Guinea: Requests for Disbursement Under the Rapid Credit Facility and for Modification of Performance Criteria Under the Extended Credit Facility Arrangement—Informational Annex

EXECUTIVE SUMMARYGuinea is suffering from an outbreak of Ebola, which has become a humanitarian crisis with a significant economic impact. Preliminary estimates suggest a negative impact on 2014 growth, which will be markedly lower. Government revenue is showing a substantial shortfall and the response to the Ebola outbreak entails additional critical spending needs. The exchange rate has started to depreciate. The authorities intend to adopt a tighter monetary policy to address the transitory balance of payments shock.Performance under the ECF-supported program has remained satisfactory. Preliminary data indicate that all performance criteria (PCs) under the program for end-June 2014 were met. There has also been further progress with structural reform.The authorities have requested additional IMF financial assistance to meet urgent fiscal and balance of payments needs not anticipated at the time of the recent program review. Such assistance cannot be provided in the form of an augmentation of access under the ECF arrangement at this time since a review associated with the most recent availability date has not yet been completed because of delays in program implementation associated with the 2013 parliamentary elections. The authorities have requested a disbursement under the Rapid Credit Facility (RCF) because the urgent balance of payments need is characterized by a financing gap that, if not addressed, would result in an immediate and severe economic disruption. Moreover, Guinea�s balance of payments difficulties are caused primarily by a sudden exogenous shock and not by a withdrawal of financial support by donors, and its balance of payments need is expected to be resolved within one year with no major policy adjustments being necessary. As such polices remain guided by the objectives of the ECF-supported program.Staff supports the authorities� request for a disbursement under the RCF of25 percent of quota (SDR 26.775 million). It also supports the authorities� request for a modification of the end-September indicative targets and end-December 2014 PCs underthe ECF arrangement, including program adjustors.

Abstract

EXECUTIVE SUMMARYGuinea is suffering from an outbreak of Ebola, which has become a humanitarian crisis with a significant economic impact. Preliminary estimates suggest a negative impact on 2014 growth, which will be markedly lower. Government revenue is showing a substantial shortfall and the response to the Ebola outbreak entails additional critical spending needs. The exchange rate has started to depreciate. The authorities intend to adopt a tighter monetary policy to address the transitory balance of payments shock.Performance under the ECF-supported program has remained satisfactory. Preliminary data indicate that all performance criteria (PCs) under the program for end-June 2014 were met. There has also been further progress with structural reform.The authorities have requested additional IMF financial assistance to meet urgent fiscal and balance of payments needs not anticipated at the time of the recent program review. Such assistance cannot be provided in the form of an augmentation of access under the ECF arrangement at this time since a review associated with the most recent availability date has not yet been completed because of delays in program implementation associated with the 2013 parliamentary elections. The authorities have requested a disbursement under the Rapid Credit Facility (RCF) because the urgent balance of payments need is characterized by a financing gap that, if not addressed, would result in an immediate and severe economic disruption. Moreover, Guinea�s balance of payments difficulties are caused primarily by a sudden exogenous shock and not by a withdrawal of financial support by donors, and its balance of payments need is expected to be resolved within one year with no major policy adjustments being necessary. As such polices remain guided by the objectives of the ECF-supported program.Staff supports the authorities� request for a disbursement under the RCF of25 percent of quota (SDR 26.775 million). It also supports the authorities� request for a modification of the end-September indicative targets and end-December 2014 PCs underthe ECF arrangement, including program adjustors.

Relations with the Fund

As of August 31, 2014

Membership Status: Joined: September 28, 1963 Article VIII

General Resources Account:

article image

SDR Department:

article image

Outstanding Purchases and Loans:

article image

Latest Financial Arrangements:

article image

Projected Payments to Fund 2/

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

article image

Implementation of HIPC Initiative:

article image

Formerly PRGF.

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

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.

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

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).

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 some recommendations, including: (i) the verification of monetary data at test dates (ii) the BCRG publish audited annual financial statements within statutory deadlines; and (iii) the BCRG adopt and implement internationally-recognized financial reporting standards. Equally important are steps to exercise better oversight on controls. The BCRG is working towards the implementation of these and other Safeguards Assessment recommendations.

Exchange Rate Arrangement

Guinea’s exchange rate arrangement is classified as 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 implementing the recommendations. Guinea has accepted the obligations under Article VIII, sections 2, 3 and 4 of the IMF’s Articles of Agreement.

Article IV Consultation

The last Article IV consultation was concluded by the Executive Board on February 24, 2012.

Technical Assistance 2011–14

Calendar Year 2011

article image
Source: IMF staff.

Calendar Year 2012

article image
Source: IMF staff.

Calendar Year 2013

article image
Source: IMF staff.

Calendar Year 2014

article image
Source: IMF Staff.

Planned.

Joint World Bank-Fund Matrix

(As of September 2014)

article image

Relations with the African Development bank, 2011–14

(As of September 2014)

1. The Bank’s Country Strategy Paper (CSP) 2012–16, approved by the Board on st March 1. 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. The mid-term review of the CSP will be undertaken during the second semester of 2014. This will provide an opportunity for dialogue on the Bank’s support to Guinea through the implementation of the PRSP and outcomes of the Abu Dhabi Conference for the period 2014 to 2016. The mid-term review of the strategy planned in 2014 will most likely be delayed due to the Ebola crisis.

2. Lending Operations: During the donor and investment conference in Abu Dhabi, AfDB announced UA 163 million ($250 million) additional resources in targeted support to the country’s development program during the 2014–16 period through the mobilisation of all its financial and technical assistance instruments/vehicles.

3. In the governance sector, the Bank has already approved a budget support allocation of UA20 million in 2011 and support of UA 2.5 million through the Fragile State Facility (FSF). In addition, the Bank restructured some non-performing projects and reallocated UA 7.5 million to an economic governance project in 2011. This was to improve the country’s public finance management while supporting the reforms aimed at enhancing governance, especially in the extractive sector. The FSF support also covers public administration capacity building, particularly in statistics and strategic planning. At the end of 2013 the Bank approved an institutional support project of UA 11.4 million focused on improving governance in mining contract management and on enhancing public investment and project management. A budget support operation targeting the private sector environment and PPPs frameworks, governance (mining, PFM, and public investment management) was approved at the end of June 2014.

4. In the energy sub-sector, two projects were signed at the end of 2013 and will begin implementation in 2014. The first project is the second Conakry Electrical Networks Rehabilitation and Extension Project (PREREC.2) for UA 11 million. The second project is the Côte d’Ivoire-Liberia- Sierra Leone-Guinea power regional interconnection project for UA 40.2 million that will see the construction of 1,360 km of 225 kV transmission lines and 12 sub-stations. In 2014, the Bank will contribute to financing the interconnection project of the Gambia River Basin Development Organization (OMVG) involving the construction of a dam and a 240 MW hydro-power plant at Kaleta already financed by the government with a loan from China. In 2015, the Bank intends to approve a project aimed at enhancing the capacity of the government (Ministry and EDG) to manage the power sector and contributing to closing the gap of energy distribution in Conakry. Implementation of these three 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; (iv) the creation of temporary and permanent jobs; and (v) a reduction in greenhouse gas emissions.

5. In the transport sub-sector, the Bank intends to finance the road Danané (Côte d’Ivoire)-Frontier of Guinea and from the frontier to N’zoo-Lola (Guinea). This road is part of a regional project including these key roads: Zantiébougou-Kolondiéba-Kadiana-Frontier of Côte d’Ivoire (140 km) linking Bamako to Abidjan and San-Pédro through the axe Tengréla-Boundiali-Séguéla-Daloa; and Duekoué-Guiglo-Blolequin-Toulepleu-Frontier of Liberia. These roads are part of the Transafrican Dakar-Abidjan-Lagos road. The Bank intends also to finance Boké (Guinea)-Quebo (Guinea-Bissau) Road, which is part of the ECOWAS Regional Transport Programme. Because of their integrative role, construction of these roads is in line with the New Partnership for Africa’s Development (NEPAD) Short-Term Action Plan, whose core objective is to have interstate roads without any impediment to the free movement of goods and persons. The Bank has begun discussion to support the restructuring and extension of the Port of Conakry activities.

6. Support to Private sector operations. During the 2014-2016 period, the Bank will support specific private sector operations with high and transformative impact. At the request of the government, AfDB envisages to lead efforts to mobilise resources for financing the infrastructure part of the Simandou mining project. In this regard, AfDB intends to provide an A loan of about UA 200 million equivalent to USD 300 million which will leverage at least a USD 900 million B loan. Africa50 will also contribute to the financing of this project at a later stage. AfDB will also support capacity building and provide technical assistance in order to allow the government to fulfill its commitment pertaining to the implementation of the Simandou project.

7. Non-Lending Operations: To deepen the analysis and understanding of the country’s main challenges and fuel strategic reflexion, the Bank will finalize in 2014 in collaboration with UNDP, and under the first FSF programme, an economic and sector works (ESWs on the following themes: (i) study on financial sector reforms; (ii) private sector profile; (iii) studies relating to the management of the Port of Conakry. The Bank will enhance its dialogue and provide specific technical assistance on PPP (PPP law and PPP Unit) and on mining sector governance. The Bank will also continue to support implementation of PRSP (direct support to CTSP and SP-SRP in charge of coordinating the monitoring of the implementation of economic reforms programs and the PRSP), post-Abu Dhabi commitments implementation, and the link between macroeconomic/budget framework sector policies and the public investment plan. The Bank will continue its support trough the FSF programme to the National Statistics Development Strategy (NSDS) and the conduct of the Third General Population and Housing Census (RGPH-III).

8. Trust Funds: In addition to the ADF and FSF allocations, the Bank could mobilize supplementary resources from the ADB private sector window (including enclave operations in the mining sector infrastructure), and the Trust Fund resources to finance complementary operations in the sectors covered in 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 also available are the Partial Risk Guarantee Instrument, the Global Environment Fund, and the Africa Carbon Facility and Green Fund.

9. Response to the Ebola crisis. The AfDB has adopted a regional approach to address the Ebola crisis. In April 2014, the Bank provided an emergency support of USD 2 million UA equivalent to USD 3 million grant to support the Mano River Union (MRU) countries affected, namely Guinea, Liberia and Sierra Leone. In July 2014, the AfDB approved a UA 40 million equivalent to USD 60 million grant for countries fighting against Ebola and to specifically support the work of the newly established Regional Coordinating Center for Ebola in Guinea. AfDB is working to finalize a combined Sector Budget Support and Technical Assistance Capacity Building Programme which is expected to be approved shortly. The Bank’s support aims to help the government enhance the immediate response but also structure a medium to long term plan.

10. African Development Bank and Fund staff 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 (2011–16) and FSF Operations Programming

(UA million)

article image

Millennium Development Goals1

article image
Sources: World Development Indicators database, June 2014, and Guinean authorities (Third Poverty Reduction Strategy Paper, March 2013).

Statistical Issues

article image
1

Figures in italics refer to periods other than those specified.