This paper was prepared by staffs of the International Monetary Fund and the World Bank in connection with the Executive Board’s consideration of Guinea’s Completion Point under the Enhanced Initiative for Heavily Indebted Poor Countries and debt relief under the Multilateral Debt Relief Initiative. It is based on the information available at the time it was completed on September 11, 2012. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of Guinea or the Executive Board of the IMF.


This paper was prepared by staffs of the International Monetary Fund and the World Bank in connection with the Executive Board’s consideration of Guinea’s Completion Point under the Enhanced Initiative for Heavily Indebted Poor Countries and debt relief under the Multilateral Debt Relief Initiative. It is based on the information available at the time it was completed on September 11, 2012. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of Guinea or the Executive Board of the IMF.

I. Introduction

My Guinean authorities would like to express their sincere appreciation to the Board, management and staff for the continued support to Guinea. The ongoing ECF-supported program, has enabled the country to stabilize its macroeconomic framework and lay the foundations for strong and sustainable economic growth. The authorities’ strong commitment to reforms and sound policies coupled with support from the international community has led to a good performance in implementing the program, reflected by significant progress made in economic recovery and in the reduction of financial imbalances.

Under the ECF-supported program, strong fiscal and monetary measures as well as structural reforms are being implemented with positive results. In this regard, all quantitative performance criteria set out for end-June 2012 have been met, except for the continuous performance criterion on new external arrears that was missed due to technical problems experienced by the central bank with its international transfer system. My authorities are requesting a waiver for this minor nonobservance of the performance criterion on external arrears for which adequate corrective measures have been taken, including the settlement of the arrears. Considerable progress has also been made as regards structural reforms, albeit with some delays, with the technical and financial support from development partners. In addition, the authorities made important strides in establishing good governance and transparency in the mining sector.

To ensure the achievement of the program’s objectives and to place Guinea on the path of strong sustainable growth, the Guinean authorities will also pursue efforts to create all required conditions conducive to these objectives, including the organization of the legislative elections that will take place before the end of the 2012 with the support of the international community. In this regard, a new law governing the Commission Electorale nationale Independante (CENI) was adopted by the interim parliament, the Conseil National de Transition (CNT) on September 17, 2012.

Based on the progress made in implementing the program and their strong commitment to sound policies and reforms, my Guinean authorities are requesting the support of the Board for the completion of the first review, the waiver for nonobservance of performance criterion on new external arrears, the modification of the performance criteria for end-December 2012 and the financing assurances review.

II. Completion Point Under the Enhanced HIPC Initiative

Guinea has made good progress in meeting the requirements for reaching the completion point under the HIPC Initiative. The authorities have met nine of the ten triggers, with good progress made in achieving the objectives of the remaining trigger, in regard to the audit of government procurement contracts over GNF 100 million. Capacity constraint was the main reason for missing this trigger and the authorities are requesting a waiver for it. The financing requirements for the program are met. Moreover, to ensure prudent debt management, the authorities will mobilize only grants and concessional loans, and will consult the IMF staff on the conditions and concessionality of all new debt agreement proposals. In addition, the authorities are committed to allocate the debt relief resources to expenditures for the priority sectors to substantially reduce poverty.

In the circumstances, my Guinean authorities would appreciate Executive Directors’ approval that Guinea has met the requirements for reaching the completion point under the HIPC Initiative to enable the country to benefit from debt relief. This approval would reduce considerably Guinea’s external public debt and enable the country to implement fully policies conducive to sustainable growth and poverty reduction.

III. Achievements Under the ECF-Supported Program

The Guinean authorities’ commitment to reforms and sound policies has led to a satisfactory implementation of the ECF-supported program over the first half of 2012. Prudent fiscal and monetary policies have been steadfastly implemented to curb inflation, stabilize the exchange rate and significantly reduce the fiscal deficit. Economic activity increased due mainly to accelerating investment in agricultural and mining sector. As a result, real GDP growth in 2012 is expected to reach 4.8 percent against 3.9 percent in 2011 and 1.9 percent in 2010. Inflation decreased from 19 percent at end-2011 to below 15 percent in July 2012, and is projected to continue on a declining trend, thanks to tight liquidity management together with a cash-based public expenditure management. As for official reserves, their accumulation level exceeded 4 months of imports by end-June 2012.

In the fiscal sector, the authorities pursued their efforts aimed at increasing revenue and containing expenditures. Budget revenue exceeded projections by 1 percentage point of GDP, helped by a strengthening of administrative measures, including the audits on fiscal years 2009 to 2012. Customs achieved its revenue target despite the losses in fuel taxes and increases in import costs. The harmonization of customs clearances at the seaports and land borders was accelerated to reduce leakages and the thorough review of tax exemptions continued for companies eligible for advantages under the investment code. As for expenditures, the authorities continued the cash-based expenditure management and were able to contain expenditures to the level required under the program. The authorities also proceeded with the retirement of more than 4000 military personnel, postponement of the implementation of special civil personnel statutes and better auditing of new employees thus generating savings in the wage bill. Their fiscal approach was very successful, in that the basic fiscal balance for the first semester of 2012 was nearly zero against a deficit target of 3.7 percent of GDP for the year.

In the structural area, important progress was made as the authorities strengthened their commitment to coordinate and monitor the structural reforms’ implementation. The Council of Ministers, chaired by the Prime Minister, is playing a major role in monitoring the execution of reforms and policy measures under the program, as each minister is accountable for measures and actions for which his ministry is responsible. In this context, good progress was made in improving the public financial management with the IMF’s Fiscal Affairs Department. Among others, this includes the tax reform action plan prepared in June, the adoption of a new procurement code and the organic budget law. In addition, the accounting procedures governing the Special Investment Fund were adopted through a presidential decree. With the technical assistance from West AFRITAC, the Central Bank strengthened the banking supervision framework and prudential regulations including those for microfinance institutions.

Important strides were made in implementing policy and institutional reforms in the mining, electricity and agricultural sectors. The framework for awarding mining titles and conventions was strengthened with the creation of the National Mining Commission supported by a strategic committee and a technical committee. The fiscal regime of the new mining code adopted in 2011 will be finalized under the FAD technical assistance. In January, an action plan to reform the electricity sector was adopted followed by the establishment of a monitoring committee to oversee and coordinate its implementation. As regards the agricultural sector, the objective is to achieve food-self-sufficiency by 2014. The harmonization of methods and procedures of assistance to the sector with those under projects supported by development partners was achieved although with some delays due to capacity constraints. The authorities are also revising the investment code together with the General Tax Code, the Customs Code and the Customs tariff with technical assistance provided by the Fund, IFC and the World Bank.

On external debt, the authorities reached in April 2012 an agreement with Paris Club creditors to benefit from relief on exceptional terms. They have also initiated discussions with other official creditors on debt restructuring under terms comparable with those of the Paris Club.

IV. Policies and Reforms for 2012 and 2013

Going forward, my Guinean authorities will pursue the implementation of prudent policies and sound reforms. In this regard, reform momentum built under the run-up towards the completion point will be enhanced. Policies being implemented are expected to raise real GDP growth to about 5 percent in 2012–13, reduce inflation further by end 2012 and to single digits in 2013. The target for gross official reserves will remain well above the medium-term target floor of 2.5 months of imports. As for the basic balance deficit, the target set in the revised budget is 3.6 percent against 3.8 percent of GDP. The authorities will continue implementing their structural reform agenda to spur strong and sustainable growth in a pro-business environment.

Fiscal policy and reforms

The authorities will pursue their fiscal efforts to meet the macroeconomic targets under the program. In particular, they will avoid bank financing of the budget deficit, which generated the high levels of inflation experienced in recent years. Due to lower windfall mining revenue and payments that occurred earlier, a revised budget was adopted with additional measures to increase tax revenue and reduce current expenditures. As a result of the measures being implemented in the area of tax and customs reforms, and measures to expand the coverage of VAT and improve the VAT refund system, budget revenue is projected to increase to 20.2 percent in 2013. Expenditures will aim at achieving the target for the basic balance deficit within the envelope of available resources. Domestically-financed investment expenditures are projected to fall to about 5 percent of GDP with the completion of a number of projects. However, allocations for investment mainly in the electricity sector will increase. The authorities will continue to implement the public financial management program with the support of partners including the regulations for the new Organic Budget Law, the recently adopted tax reform plan.

Public debt management

The authorities are mindful of the need for further improvements in external debt management. In this regard, they are committed to strengthen the management of the country’s external debt to fully observe the program’s performance criterion related to arrears. Among other measures in this regard, the minister of economy and finance is the now the sole authority who can authorize contracting external public debt. Only grants and concessional loans will be mobilized to finance projects. Moreover, the laws on the SOEs to establish a clear framework under which they can borrow will be revised.

Monetary and financial issues

The Central Bank will continue to focus on lowering inflation through an adequate liquidity management including the weekly foreign exchange auctions while taking into account the target for international reserves. Based on progress made with the decline in inflation and the stabilization of the exchange rate, the authorities are committed to further improve the foreign exchange market, strengthen banking supervision and adopt a new banking law by end-2012. In addition, an agreement on the treatment of the outstanding stock of advances to the Treasury will be signed before end of 2012. The authorities are also conducting a study on the financial sector’s development with the assistance of development partners. This study will help address the weaknesses of the sector and identify measures to strengthen it so that it can contribute positively to economic growth.

Structural reforms and economic growth

My Guinean authorities are committed to implementing far-reaching structural reforms with a view to create a conducive environment for increased investment and economic growth. To this end, their efforts to improve the public financial management, business climate, governance structure for the mining sector and increase investment in electricity and agricultural sector will be intensified, as described in the authorities’ letter of intent.

V. Conclusion

My Guinean authorities’ determination to implement sound reforms and prudent policies under the ECF-supported program has helped to restore macroeconomic stability, improve public financial management and make progress in structural reforms. Based on their good performance, I would appreciate Directors’ support for my Guinean authorities’ requests for the completion of the first review and waiver for non-observance of performance criterion and waiver for modification of performance criteria. I would also appreciate Director’s support for the approval of the completion point for Guinea under the Enhanced HIPC Initiative.