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Press Release No. 00/2
January 7, 2000
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Approves US$2 Million
in Emergency Post-Conflict Assistance for Guinea-Bissau

The International Monetary Fund (IMF) today approved a credit of SDR 1.42 million (about US$2 million) in emergency post-conflict assistance for Guinea-Bissau to support the government's reconstruction and economic recovery program in the aftermath of the 1998-99 armed conflict. The credit is available immediately.

In commenting on the Executive Board's discussion of the request by Guinea-Bissau, Shigemitsu Sugisaki, Deputy Managing Director made the following statement:

"The authorities had made commendable progress in recovering from the civil conflict of 1998 and early 1999, but the post-conflict normalization was not yet complete. Of particular importance was the need to accelerate the process of demobilization and to reduce military spending. The need for timely donor assistance to support the reconstruction of health and educational facilities was also stressed.

"Lower military spending and further strengthening of budgetary revenues were seen as essential to provide the fiscal resources for the comprehensive program of poverty reduction that the government is formulating with the participation of civil society.

"To foster sustained growth, a favorable environment for private sector activity was needed, including good governance and a strong financial system.

"The authorities were encouraged to make early progress in finalizing a broad-based three-year program of structural adjustment and poverty reduction that could be supported under the Fund's Poverty Reduction and Growth Facility and provide the basis for assistance under the enhanced Initiative for Heavily Indebted Poor Countries," Sugisaki said.

ANNEX

Program Summary

Although significant progress has been made in recent months toward meeting the objectives of the emergency program, Guinea-Bissau continues to suffer in many ways from the disruption caused by the domestic conflict, which resulted in intense warfare from mid-1998 to February 1999. The government still needs to deal with specific post-conflict issues, including putting in place a comprehensive demobilization program, further reducing domestic arrears, continuing to strengthen tax administration, and accelerating the rehabilitation of key infrastructure.

The government considers that the measures it is now implementing, with the support of post-conflict assistance from the international community, are laying the basis for a more comprehensive three-year program that could be supported by the IMF's Poverty Reduction and Growth Facility.1 Currently, it is taking steps to prepare a well-focused poverty reduction strategy, building on the existing donor-supported programs in the social sectors. The government intends to finalize such a program in the next few months, following the completion of the electoral process in mid-January 2000.

Despite the slow start in reconstructing infrastructure, the program supported under the IMF's emergency post-conflict assistance policy is being implemented in a satisfactory manner. Real GDP growth is projected to reach 8.7% in 1999, following a decline of 28% in 1998. This boost is mainly the result of a strong rebound in agricultural production and a rise in the export of cashew nuts, the main export commodity. With the improvement in food supply, the consumer price index declined in the first nine months of 1999. The external current account deficit, including grants, is estimated to have declined by 3 percentage points of GDP to 11% of GDP in 1999.

Fiscal performance in 1999 was encouraging and budgetary revenue is expected to exceed program projections by 4 percentage points of GDP, owing to good collection of customs duties and indirect taxes, as well as tax arrears. The primary budget deficit, excluding foreign-financed investment expenditure, will be significantly lower, at 0.8% of GDP, than the earlier projection of 4.2% of GDP.

The government's draft budget for 2000 targets an increase in budgetary revenue as a ratio of GDP of 0.7 percentage points to 14%, with a further strengthening of tax administration. Priority will also be given to reducing domestic arrears, with donor support. The budget draft also includes increased spending for rehabilitating social services and higher wages to improve professional workers' pay scales. Furthermore, public investment outlays, mostly externally financed, are projected to more than double, as road construction and the reconstruction of health and educational facilities resumes.

Structural reforms will focus on recapitalizing the major bank, which is under foreign control, and restructuring electricity, port, and telecommunications facilities.

A comprehensive program for demobilizing ex-combatants is being prepared with World Bank technical assistance and financing. A pilot program will be launched by the third quarter of 2000.

Guinea-Bissau joined the IMF on March 24, 1977, and its quota2 is SDR 14.2 million (about US$20 million). Its outstanding use of IMF financing currently totals SDR 13 million (about US$17 million).

Guinea-Bissau: Selected Economic and Financial Indicators, 1996-2000

             
   

1996

1997

1998

1999

2000

   

Est.

Est. 1/

Est.

Prog.

Rev. Proj.

Proj.

               
 

(Annual percentage change, unless otherwise indicated)

National accounts and prices

             

Real GDP at market prices

 

4.6

5.4

-28.1

7.5

8.7

7.6

GDP deflator

 

49.7

7.5

7.5

4.4

3.1

3.0

Consumer price index, period average

 

50.7

49.1

8.0

6.0

-0.9

3.0

Consumer price index, end of period

 

65.6

16.8

7.9

6.0

-2.1

3.0

               

Money and credit 2/

             

Net foreign assets 3/

 

30.2

59.7

-2.1

-11.8

-9.2

23.0

Claims on the government (net) 3/

 

33.4

-16.6

16.3

22.8

16.7

-1.4

Credit to the economy

 

37.4

-9.5

65.7

8.1

7.2

9.0

Broad money

 

33.2

106.4

0.1

10.5

6.9

14.1

Six-month deposit rate (percent per annum, end of period)

 

51.0

5.0

5.0

...

...

...

Velocity (GDP/broad money)

 

7.2

5.8

3.0

3.9

3.2

3.0

Gross official reserves

             

(in months of the following year imports of goods and services)

 

1.3

5.2

4.9

3.1

3.0

4.0

               

External sector

             

Exports, f.o.b.(based on U.S. dollar values)

 

-9.8

124.9

-44.9

52.3

80.0

6.0

Imports, f.o.b. (based on U.S. dollar values)

 

-4.2

28.6

-28.7

50.7

14.6

55.2

Export volume

 

-13.0

116.0

-35.9

36.1

61.1

1.8

Import volume

 

-7.7

29.5

-24.7

51.6

20.1

50.0

Terms of trade (deterioration -)

 

-0.1

4.9

-9.1

12.6

17.1

0.7

Real effective exchange rate (depreciation -)

 

4.9

12.4

4.0

...

...

...

               
 

(In percent of GDP, unless otherwise indicated)

Investments and savings

             

Gross domestic investment

 

23.0

21.7

11.3

24.3

13.7

26.8

Of which: government investment

 

14.8

15.6

6.2

18.9

8.8

21.8

Gross domestic savings

 

1.8

2.8

-8.9

-9.4

-5.4

-3.0

Of which: government savings

 

-5.9

-2.9

-14.8

-10.9

-6.2

-8.7

Gross national savings

 

6.6

12.3

-3.4

-7.2

2.7

-0.5

               

Government finances

             

Budgetary revenue

 

12.5

15.3

5.4

11.7

15.1

14.0

(excluding fishing licenses)

 

7.4

9.6

4.8

6.2

9.0

9.1

Total primary expenditure

 

24.0

27.6

18.2

32.5

21.4

36.7

Current primary balance

 

3.3

5.4

-6.5

-1.9

2.5

-0.9

Overall balance (commitment basis)

             

Including grants

 

-12.2

-13.8

-16.2

-20.9

-7.1

-19.7

Excluding grants and restructuring operations

 

-18.1

-17.8

-19.6

-27.4

-12.8

-29.9

               

External current account (including official current transfers)

 

-16.5

-9.4

-14.7

-31.4

-11.0

-24.6

Excluding official current transfers

 

-27.4

-23.4

-19.3

-38.4

-20.0

-33.5

Excluding official transfers other than fishing licenses

 

-22.4

-18.3

-18.7

-32.8

-13.9

-28.6

Net present value of external debt/exports of goods and nonfactor

             

services (in percent)

 

1,426

1,532

1,396

...

893

881

               

Memorandum items:

(In units indicated)

 
               

Exchange rate 1/

             

PG/ US$ (period average)

 

26,374

37,939

...

...

...

...

PG/ US$ (end of period)

 

34,936

...

...

...

...

...

CFAF/US$ (period average)

 

511.6

583.7

590.0

630.0

610.0

610.0

Nominal GDP at market prices

             

In billions of Guinea-Bissau pesos

 

7,136

10,188

...

...

...

...

In millions of U.S. dollars

 

270.6

268.5

205.6

216.2

222.8

246.9

In billions of CFA francs

 

138.4

156.7

121.3

136.2

135.9

150.6

               

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

1/ On May 2, 1997, the CFA franc (CFAF) replaced the Guinea- Bissau peso (PG) as legal tender, at a conversion rate of CFAF 1 = PG 65.

2/ At constant exchange rates; excluding the Banco do Credito National in 1996 and reclassification of the medium- and long-term liabilities of the Central Bank of Guinea-Bissau (BCGB) in 1993-94; in 1997, excluding recapitalization of BCGB.

3/ In percent of beginning-of-period stock of broad money.


1On 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 (PRGF), 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.
PRGF loans carry an interest rate of 0.5 percent a year, and are repayable over 10 years with a 5 year grace period on principal payments.

2A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.


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