EXECUTIVE SUMMARYEconomic activity remained weak in early 2014. Activity was impacted by an outbreak ofthe Ebola virus since late 2013, but lagging structural reforms, energy shortages, and political uncertainty may also be at play. Economic growth is estimated to have been 2.3 percent in 2013, and is projected at 3.5 percent in 2014, supported by higher public investment and assuming a gradual start-up of new mining sector investment. Inflation fell to below10 percent year-on-year in May 2014, international reserves covered 3.6 months of imports by end-2013, and the exchange rate has remained stable.Performance under the ECF-supported program remains broadly satisfactory, although progress with structural reform has been slow. All performance criteria for end-2013 were met as were all but one (the floor on priority sector spending) of the program’s indicative targets for March 2014. However, the structural benchmarks for the second half of 2013 and early-2014 could not be completed as planned.The policy discussions focused on (i) the growth outlook for 2014; (ii) a supplementary budget for 2014 in light of a shortfall in revenues and new spending needs; (iii) progress in implementing structural reforms; and (iv) debt management.Risks to the program largely stem from domestic factors. New cases of Ebola have surged and spread more widely in recent months, which could affect growth in the second half of the year. The recent approval of the investment framework for the large Simandou iron ore project augurs well for a gradual pick-up in mining activity. However, renewed political tensions and uncertainty in the run-up to presidential elections, due in the second half of 2015, could risk delaying new investment.Staff supports completing the fourth review under the ECF arrangement and the financing assurances review. Completion of the review will result in a disbursement of anamount equivalent to SDR 18.36 million under the ECF arrangement.
This statement reports on the implementation of the remaining prior actions for the completion of the fourth review under the ECF arrangement and on the information that has become available since the Staff Report was issued on July 21, 2014. The information does not alter the thrust of the Staff Appraisal.
1. In the council of Ministers meeting of July 21, the government approved the draft law revising the investment code. It also adopted the implementing regulations of the law and public procurement code, particularly those relating to (i) the Public Procurement Regulatory Authority (ARMP); (ii) the Administration and Control of Large Projects and Public Procurement (ACGP); (iii) the National Directorate of Public Procurement (DNMP); and the thresholds for awarding public contracts.
2. On July 23, the Minister of State for the Economy and Finance and the Minister of Energy and Hydrology issued a joint letter to the electricity company EDG, instructing EDG to manage its operations in such a way that there is no need for government financial support over and above the amount included in the revised budget and to avoid supplier arrears.
3. The actions under 1 and 2 satisfied the prior actions for the fourth review under the ECF-supported program.
4. Provisional data indicate that the end-June performance criteria under the ECF-supported program are likely to have been met. As was the case in March, compared to the initial 2014 budget revenue is estimated to have been lower than projected though the shortfall is estimated to have been more than offset by lower investment spending. As a result, the budget’s basic balance deficit for the period January–June 2014 would amount to about 0.5 percent of GDP compared to a program floor of a deficit of 1.3 percent of GDP.
5. Inflation continued its downward trend, falling to 9.6 percent (year-on-year) at end-June 2014.
6. Although the Ebola epidemic is now spreading much more rapidly in the neighboring countries Sierra Leone and Liberia, Guinea continues to suffer from the outbreak. By July 23, the illness had claimed more than 340 lives in Guinea. Although the number of new cases is rising less rapidly than in the period May-June—in some regions no new cases have been registered for about one month—in the capital Conakry 22 new cases were reported over the period July 20–28 and 6 cases were also reported from the previously disease-free Siguiri region in the country’s north-east. The costs of the crisis team addressing the epidemic—led by the government and including representatives of the World Health Organization and other multilateral and bilateral partners—amounted to about $13.5 million for the first six months of 2014; the government made available GNF 10 billion ($1.4 million; 0.02 percent of GDP) and donors financed the remainder. The crisis team has requested a further GNF 5 billion from the budget to cover the costs for the second half of the year, estimated at about $13.3 million.