size the military had been reduced to 5,885 soldiers, with 2,318 remaining paramilitary members, for a total effective force of 8,203. In 2008–09 biometric censuses performed under the Reform of the Defense and Security Sectors (RDSS) initiative indicated that the effective force had continued to decline and now totaled 7,908, with a significant shift from military to paramilitary personnel (4,458 military and 3,450 paramilitary)8. There is evidence that some previously demobilized combatants returned to the armed forces, particularly the paramilitaries, but overall force strength nevertheless remains at a decade low.

55. The reinsertion phase of the DRRP, in which former combatants were assisted in their return to civilian life, was completed over the course of 12 months. As part of this process, demobilized combatants received government subsidies to ease their financial position as well as counseling services and institutional support, including monitoring of the reinsertion process, provided by Non Governmental Organizations (NGOs). Three types of reinsertion benefits were established by the DRRP: (i) counseling and information referral services, (ii) a one-time demobilization stipend, and (iii) ongoing financial support during the reintegration process. These three benefits were granted at the time of effective demobilization and graduated according to the duration of the reinsertion and reintegration period.

56. Support services provided to eligible ex-combatants during reintegration are estimated to have directly benefited 11,300 individuals. The Counseling and Referral Service provided guidance during the often difficult process of returning to civilian life, and the Reintegration Fund promoted and financed the reintegration program. These two services were well coordinated: the first made information accessible to ex-combatants and their communities, while the second enabled the implementation of reintegration activities. The reintegration program was launched in April 2003, and the final phase of reintegration was completed in 2006. The program is estimated to have benefited approximately 7,500 ex-combatants.

57. Despite the initial success of the DRRP, the government has encountered considerable difficulties in sustaining these gains over the long term. The total size of the security forces—armed forces, police, paramilitary, and ex-combatants—has remained excessive in spite of its declining trend, but the process of security sector downsizing has proven politically complex. In 2006, the government launched the RDSS in an effort to promote a more comprehensive structural reorganization of the military and to address several longstanding grievances that had been stated causes of past conflicts between the military and the civilian government. The objectives of the RDSS include (a) reducing the size of the military, lowering current expenditures on the sector, and transforming the armed services into a smaller, more professional force; (b) achieving a gradual change in the ethnic composition of the military to increase diversity and reduce ethnic factionalism; (c) improving the housing, sanitary, and healthcare facilities of military barracks; and (d) establishing a military pension fund and veterans’ benefits programs.

58. The government has made some headway in implementing the RDSS but progress has been very slow, hampered in part by financial constraints and continued political tensions. Early on, the government created a new institutional framework comprised of an inter-ministerial committee and a technical committee to implement the RDSS program. The EU originally supported the RDSS through technical assistance under a permanent mission and with a €8 million project that financed early activities, including a census, and aimed, inter alia, at setting up the pension fund. In 2008, a biometric census of the armed forces was conducted, which allowed the government to identify and eliminate excessive or unwarranted spending on the military payroll. In 2010, a new legal framework for the defense and security forces was adopted by the ANP; this included the new Law on National Defense and the Armed Forces, the Basic Organic Law of the Organization of the Armed Forces, the Law on the Responsibilities of the Armed Forces, the Law on Compulsory Military Service, the Code of Military Justice, the Organic Law of the Police Force for Public Order, and the Organic Law of the National Guard. In September 2010, however, the EU announced that, after over two years of technical assistance support, political conditions were not favorable to the deployment of a new mission to monitor the implementation phase of the process.9 At the same time, the government strengthened coordination with the United Nations Integrated Peace-Building Office in Guinea-Bissau (UNIOGBIS) and regional and bilateral partners, including ECOWAS and the Community of Portuguese Language Countries (CPLP), and it has reiterated its commitment to implement the RDSS, with plans for a donor roundtable in 2011.

59. IDA and IMF staffs conclude that this trigger has been implemented, based on the successful completion of the government’s Demobilization, Reinsertion and Reintegration Program in 2006.

III. Updated Debt Relief and Debt Sustainability Analysis

60. The stock of HIPC-eligible external debt in PV terms at end-December 1999 was revised slightly upward following the debt reconciliation exercise. The staffs of IDA and the IMF, together with the authorities, reviewed the end-December 1999 stock of debt data that was presented in the decision point document against recent creditor information. As a result, the nominal stock of debt has increased by US$3.1 million to US$947.5 million, and the PV of debt after traditional debt relief has been revised upward by US$5.8 million to US$492.7 million (Table 3). The revision is attributable to the following changes in the external debt:

Table 2.

Guinea-Bissau: Breakdown of the difference between actual and projected PV of debt-to-exports ratio as of December 31, 2009

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Sources: World Bank and IMF staff estimates and projections.

PV of debt-to-export ratios after full delivery of enhanced HIPC assistance.

Breakdown uses CP-based approach.

Table 3.

Guinea-Bissau: Nominal Stock and Net Present Value of Debt as of December 31, 1999, by Creditor Groups

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Sources: Guinea-Bissau authorities; and IMF and World Bank staff estimates

Includes arrears.

Includes a hypothetical stock-of-debt operation on Naples terms at December 31, 1999 and at least comparable action by other official bilateral and commercial creditors on eligible debt (pre-cutoff and non-ODA).

Brazil is an associated member of Paris Club that was participating in the Paris Club meetings and is expected to provide debt relief in line with the Paris Club Agreed Minutes.

Includes an up-front 80 percent discount on Russian debt disbursed before 1992.

The European Economic Commissions loans administered by IDA were classified as multilateral loans at decision point. At completion point, these loans were reclassifed to bilateral loans.

At decision point, Portugal was classified as a Paris Club creditor and is reclassified as a non-Paris Club creditor at completion point.

  • Multilateral creditors. The total multilateral debt stock as of end-December 1999 has decreased by US$0.7 million in nominal terms to US$426.1 million. This change was primarily due to minor revisions to the debt owed to the African Development Bank (AfDB) Group, the Islamic Development Bank (IsDB), the International Fund for Agricultural Development (IFAD), and the European Investment Bank (EIB), based on new information obtained at the time of the debt reconciliation mission. The corresponding PV in end-December 1999 terms was revised downward from US$238.9 million to US$238.1 million.

  • Paris Club creditors. The total debt to Paris Club creditors as of end-December 1999 has decreased by US$79.2 million in nominal terms to US$322.7 million. This change was primarily due to a reclassification of Portugal as a non-Paris Club creditor10 and updated information received from creditors during the debt reconciliation mission.11 The PV of debt to Paris Club creditors at end-December 1999 after traditional debt relief has been revised from US$176.1 million to US$114.4 million.

  • Other official bilateral creditors. The nominal value of the end-December 1999 stock of debt owed to other official bilateral creditors has increased by US$83.4 million to US$198.5 million, mainly due to the reclassification of the debt owed to Portugal. The corresponding PV of debt after traditional debt relief has increased from US$71.3 million to US$139.9 million in end-December 1999 terms. The revised amount of debt owed to Portugal at end-December 1999 is US$76.6 million and is based on updated information received from the creditor.

  • Commercial creditor. The nominal stock of outstanding commercial debt at end-December 1999 has decreased from US$0.6 million to US$0.3 million. This revision is based on the creditor’s official statements available in the Guinea-Bissau authorities’ records.

61. Exports of goods and services have not changed. The estimate of the 1997–99 average of exports of goods and services used to evaluate HIPC assistance at the decision point remains unchanged at US$47.3 million.

A. Revision of HIPC Assistance and Status of Creditor Participation

62. The required HIPC assistance at end-December 1999 PV terms has been revised upward from US$415.9 million estimated at the decision point to US$421.7 million. As a result, the common reduction factor (CRF) has increased slightly from 85.4 percent to 85.6 percent (Table 4).

Table 4.

Guinea-Bissau: HIPC Initiative Assistance Under a Proportional Burden-Sharing Approach 1/2/

(In millions of U.S. dollars, unless otherwise indicated)

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Sources: Guinea-Bissau authorities; and IMF and World Bank staff estimates and projections.

The proportional burden sharing approach is described in “HIPC Initiative--Estimated Costs and Burden Sharing Approaches” (EBS/97/127, 7/7/97 and IDA/SEC M 97-306, 7/7/97).

Includes a hypothetical stock-of-debt operation on Naples terms, December 31, 1999, and comparable treatment by other official bilateral creditors.

Includes an up-front 80 percent discount on Russian debt disbursed before 1992.

Each creditor’s NPV reduction in percent of its exposure at the reference date, December 31, 1999, calculated as (A-B)/A. The common reduction factor is applied to debt remaining after traditional mechanisms. For non-concessional bilateral or commercial debt this would imp a total reduction of 95.3 percent.

Based on the three-year backward-looking average (1997-1999).

63. To date, Guinea-Bissau has received financing assurances from creditors accounting for 81 percent of the revised PV of HIPC assistance estimated at the decision point (Table 12). All multilateral creditors (of which IDA, the IMF, and the AfDB Group comprise 39.3 percent of total HIPC assistance), with the exception of the IsDB and the Economic Community of West African States (ECOWAS), have confirmed their participation. All Paris Club creditors (23.2 percent of total HIPC assistance) have agreed in principle to participate. Among non-Paris Club creditors, Portugal (the largest) has confirmed its participation, while China and Cuba have already provided outright cancellation of their HIPC-eligible claims.

Table 5.

Guinea-Bissau: Discount Rates and Exchange Rates

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Sources: OECD; and IMF, International Financial Statistics.

The discount rates used are the average commercial interest reference rates for the respective currencies over the six-month period ended December 1999 and December 2009, respectively.

The exchange rates are those at the base date (end-1999 and end-2009, respectively).

Apply the discount rate for EUR.

Apply the discount rate for SDR.

Apply the discount rate for USD.

Table 6.

Guinea-Bissau: Nominal and Present Value of External Debt outstanding at December 31, 2009 1/

(In millions of US$, unless otherwise indicated)

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Sources: Guinea-Bissau authorities; and IMF and World Bank staff estimates and projections.

Figures are based on data as of December 31, 2009, and include arrears.

Includes January 2001 Cologne flow and debt relief from non-Paris Club creditors.

Assumes full delivery of HIPC assistance as of December 31, 2009.

Paris Club creditors deliver their share of assistance as a group. Actual delivery modalities are defined on a case-by-case basis.

Table 7.

Guinea-Bissau: Enhanced HIPC Initiative Assistance Levels and Possible Topping-Up at Completion Point

(In millions of U.S. dollars; unless otherwise indicated)

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Sources: Guinea-Bissau; and Bank-Fund staff estimates and projections.

Exports of goods and non-factor services.

HIPC assistance as amended at the completion point. NPV figures calculated using end-1999 parameters.

NPV of debt after assuming a stock-of-debt operation on Naples terms at the end-1999 and at least comparable treatment by non-Paris Club and commercial creditors.

Assuming unconditional delivery at end-1999 and applied to the stock of debt outstanding as of end-1999.

Assuming unconditional delivery at end-2009 and applied to the stock of debt outstanding as of end-2009.

Includes debt relief beyond HIPC initiative assistance provided by most of the Paris Club creditors on a voluntary basis.

Table 8.

Guinea-Bissau: Present Value of External Debt, 2009–30 1/

(in millions of U.S. dollars, unless otherwise indicated)

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Sources: Guinea-Bissau authorities; and IMF and World Bank staff estimates and projections.

All debt indicators refer to public and publicly guaranteed (PPG) debt and are defined after rescheduling, unless otherwise indicated.

Includes arrears and July 6, 2010 flow treatment under Cologne terms before completion point rescheduling.

Shows the external debt situation after the full use of traditional debt-relief mechanisms, and assuming at least comparable treatment from official bilateral creditors.

Assumes the delivery of HIPC assistance at completion point (end-December 2010).

Assumes full delivery of estimated HIPC initiative debt relief at December 31, 2009.

Includes additional debt relief provided on a voluntary basis by the Paris Club and some commercial creditors beyond the requirements of the enhanced HIPC framework as specified on Table 15.

MDRI assistance starts after the completion point (December 2010).