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© 2012 International Monetary Fund

March 2012

IMF Country Report No. 12/63

Guinea: 2011 Article IV Consultation and Requests for a Three-Year Arrangement Under the Extended Credit Facility, and for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries—Staff Report; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for Guinea.

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of a combined discussion of the 2011 Article IV consultation with Guinea and Requests for a Three-Year Arrangement Under the Extended Credit Facility, and for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries, the following documents have been released and are included in this package:

• The staff report for the combined 2011 Article IV consultation and Requests for a Three-Year Arrangement Under the Extended Credit Facility and for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries, prepared by a staff team of the IMF, following discussions that ended on January 31, 2012, with the officials of Guinea on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on February 13, 2012. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

• A Public Information Notice (PIN) and Press Release, summarizing the views of the Executive Board as expressed during its February 24, 2012, discussion of the staff report on issues related to the Article IV consultation and the IMF arrangement, respectively.

• A statement by the Executive Director for Guinea.

The documents listed below have been or will be separately released.

• - Letter of Intent sent to the IMF by the authorities of Guinea*

• - Memorandum of Economic and Financial Policies by the authorities of Guinea*

• - Technical Memorandum of Understanding*

*Also included in Staff Report

The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

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Price: $18.00 a copy

International Monetary Fund

Washington, D.C.

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INTERNATIONAL MONETARY FUND

GUINEA

Staff Report for the 2011 Article IV Consultation and Requests for a Three-Year Arrangement Under the Extended Credit Facility, and for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries

Prepared by the African Department

(In consultation with other departments)

Approved by Seán Nolan and Jan Kees Martijn

February 13, 2012

Contents

• Abbreviations and Acronyms

• Executive Summary

• I. A New Beginning

• II. Recent Economic Developments

• III. Outlook and Key Challenges—Consolidating Macroeconomic Stabilization and Preparing for the Mining Boom

  • A. The Medium-Term Macroeconomic Outlook and Framework

  • B. Short-Term Stabilization

  • C. Strengthening Public Financial Management and Increasing Priority Sector Spending

  • D. Structural Reform: Improving the Business Climate and Mobilizing Guinea’s Natural Resources Wealth

  • E. Debt Restructuring and Debt Sustainability

• IV. Discussions on an ECF-Supported Program

  • A. Fiscal Policy

  • B. Monetary and Exchange Policy

  • C. Structural Reforms

• V. Program Design, Financing, and Risks

  • A. External Arrears and Program Financing

  • B. Program Modalities

• VI. Staff Appraisal

• Boxes

• 1. The Foreign Exchange System

• 2. Mining Outlook and Major Investments

• 3. Assessing External Competitiveness in Guinea

• 4. Public Investment and the Special Investment Fund

• Figures

• 1. Cross-Country Comparisons, 2004–10

• 2. Recent Economic Developments, 2004–10

• Text Tables

• 1. Summary of Revenue and Expenditure, 2008–11

• 2. Fiscal Developments and Projections, 2010–14

• Tables

• 1. Selected Economic and Financial Indicators, 2008–16

• 2a. Fiscal Operations of the Central Government, 2008–16 (Billions of Guinean Franc)

• 2b. Fiscal Operations of the Central Government, 2008–16 (Percent of GDP)

• 2c. Statement of Operations of the Central Government

• 3a. Central Bank and Deposit Money Banks Accounts, 2008–12

• 3b. Monetary Survey, 2008–12

• 4. Balance of Payments, 2008–16

• 5. Indicative Targets for 2011 Under the Staff-Monitored Program

• 6. Financial Sector Soundness Indicators

• 7. External Financing Requirements and Sources, 2011–15

• 8. Proposed Schedule of Disbursements and Timing of Reviews Under the ECF Arrangement, 2012–15

• 9. Indicators of Capacity to Repay the Fund, 2012–25

• 10. Performance Criteria and Indicative Targets, ECF 2012

• 11. Prior Actions and Structural Benchmarks, ECF 2012

• Appendices

• I. Letter of Intent

  • Attachment I. Memorandum of Economic and Financial Policies

  • Attachment II. Technical Memorandum of Understanding

Abbreviations and Acronyms

Executive Summary

• Guinea’s outlook improved substantially during 2011 as the political situation stabilized, severe macroeconomic imbalances were reduced, and improved governance resulted in large windfall revenue from the mining sector and new investment in mining projects. Growth picked up, the rise in inflation was halted, and international reserves increased. Following sizeable depreciation early in the year, the official exchange rates stabilized and the gap between the official and market exchange rate narrowed.

• The macroeconomic improvement in 2011 was mainly due to sharp fiscal adjustment. The deficit on the budget’s basic balance was reduced from 13 percent of GDP in 2010 to an estimated 2.5 percent, while monetary financing of the budget was avoided in an effort to reduce excess liquidity stemming from large central bank advances in 2009–10.

• Performance under the 2011 staff-monitored program has been good. The quantitative targets for June and September were met with wide margins, while provisional data indicate that performance was close to program targets for end-December despite a shortfall in budget support and higher public investment spending under a revised budget prepared in consultation with the staff. The adjustment in current spending was larger than envisaged. There was good progress with structural reform, including the adoption of a new mining code.

• Key medium-term challenges are to reduce inflation while preparing the economy for an expected substantial increase in mining activity. Planned new investment in the mining sector of 40 percent or more of GDP per year during 2012–14 should result in much higher levels of output and government revenue by the middle of the decade.

• Medium-term fiscal policies aim at avoiding the use of domestic bank credit while ensuring (post-HIPC) debt sustainability. Key objectives are to raise the revenue effort and redirect expenditure to the priority sectors while using the windfall revenue to increase public investment, especially in electricity and roads.

• The government’s medium-term structural reform agenda aims at developing Guinea’s abundant natural resources in mining, hydroelectricity, and agriculture, while improving government services, including utilities, and the business climate.

• Staff supports the authorities’ request that the Fund support their program for January 2012–December 2014 under the ECF for an amount of SDR 128.52 million (120 percent of quota). Good performance under the program may allow Guinea to reach the completion point under the HIPC Initiative later in the second half of 2012.

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INTERNATIONAL MONETARY FUND

GUINEA

Staff Report for the 2011 Article IV Consultation and Requests for a Three-Year Arrangement Under the Extended Credit Facility, and for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries

Informational Annex

Prepared by the African Department

(In consultation with other departments)

February 13, 2012

Contents

• I. Relations with the Fund

• II. Joint World Bank-IMF Work Program, 2012

• III. Relations with the African Development Bank

• IV. Millennium Development Goals

• V. Statistical Issues

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INTERNATIONAL MONETARY FUND

INTERNATIONAL DEVELOPMENT ASSOCIATION

GUINEA

Joint Debt Sustainability Analysis Under the Debt Sustainability Framework for Low-Income Countries¹

Prepared by the Staffs of the World Bank and the International Monetary Fund

Approved by Sean Nolan and Jan Kees Martijn (IMF) Jeffrey D. Lewis and Marcelo Giugale (IDA)

February 17, 2012

Guinea has been in debt distress since 2007, as evidenced by the accumulation of external debt service arrears. With approval of the proposed ECF arrangement and accompanying bilateral debt relief, the risk of debt distress would shift to high risk. Under scenarios that assume full delivery of relief on external debt under the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) at the Completion Point and of “beyond-HIPC” debt relief after the Completion Point, the debt burden would imply a moderate risk of debt distress. The public sector debt sustainability analysis (DSA) indicates that Guinea’s domestic debt is significant but is expected to decrease over the longer run and does not alter the assessment. As the initial debt level is high, the debt position of the country remains vulnerable to macroeconomic shocks, indicating the need for prudent fiscal policies and debt management.

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Statement by the IMF Staff Representative February 24, 2012

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Public Information Notice (PIN) No.12/23

FOR IMMEDIATE RELEASE

March 12, 2012

International Monetary Fund

700 19^th Street, NW

Washington, D. C. 20431 USA

Telephone 202-623-7100

Fax 202-623-6772

www.imf.org

IMF Executive Board Concludes 2011 Article IV Consultation with Guinea

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Press Release No. 12/57

FOR IMMEDIATE RELEASE

February 24, 2012

International Monetary Fund

700 19^th Street, NW

Washington, D. C. 20431 USA

Telephone 202-623-7100

Fax 202-623-6772

www.imf.org

IMF Executive Board Approves Three-Year, US$198.9 Million Extended Credit Facility Arrangement and Additional Interim HIPC Assistance for Guinea

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Statement by Kossi Assimaidou, Executive Director for Guinea Friday, February 24, 2012