Press Release: IMF Approves Third Annual PRGF Arrangement for Guinea
December 21, 1999
The International Monetary Fund (IMF) today approved the third-annual arrangement for Guinea under the Poverty Reduction and Growth Facility (PRGF)1 in an amount equivalent to SDR 23.6 million (about US$32.3 million) to support the government's economic program. Guinea's three-year PRGF arrangement was approved on January 13, 1997 (see Press Release 97/3) in an original amount of SDR 70.80 (about US$97.0 million), of which SDR 47.2 million (about US$64.6 million) has been disbursed. The loan will be available in three equal installments, the first of which is available immediately.
In commenting on the Executive Board discussion on Guinea, Stanley Fischer, First Deputy Managing Director of the IMF, said:
"The last twelve months have proved difficult for Guinea--economic growth has been adversely affected by the fall in the price of bauxite and alumina and by the political instability in the region. The important role played by Guinea in regional peacekeeping efforts has resulted in severe domestic budgetary pressures. In addition, serious weaknesses in fiscal and monetary management put macroeconomic stability in jeopardy in the first half of 1999. While significant actions have been taken to correct the slippages, considerable work remains to be done to reestablish a sound policy environment for sustained economic growth.
"In considering the program presented by Guinea for support under the PRGF, Directors stressed the importance of strengthening fiscal performance, where key elements will be securing a durable improvement in revenue collection, particularly at customs, and the control of expenditures.
"Directors pointed to the need to maintain a realistic exchange rate through the continued operation and deepening of the foreign exchange auction. Reform of the banking system should continue, with the audit of the central bank of Guinea being an important measure for 2000.
"Social indicators in Guinea are weak, despite the fact that its per capita income is above the sub-Saharan African average. It is important that the government formulate a comprehensive poverty reduction strategy, and that it do so through a broad-based and transparent participatory process.
"The actions taken by the government to fight corruption were welcomed, particularly the commitment to establish an anticorruption commission. To eradicate corruption, pending cases should be dealt with firmly, swiftly, and transparently. It was stressed that the justice system should be strengthened to improve economic security."
Toward the end of 1998, the Guinean economy was confronted with a number of serious shocks that were beyond the control of the authorities. The global economic crisis resulted in a drop in demand for its main export products - alumina and bauxite. The deteriorating security situation in neighboring countries required increasing financial commitments to regional peacekeeping forces and continued spending to defend its own borders and to host a refugee community equivalent to 5-10% of its population. These problems were aggravated by a drop-off in commercial activity related to the presidential elections.
The program to be supported by the third annual arrangement envisages real GDP growth increasing about 3.7% in 1999 and 5 % in 2000. Inflation is expected to moderate during 2000, declining from 5.4 percent during 1999 to 4% during 2000. Investment is projected to increase from 18.2% of GDP in 1999 to 19.2% in 2000, reflecting a rise in private mining activity and continued growth in the public investment program. This increase would be supported by growth in domestic savings over the same period from the equivalent of 17.4% of GDP to 18.2%.
Fiscal policy under the program is aimed at strengthening the public finances through increasing revenue and reinforcing expenditure control. Large fiscal overruns in early 1999 were financed by borrowing from the central bank, and revenue was weaker than originally anticipated. However, this situation was rectified in late 1999. The 2000 budget calls for a primary surplus of 2.7% of GDP. Revenue is expected to rise from 10.4% of GDP in 1999 to 11.5% in 2000. Most of the increase will come from customs revenues, based on a fundamental reform of customs operations. The authorities also plan to bring Guinea's tariff regime in line with that of the neighboring customs union--the West African Economic and Monetary Union--so as to facilitate regional integration and reduce smuggling.
Monetary policy will aim at rebuilding central bank reserves and providing sufficient credit to the private sector to sustain real growth. The net foreign assets of the central bank are programmed to increase from their September 1999 level of US$75.4 million to US$110 million by end-2000. Reserve accumulation by the central bank should become easier as the rigidities in the foreign exchange market lessen with the progressive unification of the exchange rate. The central bank will also continue to improve banking supervision and strengthen the banking system.
The program's structural reforms are focused on budgetary and treasury operations, customs, and the banking system. In addition, there is an ongoing program of public enterprises reform. By June 2000, the government will liquidate 12 enterprises in which it will have ceased activities. For the others, it will work out an action plan that best responds to the need for divesture, while safeguarding the public interest. The reform of the social security fund (CNSS) will continue. Before recapitalization can begin, several actions need to be taken including reorganizing of the financial and accounting departments and updating the file of contributors.
Social indicators are very weak in Guinea, despite a per capita income above the sub-Saharan average. The authorities have, however, initiated a wide range of programs to combat poverty; chief among them is the increased budgetary resources devoted to the key sectors of health, education, justice, social affairs, and infrastructure. Accompanying the provision of these resources is an enhanced framework for planning, ensuring delivery, and evaluating results on the basis of predetermined performance indicators.
Guinea joined the IMF on September 28, 1963; its quota2 is SDR107.10 million (about US$46.7 million). Its outstanding use of IMF financing currently totals SDR 84.84 million (about US$116.2million).