News Brief: IMF Completes First Review of Guinea's Third Annual PRGF Arrangement and Approves in Principle US$10.5 Million Credit
December 20, 2000
The Executive Board of the International Monetary Fund (IMF) today completed the first review of Guinea's economic performance under the third annual arrangement of a three-year Poverty Reduction and Growth Facility (PRGF)1 arrangement, and approved in principle a SDR 7.9 million (about US$10.5 million) credit. Guinea's three-year arrangement under the PRGF was approved on January 13, 1997 in an amount equivalent to SDR 70.8 million (about US$92 million-see Press Release No. 97/3) and the third annual credit in an amount equivalent to SDR 23.6 million (about US$31 million) was approved on December 21, 1999 (see Press Release No. 99/64)
A final decision by the IMF Executive Board is pending discussion of Guinea's Interim Poverty Reduction Strategy Paper (I-PRSP) by the World Bank Executive Board, which is expected to take place on December 22, 2000. A final decision will enable the release by the IMF of the second loan under the third annual PRGF arrangement in an amount equivalent to SDR 7.9 million (about US$10.5 million). This will bring total disbursements under the PRGF-supported program to an amount equivalent to SDR 62.8 million (about US$81 million).
In commenting on the Board's discussion of Guinea, Stanley Fischer, First Deputy Managing Director and Acting Chairman, made the following comment:
"Considerable progress has been made with respect to Guinea's poverty reduction strategy. The Interim Poverty Reduction Strategy Paper provides a sound basis for the development of a full PRSP by end-2001, for Fund concessional assistance, and for reaching the decision point under the enhanced Heavily Indebted Poor Countries Initiative. The authorities are to be commended for the participatory approach followed in completing the I-PRSP. They are encouraged to expand the involvement of civil society in the monitoring and evaluation of public policy, and to enhance their own institutional capacity to monitor public expenditures, so as to ensure the successful implementation of the poverty reduction strategy.
"While the macroeconomic slippages in the first half of 2000 are regrettable, the Guinean authorities are to be commended for the remedial actions taken, especially in view of the tense security situation in the region and the difficult external environment. The challenge in the period ahead is to demonstrate the ability to consistently maintain the adjustment effort in implementing the strong economic and financial program for 2001.
"Several areas are key to establishing a sound basis for sustainable growth. Revenue mobilization efforts need to be enhanced, particularly through the close monitoring of customs procedures, improved taxation of public enterprises, and the reduction of exemptions. Firm control over expenditures should also be maintained, in view of the additional outlays for security needed in 2000 and 2001, and the pressing need to increase spending in the priority sectors. In this context, the extension of the medium-term expenditure framework to all budgetary expenditures will be a critical step toward ensuring that the level and composition of public expenditures are appropriate. The authorities are encouraged to track closely the use of interim debt relief resources.
"The recent acceleration of structural reforms is encouraging. Continued progress in this area, particularly in the public enterprise privatization and restructuring program, will send a clear signal of the authorities' intention to redefine the role of the state and create an environment conducive to private investment. A demonstrable and sustained effort to redress weaknesses in accountability and to strengthen governance, supported by reforms of the legal and regulatory framework, will contribute to establishing the credibility of government policy and building a consensus for reform. In this context, strengthened efforts to enhance the monitoring and reporting of public expenditure, and to follow through rigorously on the recommendations of the National Anticorruption Committee, will be crucial.
"A final decision on Guinea's debt relief under the enhanced HIPC Initiative is pending action later this week by the World Bank's Executive Board. A press release will be issued jointly with the World Bank following those deliberations. The full participation of all Guinea's creditors, including non-Paris Club creditors, in providing debt relief is critical for Guinea to achieve debt sustainability," Mr. Fischer said.
1 On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed the Poverty Reduction and Growth Facility, and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a poverty reduction strategy paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. At this time for Guinea, pending the completion of a PRSP, a preliminary framework has been set out in an interim PRSP, and a participatory process is underway. It is understood that all policy understandings in the interim PRSP beyond the first year are subject to reexamination and modification in line with the strategy that is to be elaborated in the PRSP. Once completed and broadly endorsed by the Executive Boards of the IMF and World Bank, the PRSP will provide the policy framework for future review under this PRGF arrangement. PRGF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years with a 5 ½-year grace period on principal payments.