Public Information Notice: IMF Concludes 2003 Article IV Consultation with Guinea

August 14, 2003

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board. The Staff Report for the 2003 Article IV Consultation with Guinea is also available.

On July 16, 2003, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Guinea.1


Guinea's real GDP growth increased to an estimated 4.2 percent in 2002, from 3.8 percent in 2001, on account of higher agricultural production and the continued strong performance in housing construction. The annual average inflation rate declined to 3 percent in 2002 from 5.4 percent in 2001, notwithstanding an acceleration in the last quarter of the year because of a combination of lax liquidity management and excessive bank financing of a higher-than-projected government deficit. The overall fiscal deficit (excluding grants) widened to 8.2 percent in 2002 from 7.5 percent of GDP in 2001, owing to expenditure overruns that overshadowed progress achieved in revenue mobilization. There was a significant reduction in domestic arrears as the authorities cleared arrears audited in 2001, amounting to almost 0.5 percent of GDP. The external current account deficit (excluding official transfers) widened to 7.8 percent of GDP in 2002 from 3.8 percent of GDP in 2001, mostly because of an increase in imports, in particular of petroleum products, while exports were subdued in part by lower world commodity prices. The Guinean franc/US dollar exchange rate has been kept broadly stable, notwithstanding increasing macroeconomic imbalances, but the real effective exchange rate

depreciated on average by almost 2.3 percent in 2002. As a result of the deterioration in the external position and near absence of external budgetary assistance, Guinea's gross official reserves declined to 2 months of imports from 2.6 months of imports in 2001. Progress was made in the execution of social spending and the implementation of structural reforms, in particular in the monetary and public finance areas. About eight small enterprises were liquidated or privatized as scheduled by end-2002, but more remains to be done in this area, notably for the public utilities, in especially in light of recurrent interruptions in the supply of water and electricity that continue to affect economic activity.

Developments in 2003 indicate that macroeconomic performance is likely to weaken. Real GDP growth is expected to abate to 3.6 percent, owing mostly to disruptions caused by the frequent outages in the supply of electricity and water. The 12-month rate of inflation rose further because of expansionary policies, reaching 10.6 percent in April 2003. Bringing inflation down would require significant efforts to contain the budget deficit and tighten monetary policy. Reflecting increased net demand for foreign exchange, the spread between the official and the parallel exchange market rates widened to above 5 percent in March 2003.

Executive Board Assessment

Executive Directors agreed with the thrust of the staff appraisal. They welcomed Guinea's higher economic growth in 2002, and commended the implementation of structural reforms and priority spending and the continued servicing of the debt despite budgetary difficulties. However, they expressed concern that recent expansionary fiscal and accommodative monetary policies and an inflexible exchange rate policy have aggravated macroeconomic imbalances, raised inflation, and lowered international reserves. Directors regretted that these policy slippages prevented the conclusion of the second review under the Poverty Reduction and Growth Facility (PRGF) and the adoption of a staff-monitored program and led to the virtual cessation of budgetary assistance from donors. They urged the restoration of fiscal and monetary discipline and a deepening of structural reforms to promote macroeconomic stability, enhance private sector confidence and governance, and improve the investment climate, all of which are crucial to foster economic growth and reduce poverty.

While welcoming the improvement in revenue collection, Directors underscored the need for further progress in this area to achieve the objective of fiscal consolidation, given that Guinea's revenue effort remains both below the country's potential and the average in the sub-region. They therefore supported continuing efforts to bolster nonmining revenue, especially as mining revenue is projected to remain subdued because of the declining quality of bauxite extracted and aluminum price trends.

Directors observed that spending overruns have outweighed the impact of higher revenue collection on the budget, leading to rising budget deficits. They noted that these overruns have been due both to security needs in the context of the unstable regional environment and to weaknesses in expenditure management. They welcomed the commitment to strengthen expenditure controls by processing all outlays through the computerized expenditure tracking system, and urged strict adherence to expenditure ceilings.

Directors emphasized the need to better prioritize public spending in order to increase investment productivity and the delivery of essential public services. They encouraged further reorientation of expenditure away from lower priority areas and defense toward the social sector and infrastructure. Furthermore, they recommended a reduction in the share of wages and salaries within priority spending.

Directors agreed that slippages in budget execution have weakened the monetary program. They emphasized that more efficient liquidity management and higher real interest rates are needed to contain the growth of the monetary aggregates and limit inflationary pressures. They also advised that treasury bills replace central bank advances as the preferred instrument of fiscal deficit financing. Directors stressed that in practice, increased central bank independence is also needed to enhance monetary control.

Directors welcomed actions taken to strengthen the financial system, including the recapitalization of banks, the adoption of new prudential ratios aligned with the Basel Core Principles, the finalization and computerization of commercial banks' accounting plans, the implementation of regulations to fight money laundering, and the preparation of a regulatory framework for the supervision of microfinance institutions. However, they observed that financial intermediation needs to be developed further, including by promoting micro-finance institutions. They regretted the delay in implementing the recommendations of the Fund's May 2002 safeguards assessment of the central bank, and urged adherence to the agreed timeline of reforms.

Directors expressed concern that the de facto pegging of the Guinean franc to the US dollar over the past several months has resulted in a significant loss in official reserves and worsened macroeconomic imbalances, and underscored the need for the exchange rate to be determined by market forces.

Directors welcomed the authorities' commitment to regional integration and the steps taken to prepare for the introduction of the common external tariff (CET) of the West African Economic and Monetary Union (WAEMU), noting that the CET would simplify Guinea's tariff system and enhance trade liberalization. They urged stepped-up efforts to meet the primary convergence criteria for the proposed second monetary zone among West African states.

Directors stressed that structural reforms are crucial to bolstering external competitiveness and increasing economic growth. They called for acceleration of the pace of reforms in the public enterprise sector, including privatisation, particularly in the water, electricity, and telecommunications subsectors. They emphasized the need to improve governance, notably by diligently pursuing cases of corruption and moving ahead with reforms of the justice system, and commended plans to adopt a national anti-corruption strategy.

Directors welcomed Guinea's progress in implementing its poverty reduction strategy, which is partly reflected in the improvement of social indicators in education. They supported efforts underway to assess the state of poverty, including the finalization of the integrated household survey and the preparation of the first Poverty Reduction Strategy Paper progress report. They encouraged the authorities to address regional disparities in poverty levels in order to increase the chances of meeting the Millennium Development Goals. Directors commended the progress in achieving the completion point triggers under the enhanced Heavily Indebted Poor Countries Initiative, other than those related to the implementation of the PRGF-supported program. However, they were concerned about the deterioration of the debt indicators and stressed the need to keep developments under closer review.

Directors observed that, notwithstanding the efforts made in recent years to improve Guinea's statistical apparatus, data deficiencies remain in the areas of public finance, the real sector, balance of payments, and external debt statistics. They encouraged close collaboration with the international donor community, including the IMF's West Africa Technical Assistance Center, to strengthen the statistical database and, more broadly, to address capacity-building needs.

It is expected that the next Article IV consultation with Guinea will be held within 24 months, subject to the provisions of the decision on Article IV consultation cycles, as amended.

Guinea: Selected Economic Indicators, 1999-2003














(Annual changes in percent)

Domestic economy


Changes in real GDP






Changes in consumer prices (period average)







(In millions of U.S. dollars, unless otherwise



External economy


Exports, f.o.b.






Imports, f.o.b.






Current account balance, excluding official








(in percent of GDP)






Capital and financial account balance






Gross official reserves






(in months of imports of goods and nonfactor








Debt service (including to the Fund) 1/






Change in real effective exchange rate


(in percent) 2/







(In percent of GDP, unless otherwise indicated)

Financial variables


Government revenue






Domestic primary balance 3/






Velocity (GDP/average M2)






Interest rate 4/














Sources: Guinean authorities; and IMF staff estimates and projections.


1/ In percent of exports of goods and nonfactor services.


2/ Increasing figures indicate an appreciation.


3/ Excluding external aid.


4/ Minimum annual rate on bank savings




1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.


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