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
Author:
International Monetary Fund
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Publication Date:
26 Mar 2012
eISBN:
9781475502602
Language:
English
Keywords:
ISCR; CR; financing; government; authority; Paris Club creditor; fund staff; public finance; balance of payments statement; fund request; central bank of the Republic of Guinea; Mining sector; Real sector statistics; Global; FSF programme
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This paper presents Guinea’s 2011 Article IV Consultation and requests for a three-year arrangement under the Extended Credit Facility. The macroeconomic improvement in 2011 has been mainly owed to sharp fiscal adjustment. The deficit on the budget’s basic balance has been reduced from 13 percent of GDP in 2010 to an estimated 2.5 percent of GDP, while monetary financing of the budget has been avoided in an effort to reduce excess liquidity stemming from large central bank advances in 2009–10. Key medium-term challenges are to reduce inflation while preparing the economy for an expected substantial increase in mining activity.

Abstract

This paper presents Guinea’s 2011 Article IV Consultation and requests for a three-year arrangement under the Extended Credit Facility. The macroeconomic improvement in 2011 has been mainly owed to sharp fiscal adjustment. The deficit on the budget’s basic balance has been reduced from 13 percent of GDP in 2010 to an estimated 2.5 percent of GDP, while monetary financing of the budget has been avoided in an effort to reduce excess liquidity stemming from large central bank advances in 2009–10. Key medium-term challenges are to reduce inflation while preparing the economy for an expected substantial increase in mining activity.

V. Guinea: Relations with the Fund

(As of December 31, 2011)

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V. Latest Financial Arrangements:

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VI. Projected Payments to the Fund 2/

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

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VII. Implementation of HIPC Initiative:

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

Decision point - point at which the IMF and the World Bank determine whether a country qualifies for assistance under the HIPC Initiative and decide on the amount of assistance to be committed.

Interim assistance - amount disbursed to a country during the period between decision and completion points, up to 20 percent annually and 60 percent in total of the assistance committed at the decision point (or 25 percent and 75 percent, respectively, in exceptional circumstances).

Completion point - point at which a country receives the remaining balance of its assistance committed at the decision point, together with an additional disbursement of interest income as defined in footnote 2 above. The timing of the completion point is linked to the implementation of pre-agreed key structural reforms (i.e., floating completion point).

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

X. Safeguards Assessment

A safeguards assessment mission visited the Central Bank of the Republic of Guinea (BCRG) in January 2012 to update the findings of the 2007 assessment. Preliminary findings indicate that the governance and safeguard frameworks continue to require strengthening. In addition, the BCRG has limited capacity to manage reserves, the internal control environment is weak, and the compilation of program data is performed via predominantly manual processes. To mitigate risks, the mission proposed that external auditors continue to verify monetary data at test dates, the BCRG publish audited annual financial statements within statutory deadlines (immediately for 2010), and the Board approve an investment policy and guidelines.

XI. Exchange Rate Arrangement

Guinea is returning to a managed float system with no predetermined path, after an interruption of the system during 2009–10; the de facto arrangement is classified as “other managed arrangement”. The system includes a multiple currency practice as the value of the official rate lags the weighted average commercial bank rate on which it is based by one day. A technical assistance mission from the Fund (MCM) visited Conakry in 2011 and made suggestions on the exchange rate system, including on the lag between the official and commercial banks rate. The BCRG is analyzing the recommendations. Guinea has accepted the obligations under Article VIII, sections 2, 3 and 4 of the IMF’s Articles of Agreement.

XII. Article IV Consultation

The last Article IV consultation was concluded by the Executive Board on December 21, 2007.

XIII. Technical Assistance 2011–12

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II. Guinea: Joint World Bank-IMF Work Program, 2012

(As of January 2012)

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III. Guinea: Relations with the African Development Bank, 2011–13

(As of January 2012)

1. Lending Operations: UA 20 million was allocated for the first Pillar, through the Budget Support Programme approved by the Bank’s Board in May 2011. Guinea also has access to UA 2.50 million under FSF Window III that was allocated for implementing two capacity building programmes. The available balance on ADF 12 for 2011–13 estimated at UA 27.67 million was fully allocated to activities planned under Pillar II. In operational terms, this translates into the implementation of three (3) regional projects. This choice will enable the country to mobilize a supplementary UA 55.43 million in addition to the ADF 12 allocation under the regional operations envelope, thereby increasing the total amount accessible to Guinea over the 2011–13 period to UA 105.51 million (refer to table 1 below).

2. In the governance sector, the Bank has already approved budget support of UA 20 million19 and FSF Targeted Support of UA 2.5 million, which will enable it to improve the country’s public finance management while supporting the reforms aimed at enhancing governance especially in the extractive sector. The targeted support will also cover public administration capacity building, particularly in statistics and strategic planning.

3. In the energy sub-sector, two projects are scheduled for implementation by end 2013. The first is a contribution to financing the project of the Gambia River Basin Development Organization (OMVG) involving the construction of a dam and a 240 MW hydro-power plant at Kaleta. The second project is the Cote d’Ivoire-Liberia- Sierra Leone -Guinea power interconnection project that will see the construction of 1 360 km of 225 kV transmission lines and 12 sub-stations. Implementation of these two projects will result in: (i) an increase in the average electricity access rate; (ii) a reduction in the kWh generating cost; (iii) a reduction in the number of power outages; (i) the creation of temporary and permanent jobs; and (vi) a reduction in greenhouse gas emissions.

4. In the transport sub-sector, the Bank intends to finance the Boké-Quebo Road which is part of the ECOWAS Regional Transport Programme. Because of its integrative role, construction of this highway is in line with the New Partnership for Africa’s Development (NEPAD) Short-Term Action Plan, one of whose core objectives is to have interstate roads without any impediment to the free movement of goods and persons. The completion of the Boké–Quebo missing link should provide a year-round paved road link between Conakry and Bissau.

5. Non-Lending Operations: To deepen the analysis and understanding of the country’s main challenges and fuel strategic reflexion, the Bank has already initiated economic and sector works in collaboration with the UNDP, under the first FSF programme, on the following themes: (i) private sector profile; (ii) Guinea’s Vision 2035; (iii) study on financial sector reforms; (iv) study on the feasibility of the PPP framework; and (v) study on Economic Partnership Agreements (EPA). Within this framework, the FSF is providing support to: (i) build the PRSP III (2012–15) steering capacity; (ii) good governance monitoring and promotion; and (iii) build aid mobilization and coordination capacity. That component also includes support to the organization of the Guinea Partnership Conference scheduled for early 2012 and aimed at mobilizing international community aid around the following six themes: (i) rural development and food security; (ii) infrastructure; (iii) education; (iv) social development; (v) mining, energy, water, environment and industry; and (vi) macroeconomic framework and institutional development.

6. Furthermore, a second FSF programme will support the National Statistics Development Strategy (NSDS) and the conduct of the Third General Population and Housing Census (RGPH-III). The Bank also intends to support mining sector governance through its private sector window and legal support facility. This will entail: (i) support for Guinea’s accession to the EITI, already initiated under PARCGEF; (ii) support to Mining Code Reform, which includes a 15 percent State participation in all mining concessions, the strengthening of transparency and introduction of penalties for non-compliance with the legislation; (iii) support for the revision of mining agreements; (iv) involvement in the operational audit of mining companies; and (v) the conduct of economic and financial studies on mining contracts (their value, production costs and transfer prices, etc.).

7. Trust Funds: In addition to the ADF and FSF allocations, the Bank could mobilize supplementary Trust Fund resources to finance complementary operations in the sectors covered by the 2012–16 CSP and that are important for the country’s development. For example, through the Rural Water Supply and Sanitation Initiative, a strategy could be prepared in that area. Other instruments are also available: the Partial Risk Guarantee Instrument; the Global Environment Fund; and Africa Carbon Facility and Green Fund.

8. African Development Bank and Fund staffs collaboration: sharing of information on the ECF-supported program, the macroeconomic situation, the budget, progress in structural reform, planned missions, and mission reports.

Table 1-

ADF 13 (2011–13) and FSF Operations Programming

(UA million)

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IV. Guinea: Millennium Development Goals

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Sources: World Development Indicators database, June 2011; and Guinean authorities, Second Poverty Reduction Strategy Paper, August 2007. 1/ Figures in italics refer to periods other than those specified.

V. Guinea: Statistical Issues

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1/

Formerly PRGF.

2/

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

3/

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.

4/

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.

19

This programme was approved by the Bank’s Board in May 2011. The first tranche (UA 15 million) was disbursed in September 2011 while the second (UA 5 million) is expected to be disbursed no later than end 2011.

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Cover IMF Staff Country Reports
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.
Author:
International Monetary Fund
Volume/Issue:
Volume 2012: Issue 063
Publisher:
International Monetary Fund
ISBN:
9781475502602
ISSN:
1934-7685
Pages:
134
DOI:
https://doi.org/10.5089/9781475502602.002