Statement by Mr. Mohamed-Lemine Raghani, Executive Director for Guinea, Mr. Facinet Sylla, Alternate Executive Director and Mr. Regis N’Sonde, Senior Advisor to the Executive Director on Guinea June 19, 2020

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

I. Introduction

On behalf of our Guinean authorities, we would like to thank Staff, Management, and the Executive Board for their support to Guinea throughout the years. They are committed to maintaining close collaboration with the Fund, including through their ongoing ECF-supported program which remains central to achieving the objectives of their national development strategy–Plan National de Développement Economique et Social (PNDES)–and instrumental to catalyzing support from development partners.

In the midst of implementation of the ECF program which fourth review was successfully completed on April 1, 2020, the Covid-19 pandemic has harshly hit Guinea. In addition to the strain on the health system, the pandemic has taken a heavy toll on the country’s population and economy.

Fully committed to mitigate the effects of the Covid-19, the authorities swiftly launched the National Emergency Preparedness and Response Plan (NEPRP) supported by the World Health organization (WHO) and other development partners. The implementation of this response plan and the supportive economic measures have led to urgent fiscal and balance of payments needs. Against this background, the Guinean authorities are requesting a disbursement under the Rapid Credit Facility (RCF) of SDR 107.1 million, equivalent to 50 percent of quota, to be made available as budget support. It is worth noting that the disbursement will not impact Guinea’s debt sustainability and that the country’s capacity to repay the Fund remains adequate.

II. Impact of the Covid-19 Pandemic and Policy Response

As of June 15, 2020, 4639 cases of Covid-19 have been recorded, of which 3,327 have recovered. The crisis has renewed pressures on the health system which was hardly affected during the Ebola outbreak in 2014–2015. Building on the experience of the Ebola epidemic, effective implementation of rigorous hygiene, social distanciation and confinement measures notably under the NEPRP has helped limit the spread of the virus—albeit still growing—and provide care to the infected population. Nevertheless, the government’s containment measures, together with spillovers from neighboring countries and trading partners are adversely impacting domestic economic activity, notably in the key sectors of mining, agriculture, transport, trade and tourism.

Fiscal Measures

In efforts to protect the population and preserve economic activity to the extent possible, the authorities focus their actions on: (i) increasing health spending; (ii) protecting the poor and vulnerable by strengthening the social safety nets, including through cash transfers, temporarily waiving electricity and water charges and building up food security stocks; and (iii) supporting the private sector, notably by providing temporary relief on tax payments, social security contributions and utilities bills for firms and SMEs in the most affected economic sectors.

Monetary and Financial Measures

The authorities are fully committed to mitigate the potential adverse impact of the pandemic on the financial sector, with a view to sustaining activity while preserving financial stability. In this regard, the central bank has reduced its policy rate and the level of reserves requirements to ensure adequate liquidity provision. Greater exchange rate flexibility will be allowed to preserve an appropriate level of foreign reserves, including by limiting the central bank’s interventions. Measures put in place also encompass the rescheduling of loan repayments in favor of businesses in the tourism and hotels sectors, the acceleration of domestic arrears repayments as well as the creation—with the support of the World Bank— of a public guarantee fund for loans provided by banks to SMEs and the establishment of another fund to support firms in the informal sector.

Short-term Prospects and Financing Needs

The pandemic has sharply deteriorated the country’s short-term economic prospects as growth is expected to slump to 1.4 percent in 2020 against 5.8 percent previously projected. The necessary policy measures to scale up health spending, protect the most vulnerable and support the private sector in a context of large tax revenue shortfall will widen the basic fiscal deficit to 2.0 percent of GDP this year against a surplus of 0.6 percent of GDP initially envisaged. This situation will increase net borrowing from the central bank albeit within statutory limits, as well as banks’ lending to the government. As a result of these measures and efforts to stabilize the basic food staples, inflation is expected to reach 9.1 percent this year. On the external position, gross foreign reserves will dwindle to cover 3.9 months of imports against 4.8 months in 2019. All in all, the Covid-19 outbreak and the ensuing policy response are expected to generate a fiscal financing gap amounting to 2.4 percent of GDP.

To help close the financing gap, our Guinean authorities are requesting Fund’s emergency assistance under the RCF. They expect such support to catalyze financing from development partners beyond what has been secured from the World Bank and the African Development Bank. They are committed to ensure appropriate use and monitoring of the Covid-19 related resources. To this end, they will further strengthen public financial management and the anti-corruption framework. Timely ex-post control will be conducted with the involvement of civil society and all awarded procurement contracts will be posted on the websites of the

Ministry of Economy and Finance and the Ministry of Budget. Moreover, a full audit of Covid-19 expenditures will be conducted by The Court of Accounts whose report will be published online by June 2021.

III. Debt Sustainability

Our Guinean authorities remain committed to preserving fiscal and debt sustainability. Once the pandemic subsides, they will focus their efforts on strengthening the country’s fiscal and debt positions. While they intend to borrow in 2020 to help finance the exceptional budgetary needs arising from the Covid-19 crisis, they are determined to rephasing non-priority externally financed public investments in 2020 to create fiscal space for health infrastructure. They will refrain from contracting any new loan that does not meet the criteria set under the ECF program. In addition, the authorities have requested debt service relief from the Fund under the CCRT initiative as well as from bilateral creditors under the Debt Service Suspension Initiative (DSSI) supported by the G-20 and the Paris Club. In this vein, they are committed to adhere to the DSSI requirements. These actions should help reduce the financing gap while preserving Guinea’s moderate risk of external debt distress.

IV. Implementation of the ECF-Supported Program

The authorities remain dedicated to implementing their ECF-supported program to reinforce macroeconomic stability and aim at a greater and broad-based growth when the pandemic abates. They are confident to have met all but one quantitative performance criteria set at end-December 2019 for the fifth review. They intend to continue closely engaging with the Fund to adjust their post-pandemic policies and achieve the objectives of the PNDES.

V. Conclusion

Our Guinean authorities reiterate their firm commitment to implementing sound policies and reforms to further strengthen macroeconomic stability and achieve higher, sustained, and inclusive growth once the current crisis wane. In the meantime, and against the backdrop of a costly response plan to the Covid-19 shock, they face urgent financing needs and look forward to the Executive Board’s approval of their request for a disbursement under the RCF.