Abstract
IMF Country Report No. 22/87
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IMF Country Report No. 22/87
GUINEA-BISSAU
REQUEST FOR A THREE-YEAR ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY-PRESS RELEASE; AND STAFF REPORT
February 2023
In the context of the 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.
The Staff Report prepared by a staff team of the IMF following discussions that ended on November 22, 2022. Based on information available at the time of these discussions, the Staff Report was completed on January 12, 2023.
A Debt Sustainability Analysis.
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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© 2023 International Monetary Fund
Press Release
IMF Executive Board Approves US$38.4 million Extended Credit Facility (ECF) Arrangement for Guinea-Bissau
FOR IMMEDIATE RELEASE
The IMF Executive Board approved a new thirty-six-month arrangement under the Extended Credit Facility (ECF) for Guinea Bissau, in an amount of SDR 28.4 million (about US$ 38.4 million). The Executive Board's decision will enable an immediate disbursement equivalent to SDR 2.37 million (about US$ 3.2 million).
The objectives of Guinea-Bissau's new Fund-supported program are securing debt sustainability while supporting the economic recovery, improving governance and reducing the risk of corruption, and creating fiscal space to sustain inclusive growth.
The ECF arrangement is essential to improve donor and private sector confidence and catalyze much-needed concessional financing from the international community.
Washington, DC. The Executive Board of the International Monetary Fund (IMF) approved today a thirty-six-month Extended Credit Facility arrangement for Guinea-Bissau in the amount of SDR 28.4 million (about US$ 38.4 million, or 100 percent of quota).
The IMF Executive Board decision enables an immediate disbursement of SDR 2.37 million (about US$3.2 million). Disbursements of the remaining amount will be phased over the duration of the program, subject to two initial quarterly reviews—to ensure close monitoring of reforms, followed by five biannual reviews.
The ECF-supported program aims to anchor macroeconomic stability, putting the budget back on track and ensuring medium-term debt sustainability, while continuing progress on structural reforms initiated under the 2021-22 Staff Monitored Program (SMP). It will provide a framework to assist the authorities in designing and implementing effective policies to better address development challenges such as enhanced education and health systems, promote inclusive growth, and reduce poverty. Fiscal policy will aim to reduce the deficit and debt in line with the West Africa Economic and Monetary Union convergence criteria over the medium term through revenue mobilization, expenditure rationalization, mitigation of fiscal risks and prudent borrowing. Further action to enhance governance including to advance Anti Money Laundering/Combating the Financing of Terrorism/ effectiveness will improve the management of fiscal resources and public investment, increase transparency and accountability, and counter corruption.
The program will also help catalyze much needed donor financing, particularly in the form of grants and concessional loans, and support the reduction of debt vulnerabilities.
Guinea-Bissau's program of economic policies and reforms implemented under the 2021-22 Staff Monitored Program helped maintain macroeconomic and public debt sustainability, as well as strengthen public financial management (PFM) and governance in the public sector. Real GDP growth is estimated to have slowed down to about 31/2 percent in 2022. It has been negatively affected by lower-than-expected cashew exports, which slowed mainly due to logistical constraints. The surge in commodity prices associated with Russia's war in Ukraine has added renewed pressures on inflation, especially in food and fuel. Growth has been supported by higher agricultural production, private sector investment and relative political stability, which partially offset the impact of higher cost-of-living and negative external shocks.
Following the Executive Board discussion on Guinea-Bissau, Mr. Li, Deputy Managing Director and Acting Chair, issued the following statement:
“Guinea-Bissau demonstrated strong commitment to reform implementation in a challenging environment through its satisfactory completion of a nine-month Staff Monitored Program. Looking ahead, while the economy is expected to rebound, the outlook is subject to significant downside risks related to domestic weaknesses, long-standing fragility, volatility in cashew exports, and spillovers from Russia's war in Ukraine that could further impact food and energy prices. The new Extended Credit Facility (ECF) arrangement supports economic recovery and policies to create fiscal space for social and priority spending, reduce debt vulnerabilities, and improve governance and transparency.
“The program objectives include growth-supportive fiscal consolidation with reforms to improve domestic revenue mobilization, strengthen public finance management and wage bill control, mitigate fiscal risks, and safeguard social and priority spending. The authorities are expected to make significant progress in meeting the regional fiscal convergence criteria and strengthening debt management by the end of the program period.
“Strengthening financial stability and intermediation, and addressing risks in the financial system are also important. In this regard, tackling the high level of non-performing loans and ensuring a timely and orderly disengagement from the undercapitalized bank would be key.
“Implementing reforms to strengthen governance and anti-corruption frameworks will be pivotal to the program's success. The authorities have implemented transparency commitments related to COVID-19 emergency spending—including the publication of the third-party audit and the beneficial ownership information. The authorities will also accelerate the implementation of beneficial ownership disclosure, modernize the asset declaration regime and improve the AML/CFT framework. Pursuing economic diversification is also key to strengthening resilience and achieving sustainable growth.
“The authorities are committed to the reform agenda to ensure fiscal sustainability, strengthen governance and management of public resources, mitigate fiscal risks, and rely on highly concessional financing. The authorities' engagement with the IMF through the ECF arrangement will catalyze development partners' support for resilient and inclusive growth. Making use of IMF capacity development would also support the implementation of reforms.”
Guinea-Bissau: Selected Economic and Financial Indicators, 2019–27
Coverage expanded to include legacy arrears.
Guinea-Bissau: Selected Economic and Financial Indicators, 2019–27
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | |
| Est. | Proj. | ||||||||
| (Annual percent change, unless otherwise indicated) | |||||||||
| National accounts and prices | |||||||||
| Real GDP at market prices | 4.5 | 1.5 | 6.4 | 3.5 | 4.5 | 5.0 | 5.0 | 5.0 | 5.0 |
| Real GDP per capita | 2.3 | -0.7 | 4.1 | 1.2 | 2.3 | 2.8 | 2.9 | 2.9 | 2.9 |
| GDP deflator | -3.5 | -1.0 | 2.7 | 7.2 | 4.1 | 2.8 | 2.8 | 2.8 | 2.8 |
| Consumer price index (annual average) | 0.3 | 1.5 | 3.3 | 7.8 | 5.0 | 3.0 | 2.0 | 2.0 | 2.0 |
| External sector | |||||||||
| Exports, f.o.b. (CFA francs) | -22.7 | -15.6 | 35.2 | -10.7 | 34.2 | 4.4 | 3.6 | 3.5 | 4.2 |
| Imports, f.o.b. (CFA francs) | 20.5 | -9.9 | 9.7 | 12.8 | 12.6 | 4.7 | 4.3 | 3.7 | 4.5 |
| Export volume | 13.5 | -13.8 | 25.5 | -22.2 | 19.2 | 2.9 | 2.5 | 2.5 | 2.4 |
| Import volume | 12.8 | -5.8 | -5.9 | -14.5 | 10.3 | 5.6 | 5.7 | 4.8 | 4.6 |
| Terms of trade (deterioration = -) | -31.8 | -3.9 | -6.6 | -9.8 | 2.7 | 2.6 | 2.6 | 2.2 | 2.0 |
| Real effective exchange rate (depreciation = -) | -2.8 | 2.3 | 1.4 | … | … | … | … | … | … |
| Exchange rate (CFAF per US$; average) | 585.9 | 574.8 | 554.2 | … | … | … | … | … | … |
| Government finances | |||||||||
| Revenue excluding grants | 9.2 | -5.5 | 22.7 | 4.6 | 14.1 | 10.8 | 10.5 | 9.6 | 9.8 |
| Domestic revenue (excluding grants and one-offs) | 9.2 | -5.5 | 22.7 | 4.6 | 14.1 | 10.8 | 10.5 | 9.6 | 9.8 |
| Expenditure | -2.6 | 33.8 | 7.8 | -3.3 | 2.7 | 5.7 | 8.4 | 7.3 | 9.6 |
| Current expenditure | 18.7 | 14.5 | 3.5 | 5.4 | -4.4 | 4.3 | 6.5 | 7.9 | 8.6 |
| Capital expenditure | -38.5 | 96.7 | 16.1 | -17.9 | 18.2 | 8.3 | 11.6 | 6.3 | 11.2 |
| Money and credit | |||||||||
| Domestic credit | 13.8 | -1.7 | 18.5 | 3.4 | 11.2 | 12.9 | 11.1 | 6.7 | 5.9 |
| Credit to the government (net) | 13.8 | -19.7 | 53.4 | -5.1 | 6.4 | 5.7 | 3.2 | -7.9 | -9.2 |
| Credit to the economy | 13.8 | 5.9 | 7.3 | 7.3 | 13.2 | 15.6 | 13.8 | 11.3 | 9.9 |
| Net domestic assets | 12.0 | -13.8 | 21.0 | 5.1 | 16.5 | 18.0 | 14.9 | 8.7 | 7.6 |
| Broad money (M2) | 0.3 | 9.1 | 21.2 | 6.1 | 6.0 | 7.0 | 6.9 | 6.0 | 6.2 |
| (Percent of GDP, unless otherwise indicated) | |||||||||
| Investments and savings | |||||||||
| Gross investment | 16.2 | 17.5 | 18.1 | 18.5 | 17.8 | 19.7 | 20.6 | 21.2 | 22.1 |
| Of which: government investment | 3.0 | 5.8 | 6.2 | 4.6 | 5.0 | 5.0 | 5.2 | 5.1 | 5.3 |
| Gross domestic savings | 2.4 | 3.2 | 7.4 | 4.3 | 4.8 | 7.2 | 8.3 | 9.4 | 10.6 |
| Of which: government savings | -3.5 | -7.6 | -5.4 | -4.3 | -2.4 | -1.6 | -1.2 | -1.3 | -1.2 |
| Gross national savings | 7.6 | 15.0 | 17.3 | 12.6 | 13.1 | 15.2 | 16.3 | 17.0 | 18.1 |
| Government finances | |||||||||
| Revenue excluding grants | 12.1 | 11.4 | 12.8 | 12.1 | 12.7 | 13.0 | 13.3 | 13.5 | 13.7 |
| Domestic primary expenditure | 13.5 | 16.0 | 14.7 | 14.9 | 12.9 | 12.4 | 12.6 | 12.8 | 12.9 |
| Domestic primary balance | -1.4 | -4.6 | -1.9 | -2.8 | -0.2 | 0.6 | 0.7 | 0.7 | 0.9 |
| Overall balance (commitment basis) | |||||||||
| Including grants | -3.9 | -9.6 | -5.6 | -5.5 | -3.9 | -3.2 | -3.0 | -3.0 | -3.0 |
| Excluding grants | -6.7 | -13.6 | -11.9 | -9.5 | -7.7 | -6.9 | -6.7 | -6.4 | -6.5 |
| External current account | -8.5 | -2.6 | -0.8 | -5.9 | -4.7 | -4.5 | -4.3 | -4.2 | -4.0 |
| Excluding official current transfers | -9.7 | -5.7 | -3.4 | -8.0 | -7.1 | -6.9 | -6.6 | -6.2 | -6.1 |
| Stock of public and publicly guaranteed debt1 | 65.8 | 78.2 | 78.9 | 81.0 | 78.2 | 75.4 | 72.7 | 70.1 | 68.0 |
| Of which: external debt | 37.3 | 41.1 | 40.0 | 41.2 | 38.4 | 36.1 | 34.1 | 31.6 | 29.4 |
| Memorandum items: | |||||||||
| Nominal GDP at market prices (CFAF billions) | 870.9 | 875.2 | 956.3 | 1061.1 | 1154.3 | 1245.9 | 1344.8 | 1451.6 | 1566.9 |
| WAEMU gross official reserves (billions of US$) | 17.5 | 21.8 | 24.5 | … | … | … | … | … | … |
| (percent of broad money) | 34.1 | 33.2 | 30.2 | … | … | … | … | … | … |
Coverage expanded to include legacy arrears.
Guinea-Bissau: Selected Economic and Financial Indicators, 2019–27
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | |
| Est. | Proj. | ||||||||
| (Annual percent change, unless otherwise indicated) | |||||||||
| National accounts and prices | |||||||||
| Real GDP at market prices | 4.5 | 1.5 | 6.4 | 3.5 | 4.5 | 5.0 | 5.0 | 5.0 | 5.0 |
| Real GDP per capita | 2.3 | -0.7 | 4.1 | 1.2 | 2.3 | 2.8 | 2.9 | 2.9 | 2.9 |
| GDP deflator | -3.5 | -1.0 | 2.7 | 7.2 | 4.1 | 2.8 | 2.8 | 2.8 | 2.8 |
| Consumer price index (annual average) | 0.3 | 1.5 | 3.3 | 7.8 | 5.0 | 3.0 | 2.0 | 2.0 | 2.0 |
| External sector | |||||||||
| Exports, f.o.b. (CFA francs) | -22.7 | -15.6 | 35.2 | -10.7 | 34.2 | 4.4 | 3.6 | 3.5 | 4.2 |
| Imports, f.o.b. (CFA francs) | 20.5 | -9.9 | 9.7 | 12.8 | 12.6 | 4.7 | 4.3 | 3.7 | 4.5 |
| Export volume | 13.5 | -13.8 | 25.5 | -22.2 | 19.2 | 2.9 | 2.5 | 2.5 | 2.4 |
| Import volume | 12.8 | -5.8 | -5.9 | -14.5 | 10.3 | 5.6 | 5.7 | 4.8 | 4.6 |
| Terms of trade (deterioration = -) | -31.8 | -3.9 | -6.6 | -9.8 | 2.7 | 2.6 | 2.6 | 2.2 | 2.0 |
| Real effective exchange rate (depreciation = -) | -2.8 | 2.3 | 1.4 | … | … | … | … | … | … |
| Exchange rate (CFAF per US$; average) | 585.9 | 574.8 | 554.2 | … | … | … | … | … | … |
| Government finances | |||||||||
| Revenue excluding grants | 9.2 | -5.5 | 22.7 | 4.6 | 14.1 | 10.8 | 10.5 | 9.6 | 9.8 |
| Domestic revenue (excluding grants and one-offs) | 9.2 | -5.5 | 22.7 | 4.6 | 14.1 | 10.8 | 10.5 | 9.6 | 9.8 |
| Expenditure | -2.6 | 33.8 | 7.8 | -3.3 | 2.7 | 5.7 | 8.4 | 7.3 | 9.6 |
| Current expenditure | 18.7 | 14.5 | 3.5 | 5.4 | -4.4 | 4.3 | 6.5 | 7.9 | 8.6 |
| Capital expenditure | -38.5 | 96.7 | 16.1 | -17.9 | 18.2 | 8.3 | 11.6 | 6.3 | 11.2 |
| Money and credit | |||||||||
| Domestic credit | 13.8 | -1.7 | 18.5 | 3.4 | 11.2 | 12.9 | 11.1 | 6.7 | 5.9 |
| Credit to the government (net) | 13.8 | -19.7 | 53.4 | -5.1 | 6.4 | 5.7 | 3.2 | -7.9 | -9.2 |
| Credit to the economy | 13.8 | 5.9 | 7.3 | 7.3 | 13.2 | 15.6 | 13.8 | 11.3 | 9.9 |
| Net domestic assets | 12.0 | -13.8 | 21.0 | 5.1 | 16.5 | 18.0 | 14.9 | 8.7 | 7.6 |
| Broad money (M2) | 0.3 | 9.1 | 21.2 | 6.1 | 6.0 | 7.0 | 6.9 | 6.0 | 6.2 |
| (Percent of GDP, unless otherwise indicated) | |||||||||
| Investments and savings | |||||||||
| Gross investment | 16.2 | 17.5 | 18.1 | 18.5 | 17.8 | 19.7 | 20.6 | 21.2 | 22.1 |
| Of which: government investment | 3.0 | 5.8 | 6.2 | 4.6 | 5.0 | 5.0 | 5.2 | 5.1 | 5.3 |
| Gross domestic savings | 2.4 | 3.2 | 7.4 | 4.3 | 4.8 | 7.2 | 8.3 | 9.4 | 10.6 |
| Of which: government savings | -3.5 | -7.6 | -5.4 | -4.3 | -2.4 | -1.6 | -1.2 | -1.3 | -1.2 |
| Gross national savings | 7.6 | 15.0 | 17.3 | 12.6 | 13.1 | 15.2 | 16.3 | 17.0 | 18.1 |
| Government finances | |||||||||
| Revenue excluding grants | 12.1 | 11.4 | 12.8 | 12.1 | 12.7 | 13.0 | 13.3 | 13.5 | 13.7 |
| Domestic primary expenditure | 13.5 | 16.0 | 14.7 | 14.9 | 12.9 | 12.4 | 12.6 | 12.8 | 12.9 |
| Domestic primary balance | -1.4 | -4.6 | -1.9 | -2.8 | -0.2 | 0.6 | 0.7 | 0.7 | 0.9 |
| Overall balance (commitment basis) | |||||||||
| Including grants | -3.9 | -9.6 | -5.6 | -5.5 | -3.9 | -3.2 | -3.0 | -3.0 | -3.0 |
| Excluding grants | -6.7 | -13.6 | -11.9 | -9.5 | -7.7 | -6.9 | -6.7 | -6.4 | -6.5 |
| External current account | -8.5 | -2.6 | -0.8 | -5.9 | -4.7 | -4.5 | -4.3 | -4.2 | -4.0 |
| Excluding official current transfers | -9.7 | -5.7 | -3.4 | -8.0 | -7.1 | -6.9 | -6.6 | -6.2 | -6.1 |
| Stock of public and publicly guaranteed debt1 | 65.8 | 78.2 | 78.9 | 81.0 | 78.2 | 75.4 | 72.7 | 70.1 | 68.0 |
| Of which: external debt | 37.3 | 41.1 | 40.0 | 41.2 | 38.4 | 36.1 | 34.1 | 31.6 | 29.4 |
| Memorandum items: | |||||||||
| Nominal GDP at market prices (CFAF billions) | 870.9 | 875.2 | 956.3 | 1061.1 | 1154.3 | 1245.9 | 1344.8 | 1451.6 | 1566.9 |
| WAEMU gross official reserves (billions of US$) | 17.5 | 21.8 | 24.5 | … | … | … | … | … | … |
| (percent of broad money) | 34.1 | 33.2 | 30.2 | … | … | … | … | … | … |
Coverage expanded to include legacy arrears.
Title Page
GUINEA-BISSAU
REQUEST FOR A THREE-YEAR ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY
January 12, 2023
EXECUTIVE SUMMARY
Context. Guinea-Bissau is a fragile state with significant development challenges, including limited fiscal space, debt vulnerabilities and poor governance. After years of political turmoil and delayed reforms, in 2021 the authorities started the implementation of an ambitious fiscal consolidation program to ensure debt sustainability while creating fiscal space to address developmental needs. A Rapid Credit Facility (RCF) disbursement of SDR 14.2 million (50 percent of quota) was approved in January 2021 to provide urgent financing to support critical spending in health. A nine-month SMP with three quarterly reviews, approved in July 2021 ended with satisfactory performance building track record of policy implementation towards an Extended Credit Facility (ECF) arrangement. The August 2021 SDR 27.2 million allocation and the reforms underpinned by the SMP have helped address the adverse impact of the pandemic, while improving the transparency of government spending, and mitigating debt vulnerabilities.
Policy challenges. Staying on track with a credible fiscal consolidation path is needed to create a fiscal space and catalyze financing from development partners, freeing up resources to meet significant economic and social development needs while ensuring debt sustainability. Sustained and inclusive growth requires not only macroeconomic stability but strengthening governance as well as revenue mobilization to enable priority and infrastructure spending. High levels of non-performing loans, a large undercapitalized bank, and financial weakness in the public utility company need to be addressed to bolster financial intermediation and mitigate fiscal risks.
Governance and structural reform. The authorities are committed to fighting corruption and improving AML/CFT effectiveness, governance and transparency by completing the implementation of the RCF's governance safeguards on COVID-19 spending and the recommendations of the 2020 Governance Diagnostic report. The authorities also intend to improve beneficial ownership transparency and accelerate the reforms of the asset declaration regime.
Program discussions. The proposed ECF arrangement would support the economic recovery and policies to reduce public debt and financing vulnerabilities and create room for social and priority spending and infrastructure. Support for the authorities' reform agenda focuses on strengthening governance institutions and the management of public resources, mitigating fiscal risks from the SOE sector, fostering a stronger business environment, and addressing protracted BOP needs.
Approved By
Montfort Mlachila (AFR) and Eugenio Cerutti (SPR)
An IMF team consisting of Jose Gijon (Head), Marijn Bolhuis, Pedro Juca Maciel, Yugo Koshima, Harold Zavarce (all AFR), Koon Hui Tee (FAD), Patrick Gitton (Resident Representative) and Gaston Fonseca (local economist) held discussions with the authorities in Bissau. The mission met with H.E. President Sissoco Embaló, Prime Minister Nabiam, President of the Audit Court Baldé, President Cassama and Members of the Permanent Commission of the National Popular Assembly, Vice-Prime Minister Sambú, the Minister of Finance Té, Minister of Economy Casimiro, Minister of Public Administration Dale, BCEAO National Director Cassama. The team also met with officials from the Ministries of Finance, Economy, Fisheries, the National Direction of the BCEAO, the Financial Intelligence Unit, and other officials. In addition, the mission met with trade unions, civil society organizations, representatives from private and public sector enterprises, and key bilateral and international partners. The mission took place during November 8–22, 2022. Montfort Mlachila (AFR Reviewer) and Romao Varela (Advisor to the Executive Director, OED) participated in the policy discussions. Fairoza Jaghori and Tomas Picca (both AFR) contributed to the preparation of this report.
Contents
CONTEXT
RECENT ECONOMIC DEVELOPMENTS
OUTLOOK AND RISKS
PROGRAM OBJECTIVES
POLICY ISSUES
A. Macroeconomic Policies
B. Structural Reforms
PROGRAM MODALITIES
STAFF APPRAISAL
BOX
1. Wage Bill Overrun in 2022
FIGURES
1. Capacity to Repay Indicators Compared to UCT Arrangements for PRGT Countries
2. Growth and Living Standards
3. Global Economic Developments
4. COVID-19 Pandemic, Activity and Prices
5. Fiscal, External and Monetary Developments
TABLES
1. Selected Economic and Financial Indicators, 2019–27
2a. Balance of Payments, 2019–27
2b. External Financing Needs and Sources, 2020-27
3a. Consolidated Operations of the Central Government, 2019–27 (CFAF billions)
3b. Consolidated Operations of the Central Government, 2019–27 (Percent of GDP)
4. Monetary Survey, 2019–25
5. Selected Financial Soundness Indicators, 2017–22
6. Proposed Quantitative Targets Under the Extended Credit Facility 2022–23
7. Indicators of Capacity to Repay the Fund, 2022-42
8. Prior Actions
9. Structural Benchmarks
10. Proposed Schedule of Disbursements Under the ECF Arrangement, 2023-25
ANNEXES
I. Country Engagement Strategy
II. Risk Assessment Matrix
III. Update on Fiscal Risks in EAGB
IV. Implementation of Past IMF Recommendations
V. Action Plans for Governance-Related Reforms
VI. Capacity Development Strategy
APPENDIX
I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
