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Guinea and the IMF

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Public Information Notice (PIN) No.04/43
April 23, 2004
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Concludes 2002 Article IV Consultation with Guinea

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 (use the free Adobe Acrobat Reader to view this pdf file) for the 2002 Article IV consultation with Guinea is also available.

On July 24, 2002, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Guinea.1


In 2001, Guinea continued its implementation of a comprehensive program of economic stabilization and financial reforms. Economic performance was influenced by adverse external conditions, including insecurity along Guinea's borders in the first half of the year, and by weaknesses in revenue mobilization. The global economic slowdown in late 2001 had only a marginal impact on Guinea's economic performance.

Real GDP growth accelerated to an estimated 3.6 percent in 2001, from 2.1 percent in 2001, on account of increased agricultural production, the gradual resumption of trade in areas affected by the regional conflict, and a pickup in housing construction. The annual average inflation rate declined to 5.4 percent in 2001 from 6.8 percent in 2000, reflecting prudent monetary management, the positive impact of the rebound in agricultural output on food prices, and lower import prices. The overall fiscal deficit widened to 7.6 percent in 2001 from 5.6 percent of GDP in 2000, as revenue weaknesses persisted. The higher deficit was financed in part by additional recourse to domestic bank credit. There was a significant reduction in domestic arrears. The external current account deficit (excluding official transfers) narrowed to 5.2 percent of GDP in 2001 from about 8.2 percent of GDP in 2000, in part because imports of capital and equipment goods were subdued. The Guinean franc depreciated by 3.4 percent against the US dollar compared with a 10 percent depreciation in 2000. Guinea's gross official reserves represented almost 2.5 months of imports of goods and nonfactor services. Significant progress was made in structural reforms, in particular in the monetary and public finance areas. However, the implementation of the public enterprise restructuring and privatization program has been sluggish.

The authorities have prepared a full Poverty Reduction Strategy Paper (PRSP) in a participatory and consultative process that drew on the contributions of numerous stakeholders, including civil society and Guinea's development partners. The authorities are expected to proceed this year with further refinements such as costing of programs, the definition of more precise targets, and a better prioritization of policies in line with resource availability.

Prospects for 2002

For 2002, real GDP growth is projected to accelerate to 4.2 percent, but it is lower than the 5.4 percent projected earlier, in part on account of the impact of a less favorable global economic environment. Annual inflation is projected to decelerate further to 3.6 percent. The authorities' fiscal program projects an 18 percent increase in government revenue, bringing it to 12.6 percent of GDP. Overall expenditure is projected to remain at 19 percent of GDP, although allocations to priority sectors are considerably higher. The overall deficit is projected at 6.4 percent of GDP. The external current account deficit is projected to widen, reflecting increased imports of capital and equipment goods linked in part to major investment projects in the mining sector. The authorities intend to deepen structural reforms in a broad range of areas, including fiscal decentralization, civil service, liquidity management, public enterprise restructuring, and bank supervision.

Executive Board Assessment

Executive Directors agreed with the thrust of the staff appraisal. They noted Guinea's improved growth and balance of payments performance in 2001, and commended the authorities for their efforts to maintain macroeconomic stability despite adverse external conditions, in particular, the disruption caused by the border conflict. Directors expressed concern, however, regarding fiscal slippages in 2001 that stemmed from significant revenue shortfalls, and higher-than-programmed spending on defense. Directors observed that these slippages led to expenditure cuts in priority sectors, which—while helping contain the fiscal deficit—resulted in a distribution of expenditure that did not advance the poverty reduction objectives of the PRGF-supported program.

Directors emphasized that restoring a sound fiscal position is essential for achieving the objectives of the PRGF-supported program. In this context, Directors expressed concern with the ongoing difficulties in tax administration, as well as the concentration of expenditure, most of which were planned for later in the year, in the first half of 2002. They agreed that corrective efforts should center on broadening the tax base by phasing out tax exemptions, recovering arrears, and making more determined efforts to tackle administrative inefficiencies in the revenue agencies. Directors considered—particularly in light of the ongoing fiscal decentralization—that it is essential that budget management, reporting, and accountability is strengthened at both the central and local government levels. They welcomed the work underway to strengthen the framework of government procurement, and urged the authorities to support fully the steps being taken to improve debt management, as well as the monitoring of flows of assistance under the enhanced HIPC Initiative.

Directors agreed that attaining a sound fiscal position would depend on intensifying efforts to implement the structural reform agenda contemplated in the PRGF-supported program. The main priority is to avoid further delays in the restructuring of the public enterprises so as to improve their efficiency, minimize their cost to the budget, and facilitate their privatization. It is also necessary to proceed with the reforms that aim at modernizing the civil service, allowing greater flexibility in managing civil servants, and shifting to merit-based pay.

Directors noted the efforts to enhance the conduct of monetary policy in 2001 through steps to improve forecasting of bank liquidity and the government's cash flow. They indicated that the effectiveness of monetary policy would be increased further by strengthening the financial system, and encouraged the authorities to complete the restructuring of two small banks, supervise the microfinance institutions more closely, and begin to implement the action plan aimed at complying with the Basel Core Principles. Directors welcomed the steps being taken against money laundering and the financing of terrorism, and urged the authorities to implement fully the U.N. resolutions in these areas.

Directors noted the authorities' commitment to a freely functioning foreign exchange market, which has helped preserve Guinea's external competitiveness. In view of the continued shortage of foreign exchange in the official market, the importance of ensuring that the exchange rate determined in the auctions is sufficiently flexible as to clear the market was underscored.

In the area of governance, Directors welcomed the work of the Anticorruption Committee in finalizing the draft National Anticorruption Strategy and in bringing cases of suspected corruption to the attention of the government. They emphasized that tackling corruption required pursuing these cases promptly, and moving ahead with reforms of the justice system, which would also help promote investment and private sector development.

A number of Directors emphasized that, despite initiatives over several years, faster progress needed to be made in addressing poverty. Directors, however, welcomed the adoption of the full PRSP by the government in January 2002, and they expressed the hope that the national consensus on the poverty strategy, together with the results of the ongoing household budget-consumption survey, would constitute important first steps in renewed efforts in this area.

Directors welcomed the authorities' commitment to regional integration and trade liberalization and their intention to introduce the common external tariff (CET) of the West African Economic and Monetary Union (WAEMU). They also commended Guinea's efforts to meet the convergence criteria for the proposed second monetary zone among West African states.

Directors noted that deficiencies remain in real sector, balance of payments, and external debt statistics, despite some recent improvements. They encouraged the authorities to further strengthen Guinea's statistical apparatus, which is essential for the monitoring of poverty indicators.

It is expected that the next Article IV consultation with Guinea will be held on the 24-month cycle, subject to the provisions of the decision on consultation cycles approved on July 15, 2002.

Guinea: Selected Economic Indicators, 1998-2002
















(Annual changes in percent)

Domestic economy


Changes in real GDP








Changes in consumer prices (period average)








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

External economy


Exports, f.o.b.








Imports, f.o.b.








Current account balance, excluding official transfers







(in percent of GDP)








Capital and financial account balance








Gross official reserves







(in months of imports of goods and nonfactor services)








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 deposits.

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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