Front Matter Page
IMF Country Report No. 15/194
GUINEA-BISSAU
2015 ARTICLE IV CONSULTATION AND REQUEST FOR A THREE-YEAR ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR GUINEA-BISSAU
July 2015
In the context of the 2015 Article IV Consultation and request for a three-year arrangement under the Extended Credit Facility, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board and summarizing the views of the Executive Board as expressed during its July 10, 2015 consideration of the staff report on issues related to the Article IV Consultation and the IMF arrangement.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on July 10, 2015, following discussions that ended on May 5, 2015, with the officials of Guinea-Bissau on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 24, 2015.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the World Bank.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for Guinea-Bissau.
The documents listed below have been or will be separately released
Letter of Intent sent to the IMF by the authorities of Guinea-Bissau*
Memorandum of Economic and Financial Policies by the authorities of Guinea-Bissau*
Technical Memorandum of Understanding*
Selected Issues
*Also included in Staff Report
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2015 International Monetary Fund
Front Matter Page
GUINEA-BISSAU
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION AND REQUEST FOR A THREE-YEAR ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY
June 24, 2015
Executive Summary
Context: A series of coups d’état since independence have resulted in chronic political instability and deterred economic and social progress. Guinea-Bissau has re-initiated progress since the assumption of office of the current inclusive government in mid-2014. The economy is now recovering after a decline in 2012 and marginal growth in 2013. Inflation remains low, and socio-political stability seems achievable. The coup d’état of April 2012 stalled implementation of the three-year Extended Credit Facility (ECF)-supported program approved by the Board in May 2010, and the arrangement lapsed subsequently. The Fund’s support under the Rapid Credit Facility (RCF) disbursement of 2014 and the authorities’ commitment to reforms have re-ignited donor confidence.
Article IV Discussions. Policy discussions focused on measures to overcome fragility; fiscal consolidation and public financial management reforms; restoring financial stability; borrowing policies and long-term debt sustainability; private sector development and structural reforms to enhance inclusive growth prospects.
The Proposed Program. The authorities’ development program, anchored on the Strategic Plan for 2014–18, aims to consolidate the fiscal position through better expenditure management and enhanced revenue mobilization, deepen institutional reform, mitigate vulnerabilities, and develop the private sector to support growth and employment. The program focuses on improving the policy framework by addressing governance and security issues, strengthening budgetary transparency as well as public investment and debt management, and improving compilation of statistics. Structural benchmarks focus on these issues while QPCs include a floor on revenues collection and a ceiling on net credit to government (the anchor of the program).
Request for an Extended Credit Facility Arrangement. To support their medium-term economic reform program, the authorities request a three-year arrangement under the ECF in an amount equivalent to SDR 17.04 million (120 percent of quota).
Risks to the program include the still fragile political situation, which could delay implementation of reforms, adverse terms of trade developments, and weakening donor confidence, and the heightened risk of incursion of the Ebola virus from neighboring countries.
Approved By
Roger Nord (AFR) and Peter Allum (SPR)
Discussions took place in Bissau from April 23–May 5, 2015. The staff team comprised Messrs. Fischer (head), Kumah, da Silva, and Klos, and Ms. Newiak (all AFR), and Mr. Torrez (resident representative). Mr. Melhado, incoming resident representative, participated in some of the discussions. Mr. Fonseca (local economist of the IMF office in Bissau) provided assistance to the mission. The team met with His Excellencies, the President of Guinea-Bissau, José Mário Vaz; the Prime Minister, Domingos Simões Pereira, the Minister of Economy and Finance, Geraldo Martins, the National Director of the Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO), João Fadia, other senior officials, and representatives of the private sector and development partners.
Contents
ACRONYMS
BACKGROUND: TAKING STOCK
A. Addressing Political Stability and Related Challenges
B. Assessment of the Last ECF-Supported Program
RECENT ECONOMIC DEVELOPMENTS AND SHORT TERM OUTLOOK
MEDIUM-TERM FRAMEWORK
POLICY DISCUSSIONS AND THE PROPOSED PROGRAM
A. Overcoming Fragility
B. Stepping Up Fiscal Reforms
C. Restoring Financial Stability
D. Maintaining Prudent Borrowing Policies
E. Enhancing Competitiveness and External Stability
F. Fostering Inclusive Growth
G. Other Surveillance Issues
PROGRAM MODALITIES AND ACCESS
STAFF APPRAISAL
BOXES
1. Outcome of the Brussels Donor Roundtable of March 25, 2015
2. Response to Fund Advice from the 2013 Article IV Consultation
3. Tax Potential versus Performance, 2001–14
4. New Fuel Pricing Mechanism
5. Financial Deepening and Inclusion in Guinea-Bissau
6. External Stability Assessment
FIGURES
1. Ease of Doing Business, 2015
2. Economic Developments, 2010–15
3. Additional Economic Developments, 2010–15
4. Medium-Term Outlook, 2013–18
TABLES
1. Selected Economic Indicators, 2012–20
2a. Central Government Operations, 2012–18 (CFA Billions)
2b. Central Government Operations, 2012–18 (Percent of GDP)
3. Monetary Survey, 2011–18
4. Balance of Payments, 2012–18 (CFAF Billions)
5. Indicators of Capacity to Repay the Fund, 2014–24
6. Proposed Schedule of Disbursements under the ECF Arrangement, 2015–18
7. Financial Soundness Indicators, 2010–14
8. Quantitative Performance Criteria and Indicative Targets for 2015–16
9. Proposed Structural Benchmarks under the ECF Program, 2015–16
APPENDIXES
I. Letter of Intent
Attachment I. Memorandum on Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
II. Risk Assessment Matrix
Acronyms
| AfDB | African Development Bank |
| AML/CFT | Anti-Money Laundering/Combating the Financing of Terrorism |
| BCEAO | Central Bank of West African States |
| BOAD | Banque Ouest Africaine de Développement |
| CFA | Communauté Financière Africaine (Franc) |
| CPLP | Community of Portuguese-Speaking Countries |
| DGA | Direction Générale de l’Agriculture |
| DGCI | Département de Gestion et de Commerce Internationale |
| DMFAS | Debt Management and Financial Analysis System |
| DSA | Debt Sustainability Analysis |
| DSSRP | Defense Security Sector Reform Program |
| EAGB | Water and Electricity Company Guinea-Bissau |
| ECF | Extended Credit Facility |
| ECOWAS | Economic Community of West African States |
| EU | European Union |
| FATF | Financial Action Taskforce on Money Laundering |
| FCFA | Franc Communauté Financière Africaine |
| FUNPI | Fund to Promote the Industrialization of Agricultural Products |
| GDP | Gross Domestic Product |
| GIABA | Intergovernmental Action Group against Money Laundering |
| HIPC | Highly Indebted Poor Countries |
| IFAD | International Fund for Agricultural Development |
| IFRS | International Financial Reporting Standards |
| MFI | Micro Finance Institution |
| NGO | Non-Government Organization |
| NPL | Non-Performing Loan |
| PFM | Public Financial Management |
| PIP | Public Investment Program |
| PRSP | Poverty Reduction Strategy Paper |
| SIGRHAP | Personnel Management System |
| SSA | Sub-Saharan Africa |
| SSR | Security Sector reform |
| SYDONIA | Système Douanier Automatisé |
| TA | Technical Assistance |
| UAE | United Arab Emirates |
| UN | United Nations |
| UNCTAD | United Nations Conference on Trade and Development |
| VAT | Value Added Tax |
| WAEMU | West African Economic and Monetary Union |
Front Matter Page
GUINEA-BISSAU
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION AND REQUEST FOR A THREE-YEAR ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY—DEBT SUSTAINABILITY ANALYSIS UPDATE
June 24, 2015
Approved By
Roger Nord and Peter Allum (IMF) and John Panzer (IDA)
Prepared jointly by the Staffs of the International Monetary Fund and the International Development Association.1, 2
Guinea-Bissau faces a moderate risk of debt distress, based on an assessment of public and publicly guaranteed external debt, but a heightened overall risk of debt distress, reflecting the currently high level of total public debt. Compared to last year’s Debt Sustainability Analysis (DSA) update,3 the current assessment scales down non-concessional domestic borrowing to a more realistic, affordable and sustainable trajectory, in line with the authorities’ commitment to prioritize concessional borrowing and grants. It also assumes higher economic growth along with increases in imports of capital goods that support investment and growth. Under the baseline scenario, all indicators are below their indicative policy-dependent thresholds throughout the projection period. However, the PV of debt-to-exports ratio breaches its threshold under the most extreme shock scenario. Overall public debt, while slightly above its indicative threshold over the next three years, is projected to decline in the medium to long term. There is need to pursue prudent fiscal and debt management policies and strengthen debt management capacity. The results of the DSA are contingent on the authorities successfully implementing structural reforms, improving the business environment to boost production and exports, and continuing to rely mainly on concessional borrowing.
Front Matter Page
GUINEA-BISSAU
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION AND REQUEST FOR A THREE-YEAR ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY—INFORMATIONAL ANNEX
June 24, 2015
Prepared By
The African Department
(In Consultation with Other Departments)
Contents
FUND RELATIONS
WORLD BANK GROUP RELATIONS
AFRICAN DEVELOPMENT BANK GROUP RELATIONS
STATISTICAL ISSUES
Front Matter Page
Press Release No. 15/331
FOR IMMEDIATE RELEASE
July 10, 2015
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