Guinea-Bissau: Second Review Under the Three-Year Arrangement Under the Extended Credit Facility and Financing Assurances Review—Informational Annex

The review highlights that the government of Guinea-Bissau maintained macroeconomic stability under challenging circumstances. The government implemented satisfactory policies under the IMF supported program even in severe conditions. The authorities have met all performance criteria and all structural reforms for the second review. Sound macroeconomic policies, strengthened institutions, and debt relief have stabilized the economy and supported confidence building. It is critical that the government maintain the reform momentum and continue to build on the satisfactory performance under the Extended Credit Facility (ECF).

Abstract

The review highlights that the government of Guinea-Bissau maintained macroeconomic stability under challenging circumstances. The government implemented satisfactory policies under the IMF supported program even in severe conditions. The authorities have met all performance criteria and all structural reforms for the second review. Sound macroeconomic policies, strengthened institutions, and debt relief have stabilized the economy and supported confidence building. It is critical that the government maintain the reform momentum and continue to build on the satisfactory performance under the Extended Credit Facility (ECF).

Guinea-Bissau: Relations with the Fund

(As of March 31, 2011)

I. Membership Status: Joined: March 24, 1977; Article VIII

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans:

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V. Latest Financial Arrangements:

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Formerly PRGF

VI. Projected Payments to Fund 2/

(SDR Million; based on existing use of resources and present holdings of SDRs):

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When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

VII. Implementation of HIPC Initiative:

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Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts cannot be added.

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

VIII. Implementation of Multilateral Debt Relief Initiative (MDRI): Not Applicable

IX. Implementation of Post-Catastrophe Debt Relief (PCDR): Not Applicable

X. Safeguards Assessments:

The Central Bank of West African States (BCEAO) is a common central bank of the countries of the West African Economic and Monetary Union (WAMU). The most recent safeguards assessment of the BCEAO was completed on March 1, 2010. The 2010 update assessment found that the BCEAO continues to have controls in place at the operational level. The overall governance framework needed nonetheless to be strengthened by the addition of an audit committee to ensure that the Board of Directors exercises appropriate oversight over the control structure, including the audit mechanisms and financial statements. The Institutional Reform of the WAMU and the BCEAO completed after the approval of the safeguards report stipulated creation of the Audit Committee, which should now start working. Efforts to implement fully the International Financial Reporting Standards reporting framework should also be pursued.

XI. Exchange System and Exchange Rate Arrangement

Guinea Bissau accepted the obligations of Article VIII, Sections 2, 3, and 4 with effect from January 1, 1997. It joined the West African Economic and Monetary Union (WAEMU) in 1997, and has no separate legal tender. The exchange system common to all members of the union is free from multiple currency practices and exchange restrictions on the making of payments and transfers for current international transactions. Since January 1, 1999, the CFA franc has been pegged to the Euro at a fixed rate of € l=CFAF 655.95. On April 30, 2007, the rate of the CFA franc in terms of the SDR was CFAF 733.8=SDR 1. Effective January 1, 2007, the exchange arrangement of the WAEMU countries has been reclassified to the category of conventional pegged arrangement from the category of exchange arrangement with no separate legal tender. The new classification is based on the behavior of the common currency, whereas the previous classification was based on the lack of a separate legal tender. The new classification thus reflects only a definitional change, and is not based on a judgment that there has been a substantive change in the exchange regime or other policies of the currency union or its members.

XII. Article IV Consultation

Guinea-Bissau is on the 24-month consultation cycle. The last Article IV consultation discussions with Guinea-Bissau were held in Bissau January 12–26, 2010. The staff report (EBS/10/56) was discussed by the Executive Board on May 7, 2010.

XIII. Technical Assistance

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XIV. Resident Representative

The Resident Representative in Senegal also covered Guinea-Bissau from September 1997 through July 2007. The Resident Representative Office in Guinea-Bissau will be reopened as of June 2011.

Table 1:

Guinea-Bissau—Arrangements with the IMF, 1984–2010

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Source: International Monetary Fund.

Guinea-Bissau: Relations with the World Bank Group

As of April 10, 2011

1. As of April 10, 2011, IDA had approved altogether 33 credits and grants for Guinea-Bissau for a total value of commitments of US$362.8 million equivalent. The most important sectors, so far, have been the following: Transport/Infrastructure/Energy (eight operations, total commitments: US$ 121.5 million), Structural Adjustment/Development Policy Operations (budget support, three operations approved in 1987–2000, and three since 2008, of which one exclusively for the payment of primary teachers’ salaries; total commitments: US$87.4 million) and Social Sectors, including Health and Education (eight operations and US$ 55.5 million of total commitments). Two operations were implemented to support private sector development (overall commitment: US$ 41million), and three to provide technical assistance for economic management (overall commitment: US$ 22.9 million). Two IDA-funded credits supported the extractive industry sector, i.e. petrol exploration, in the 1980s with total commitments of US$19.9 million, and four IDA-funded projects have been supporting agriculture/natural resources management (including one new regional Fisheries Project), so far, with total commitments of 14.6 million, respectively, for this area of intervention.

Budget Support Operations

2. Since 2008, (after a period of discontinuation of budget support due to political instability), the Bank initiated new budget support operations to Guinea-Bissau, first with an emergency economic rehabilitation operation approved in 2008 that provided funds exclusively for the payment of primary teachers’ salaries, and then with a series of programmatic Development Policy Grants, of which the first one was approved in June 2009 and disbursed in early September (US$8 million), the second one approved in June 2010 and disbursed in December 2010 (US$6 million), and a third one currently under preparation for Board Approval in June 2011 (US$6 million).

Lending program

3. In June 2009, the Bank approved an Interim Strategy Note for Guinea-Bissau for 2009-2011, based on two pillars: (i) Strengthening Economic Management and Laying the Foundations for Improvement in the Productive Sectors; and (ii) Increased Access to Basic Services. Capacity Development for efficient governance and project implementation is a cross-cutting topic. A new Country Assistance Strategy (CAS) is envisaged to be delivered in the second semester of 2011.

4. The current IDA Portfolio is composed of five active operations with a total commitment of US$40.6 million, including a Multi-Sector Infrastructure Rehabilitation Project (US$15 million) supplemented by a new Emergency Electricity & Water Rehabilitation Project (US$12.7), a Community-Driven Development Project (US$5 million), a new Biodiversity Conservation Project (US$1.9 million) and the Guinea-Bissau component of a regional West Africa Fisheries Program (US$6 million) As of April 10, 2011, the IDA undisbursed balance was US$39.79 million.

5. The currently active Trust Fund portfolio implemented by the World Bank amounts to a total sum of about US$18 million. It includes an Emergency Food Security Support operation funded through the Food Price Crisis Response Trust Fund with contributions by the EU. One component of this project (school feeding, food for work for rural infrastructure) is implemented by the World Food Program. Further, the IDA-funded Community-Driven Development operation is complemented by a similar Participatory Rural Development operation of US$5 million, funded from the State and Peace Building (SPF) Trust Fund window for fragile states. The SPF also provides funding for Technical Assistance to the Ministry of Finance on Economic Management, complementing the IDA budget support, and an operation to support the implementation of the National Health Development Plan. Further complementary (co-) funding is provided by the Global Environment Facility (GEF) to the Biodiversity Conservation Project. An important multi-donor Education sector operation is currently under preparation in close cooperation with other donors, i.e. UNICEF, and has been envisaged to be submitted to the Education for All-Fast-Track Initiative (EFA-FTI) in May 2011; however, due to less than expected resource allocation of the EFA-FTI Catalytic Fund, the approval of the operation might be delayed for several months.

Non-lending Program

6. On December 14, 2010, the IDA Board of Executive Directors approved the achievement of the HIPC Completion Point for Guinea-Bissau. IDA provided MDRI debt forgiveness by irrevocably canceling Guinea-Bissau’s debt service obligations for credits disbursed before December 31, 2003, and still outstanding at December 31, 2010, after the application of HIPC assistance and topping up. In March 21, 2011, the IDA Board of Executive Directors approved the topping-up additional debt relief. IDA debt service reduction under the enhanced HIPC initiative, MDRI and topping-up assistance at Completion Point amounts US$263.7 million.

7. At current the Bank team is finalizing work on a Country Economic Memorandum which will identify key drivers for transformative growth in preparation of the upcoming Country Assistance Strategy for the period of 2011–2014. The team is also preparing a Capacity Development Action Plan to be annexed to the CAS. Technical assistance is currently provided in the area of Economic Governance, and prepared for Extractive Industries Value Chain Management in view of the government’s request to join the EITI. Further, IDA is preparing technical assistance for the establishment of a Global Development Learning Center for which funding options are being explored with the government of Brazil or possible other donors.

8. The World Bank Institute (WBI) envisages to launch more activities in the coming fiscal year, through inputs and capacity development activities in areas such as leadership and governance (demand-side governance), and possibly by contributing to the provision of learning content through the Global Development Learning Center in Bissau.

IFC and MIGA:

9. IFC: An IFC exploration mission visited Guinea-Bissau in November 2010, and identified several areas for potential future intervention, in particular, the electricity and cashew sectors, as well as improvement of financial markets and investment climate.

10. MIGA’s portfolio in Guinea-Bissau consists of two projects, sponsored by Senegalese and Malian investors. The investments, in support of the country’s telecommunications and tourism sectors, have a combined gross exposure of $17.1 million. The Agency has not received any formal requests to provide guarantees for investments in Guinea-Bissau during FY11.

Guinea-Bissau: Relations with the African Development Bank Group

As of March 2011

1. By March 2011, the AfDB had approved 38 operations for Guinea-Bissau, excluding multinational projects. These include 24 projects, 3 studies and 7 institutional supports, 3 special relief fund operations and 1 line of credit representing a net commitment of UA 188.08 millions. 31.2% of these operations have been in the social sector, 21% in the multisector, 19.4% in agriculture/fisheries, 18.4% in transport and 10% in infrastructure equipment. A total of UA 155.96 millions representing 82.9% have been disbursed. As of March 2011, the active portfolio comprises five ongoing projects representing a total net amount of UA 44.75 million and a disbursed amount of UA 19 million.

Structural adjustment credits

2. AfDB has approved a total of UA 13 million for structural adjustment operations. These include two structural adjustment credits (SACs), one supplementary SAC, and one economic rehabilitation and recovery credit (ERRC). The SACs supported the government’s program in the areas of economic liberalization and reform of the public administration and public enterprise sectors and the ERRC supports peace building following the political unrest, promotes the revival of the economy and encourages the pursuit of reforms.

Lending Program

3. During the period January 2008-March 2011, AfDB approved an interim HIPC debt release (US$17.48 million, a Fragile State Facility grant (UA2 million), a fish sector support grant (UA2 million), a health sector grant (UA6 million), an emergency support grant to cholera (UA0.33 million), a capacity building grant to public administration (UA7.86 million) and an emergency budget support to budgetary reforms (UA5.7 million). The Bank will be preparing this year another Budget Support (UA 9 million) and a capacity building project (UA 3.5 million) expected to be approved this year.

Nonlending Program

4. The Bank undertook a portfolio review in 2008, a mid-term review of its Country Strategy Paper (CSP) in 2009 as well as a combined portfolio review and completion report of its CSP 2005-2010, in October 2010. The Bank also participated in a Public Expenditure Management and Financial Accountability Review (PEMFAR) in 2009 in collaboration with the World Bank and the European Commission. The Bank is preparing in 2011 a new CSP 2011-2015.

Guinea Bissau: Statistical Issues

As of April 11, 2011

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Guinea-Bissau: Table of Common Indicators Required for Surveillance

(As of April 20, 2011)

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Any reserve assets that are pledged of otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); Not Available (NA).