Guinea: Fifth Review Under the Three-Year Arrangement Under the Extended Credit Facility, Financing Assurances Review, and Requests for an Augmentation of Access and Extension of the Current Arrangement—Informational Annex

KEY ISSUESThe Ebola outbreak has inflicted a heavy toll on Guinea’s economy notwithstandingthe supportive macroeconomic policies the authorities put in place. Fiscal policy hasexpanded to reflect revenue shortfalls and higher Ebola-related spending, resulting in amarkedly higher budget deficit. Monetary policy has also been supportive, as inflationcontinued to trend downwards and reserve coverage of imports has remained adequate.Performance under the ECF program has been satisfactory. All quantitativeperformance criteria have been met. With the authorities focused on combating the Ebolaoutbreak, however, structural reform has advanced at a slower pace than previouslyenvisaged, delaying the implementation of a number of structural benchmarks.Macroeconomic policies in 2015 will remain supportive to help deal with the Ebolaoutbreak, which looks set to persist well into the year and induce a slight economiccontraction. The 2015 budget foresees a widening of the deficit to provide space forEbola-related spending, finance a significant salary increase for civil servants, and supportthe economy. Monetary policy will be relaxed to provide adequate liquidity to the privatesector and facilitate bank financing of the government budget. A concerted internationaleffort is needed to help the authorities fully implement their Ebola response plan. The2015 structural reform agenda focuses on finalizing growth-friendly measures.Risks are tilted to the downside. A prolonged presence of the Ebola epidemic couldfurther disrupt economic activity. The renewal of political tensions and politicaluncertainty in the run-up to the presidential elections in 2015 could discourage investorsand affect growth. However, Guinea would benefit from the recent decline in oil pricesStaff supports the completion of the 5th review under the ECF arrangement andfinancing assurances review and requests for: (i) an extension of the currentarrangement to end-2015; (ii) an augmentation in access; and (iii) disbursement of25 percent of quota as budget support under the 5th review. Completion of the reviewwill result in disbursement of SDR 45.135 million (42.1 percent of quota).

Abstract

KEY ISSUESThe Ebola outbreak has inflicted a heavy toll on Guinea’s economy notwithstandingthe supportive macroeconomic policies the authorities put in place. Fiscal policy hasexpanded to reflect revenue shortfalls and higher Ebola-related spending, resulting in amarkedly higher budget deficit. Monetary policy has also been supportive, as inflationcontinued to trend downwards and reserve coverage of imports has remained adequate.Performance under the ECF program has been satisfactory. All quantitativeperformance criteria have been met. With the authorities focused on combating the Ebolaoutbreak, however, structural reform has advanced at a slower pace than previouslyenvisaged, delaying the implementation of a number of structural benchmarks.Macroeconomic policies in 2015 will remain supportive to help deal with the Ebolaoutbreak, which looks set to persist well into the year and induce a slight economiccontraction. The 2015 budget foresees a widening of the deficit to provide space forEbola-related spending, finance a significant salary increase for civil servants, and supportthe economy. Monetary policy will be relaxed to provide adequate liquidity to the privatesector and facilitate bank financing of the government budget. A concerted internationaleffort is needed to help the authorities fully implement their Ebola response plan. The2015 structural reform agenda focuses on finalizing growth-friendly measures.Risks are tilted to the downside. A prolonged presence of the Ebola epidemic couldfurther disrupt economic activity. The renewal of political tensions and politicaluncertainty in the run-up to the presidential elections in 2015 could discourage investorsand affect growth. However, Guinea would benefit from the recent decline in oil pricesStaff supports the completion of the 5th review under the ECF arrangement andfinancing assurances review and requests for: (i) an extension of the currentarrangement to end-2015; (ii) an augmentation in access; and (iii) disbursement of25 percent of quota as budget support under the 5th review. Completion of the reviewwill result in disbursement of SDR 45.135 million (42.1 percent of quota).

Relations with the Fund

As of December 31, 2014

Membership Status: Joined: September 28, 1963 Article VIII

General Resources Account:

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SDR Department:

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Outstanding Purchases and Loans:

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Latest Financial Arrangements:

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Formerly PRGF.

Projected Payments to Fund 2/

(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.

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.

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 2012 Safeguards Assessment of the Central Bank of the Republic of Guinea (BCRG) is currently underway in the context of the RCF approved in September 2014. The 2012 assessment found that risks of misuse and misreporting remained high. To mitigate risks to the program, staff proposed, inter alia, that: (i) the Board of the BCRG approve an investment policy and guidelines for the management of international reserves (approved on June 13, 2014 as a Prior Action for the 4th Review of the ECF); (ii) external auditors continue to verify monetary data; (iii) the BCRG publish audited annual financial statements within statutory deadlines; and, (iv) the BCRG adopt and implement internationally-recognized financial reporting standards. 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 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 “stabilized”. 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

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Source: IMF staff.

Calendar Year 2012

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Source: IMF staff.

Calendar Year 2013

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Source: IMF staff.

Calendar Year 2014

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Source: IMF Staff.

Planned.

Joint World Bank-Fund Matrix

(As of December 2014)

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Relations with the African Development Bank, 2011–14

(As of December 2014)

1. The Bank’s Country Strategy Paper (CSP) 2012–16, approved by the Board on 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 which was delayed due to the Ebola crisis will be undertaken during the second semester of 2015. This will provide an opportunity for dialogue on the Bank’s support to Guinea through the implementation of the PRSP, taking into account the fight against Ebola, the socio-economic recovery process, and outcomes of the Abu Dhabi Conference for the period 2015 to 2016.

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 (UA 12 million) targeting the private sector environment and PPPs frameworks, governance (mining, PFM, and public investment management) was approved by the board in end-June 2014 and UA 6.39 million was disbursed end December 2014. The Bank intends to submit to board approval by end June 2015 a capacity building project targeting public finance reforms (including budget preparation and implementation), scaling-up and enhancing the government capacity to manage the Simandou Mining project (mining one stop shop, local content policy, communities, etc.), and improvement of private sector and business environment.

4. In the energy sub-sector, two projects were signed at the end of 2013 and began 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 2015, 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. 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 Board approved in December 2014 the road development and Transport Facilitation Programme within the MRU including 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-Bloléquin-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.

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 contribute to 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 fulfil 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 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. In October 2014 the AfDB approved UA 100 million sector budget support in order to support the three most affected countries. AfDB approved also in October 2014 a UA 7.7 million Technical Assistance Capacity Building Programme to support the national and foreign health workers programs. The total Bank’s support for Guinea amounts to UA 35 million (USD 52 million) and 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)

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Millennium Development Goals1

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

Figures in italics refer to periods other than those specified.

Statistical Issues

As of December 31, 2014

Guinea: Statistical Issues Appendix

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Table of Common Indicators Required for Surveillance

(As of January 15, 2015)

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Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds

Foreign, and domestic bank and non-bank financing.

The general government consists of the central government (budgetary and extra-budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Not Available (NA).

Guinea: Fifth Review Under the Three-Year Arrangement Under the Extended Credit Facility, Financing Assurances Review, and Requests for an Augmentation of Access and Extension of the Current Arrangement
Author: International Monetary Fund. African Dept.