Press Release: IMF Concludes Third Extended Credit Facility Review Mission to Guinea-Bissau
September 20, 2011Press Release No. 11/340
September 20, 2011
An International Monetary Fund (IMF) mission led by Mr. Paulo Drummond visited Guinea-Bissau from September 8 through September 21, 2011. The mission assessed performance for the third review under the Extended Credit Facility (ECF) approved in May 2010 (see Press Release No. 10/185) 1; reviewed the authorities’ fiscal plans for 2012, consistent with the government’s economic program; and assessed progress implementing the completion point under the Heavily Indebted Poor Countries (HIPC) Initiative which provided extensive debt relief to Guinea-Bissau (see Press Release No. 10/498). The mission met with Prime Minister Carlos Gomes, Jr., Minister of Finance José Mario Vaz, Minister of Economy Helena Embaló, President of the Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO) João Fadía, and other government officials. The mission also held discussions with representatives of the private sector, civil society, the donor community, and other development partners.
At the conclusion of the visit, the mission issued the following statement:
“The economy is benefitting from a robust cashew harvest and better-than-expected prices for the predominant export (cashews). This has helped sustain incomes and alleviated fiscal and balance of payment pressures. The overall impact on the terms of trade is large and positive, only partly offset by rising prices for imports of food and fuels. As a result, the IMF mission expects real gross domestic product (GDP) growth to accelerate to 5.3 percent in 2011. Growth is projected to remain robust in 2012, reflecting expectations of sustained cashew production/exports, and buoyant construction activity, on the back of a return of confidence following the HIPC completion point. On the inflation front, rising prices of imports of food and fuel earlier this year are expected to push headline inflation up to 4.8 percent this year, but core inflation is expected to remain subdued, and headline inflation should come back within the West African Economic and Monetary Union’s target range of 2 ± 1 percent in 2012, as international food and fuel prices stabilize. Continued political stability and improved security continue to be critical to economic prospects.
“Performance under the ECF-supported program continues to be satisfactory. All performance criteria through June were observed and implementation of structural reforms is on course to meet most structural benchmarks for the third review. The unified payroll system has been extended to most ministries, and the authorities are committed to complete extending the payroll system to the ministries of defense and interior. The favorable fiscal performance reflects stronger-than-programmed tax receipts and budget support that permitted somewhat higher than-programmed spending.
“The mission reached understandings on policies for the remainder of 2011 and for 2012, consistent with the authorities’ economic objectives under the ECF-supported program. The authorities’ fiscal plans for the remainder of 2011 are consistent with the budget envelope. The draft budget for 2012 is appropriately designed to reach several important objectives: keep current-year spending within available resources; mobilize more revenues largely by reducing implicit customs subsidies and exemptions and tightening controls; continue to reduce the large stock of domestic arrears consistent with the government’s medium-term plan; protect priority spending; and incorporate resources for contingencies and reforms. For the first time in recent years, fiscal revenues in the budget will be sufficient to cover current expenditures with the implication that all budgetary assistance can be used to support spending on infrastructure and other capital investments.
“The economic reforms under the ECF supported program are aligned with the government’s recently adopted five-year poverty reduction strategy, which seeks to prioritize development policies. With the overriding objective to boost growth and reduce poverty, the focus will continue to be on deepening fiscal reforms by mobilizing more revenue and strengthening public financial management, including tax administration and debt management; improving the business climate and removing impediments to private sector development; and modernizing the public administration and improving public services.
Following the Paris Club agreement in May to provide extensive debt relief to Guinea-Bissau, the authorities are working on bilateral agreements with Paris Club creditors and are committed to seeking comparable treatment from remaining creditors.
“The IMF's Executive Board is scheduled to discuss the third review of Guinea-Bissau’s economic program under the ECF in early December 2011 when, with Executive Board approval, the next disbursement of SDR 2.414 million (approximately US$ 3.658 million) would become available.”
1 The ECF is a concessional IMF facility for low-income countries. ECF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the country's Poverty Reduction Strategy Paper. ECF loans carry a zero interest rate until end-2011 and an annual interest rate of no more than 0.5 percent thereafter. The loans are repayable over 10 years with a 5½ -year grace period on principal payments.