Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Guinea

Abstract

Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Guinea

Guinea: Joint Bank-Fund Debt Sustainability Analysis1

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Guinea is at moderate risk of external debt distress with limited space to absorb shocks. All external debt burden indicators under the baseline scenario, which accounts for the negative impact of the COVID-19 pandemic, lie below their respective thresholds. Stress tests suggest that debt vulnerabilities will increase if further adverse shocks materialize. Under the most extreme stress tests, all solvency and liquidity indicators breach their thresholds for prolonged periods. The overall risk of public debt distress is also assessed to be moderate, with the application of judgement regarding a brief and marginal breach for the PV of total-public-debt-to-GDP ratio over 2020–21, reflecting higher-than-earlier anticipated external borrowing in 2020 to fill urgent balance of payment and fiscal financing needs due to the COVID-19 pandemic, and the one-off impact of the 2018 recapitalization of the central bank.1 This assessment hinges on the anticipated rebound of the Guinean economy in 2021 and rephasing of non-priority projects to enable scaling-up health infrastructure. In view of downside risks and knife-edge results of the granularity tool, staff considers that Guinea has limited space to absorb shocks.

Table 1.

Guinea: LIC DSA Macroeconomic Assumptions

(Percent of GDP, unless otherwise indicated)

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Source: Guinean authorities, IMF and World Bank staff estimates.
Table 2.

Guinea: External Debt Sustainability Framework, Baseline Scenario, 2017–40

(Percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections.1/ Includes both public and private sector external debt.2/ Derived as [r – g – ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.4/ Current-year interest payments divided by previous period debt stock.5/ Defined as grants, concessional loans, and debt relief.6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).7/ Assumes that PV of private sector debt is equivalent to its face value.8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 3.

Guinea: Public Sector Debt Sustainability Framework, Baseline Scenario, 2017–40

(Percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections.1/ Coverage of debt: The central government, central bank, government-guaranteed debt. Definition of external debt is Currency-based.2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections.3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt.4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows.5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question.6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Figure 1.
Figure 1.

Guinea: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2020–30

Citation: IMF Staff Country Reports 2020, 218; 10.5089/9781513550305.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. Stress tests with one-off breaches are also presented (if any), while these one-off breaches are deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department.
Figure 2.
Figure 2.

Guinea: Indicators of Public Debt Under Alternative Scenarios, 2020–30

Citation: IMF Staff Country Reports 2020, 218; 10.5089/9781513550305.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.
Figure 3.
Figure 3.

Guinea: Indicators of Public and Publicly Guaranteed External Debt under Country Specific Alternative Scenarios, 2020–301

Citation: IMF Staff Country Reports 2020, 218; 10.5089/9781513550305.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department.
Table 5.

Guinea: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2020–30

(Percent)

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the threshold.

Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Includes official and private transfers and FDI.

Table 6.

Guinea: Sensitivity Analysis for Key Indicators of Public Debt, 2020–30

(Percent)

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the benchmark.

Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

Includes official and private transfers and FDI.

Figure 4.
Figure 4.

Guinea: Drivers of Debt Dynamics—Baseline Scenario External Debt

Citation: IMF Staff Country Reports 2020, 218; 10.5089/9781513550305.002.A002

1/ Difference between anticipated and actual contributions on debt ratios.2/ Distribution across LICs for which LIC DSAs were produced.3/ Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation.
Figure 5.
Figure 5.

Guinea: Realism Tools

Citation: IMF Staff Country Reports 2020, 218; 10.5089/9781513550305.002.A002

Figure 6.
Figure 6.

Guinea: Qualification of the Moderate Category, 2020–301

Citation: IMF Staff Country Reports 2020, 218; 10.5089/9781513550305.002.A002

Sources: Country authorities; and staff estimates and projections.1/ For the PV debt/GDP and PV debt/exports thresholds, x is 20 percent and y is 40 percent. For debt service/Exports and debt service/revenue thresholds, x is 12 percent and y is 35 percent.
1

The Debt Sustainability Analysis (DSA) update was approved by Dominique Desruelle (IMF) and Marcello Estevão (IDA). Guinea’s Composite Indicator score, which is based on the October 2019 WEO and the 2018 World Bank’s CPIA, is 2.51 and its debt-carrying capacity is classified as weak. This update reflects debt service relief provided by the IMF under the CCRT, and by the Debt Service Suspension Initiative (DSSI) supported by the G-20 and Paris Club. The authorities have requested participation in the DSSI and indicated their intention to adhere to its commitments. It also incorporates financial assistance from the IMF under the RCF and additional support from the World Bank for the COVID-19 response, including emergency budget support. The coverage of public debt is as in the April 2020 DSA.

Guinea: Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Guinea
Author: International Monetary Fund. African Dept.
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    Guinea: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2020–30

  • View in gallery

    Guinea: Indicators of Public Debt Under Alternative Scenarios, 2020–30

  • View in gallery

    Guinea: Indicators of Public and Publicly Guaranteed External Debt under Country Specific Alternative Scenarios, 2020–301

  • View in gallery

    Guinea: Drivers of Debt Dynamics—Baseline Scenario External Debt

  • View in gallery

    Guinea: Realism Tools

  • View in gallery

    Guinea: Qualification of the Moderate Category, 2020–301