First Review Under the Three-Year Arrangement Under the Extended Credit Facility, Financing Assurances Review, Request for a Waiver of Nonobservance of a Performance Criterion and Request for Modification of Performance Criteria

Guinea is making good progress in recovering from a long period of social unrest and military rule. Macroeconomic imbalances have been reduced, major structural reforms are under way, and long-neglected infrastructure is being rebuilt. However, the political transition process is still incomplete, with parliamentary elections having been delayed, and social tensions persist. Guinea remains vulnerable to developments in international markets, but risks are mitigated by long-term mining contracts; the key food import is rice, where recent international price increases have been modest and where agricultural reforms seek to boost domestic production.

Abstract

Guinea is making good progress in recovering from a long period of social unrest and military rule. Macroeconomic imbalances have been reduced, major structural reforms are under way, and long-neglected infrastructure is being rebuilt. However, the political transition process is still incomplete, with parliamentary elections having been delayed, and social tensions persist. Guinea remains vulnerable to developments in international markets, but risks are mitigated by long-term mining contracts; the key food import is rice, where recent international price increases have been modest and where agricultural reforms seek to boost domestic production.

I. Guinea: Relations with the Fund

(As of July 31, 2012)

I. Membership Status: Joined: September 28, 1963 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 Fund2/

(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

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).

X. Safeguards Assessment

An update of the 2007 safeguards assessment of the Central Bank of the Republic of Guinea (BCRG) was completed in April 2012. It found that risks of misuse and misreporting remain high, but are somewhat improved since the 2007 assessment. To mitigate risks to the prospective program, staff proposed that external auditors continue to verify monetary data, the BCRG publish audited annual financial statements within statutory deadlines (immediately for 2010), and the Board approve an investment policy and guidelines. These measures are needed in the short run, but equally important are steps to exercise better oversight on controls and to strengthen the autonomy of the central bank. The BCRG has initiated implementation of these recommendations.

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. A resident advisor financed by the IMF is assisting the BCRG in 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 February 24, 2012. Technical Assistance 2011–12

Calendar Year 2011

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Source: IMF staff.

Calendar Year 2012

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Source: IMF staff.

Planned.

II. Guinea: Joint World Bank-IMF Work Program

(As of July 2012)

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

(As of July 2012)

1. The Bank’s new strategy, approved by the Board on 1st March 2012, focuses on two pillars: (i) economic and financial governance; and (ii) infrastructure for development. Under the first pillar, the Bank will assist in building public financial management capacity, improving governance in the extractive sector and strengthening the central government’s budget. Under the second pillar, the Bank will contribute to reducing the power generation gap and further developing transport infrastructure.

2. Lending Operations: Units of Accounts (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 the Fragile States Facility (FSF) Window III that was allocated for implementing two capacity building programmes. The available balance on the African Development Fund (ADF) 12 for 2011–13 estimated at UA 28.70 million was fully allocated to activities planned under Pillar II.

3. In the governance sector, the Bank has already approved budget support of UA 20 million and FSF Targeted Support of UA 2.5 million. In addition, the Bank restructured some non-performing projects and reallocated UA 7.5 million to an economic governance project in 2011. This will 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.

4. 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 Côte 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.

5. 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.

6. 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.

7. 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; (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.).

8. Trust Funds: In addition to the ADF and FSF allocations, the Bank could mobilize supplementary resources from ADB private sector window (including enclave operations in the mining sector infrastructure), and also Trust Fund resources to finance complementary operations in the sectors covered by the 2012–16 Country Strategy Paper (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.

9. 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 2012; and Guinean authorities, Second Poverty Reduction Strategy Paper, August 2007.

Figures in italics refer to periods other than those specified.

V. Guinea: Statistical Issues

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Guinea: First Review Under the Three-Year Arrangement Under the Extended Credit Facility, Financing Assurances Review, Request for a Waiver of Nonobservance of a Performance Criterion and Request for Modification of Performance Criteria—Staff Report; Informational Annex; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Guinea.: Request for a Waiver of Nonobservance of a Performance Criterion and Request for Modification of Performance Criteria—Staff Report; Informational Annex; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Guinea.
Author: International Monetary Fund. African Dept.