IMF Executive Board Concludes 2010 Article IV Consultation with Guinea-Bissau

Public Information Notice (PIN) No. 10/56
May 11, 2010

On May 7, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Guinea-Bissau.1


Recent favorable developments are creating an opportunity for Guinea-Bissau to confront the challenges of the last decade. There are signs of political stability as reflected by a representative civilian government and the peaceful presidential election that took place last year. Public institutions and technical capacity improved, thanks to extensive assistance from development partners. In 2009, performance under the program supported by the IMF Emergency Post-Conflict Assistance (EPCA) was favorable, creating the conditions for Guinea-Bissau to move toward a medium-term program of economic reforms that promotes growth and alleviates poverty.

In 2009, Guinea-Bissau made progress stabilizing its economy. Economic growth was resilient despite lower prices for cashews--Guinea-Bissau’s main export, and falling remittances. A favorable cashew harvest and a pick-up in construction helped sustain real GDP growth at about 3 percent. Lower food and fuel prices slowed inflation, and domestic inflationary pressures were subdued supported by the CFA peg to the euro.

Fiscal performance has been satisfactory despite last year’s external and political challenges. Tax revenues overperformed by about 2 percentage points of GDP, reflecting the good cashew harvest and stepped-up collection efforts. The government contained spending to compensate for delays in donor support, which came at the end of the year, and held domestic arrears within target.

The external current account deficit (excluding grants) widened to 6½ percent of GDP but was largely financed by an increase in grants, so the overall external balance deteriorated only modestly. The higher deficit reflects a combination of lower cashew prices, a surge in imports of oil and construction material, and a decline in remittances.

Growth is projected to accelerate to 3½ percent in 2010 and to 4−5 percent over the medium term. The modest recovery is expected to be driven by the projected rebound in the global economy and its positive impact on the terms of trade and cashew prices; spillovers from the global recovery through higher remittances; the positive impact of a more settled political and security environment on the business climate; sustained cashew production; expanded and diversified agriculture; and continued large donor-funded public investment projects. The external current account deficit (excluding grants) is projected to narrow gradually over the medium term to about 5 percent of GDP, as cashew prices and export volumes trend upward and remittances rise. Inflation is expected to be held to the West African Economic and Monetary Union (WAEMU) convergence norm, below 3 percent of GDP, as the effects of commodity price changes wane and the CFA peg to the euro has a stabilizing effect.

Executive Board Assessment

Despite difficult external and domestic circumstances, economic growth has been resilient in Guinea-Bissau and macroeconomic performance has improved in recent years. Directors commended the authorities for the implementation of their 2009 economic program, supported by the Emergency Post-Conflict Assistance provided by the Fund, and welcomed the medium-term program of economic reforms aimed at accelerating growth and reducing poverty. To help ensure the successful implementation of the program and the full engagement of donors, Directors stressed the importance of political stability, effective governance, and strong commitment to reform.

Directors observed that prudent fiscal policy will be essential to achieve the overall objectives of the program. An important step will be the rigorous implementation of the government’s 2010 budget, which introduces strong revenue measures and keeps expenditure within available resources, while protecting priority spending.

Directors considered appropriate the authorities’ focus on structural reforms aimed at strengthening public finances. Improvements in public financial management are top priority to strengthen fiscal controls and ensure proper budget implementation. Tax administration reform will broaden the tax base and increase revenue collection, while civil service reform will help modernize public administration and raise the quality of public services. Directors were also encouraged by the authorities’ plans to improve access to social services and step up efforts to alleviate poverty.

Directors agreed that preventing the accumulation of domestic government arrears is critical to improve liquidity conditions and help foster private sector development. They welcomed the authorities’ plans to clear arrears in the medium term, and encouraged them to adopt liquidity management practices that take into account the evolution of revenue and external financial assistance. Directors also noted the authorities’ efforts to remove barriers to investment, overcome the impediments to adequate credit access, and strengthen the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) framework.

Directors noted that the exchange rate peg has served Guinea-Bissau well, providing a solid anchor for macroeconomic stability and that standard methods do not indicate any significant misalignment of the exchange rate. They stressed, however, that structural reforms are necessary to improve competitiveness and spur stronger growth.

Directors observed that the delivery of debt relief under the enhanced Highly Indebted Poor Countries’ (HIPC) and the Multilateral Debt Relief (MDRI) initiatives, together with additional relief from bilateral creditors, will significantly alleviate the debt burden and help Guinea-Bissau move toward external and fiscal sustainability. Directors noted that the successful implementation of the authorities’ economic program would help pave the way for Guinea-Bissau to reach the HIPC completion point in late 2010.

Guinea-Bissau: Selected Economic and Financial Indicators, 2008–12

  2008   2009   2010 2011 2012
      Est.   Proj.    
  (Annual percentage change, unless otherwise indicated)

National accounts and prices 1


Real GDP at market prices

3.5   3.0   3.5 4.3 4.5

Real GDP per capita

1.3   0.8   0.5 1.3 1.5

GDP deflator

10.6   1.1   2.4 2.1 2.0

Consumer price index (annual average)

10.4   -1.7   2.5 2.5 2.5

External sector


Exports, f.o.b. (based on US$ values)

61.7   -9.6   13.6 7.5 10.6

Imports, f.o.b. (based on US$ values)

38.1   -2.7   9.2 9.2 6.3

Export volume

17.0   25.9   4.3 5.0 5.1

Import volume

5.6   17.4   3.3 7.7 5.0

Terms of trade (deterioration = -)

2.3   -12.7   5.6 1.1 -1.0

Real effective exchange rate (depreciation = -)

7.1   -1.8   1.4 1.2 0.9

Nominal exchange rate (CFAF per US$; average)

478.6   445.7  

Government finances


Domestic revenue (excluding grants)

30.0   2.3   21.5 3.3 7.4

Total expenditure

9.2   11.4   12.8 0.1 5.7

Current primary expenditure

3.7   0.8   13.2 2.3 5.3

Capital expenditure 2

13.8   40.7   12.5 6.5 6.5

Money and credit 3


Credit to government (net)

44.9   -54.4   2.6

Credit to the economy

71.5   -54.4   3.6

Broad money

28.6   12.2   6.0

Velocity (GDP/broad money)

4.1   3.8   3.8
  (Percent of GDP, unless otherwise indicated)1

Investments and savings


Gross investment

12.6   16.1   16.3 16.3 16.4

Of which: government investment

6.5   9.7   10.0 10.0 10.0

Gross domestic savings

-0.3   -0.2   3.7 5.7 4.7

Of which: government savings

-11.8   -11.8   -8.3 -7.6 -7.0

Gross national savings

8.9   10.0   10.7 13.5 13.2

Government finances


Budgetary revenue

9.1   9.0   10.3 10.0 10.0

Total domestic primary expenditure

12.3   11.8   14.2 13.7 13.5

Domestic primary balance

-3.2   -2.9   -3.9 -3.7 -3.5

Overall balance (commitment basis)


Including grants

-3.8   1.8   -3.2 -1.2 -1.1

Excluding grants

-11.9   -13.5   -13.6 -12.5 -12.2

External current account (incl. official current transfers)

2.3   1.6   -1.3 -0.2 0.1

Excluding official transfers

-4.1   -6.4   -5.9 -5.4 -4.8

Net present value of external debt/exports of goods and

nonfactor services (percent) 4

515.0   528.2   111.1 104.9 95.8

Nominal stock of public debt, including arrears 5 6

172.8   161.0   54.1 45.0 40.2

Of which: external debt, including arrears

134.8   126.4   28.4 21.6 20.7

Of which: arrears 5

49.3   47.0   10.3 9.8 9.2

Memorandum items (US$ millions, unless otherwise indicated)

Current account balance (incl. official current transfers)

20.0   13.0   -11.4 -2.3 0.6

Overall balance of payments

-16.9   -25.3   -806.6 0.6 1.2

Nominal GDP at market prices (CFAF billions)

379.4   395.1   418.8 446.1 475.5

Nominal stock of external arrears, end of period 5

388.6   399.8   92.8 92.8 92.8

Sources: Guinea-Bissau authorities; and IMF staff estimates and projections.

1 Based on new GDP figures which doubled the previous GDP level due to broader coverage of the economy, consistent with System of National Accounts 1993.
2 Project grants in 2009 include externally financed large public investments.
3 Change in percent of beginning-of-period stock of broad money.
4 NPV as in the March 2010 Debt Sustainability Analysis.
5 Values in 2010 and thereafter reflect assumed impact of HIPC and MDRI debt relief.
6 Exclude domestic arrears estimated at 23 percent of GDP at end-2009.

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. An explanation of any qualifiers used in summings up can be found here:


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