News Brief: IMF Completes In Principle First Review of Guinea's PRGF Program, Approves In Principle US$17 Million Tranche, and US$3.6 Million in Additional Interim HIPC Assistance
July 25, 2002
The Executive Board of the International Monetary Fund (IMF) has completed the first review of Guinea's economic performance under the program supported by the Poverty Reduction and Growth Facility (PRGF) arrangement. The decision will become effective after the World Bank Executive Board's review of Guinea's Poverty Reduction Strategy Paper (PRSP) today. Upon effectiveness of the IMF's Board decision, Guinea will be able to draw SDR 12.85 million (about US$17 million) from the IMF.
Guinea was also granted in principle SDR 2.75 million (about US$3.6 million) in additional interim assistance under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC) to cover debt service payments falling due to the Fund through June 30, 2003. Release of this assistance is also contingent on the World Bank's review of the PRSP. Guinea reached its decision point under the enhanced HIPC Initiative in December 2000.
Guinea's three-year PRGF arrangement was approved on May 2, 2001 (see Press Release No. 01/21) for a total amount of SDR 64.26 million (about US$86 million). So far, Guinea has drawn SDR 12.85 million (about US$17 million) under the PRGF arrangement from the IMF.
The PRGF is the IMF's concessional facility for low-income countries. 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 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. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5½-year grace period on principal payments.
Following the Executive Board discussion, Eduardo Aninat, Deputy Managing Director and Acting Chairman, said:
"Guinea's economic performance in 2001 under the 2001/02 PRGF-supported program was mixed, reflecting, in part, adverse external conditions that affected economic activity, in particular the worsening security situation along Guinea's borders in the first half of the year, as well as slippages in policy implementation. Economic activity recovered in the second half of the year, as the security situation stabilized, inflation decelerated, and the external current account deficit narrowed.
"On the fiscal front, however, weaknesses in revenue mobilization contributed to budgetary pressures. Also, cuts in nondefense expenditure in 2001, in response to a tight cash-flow situation, helped to limit the fiscal deficit, but the cuts in priority sectors did not advance the pro-poor objectives of the program.
"Owing to the slippages in program implementation, the first review under the PRGF was delayed to allow the authorities time to take corrective measures during a consolidation period from January-April 2002. However, the fiscal situation remains fragile, and fiscal consolidation, which is the key to attaining Guinea's broader macroeconomic and poverty reduction goals, will require a durable improvement in revenue mobilization and expenditure management. Recent steps to broaden the tax base and strengthen administrative efficiency should be intensified, and the authorities are encouraged to continue to improve budgetary management through a better allocation of resources and greater transparency in budget execution and accountability.
"The conduct of monetary policy under the program was complicated by the tight fiscal position, but the authorities have continued to improve the use of their indirect instruments of monetary policy. They are encouraged to continue in this vein, and to further strengthen the management of bank liquidity, as well as improve the functioning of the exchange rate system.
"Some progress was made in implementing structural reforms in the public finances and the financial sector, but the public enterprise restructuring and divestiture program has lagged. The authorities are urged to accelerate reforms in this area, in close collaboration with the World Bank, and to adhere to the plans for deepening reforms in the areas of the civil service, administrative decentralization, bank restructuring, and financial sector supervision. They are also encouraged to pursue vigorously planned reforms in the justice system, and step up the fight against corruption.
"The authorities are to be commended for Guinea's recently completed PRSP. The authorities are encouraged to further refine the targets and indicators of the PRSP, strengthen monitoring mechanisms, and establish clear priorities among the different poverty reduction programs, taking into account available domestic and external resources. Moreover, they are urged to continue to make efforts to meet the completion point triggers under the HIPC Initiative," Mr. Aninat said.