## cr17380

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---

### Executive summary and program status
- Three-year arrangement under the Extended Credit Facility (ECF) approved on July 10, 2015.
- Disbursements:
  - Primary disbursement: SDR 2.84 million (10 percent of quota) upon approval.
  - Additional disbursements totaling SDR 8.14 million (29 percent of quota) following approval of the combined first and second review on December 2, 2016, and the third review on July 6, 2017.
  - Upon Executive Board completion of the fourth review, the equivalent of SDR 3.03 million (11 percent of quota) will be made available.
- Program implementation:
  - All quantitative performance criteria and indicative targets for the fourth review (end-June 2017) were met.
  - Two structural benchmarks (debt management software upgrade; monthly financial reports for EAGB) were not met on time but expected to be implemented with delay.
- Staff action:
  - Staff supports completion of the 2017 Article IV Consultation, fourth review under the ECF arrangement, and the financing assurances review.
- Publication date: November 21, 2017.

### Context: fragility, political developments, and structural features
- Structural vulnerabilities and poverty:
  - Agriculture accounts for about 40 percent of GDP.
  - Narrow export base: cashew nuts account for 90 percent of exports.
  - Poverty last measured at around 70 percent in 2010.
- Political developments:
  - Resumption of constitutional order in 2014; elections in mid-2014 preceded a 10-year plan.
  - Political instability persisted: four changes of government since mid-2015; Parliament not sitting since late 2015.
- Opportunity: currently favorable economic conditions offer a chance to advance reforms for longer-term development.

### Recent economic developments and macro performance
- Growth and external sector:
  - Growth averaged almost 6 percent in 2015–16 (up from 0.8 percent during 2012–14).
  - Terms of trade: improved by 14 percent in 2016; further improvement of about 30 percent in 2017 due to cashew price increases.
  - Current account: deficit of 5 percent of GDP in 2013 to surplus in 2014–16; surplus of 1.3 percent of GDP in 2016 (from 2.5 percent in 2015); broadly in balance in 2017.
- Inflation and prices:
  - CPI inflation around 2 percent overall with mid-year rice and food price pressures.
- Official financial assistance:
  - Total budget and project support (excluding IMF) fell from 12 percent of GDP in 2014 to 6 percent of GDP in 2016, recovered somewhat in H1 2017.
- Government finances (first half of 2017):
  - Tax revenue exceeded program target for H1 2017 by 0.8 percent of annual GDP.
  - Dividend from BCEAO: 0.7 percent of GDP.
  - Budget support grant from Saudi Arabia: 0.4 percent of GDP.
  - Project grants: 1 percent of GDP higher than programmed.
  - Total revenue and grants: 2.6 percent of GDP above end-June program target.
  - Total current expenditure H1 2017: 0.1 percent of GDP below program; capital spending: 0.6 percent of GDP above program.
  - Arrears clearance: 0.2 percent of GDP above program target.
  - Overall cash balance: -0.6 percent of GDP (program target -2.6 percent of GDP).
  - Domestic primary balance (commitment) in 2017H1: 0.7 percent of GDP (memorandum item).
  - Authorities increased central bank deposits by 0.6 percent of GDP as a fiscal buffer.
- Public financial management improvements:
  - Twice-weekly Treasury Committee meetings since start of 2017.
  - Outcomes: elimination of non-regularized expenditures (DNTs), no new accumulation of arrears, retirement of expensive bank overdrafts, reprofiling of debts to reduce servicing costs.

### Financial sector and banking system
- Credit and intermediation:
  - Commercial bank credit (before provisions) expanded on average by 9.4 percent a year during 2014–16.
  - Credit shrunk by 0.8 percent (year-on-year) at end-June 2017 despite entry of Banque Atlantique.
  - Stock of credit to the private sector: 14.5 percent of GDP at end-2016.
- Non-performing loans and provisioning:
  - Gross NPL ratio: 32 percent at end-June 2017 (39 percent at end-2014).
  - Provisions to gross NPLs: 65 percent at end-June 2017 (46 percent at end-2014).
  - System-wide NPLs near pre-bailout levels after recognition; net NPLs more manageable following provisioning.
- Capitalization and regulatory action:
  - Minimum capital requirement: CFAF 10 billion as of July 1, 2017 (up from CFAF 5 billion).
  - One bank seriously undercapitalized after provisioning for bailout NPLs; shareholders discussions and potential Banking Commission remedial measures ongoing.
- 2015 bank bailouts summary:
  - Bailouts involved government taking over NPLs totaling CFAF 34.2 billion (about 5 percent of GDP) financed by 10-year credit lines in a non-cash transaction.
  - Bailouts done against IMF advice; government declared bailouts null and void in mid-2016; legality under court evaluation.
  - Banks provisioned bailout NPLs following Banking Commission recommendations, producing negative earnings and large drops in equity.

### Program performance and quantitative outcomes (end-June 2017)
- All performance criteria for end-June 2017 were met:
  - Total domestic tax revenue (floor): Prog. 33.4; Prel. 41.4 — met.
  - Net domestic bank credit to the central government (ceiling): Prog. 6.4; Prel. -2.6 — met.
  - Ceiling on new nonconcessional external debt (US$ millions): Prog. 2; Prel. 0.0 — met.
  - Outstanding external debt with maturities <1 year (ceiling): Prog. 2; Prel. 0.0 — met.
  - External payment arrears (ceiling): Prog. 2; Prel. 0.0 — met.
- Compliance with continuous ceilings: no new non-concessional nor short-term external borrowing; no external arrears accumulated.
- Indicative targets for end-June 2017 met:
  - New domestic arrears (ceiling): Prog. 0.0; Prel. 0.0 — met.
  - Social and priority spending (floor): Prog. 21.7; Prel. 23.2 — met (CFAF 1.5 billion above floor).
  - Domestic primary balance (commitment basis, floor): Prog. -5.1; Prel. 5.6 — met (surplus rather than programmed deficit).
  - Non-regularized expenditures (DNTs, ceiling): Prog. 0.4; Prel. 0.0 — met.
- Other outcomes:
  - Domestic tax revenue floor exceeded by CFAF 8 billion (24 percent).
  - Net domestic bank credit to central government was CFAF 9 billion below program ceiling.
  - No new domestic arrears; no non-regularized expenditures.

### Banking sector selected indicators (percent of GDP, unless otherwise indicated)
- Total Assets:
  - 2012: 16.4; 2013: 14.5; 2014: 16.5; 2015: 19.2; 2016: 17.9; June 2017: 13.6.
- Credit to private sector (gross):
  - 2012: 14.1; 2013: 14.0; 2014: 15.3; 2015: 14.6; 2016: 13.7; June 2017: 13.7.
- Total Deposits:
  - 2012: 14.0; 2013: 13.7; 2014: 17.3; 2015: 17.4; 2016: 15.1; June 2017: 14.3.
- NPLs (gross, percent of total loans):
  - 2012: 22.6; 2013: 27.0; 2014: 39.4; 2015: 8.2; 2016: 10.8; June 2017: 31.7.
- Provisions for Loan Loss (percent of GDP series):
  - 2012: 1.3; 2013: 1.9; 2014: 3.4; 2015: 0.7; 2016: 0.8; June 2017: 3.3.
- Memorandum:
  - Nominal GDP (CFAF billions): 2012: 505.1; 2013: 516.7; 2014: 520.9; 2015: 612.5; 2016: 690.5; June 2017: 780.7.
  - Broad Money (M2, CFAF billions): 2012: 164.5; 2013: 169.2; 2014: 241.5; 2015: 301.4; 2016: 328.1; June 2017: 338.8.
- Notes:
  - Values for 2015 and 2016 adjusted to exclude the bailout.
  - Values for 2017 include Banque Atlantique.

### Policy challenges and reform priorities
- Key constraints to sustained and inclusive growth:
  - Improve business environment to catalyze private investment and diversification away from cashew dependence.
  - Strengthen revenue mobilization to enable priority social and infrastructure spending.
  - Address high levels of NPLs and legacies from voided 2015 bank bailout to bolster financial intermediation.
- Fund engagement:
  - 2017 Article IV discussions focused on priorities to tackle developmental constraints and anchor macro stability, building on past Fund advice and TA.

### Outlook and medium-term baseline projections (selected)
- Growth and inflation:
  - Real GDP growth: 5.5 percent in 2017; 5 percent a year over 2018–22.
  - Real per capita income growth: 2014: -1.2; 2015: 3.8; 2016: 3.5; 2017: 3.2; 2018–2022: 2.7 (each year).
  - Consumer price inflation (annual average): 2014: -1.0; 2015: 1.5; 2016: 1.5; 2017: 2.2; 2018: 2.3; 2019: 2.5; 2020: 2.6; 2021: 2.8; 2022: 3.0.
  - Staff projection: inflation increases from 2.2 percent in 2017 to 3.0 percent at end of medium term.
- External current account (incl. grants, % of GDP):
  - 2014: 0.5; 2015: 2.5; 2016: 1.3; 2017: 0.0; 2018: -2.3; 2019: -2.8; 2020: -3.0; 2021: -2.9; 2022: -2.6.
  - Staff: current account moves from broad balance in 2017 to a deficit of 2–3 percent of GDP over medium term due to higher investment.
- Fiscal projections:
  - Total revenue (incl. grants, % of GDP): 2014: 22.1; 2015: 20.4; 2016: 16.2; 2017: 15.9; 2018: 17.2; 2019: 17.8; 2020: 18.2; 2021: 18.6; 2022: 19.2.
  - Total expenditures (% of GDP): 2014: 24.7; 2015: 23.4; 2016: 20.9; 2017: 17.6; 2018: 19.0; 2019: 19.7; 2020: 20.3; 2021: 20.7; 2022: 21.3.
  - Overall fiscal balance (incl. grants, commitment basis, % of GDP): 2014: -2.6; 2015: -3.0; 2016: -4.7; 2017: -1.7; 2018–2022: -1.9 to -2.1 (various years).
  - Total public sector debt (gross, % of GDP): 2014: 55.1; 2015: 52.8; 2016: 54.1; 2017: 49.2; 2018: 48.3; 2019: 47.3; 2020: 46.1; 2021: 44.7; 2022: 43.4.
  - Staff projection: overall fiscal (cash basis) deficit projected to widen from 1.8 percent of GDP in 2017 to 2.3 percent of GDP in 2018 due to higher domestic capital spending, then remain at that level.
  - Required domestic primary surplus: about 0.4 percent of GDP in 2017 (domestic, excluding grants and foreign-financed capital spending); 0.8–1 percent of GDP over the medium term.
- Reserve developments:
  - WAEMU official reserves increased by $3.3 billion (to 4.6 months of imports) in H1 2017 following Eurobond issuances in Senegal and Côte d'Ivoire.

### Risks to the baseline
- Downside risks:
  - Reescalation of political tensions with disruptive government changes.
  - Fiscal outlook and debt sustainability deterioration if courts rule against voiding the bank bailout.
  - Banking sector instability from undercapitalization.
  - Agricultural output vulnerability to adverse weather.
  - High export dependence on cashew (90 percent of exports) exposing economy to price movements.
- Upside possibilities:
  - Potential FDI-financed phosphate mining project.
  - Greater value-addition in agriculture.
  - Nascent tourism industry potential.

### External balance assessment (EBA-lite results)
- EBA-lite indicates a moderate real exchange rate undervaluation in the 5–10 percent range in 2016.
- CA approach: CA gap (percent GDP): 3.5; REER gap (percent): -7.2.
- ES approach: CA gap (percent GDP): 3.2; REER gap (percent): -6.2.
- REER approach: CA gap (percent GDP): -9.0.
- Caveats: data uncertainty; EBA-lite coefficients estimated for other countries and not fully capturing single-commodity dependence or WAEMU fixed exchange rate features.

### Fiscal policy and expenditure management recommendations
- Revenue mobilization:
  - Tax revenue in 2016 amounted to 9.2 percent of GDP.
  - Continue reforms to tax and customs administration; adequately resource these activities.
  - Finalize contracts for recently hired staff and extend SYDONIA to customs posts nationwide.
  - Review tax policy elements (including excise rates), modernize legislation, and broaden tax base.
  - Address underperforming non-tax revenue (notably fisheries receipts).
- Expenditure and prioritization:
  - Improve planning to accommodate priority social and infrastructure spending while containing non-priority spending.
  - Strengthen budget processes, vetting of investment projects, and continue PFM and expenditure management reforms.
  - Ensure accurate staffing records and develop a wage policy to control wage bill.
  - Extend SIGFIP coverage comprehensively.
- Financing composition:
  - Fill overall deficits largely with low-cost foreign project financing to address investment needs while preserving debt sustainability.

### Debt management, arrears, and risks
- Outstanding external arrears: $42.2 million (3.1 percent of GDP) to Angola, Brazil, Libya, Russia, and Pakistan not covered in HIPC.
- Domestic claims: government faces claims totaling over 13 percent of GDP, many unvalidated and over a decade old.
- Recommendations:
  - Develop comprehensive plan to resolve legitimate domestic arrears, vet claims carefully.
  - Maintain prudent borrowing; seek grants and concessional loans for priority projects.
  - Strengthen debt management capacity and produce regular reports on external debt developments.
  - Contain and monitor contingent liabilities; require SOEs to produce audited financial statements.
- Authorities’ actions:
  - Elevated debt management unit to Directorate; DMFAS 6.0 upgrade to be operational by end-2017.
  - CFAF 1.7 billion guarantee for Bissau City borrowing secured by vendor fees in escrow.
  - Best efforts to negotiate cancellation/rescheduling of legacy arrears; audits of public enterprises accelerated for completion by end-2017.

### Structural benchmarks, monitoring, and program sequencing
- Five of seven 2017 structural benchmarks observed as envisaged; two delayed:
  - DMFAS 6.0 upgrade (SB for September 2017) delayed; expected by end-2017.
  - Monthly financial reports for EAGB (SB for July 2017) delayed; accomplished in October 2017 with data quality weaknesses.
- Structural measures for remainder of 2017–2018 include:
  - Draft law for a new small taxpayer regime (SB for December 2017).
  - Monthly rolling treasury cash-flow projection table; quarterly ministry-level budget execution reports; quarterly external debt reports; monthly EAGB financial flows (ongoing SBs).
  - DMFAS 6.0 installation and use (SB for December 2017, reset from September 2017).
  - Authorities proposed SBs: submit draft 2018 budget to Council of Ministers (end-December 2017); submit EAGB management improvement plan (SB for March 2018).
- Program monitoring:
  - Performance assessed semi-annually.
  - Fifth (and last) program review based on end-December 2017 performance criteria scheduled on or after April 15, 2018.

### Anti-Money Laundering / Anti-Terrorist Financing and governance
- AML/CFT:
  - Approved national strategic plan and enhanced CENTIF autonomy.
  - CENTIF intensified information dissemination with GIABA TA; initial suspicious transaction declarations received.
  - IMF TA helping build capacity at CENTIF and Ministry of Economy and Finance for AML/CFT supervision of exchange houses.
- Anti-corruption legal/institutional recommendations:
  - Ensure Inspeção Superior de Luta Contra a Corrupção is resourced.
  - Prepare comprehensive asset and interests declaration template.
  - Amend Law 7/99 to cover all politically exposed persons per FATF standards.
- Safeguards:
  - Latest safeguards assessment of BCEAO dated December 2013 found a strong control environment; updated assessment planned in coming months.

### Staff appraisal and recommendations
- Growth and macro outlook:
  - Real GDP growth projected at 5.5 percent in 2017.
  - Cashew price increases and improved terms of trade have supported incomes and activity.
  - External current account broadly balanced; inflation low.
- Financial sector:
  - Financial intermediation subdued with high NPLs and unresolved bailout issues.
  - Rapid recapitalization of the undercapitalized bank and resolution of court case needed.
  - Regional Banking Commission expected to take strong, time-bound remedial action for non-compliant banks.
  - Develop national plan for financial inclusion to deepen the financial system.
- Fiscal and debt policy:
  - Maintain low fiscal deficits achieved in 2017 over the medium term.
  - Pursue prudent borrowing policies; prioritize grants and concessional loans.
  - Strengthen debt management capacity and monitor contingent liabilities; require annual audited SOE financial statements.
- Revenue, spending, and governance:
  - Step up social and investment spending contingent on domestic revenue mobilization and improved planning.
  - Extend tax and customs administration reforms; review tax policy for simplification and modernization.
  - Improve statistics and transparency; promote healthy competition.
- Governance and anti-corruption:
  - Support anti-corruption efforts by strengthening AML/CFT and implementing comprehensive asset disclosure regime.

### Capacity development, statistics, and TA priorities
- FY2018 TA priorities: tax administration, public financial management, debt management, and improving statistics.
- Statistics targets:
  - Publish 2016 final national accounts by March 2018; provisional 2017 data by August 2018.
  - Strengthen INE capacity; complete household survey on employment/informal sector/expenditure.
- Capacity-building strategy:
  - TA and training coordinated with AfDB, EU, World Bank; field presence and long-term advisors emphasized.

### Staff recommendation and next steps
- Staff recommends conclusion of the 2017 Article IV Consultation and completion of the fourth program review and financing assurances review.
- Recommendation that the next Article IV consultation be held on the 24-month cycle per Decision No. 14747– (10/96).

*International Monetary Fund — Selected excerpts from mission report (cr17380).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Background and program status
- The three-year arrangement under the Extended Credit Facility (ECF) was approved on July 10, 2015.
- Disbursements:
  - Primary disbursement: SDR 2.84 million (10 percent of quota) upon approval.
  - Additional disbursements totaling SDR 8.14 million (29 percent of quota) following approval of the combined first and second review on December 2, 2016, and the third review on July 6, 2017.
- Program implementation has been good, with all performance criteria and indicative targets for the fourth review met.
- Two structural benchmarks, relating to debt management operations and financial reporting on the public electricity company, were not met but are likely to be implemented with delay.
- Staff supports completion of the 2017 Article IV Consultation, fourth review under the ECF arrangement, and the financing assurances review. The equivalent of SDR 3.03 million (11 percent of quota) will be made available upon Executive Board completion of the fourth review.
- Publication date: November 21, 2017.

### Context: state fragility, recent political developments, and structural features
- Fragility and development constraints:
  - Agriculture accounts for about 40 percent of GDP.
  - Narrow export base, largely unprocessed cashew nuts, leaving the economy highly exposed to weather and commodity price shocks.
  - Poverty last measured at around 70 percent in 2010.
  - Political instability history: civil war in 1998–99 and military coups in 2003 and 2012.
- Political developments since 2014:
  - Resumption of constitutional order in 2014 anchored peace.
  - Elections in mid-2014 preceded a 10-year plan for social progress.
  - Political instability persisted: divisions within the largest political party led to four changes of government since mid-2015 and Parliament has not been sitting since late 2015.
- Opportunity:
  - The currently favorable economic conditions offer an opportunity to advance reforms to strengthen foundations for longer-term development.

### Recent economic developments and macro performance
- Growth and external sector:
  - Economic rebound: growth averaged almost 6 percent in 2015–16, up from an average of 0.8 percent during 2012–14 and double the average since 1980.
  - Terms of trade: improved by 14 percent in 2016; the large increase in cashew prices in 2017 resulted in a further improvement in the terms of trade of about 30 percent.
  - Current account: swung from a deficit of 5 percent of GDP in 2013 to a surplus in 2014–16; narrowed to a surplus of 1.3 percent of GDP in 2016 from 2.5 percent in 2015; in 2017 the current account was broadly in balance.
- Inflation and prices:
  - CPI inflation has remained subdued at around 2 percent overall, with mid-year price pressures for rice and other foodstuffs.
- Official financial assistance:
  - Total budget and project support (excluding IMF) fell from 12 percent of GDP in 2014 to 6 percent of GDP in 2016 before recovering somewhat in the first half of 2017.
- Government finances (first half of 2017):
  - Tax revenue exceeded the program target for the first half of 2017 by 0.8 percent of annual GDP.
  - A dividend payment from the BCEAO of 0.7 percent of GDP more than offset lower nontax revenues; nontax revenue was 0.5 percent of GDP above the end-June program target.
  - Authorities received a budget support grant of 0.4 percent of GDP from Saudi Arabia and project grants were 1 percent of GDP higher than programmed.
  - Total revenue and grants were 2.6 percent of GDP above the end-June program target.
  - Expenditure: total current expenditure in the first half of 2017 was 0.1 percent of GDP below program; capital spending was 0.6 percent of GDP above program.
  - Arrears clearance was 0.2 percent of GDP above the program target.
  - Overall cash balance: -0.6 percent of GDP (against the program target of -2.6 percent of GDP).
  - Domestic primary balance (commitment) in 2017H1: 0.7 percent of GDP (memorandum item).
  - Authorities built a fiscal buffer by increasing deposits of 0.6 percent of GDP at the central bank.
- Public financial management:
  - Twice-weekly Treasury Committee meetings since start of 2017 improved budget execution and expenditure control.
  - Accomplishments include elimination of non-regularized expenditures (“DNTs”), no new accumulation of arrears, retirement of expensive bank overdraft facilities, and reprofiling of debts to reduce servicing costs.

### Financial sector and banking system issues
- Credit to the private sector:
  - Commercial bank credit (before provisions) expanded on average by 9.4 percent a year during 2014–16.
  - Credit shrunk by 0.8 percent (year-on-year) at end-June 2017 despite entry of a new expanding bank.
  - Weak credit extension reflects risk aversion due to high NPLs and unresolved issues from the voided 2015 bank bailout.
- Non-performing loans and capitalization:
  - Gross NPL ratio: 32 percent at end-June 2017 compared to 39 percent at end-2014.
  - Provisions to gross NPLs rose to 65 percent at end-June 2017 compared to 46 percent at end-2014.
  - One bank is seriously undercapitalized after provisioning for bailout NPLs caused a large drop in regulatory capital.
  - Minimum capital requirement: CFAF 10 billion as of July 1, 2017 (up from CFAF 5 billion).
  - Discussions with potential investors to raise capital to the required minimum are ongoing; the WAEMU Banking Commission is expected to announce remedial measures for non-compliant banks.
- The 2015 bank bailouts and aftermath (summary):
  - Bailouts involved government taking over NPLs totaling CFAF 34.2 billion (about 5 percent of GDP) financed by 10-year credit lines with the same banks in a non-cash transaction.
  - Bailouts were done against IMF advice and raised governance concerns.
  - In mid-2016, government declared the bailouts null and void; legality is being evaluated in court.
  - Following Banking Commission recommendations in early 2017, the banks fully provisioned the bailout NPLs, producing negative earnings and large drops in equity capital for both banks.
  - Shareholders resolved to inject funds to meet the new CFAF 10 billion minimum capital requirement; one bank did not implement the increase and remains significantly undercapitalized.
  - Despite recognition of the bailout NPLs, system-wide gross NPLs are near pre-bailout levels but net NPLs are at a more manageable level after provisioning.

### Policy challenges and reform priorities
- Key constraints to sustained and inclusive growth:
  - Improvements in the business environment to catalyze private sector investment and diversification away from cashew dependence.
  - Strengthening revenue mobilization to enable priority social and infrastructure spending.
  - Addressing high levels of non-performing loans and legacies from the voided 2015 bank bailout to bolster financial intermediation.
- Fund engagement:
  - 2017 Article IV discussions focused on priorities to tackle developmental constraints and anchor macroeconomic stability, building on past Fund advice and ongoing technical assistance.

### Program performance and next steps
- All quantitative performance criteria and indicative targets for the fourth review were met.
- Two structural benchmarks were not met but are expected to be implemented with delay.
- Upon Executive Board completion of the fourth review, SDR 3.03 million (11 percent of quota) will be made available under the ECF arrangement.

*International Monetary Fund. Executive Summary for Guinea-Bissau, November 21, 2017.*

### 12.      Performance relative to program targets for the fourth review was good (Tables 6–7).

### 12.      Performance relative to program targets for the fourth review was good (Tables 6–7).

### Performance on quantitative targets (end-June 2017)
- All performance criteria for end-June were met.
  - Total domestic tax revenue (floor): Prog. 33.4; Prel. 41.4 — met.
  - Net domestic bank credit to the central government (ceiling): Prog. 6.4; Prel. -2.6 — met.
  - Ceiling on new nonconcessional external debt (US$ millions): Prog. 2; Prel. 0.0 — met.
  - Outstanding stock of external debt owed or guaranteed by the central government with maturities of less than one year (ceiling): Prog. 2; Prel. 0.0 — met.
  - External payment arrears (ceiling): Prog. 2; Prel. 0.0 — met.
- Compliance with continuous ceilings:
  - Consistent with their zero-ceilings, there was no new non-concessional nor short-term external borrowing.
  - No external arrears were accumulated.
- All indicative targets for end-June 2017 were met.
  - New domestic arrears (ceiling): Prog. 0.0; Prel. 0.0 — met.
  - Social and priority spending (floor): Prog. 21.7; Prel. 23.2 — met (social and priority spending was CFAF 1.5 billion above the floor).
  - Domestic primary balance (commitment basis, floor): Prog. -5.1; Prel. 5.6 — met (the domestic primary balance registered a surplus rather than the programmed deficit).
  - Non-regularized expenditures (DNTs, ceiling): Prog. 0.4; Prel. 0.0 — met.
- Other end-June outcomes:
  - The domestic tax revenue floor was exceeded by CFAF 8 billion (24 percent).
  - Net domestic bank credit to central government was CFAF 9 billion below the program ceiling.
  - There were no new domestic arrears.
  - There were no non-regularized expenditures.

### Banking sector indicators (selected)
- Guinea-Bissau: Selected Commercial Banking Sector Indicators (percent of GDP, unless otherwise indicated)
  - Total Assets:
    - 2012: 16.4
    - 2013: 14.5
    - 2014: 16.5
    - 2015: 19.2
    - 2016: 17.9
    - June 2017: 13.6
  - o/w credit to private sector (gross):
    - 2012: 14.1
    - 2013: 14.0
    - 2014: 15.3
    - 2015: 14.6
    - 2016: 13.7
    - June 2017: 13.7
  - Total Deposits:
    - 2012: 14.0
    - 2013: 13.7
    - 2014: 17.3
    - 2015: 17.4
    - 2016: 15.1
    - June 2017: 14.3
  - Non-Performing Loans (NPLs, gross):
    - 2012: 3.2
    - 2013: 3.8
    - 2014: 6.0
    - 2015: 1.2
    - 2016: 1.5
    - June 2017: 4.4
  - Provisions for Loan Loss:
    - 2012: 1.3
    - 2013: 1.9
    - 2014: 3.4
    - 2015: 0.7
    - 2016: 0.8
    - June 2017: 3.3
- Memorandum items:
  - Nominal GDP (CFAF billions):
    - 2012: 505.1
    - 2013: 516.7
    - 2014: 520.9
    - 2015: 612.5
    - 2016: 690.5
    - June 2017: 780.7
  - Broad Money (M2, CFAF billions):
    - 2012: 164.5
    - 2013: 169.2
    - 2014: 241.5
    - 2015: 301.4
    - 2016: 328.1
    - June 2017: 338.8
  - NPLs (percent of total loans):
    - 2012: 22.6
    - 2013: 27.0
    - 2014: 39.4
    - 2015: 8.2
    - 2016: 10.8
    - June 2017: 31.7
- Notes:
  - Values for 2015 and 2016 have been adjusted to exclude the bailout.
  - Values for 2017 include entries for the new bank, Banque Atlantique.
  - Sources: BCEAO; and IMF staff estimates.

### Structural benchmarks and reporting
- Five out of seven structural benchmarks (SBs) for 2017 were observed as envisaged.
- Two benchmarks were not met on time:
  - Application of upgraded debt management software (SB for September 2017) was delayed due to problems in the procurement process but is now expected to be effected by end-2017.
  - Submission of monthly financial reports for the public electricity and water utility (EAGB) (SB for July 2017) was delayed but accomplished in October 2017, although with weaknesses in the quality of data.

### Outlook and medium-term baseline assumptions
- Growth and inflation
  - Real GDP growth: projected at 5.5 percent in 2017; remains steady at 5 percent a year over the medium term (2018–22).
  - Real per capita income growth:
    - 2014: -1.2
    - 2015: 3.8
    - 2016: 3.5
    - 2017: 3.2
    - 2018–2022: 2.7 (each year)
  - Consumer price inflation (% annual average):
    - 2014: -1.0
    - 2015: 1.5
    - 2016: 1.5
    - 2017: 2.2
    - 2018: 2.3
    - 2019: 2.5
    - 2020: 2.6
    - 2021: 2.8
    - 2022: 3.0
  - Staff projection: Consumer price inflation increases somewhat from 2.2 percent in 2017 to 3 percent at the end of the medium term, but staying within the WAEMU convergence criterion.
- External current account and reserves
  - External current account balance (incl. grants, % of GDP):
    - 2014: 0.5
    - 2015: 2.5
    - 2016: 1.3
    - 2017: 0.0
    - 2018: -2.3
    - 2019: -2.8
    - 2020: -3.0
    - 2021: -2.9
    - 2022: -2.6
  - Staff: External current account moves from broad balance in 2017 to a deficit of 2–3 percent of GDP over the medium term because of higher investment and expanding economic activity.
  - WAEMU official reserves increased by $3.3 billion (to 4.6 months of imports) in the first half of 2017 following Eurobond issuances in Senegal and Côte d'Ivoire.
- Fiscal projections and debt
  - Total revenue (incl. grants, % of GDP):
    - 2014: 22.1
    - 2015: 20.4
    - 2016: 16.2
    - 2017: 15.9
    - 2018: 17.2
    - 2019: 17.8
    - 2020: 18.2
    - 2021: 18.6
    - 2022: 19.2
  - Total expenditures (% of GDP):
    - 2014: 24.7
    - 2015: 23.4
    - 2016: 20.9
    - 2017: 17.6
    - 2018: 19.0
    - 2019: 19.7
    - 2020: 20.3
    - 2021: 20.7
    - 2022: 21.3
  - Overall fiscal balance (incl. grants, commitment basis, % of GDP):
    - 2014: -2.6
    - 2015: -3.0
    - 2016: -4.7
    - 2017: -1.7
    - 2018–2022: -1.9 to -2.1 (various years)
  - Total public sector debt (gross, % of GDP):
    - 2014: 55.1
    - 2015: 52.8
    - 2016: 54.1
    - 2017: 49.2
    - 2018: 48.3
    - 2019: 47.3
    - 2020: 46.1
    - 2021: 44.7
    - 2022: 43.4
  - Staff projection: overall fiscal (cash basis) deficit projected to widen slightly from 1.8 percent of GDP in 2017 to 2.3 percent of GDP in 2018, due to higher domestic capital spending, and then remain at that level.
  - To anchor prudent fiscal policy and debt sustainability, the authorities should adhere to the budgeted target for the overall balance in 2017 and continue to strictly limit net domestic bank credit over the medium term.
  - Required domestic primary surplus:
    - About 0.4 percent of GDP in 2017 (domestic, excluding grants and foreign-financed capital spending).
    - 0.8–1 percent of GDP over the medium term.

### Risks to the baseline
- Downside risks:
  - Reescalation of political tensions with disruptive government changes could undermine institution building, dent investor confidence, and erode development partner support.
  - Fiscal outlook and public debt sustainability could deteriorate if courts rule against the voiding of the bank bailout.
  - Banking sector instability could ensue if undercapitalization is not properly addressed.
  - Agricultural output vulnerability to adverse weather.
  - High dependence on cashew (90 percent of exports) exposes the economy to international cashew price movements.
- Upside possibilities:
  - Possible start of a FDI-financed phosphate mining project could boost exports.
  - Scope for greater value-addition in agriculture.
  - Nascent tourism industry offers large potential.

### External balance assessment (EBA-lite results)
- EBA-lite methodologies indicate a moderate undervaluation of the real exchange rate in the 5–10 percent range in 2016.
- CA (current account) approach:
  - CA gap (percent GDP): 3.5
  - REER gap (percent): -7.2
- ES (external sustainability) approach:
  - CA gap (percent GDP): 3.2
  - REER gap (percent): -6.2
- REER approach:
  - CA gap (percent GDP): -9.0 (REER approach result)
- Interpretation caveats:
  - Data for Guinea-Bissau are associated with a high degree of uncertainty.
  - EBA-lite models rely on coefficients estimated for other countries and do not fully capture Guinea-Bissau’s single-commodity export dependence or membership in a currency union with a fixed exchange rate to the Euro.

### Authorities’ and staff views on policy priorities
- Authorities:
  - Broadly concurred with staff’s assessment of the medium-term outlook and risks; more optimistic on growth prospects.
  - Emphasized infrastructure improvements (road construction, electricity) over the past three years and further planned improvements.
  - Highlighted initiatives to unlock potential in rice production, tourism, fisheries, and minerals extraction.
  - Acknowledged risks associated with cashew as the sole export but noted increasing global cashew demand should keep prices from falling.
- Staff emphasized a medium-term focus on policies to support sustained and inclusive growth, with emphasis on:
  - Private sector development through healthy financial intermediation and improved business environment.
  - Strengthening revenue mobilization to ensure adequate government financing.
  - Reforms tailored to institutional capacity, supported by TA and training from the Fund and development partners, to ensure macroeconomic and debt sustainability.

### Fiscal policy and expenditure management recommendations
- Revenue mobilization:
  - Primary fiscal challenge is revenue mobilization; tax revenue in 2016 amounted to 9.2 percent of GDP.
  - Continue reforms to tax and customs administration and adequately resource these activities.
  - Finalize contracts for recently hired staff and ensure infrastructure for extending the SYDONIA system to customs posts nationwide.
  - Review tax policy elements (including excise rates), modernize outdated legislation, and broaden the tax base.
  - Give closer attention to underperforming non-tax revenue (notably fisheries receipts).
- Expenditure and prioritization:
  - Improve planning framework to accommodate more priority social and infrastructure spending while containing non-priority spending.
  - Strengthen budget processes, vetting of investment projects, and ensure continued PFM and expenditure management reforms.
  - Ensure accurate staffing records and development of a wage policy to control the wage bill.
  - Extend coverage of the SIGFIP information management system comprehensively to cover all revenue and expenditure categories.
  - Develop a planning and execution framework to steer in-year spending toward medium-term social and investment objectives.
- Financing composition:
  - Overall deficits should largely be filled by low-cost foreign project financing to address investment needs while preserving debt sustainability.

*Source: IMF staff report text (Guinea-Bissau).*

### 25.      The authorities concurred with staff’s views on the fiscal stance and direction of

### 25.      The authorities concurred with staff’s views on the fiscal stance and direction of reforms.

### Fiscal stance, revenue, and expenditure
- Authorities concurred with staff’s views on the fiscal stance and direction of reforms.
- Stressed devotion to fiscal prudence and noted how domestic bank debt had been essentially eliminated during 2017.
- Viewed staff’s projection of revenue as conservative.
- Emphasized infrastructure development as the main priority for additional spending.
- Stressed that the level of expenditure would be based on the level of revenue mobilized to keep the deficit within program targets (MEFP ¶20).
- Underscored dedication to advancing fiscal structural reforms and appreciation of supporting Fund TA; committed to implementing the advice received.
- Intentions going forward:
  - Review the tax policy system, with a view to modernization and simplification.
  - Develop frameworks for fiscal management of natural resources.
  - On the expenditure side, extend reforms to improve recording and management of expenditure.
  - Undertake initial steps towards a medium-term framework to help guide development initiatives.

### B. Promoting Strong and Inclusive Growth — context and challenges
- Guinea-Bissau’s legacy of conflict and weak governance has left an underdeveloped economy and widespread poverty.
- Binding constraints: poor government services, low human capital, inadequate infrastructure, unfriendly business environment, corruption, chronic political instability.
- Recent alleviations: calm security situation since the 2012 coup, improved electricity supply in 2014–16, and strengthened macroeconomic management in 2017.
- Country rankings:
  - Continues to rank near the bottom on doing business indicators, including frameworks for starting a business and resolving insolvency.
  - Ranked weaker than other WAEMU countries on a range of governance indicators.

Selected Social Indicators, 2006-2015 (as presented)
- Per capita income — Guinea Bissau: 518
- Poverty headcount — Guinea Bissau: 67.1
- Income distribution (GINI) — Guinea Bissau: 50.7
- Adult literacy rate (%, 15 and older) — Guinea Bissau: 59.3
- Human development index — Guinea Bissau: 0.41
- Regional average (simple average for Benin, Burkina Faso, Cote d'Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo):
  - Per capita income: 711
  - Poverty headcount: 49.7
  - Income distribution: 41.2
  - Adult literacy rate: 40.3
  - Human development index: 0.42

### Staff’s assessment on growth and diversification
- Recent growth performance represents marked progress but the business environment needs further improvement to ensure durable and inclusive growth.
- Significant investment in infrastructure and social services, and reforms to enforce the rule of law and enhance governance, are needed.
- Key task: enhance electricity provision, which remains deeply inadequate (see Box 4).
- Transforming EAGB to an autonomous entity operated under a service contract (MEFP ¶27), as planned under a World Bank supported project, would be instrumental and should be done as soon as possible.
- Fostering diversification and reducing reliance on cashew for exports would help develop new income streams and make the economy more resilient.
- Growth in sectors where the poor are active, including cashew production, helps alleviate poverty; but a more diversified growth path that raises productivity can reduce poverty more quickly, with a more even income distribution and lower risk of poverty persistence.
- As one of the least diversified economies globally, there is large scope for improvement.
- Reform areas to support diversification include:
  - Investing in human capital.
  - Improving the business environment.
  - Promoting financial deepening.
  - Improving the quality of infrastructure.

### Box 4. Electricity Supply — findings and initiatives
- Electricity supply is a major constraint to economic development in Guinea-Bissau.
- The public electricity and water utility, EAGB, only covers the capital.
- Power generation is entirely from diesel generators under a lease arrangement with an international provider of emergency power.
- Capacity of around 15 MW, although having increased sharply since 2013, covers only about half of demand, resulting in frequent outages.
- Electricity tariffs, unchanged since 1997, are among the highest in the world at US$0.37–0.50 per kWh.
- Initiatives underway:
  - World Bank project focusing on distribution infrastructure and reform of EAGB.
  - Financing from BADEA and BOAD secured towards adding 37 MW of new generation to come online in 2018–19 and replace the current lease agreement.
  - A project for solar-powered generation is being considered.
  - OMVG hydroelectric project should come online in 2019–20, promising to substantially reduce the cost of power.

### Policy recommendations on regulation and markets
- Regulatory frameworks should target stability, transparency, and promotion of free competition.
- A recent draft bill for regulation of the cashew sector was rejected due to concerns it would have hampered free competition.
- Need for a cashew policy framework that brings clarity and stability without undercutting competition.
- The price cap on rice, introduced mid-year in response to spiking prices, should be removed as scheduled by end-2017 to avoid distorting market mechanisms and attendant inefficiencies.
- Policy framework for fuel pricing should be adhered to with regular and automatic adjustments.

### Authorities’ views on growth and diversification
- Agreed with the need to encourage private sector-led development and diversification (MEFP ¶26).
- Committed to promoting healthy competition.
- Highlighted reforms underway to improve electricity supply and strengthen management of public enterprises.
- Initiatives to encourage non-cashew agriculture, including mechanisms for helping farmers access inputs and equipment.
- Pointed to recent private investments, including a cement factory and warehouse facilities, as positive momentum.

### C. Strengthening Financial Intermediation and Inclusion — current state
- Financial sector remains shallow with challenges limiting effective intermediation and inclusion.
- Number of people with bank accounts has increased, partly due to government decision to pay salaries only through the banking sector.
- Use of financial services remains low.
- Stock of credit to the private sector: 14.5 percent of GDP at end-2016 (far below the WAEMU average of 26 percent of GDP).
- Increased prevalence of mobile phones and remittances have not been fully leveraged to raise financial inclusion.
- Constraints: traditional land ownership practices and large informal economy limit collateral availability; weak accounting practices make it difficult for banks to evaluate loan requests.

### Ongoing initiatives and reforms in the financial sector
- Government initiatives (with regional support) to improve financing for SMEs (in accordance with WAEMU Council of Ministers measures in September 2015) (MEFP ¶25).
- BCEAO initiatives:
  - Establishment of a deposit guarantee fund; principles for contribution and access being developed; full size to be built over a ten-year period.
  - Creation of an official regional credit bureau providing more debtor information than the existing national office, including on loan defaults.
  - Introduction of elements of the Basel II/III framework in January 2018, with BCEAO having trained banks in complying with new prudential standards.

### Staff’s assessment on financial sector risks and actions needed
- Resolving the disputed bailout and related overhang of legacy NPLs would help boost credit to the private sector.
- An undercapitalized bank that was instrumental in providing credit is scaling back lending due to high NPLs, negative capital, and lack of recourse to BCEAO facilities.
- Once recapitalized the bank would be better placed to support a rebound of credit to the private sector.
- Stakeholders should move swiftly to secure fresh capital and achieve compliance with prudential norms.
- If necessary capital injection is not achieved quickly, the Banking Commission is expected to act promptly to protect financial stability, in line with its regulations.

### Authorities’ views on financial inclusion
- Shared staff’s assessment of the need to develop the financial sector, enhance access to credit, and reduce vulnerabilities.
- Intend to revise the national strategy document for the microfinance sector by consolidating existing initiatives and signing a partnership agreement with the African Microfinance Network to boost microfinance in rural areas and credit facilities for SMEs, consistent with the regional initiative.
- Intend to draft a national strategy for financial inclusion (following regional initiative).
- Encouraging use of the banking system (including for private real estate transactions) to bolster financial intermediation.
- Strengthening the credit information bureau with support of regional authorities.

### D. Maintaining Prudent Borrowing Policies — recent improvements
- Improved fiscal performance, enhanced debt management, and progress in resolving external debt arrears are helping reduce Guinea-Bissau’s debt burden.
- Government debt as a ratio to GDP projected to fall from 54.1 percent of GDP in 2016 to 49.2 percent of GDP at end-2017.
- Interest burden reduced by eliminating expensive domestic debts and obtaining more favorable terms on borrowings from BOAD (MEFP ¶22).
- External legacy arrears reduced; government obtained 3.2 percent of GDP in debt relief following an agreement with the Exim Bank of Taiwan Province of China, which cancels 90 percent of debts originating from two 1990 loans (MEFP ¶21).
- Contingent liabilities risk: calls on government debt guarantees to Guiné-Telecom (1.4 percent of GDP) last year and to EAGB (0.8 percent of GDP) this year left less resources for other spending.
- Inventory of outstanding debt guarantees shows a total of 4 guarantees totaling CFAF 5.4 billion (0.7 percent of GDP).

### Staff’s assessment on debt sustainability and arrears
- Debt sustainability analysis (DSA) indicates moderate risk of debt distress.
- Economy highly vulnerable to export shocks; poor financial state of public enterprises and weak debt management are risks.
- Assessment of moderate risk unchanged from previous DSA updated in December 2016.
- Trajectories of external debt indicators remain below respective thresholds in the baseline scenario; PV of debt-to-exports ratio exceeds its threshold only in an extreme export shock scenario.
- PV of public debt-to-GDP ratio breaches its benchmark in all scenarios until 2023.
- Debt-service ratios remain comfortable throughout the projection period.
- Domestic currency debt of the central government amounted to 39.7 percent of GDP at end-2016.
  - Largest exposures: BOAD 12.9 percent of GDP and BCEAO 14.2 percent of GDP (largely reflecting debts to the previous central bank).
  - These debts have zero interest and amortization due in 2017-18 following recent rescheduling.
  - Debts to domestic commercial banks were 2.9 percent of GDP at end-2016; in 2017 reduced and consolidated into cheaper Treasury securities scheduled for re-payment over three years.

### Outstanding arrears and recommended actions
- Outstanding external arrears of $42.2 million (3.1 percent of GDP) to Angola, Brazil, Libya, Russia, and Pakistan not covered in the HIPC process.
- Domestically, government faces claims totaling over 13 percent of GDP, most more than a decade old and never validated (MEFP ¶23).
- A plan for comprehensively resolving legitimate domestic arrears should be developed; claims should be carefully vetted as many could be spurious.
- Staff emphasized need to address operational risks and continue prudent borrowing policies:
  - Maintain prudent borrowing as per the borrowing plan.
  - To the maximum extent seek grants and concessional loans for priority projects.
  - Strengthen debt management capacity and procedures, including regular production of reports on external debt developments.
  - Contain and monitor contingent liabilities, including requiring state-owned enterprises to produce audited financial statements.

### Authorities’ views on borrowing and debt management
- Broadly concurred with staff’s views on debt.
- Noted urgent need to address infrastructure gap but stated pace of public investment would be determined by available external concessional resources.
- Will continue to avoid non-concessional and short-term foreign currency debt.
- Elevated the debt management unit to a full Directorate of the Finance Ministry.
- Upgraded debt management software (DMFAS 6.0) to be operational by end-2017.
- CFAF 1.7 billion government guarantee issued this year for borrowing by Bissau City to finance construction of a market would be secured by vendor fees deposited directly in an escrow account.
- Best efforts to: (i) negotiate with bilateral creditors for cancellation and/or rescheduling of legacy arrears; and (ii) carefully vet outstanding domestic claims with a view to permanently resolving legitimate arrears.
- Audits of public enterprises have been comprehensively expanded and accelerated for completion by end-2017 (MEFP ¶28).

### E. Statistical Issues — data quality and improvements
- Weaknesses in economic statistics continue to hamper surveillance; different datasets often inconsistent and subject to large revisions.
- TA has helped production of national accounts and government finance statistics.
- Ongoing initiatives expected to help improve balance of payments and international investment position statistics.
- Authorities underscored the role of TA in strengthening statistics.
- Progress in improving national accounts source data and plans to publish by March 2018 revised national accounts with an updated base year (MEFP ¶31).

*Source: cr17380 - 25.      The authorities concurred with staff’s views on the fiscal stance and direction of (IMF staff report content).*

### 42.      The authorities have taken steps to strengthen their framework for Anti-Money

### cr17380 - 42.      The authorities have taken steps to strengthen their framework for Anti-Money

### AML/CFT framework strengthening
- The authorities have taken steps to strengthen their framework for Anti-Money Laundering and Financing of Terrorism (AML/CFT) with assistance from development partners (MEFP ¶30).
- Approved a national strategic plan and enhanced the autonomy of the Financial Intelligence Unit (CENTIF).
- CENTIF intensified information dissemination with TA from the Inter-Governmental Group against Money Laundering in West Africa (GIABA), resulting in some initial declarations of suspicious financial transactions.
- Ongoing IMF TA is helping develop capacity at CENTIF to undertake its core functions, and at the Ministry of Economy and Finance to undertake AML/CFT supervision of exchange houses.

### Anti-corruption legal and institutional recommendations
- Staff advised further strengthening of the legal and institutional framework to combat corruption.
- Key recommended actions:
  - Ensure that the Inspeção Superior de Luta Contra a Corrupção has the necessary resources and support to effectively carry out its mandate.
  - Prepare a comprehensive template for the declaration of assets and interests by all officials concerned.
  - Prepare amendments to Law 7/99 to cover all politically exposed persons per Financial Action Task Force (FATF) standards.
- Authorities expressed support but noted that aspects requiring enactment of legislation are under the control of Parliament.

### Other surveillance issues
- Safeguards Assessment:
  - The latest safeguards assessment of the BCEAO from December 2013 found that the bank continued to have a strong control environment.
  - An updated safeguards assessment is planned to take place in the coming months, in line with a four-year cycle for regional central banks.
- Exchange System and Exchange Rate Arrangement:
  - Guinea-Bissau accepted the obligations of Article VIII, Sections 2, 3, and 4 with effect from January 1, 1997.
  - Joined the WAEMU in 1997, and has no separate legal tender.
  - The exchange system is free of multiple currency practices and exchange restrictions on the making of payments and transfers for current international transactions.

### Program issues and structural benchmarks
- Program monitoring:
  - Program performance will continue to be assessed semi-annually (MEFP ¶32, Tables 6-8).
  - Performance criteria for end-December 2017 are unchanged.
  - The fifth (and last) program review will be based on the end-December 2017 performance criteria and is scheduled to be completed on or after April 15, 2018.
- Structural measures envisaged for remainder of 2017 and 2018 (Table 7b and MEFP ¶¶18-19):
  - Completing a draft law for a new small taxpayer regime with technical assistance from the IMF to improve tax administration and facilitate small taxpayer compliance (SB for December 2017).
  - Preparing:
    - a monthly rolling treasury cash-flow projection table consistent with the 2017 budget;
    - quarterly reports on ministry-level budget execution with details along economic classification of expenses;
    - quarterly reports on external debt commitments, agreements, and disbursements;
    - monthly reports detailing financial flows for EAGB (all ongoing SBs).
  - Completing the upgrade of debt management software (DMFAS 6.0) and commencing its use for effective debt analysis and debt service projections (SB for December 2017, reset from September 2017).
  - Authorities proposing two new structural benchmarks involving submission to the Council of Ministers of:
    - a draft budget for 2018 in line with the understandings outlined above (SB for end-December 2017);
    - a management improvement plan for EAGB to pave the way for implementation of a service contract around mid-2018 (SB for March 2018).

### Financing, arrears, and debt outlook
- Financing assurances:
  - Financing assurances are in place for the fourth review.
  - The program is fully financed until its expiry In July 2018, with the bulk of the financing expected to be met through external support.
- Arrears and creditor relations:
  - Guinea-Bissau owes arrears to Angola, Brazil, Russia, Libya, Pakistan, [all of whom have consented to Fund financing notwithstanding these arrears].
  - In addition to resolving its arrears to Taiwan Province of China, Guinea-Bissau has this year cleared its arrears to the UAE.
  - It remains current on its remaining external debt service obligations while pursuing negotiations for rescheduling and/or outright cancellation of its arrears.
- Capacity to repay Fund:
  - Use of Fund resources under the ECF arrangement will have a negligible impact on debt and debt service ratios, increasing Guinea-Bissau’s obligations to the Fund to 85¼ percent of quota or 2.28 percent of GDP at the end of the current ECF-supported program in 2018 (Table 9).
  - Guinea-Bissau’s risk of debt distress remains moderate.

### Staff appraisal — macroeconomic performance and policy priorities
- Growth and macro outlook:
  - Real GDP growth is projected at 5.5 percent in 2017.
  - Increased cashew prices and improved terms of trade have boosted incomes of rural households and supported generally buoyant economic activity.
  - External current account is broadly balanced; overall inflation has remained low.
- Financial sector:
  - Financial intermediation has remained subdued, with banks burdened by high levels of non-performing loans and still unresolved issues from the voided 2015 bank bailout.
  - Rapid action to recapitalize the undercapitalized bank and resolve the ongoing court case is needed.
  - Regional Banking Commission should take strong action including a firm time-bound action plan, backed by sanctions and interventions, to end regulatory non-compliance by the undercapitalized bank.
  - Developing a national plan for financial inclusion would support efforts to deepen the financial system.
- Fiscal and debt policy:
  - Fiscal management has strengthened: elimination of non-regularized expenditures, avoidance of new arrears, reduced debt servicing costs, creation of a cash buffer, and better expenditure control.
  - Fiscal deficit has narrowed sharply and the debt-to-GDP ratio is set to fall by several percentage points in 2017.
  - Authorities should maintain over the medium term the low fiscal deficits set to be achieved in 2017.
  - Important to maintain prudent borrowing policies and to the maximum extent seek grants and concessional loans for priority projects.
  - Further strengthen debt management capacity and procedures; contain and monitor contingent liabilities, including requiring all state-owned enterprises to produce audited financial statements on a regular annual basis.
- Revenue, spending, and governance:
  - A needed step up in social and investment spending will require continued progress on domestic revenue mobilization and improvements in the planning framework.
  - Reforms in tax and customs administration should be extended and broadened; tax policy reviewed with a view to simplification and modernization.
  - Strengthen public financial management, enhance procedures for project selection, and develop a supporting planning and execution framework.
  - Authorities encouraged to place emphasis on improving statistics and bolstering transparency and healthy competition in all areas.
- Governance and anti-corruption:
  - Steps to combat corruption should be supported by strengthening of AML/CFT efforts.
  - Implementation of a comprehensive asset disclosure regime for public officials identified as an important step to improve governance.

*International Monetary Fund — Selected excerpts from mission report (cr17380).*

### 57.      Staff recommends conclusion of the 2017 Article IV Consultation, and completion of

### cr17380 - 57.      Staff recommends conclusion of the 2017 Article IV Consultation, and completion of

### Staff recommendation
- Staff recommends conclusion of the 2017 Article IV Consultation, and completion of the fourth program review and financing assurances review.
- Recommendation based on strong progress under the program, including structural reforms to ensure lasting progress.
- Recommendation that the next Article IV consultation with Guinea-Bissau be held on the 24-month cycle, in accordance with Decision No. 14747– (10/96) on consultation cycles.

### Recent economic developments (high-level)
- Figure text highlights:
  - Real GDP Growth (percent change) — Guinea Bissau vs SSA, 2011–2017 (proj.)
  - Export, Import Prices and Terms of Trade (percentage change based on USD prices)
  - Real GDP and Cashew Production (percentage change) — Cashew prod. growth (LHS), Real GDP growth (RHS), Real income per capita (RHS)
  - Consumer Price Index (12-month average of y-o-y percent change) — CPI, Food, Nonfood
  - External Sector Indicators (percent of GDP) — Current account, Net exports of goods and services
  - Cashew Nut Export (Volume and value) — Thousand tons; Million US$
- Figure caption: "Sources: Guinea-Bissau authorities; and IMF staff estimates."

### Fiscal and credit developments (high-level)
- Figure text highlights:
  - Stock of Public Debt (end-of-period, percent of GDP) — External debt / Domestic debt, 2011–2017 (proj.)
  - Private Credit and Non-Performing Loans — Private credit growth; NPL ratio (note: NPLs for 2015 and 2016 have not been adjusted for the voided bailout transactions)
  - Fiscal Balance and Financing (percent of GDP) — Domestic primary balance, Net domestic bank credit to central government, Overall fiscal balance, incl. grants
  - Expenditure (percent of GDP) — Current expenditure, Capital expenditure
  - Fiscal Revenue (percent of GDP) — Tax revenue, Non-tax revenue, Grants
  - Fiscal Performance (percent of GDP) — Total revenue and grants, Total expenditure, Overall fiscal balance (incl. grants)
- Figure conclusion bullets (text from figure):
  - "After jumping up in 2014, both revenues and expenditures have declined..."
  - "...with the decline in total revenue driven by lower grants ..."
  - "...and a tight budget constraint necessitating cuts mainly in current expenditure."
  - "Fiscal balances worsened in 2016, but improved sharply in 2017."
  - "Overall debt is on track to decline."
  - "Private credit extension remains subdued and non-performing loans high."
- Figure caption: "Sources: Guinea-Bissau's authorities; and IMF staff estimates."

### Medium-term outlook (Figure 3 highlights)
- Growth and inflation:
  - "Real GDP Growth (percent) 2014–2020 (proj.)" — growth expected to remain at near the recent pace, supported by a strengthening business environment.
  - "Consumer Prices (annual percent change)" — inflation has risen from very low levels and is expected to stabilize.
- Fiscal and external:
  - "Revenue (percent of GDP)" — domestic tax revenue should increase as tax administration is strengthened and the tax base expands.
  - "Expenditure (percent of GDP)" — capital expenditure increases within a contained overall expenditure envelope.
  - "External Sector Indicators (percent of GDP)" — external current account balance is expected to turn to a modest deficit.
- Figure caption: "Sources: Guinea-Bissau's authorities; and IMF staff estimates and projections."

### Key selected indicators (Table 1 — verbatim lines preserved)
- National accounts and prices:
  - "Real GDP at market prices1.06.15.85.05.55.05.05.05.05.0"
  - "Real GDP per capita-1.23.83.52.73.22.72.72.72.72.7"
  - "GDP deflator-0.110.86.62.47.21.61.92.12.22.5"
  - "Consumer price index (annual average)-1.01.51.52.02.22.32.52.62.83.0"
- External sector snippet:
  - "Exports, f.o.b. (based on US$ values)8.854.66.85.724.57.17.19.39.49.7"
  - "Imports, f.o.b. (based on US$ values) 17.3-3.66.92.230.013.29.39.08.58.2"
- Government finances snippet:
  - "Domestic revenue (excluding grants)59.429.4-0.615.18.722.911.711.010.411.8"
  - "Total expenditure         89.111.30.9-2.3-5.215.710.910.29.510.6"
  - "Overall balance (commitment basis) Including grants-2.6-3.0-4.7-1.9-1.7-1.9-2.0-2.1-2.1-2.1"
- Debt and memorandum:
  - "Stock of central government debt55.152.854.150.249.248.347.346.144.743.4"
  - "Nominal GDP at market prices (CFAF billions)520.9612.5690.5734.1780.7832.7890.9955.11025.41103.5"
- Table footnotes preserved:
  - "Values exclude the 2015 bank bailout of CFA 34.2 billion. A final determination by the courts on the legality of the bailout contracts is still pending."
  - "(Annual percent change, unless otherwise indicated) (Percent of GDP, unless otherwise indicated)"

### Balance of Payments (selected lines preserved from Table 2)
- Current account balance (CFAF billions):
  - "Including official current transfers2.815.29.3-4.3-0.1-19.0-25.2-28.8-29.9-28.2"
  - "Excluding official current transfers -20.59.69.01.6-2.9-19.0-25.2-28.8-29.9-28.2"
- Goods and services:
  - "Goods and services-58.2-26.2-27.2-38.6-38.7-52.1-59.2-61.7-62.3-61.2"
  - "Exports, f.o.b82.1151.9162.7179.1198.8204.2217.7237.6260.9287.9"
  - "Of which: cashew nuts69.2135.8161.7177.4195.6200.8214.1233.8256.9283.6"
  - "Imports, f.o.b. -105.9-122.3-131.1-169.3-167.2-181.5-197.6-215.1-234.2-254.9"
- Current transfers (net):
  - "Current transfers (net)42.626.421.520.324.819.219.920.621.422.2"
  - "Official2 23.36.50.30.02.80.00.00.00.00.0"
  - "Private19.319.921.220.322.019.219.920.621.422.2"
  - "Of which: remittances19.219.918.319.218.519.219.920.621.422.2"
- Financial account and financing highlights:
  - "Financial account-35.2-11.829.23.311.2-16.6-20.8-23.1-24.9-27.4"
  - "FDI-12.9-9.6-9.8-8.9-11.3-19.2-20.5-22.0-23.6-25.4"
  - "Official medium- and long-term disbursements-13.1-10.0-13.5-15.4-15.6-18.8-22.4-24.7-25.7-27.7"
  - "Overall balance 61.140.2-7.022.642.428.128.228.932.139.2"
- Memorandum item (cashew exports):
  - "Cashew export quantity (thousands of tons)139175195200177186195209225242"
  - "Cashew export prices (US$ per ton)1,0001,3001,4001,6801,9001,9381,9772,0162,0572,098"
- Table footnote highlights:
  - "The figure for 2017 includes CFAF 25 billion in debt relief from Taiwan Province of China."
- Table caption: "Sources: BCEAO; and IMF staff estimates and projections."

### Central government operations (selected items from Tables 3a/3b)
- Revenue and grants (CFAF billions and percent of GDP lines preserved in table):
  - "Revenue and grants115.0125.0112.054.378.2127.1123.964.4142.9158.3174.1191.2212.2"
  - "Revenue and grants22.120.416.27.410.017.315.97.717.217.818.218.619.2"
- Expenditure and components:
  - "Expenditure128.7143.3144.572.280.6141.2137.076.1158.6175.9194.0212.4234.9"
  - "Expense89.293.7102.047.049.393.889.649.2100.5111.4124.5137.0154.2"
  - "Net acquisition of nonfinancial assets39.549.542.525.131.347.447.527.058.164.669.575.380.7"
- Overall balances:
  - "Overall balance, including grants (commitment)-13.7-18.3-32.5-17.9-2.4-14.1-13.1-11.7-15.7-17.7-19.8-21.2-22.8"
  - "Overall balance, excluding grants (commitment)-63.1-58.4-60.1-30.9-26.9-44.2-45.3-26.7-45.9-50.1-54.2-58.1-62.5"
- Financing and arrears:
  - "Change in arrears-1.8-6.1-1.5-1.0-2.2-4.4-3.0-1.8-3.2-2.5-2.0-1.8-1.9"
  - "Overall balance, including grants (cash)-16.2-22.7-29.9-18.9-5.1-16.5-14.1-13.5-18.8-20.2-21.9-22.9-24.7"

### Monetary developments (Table 4 highlights)
- Monetary aggregates (CFAF billions):
  - "Net foreign assets151.6167.4201.5217.4224.8243.9272.0"
  - "Net domestic assets89.9134.0126.6108.3117.894.997.0"
  - "Money supply (M2)241.5301.4328.1325.7342.6338.8369.0"
  - "Base money (M0)159.8202.1232.9248.1248.5235.0256.0"
- Contributions to M2 growth (change in percent of beginning-of-period broad money):
  - "Money supply (M2)42.524.88.9-2.85.03.38.9"
  - "Net foreign assets25.56.511.34.86.912.98.3"
  - "Net domestic assets17.118.2-2.5-7.6-2.0-9.70.6"
- Memorandum items:
  - "Money supply (M2, annual percentage change)42.524.88.9-2.85.03.38.9"
  - "Credit to the private sector (annual percentage change)-6.650.16.9-21.13.6-27.07.0"

### Financial sector soundness (Table 5 highlights)
- Capital adequacy and asset quality:
  - "Capital to risk-weighted assets17.421.017.325.828.94.85.3"
  - "Non-performing loans to total credit (gross)6.722.627.039.48.210.831.7"
  - "Provisions to gross non-performing loans51.831.239.146.246.745.564.9"
- Liquidity and intermediation:
  - "Liquid assets to total assets30.032.119.418.616.633.235.9"
  - "Ratio of deposits to assets70.965.965.168.659.655.765.7"
  - "Ratio of loans to deposits68.893.485.682.893.690.071.0"
- Interest rates snippet:
  - "Deposit rate3.84.74.73.03.03.03.0"
  - "Lending rate10.610.29.212.012.012.012.0"
- Source: "BCEAO."

### Program performance: quantitative criteria and indicative targets (Table 6)
- Performance criteria sample (cumulative, CFAF billions):
  - "Total domestic tax revenue (floor)63.5 ... met"
  - "Net domestic bank credit to the central government (ceiling)²15.9 ... met"
  - "Ceiling on new nonconcessional external debt (US$ millions)0.0 ... met"
  - "External payment arrears (ceiling)3 0.6 ... met"
- Indicative targets:
  - "Social and priority spending (floor)32.2 ... met"
  - "Domestic primary balance (commitment basis, floor)-14.2 ... met"
  - "Non regularized expenditures (DNTs, ceiling)1.9 ... met"
- Memorandum items include:
  - "Clearance of domestic payment arrears6.1"
  - "External budgetary assistance (US$ millions)0.4"
  - "ECF disbursements (SDR millions, flow)5.1 ... 3.0"

### Structural benchmarks and status under the ECF program (Tables 7a and 7b — selected)
- Past structural benchmarks (2015–2017) — sample statuses:
  - "Implement an intra-trade post in SAFIM to reconcile invoice merchandise data with actual contents of the cargo. September 2015 — Met"
  - "Draw up a strategic plan for improving infrastructure and working conditions of officials of the domestic tax and customs administration. December 2015 — Not met. A new strategic plan for the tax administration was finalized in April 2017."
  - "Implement a new small taxpayer regime by the introduction of universal NIF (tax payer identification number) December 2015 — Not met."
  - "Prepare a monthly rolling Treasury cash flow projection table consistent with the 2015 budget. July 2015 for August 2015 and monthly thereafter — Met"
  - "Complete, with assistance of the WAEMU Banking Commission, an assessment of the two banks affected by the bailout, and articulate an action plan to bring these banks into compliance with prudential norms. April 15, 2017 — Met."
- Structural benchmarks for 2017–18 (selected):
  - "Extend the new uniform sales invoice to all taxpayers. September 2017 — Met"
  - "Complete the assignment of taxpayer identification numbers to all taxpayers. September 2017 — Met"
  - "Prepare a draft law ... for a new small taxpayer regime. December 2017 — On track. IMF TA is helping the authorities draft the law."
  - "Install the newest version of the debt management software, DMFAS 6.0, and commence its use. September 2017 — Not Met. Proposed rescheduled for December 2017."
  - "Submit management improvement plan for EAGB to the Council of Ministers March 2018 — Proposed benchmark"
  - "Submission of a 2018 budget to Council of Ministers December 2017 — Proposed benchmark"

### Schedule of disbursements under the ECF Arrangement (Table 8)
- Disbursement schedule (in millions of SDR; percent of Quota):
  - "July 10, 2015 — 2.84 SDR — 10 percent — Approval of the three-year ECF arrangement. Disbursed"
  - "October 15, 2015 — 2.84 SDR — 10 percent — Board completion of the first review. Disbursed"
  - "April 15, 2016 — 2.272 SDR — 8.00 percent — Board completion of the second review. Disbursed"
  - "April 15, 2017 — 3.030 SDR — 10.67 percent — Board completion of the third review. Disbursed"
  - "October 15, 2017 — 3.030 SDR — 10.67 percent — Board completion of the fourth review. (status shown)"
  - "April 15, 2018 — 3.028 SDR — 10.66 percent — Board completion of the fifth review."
  - "Total Disbursements 17.04 SDR — 60.0 percent"
- Table footnotes preserved:
  - "The first and second ECF-reviews were combined and completed on December 2, 2016. The third review was completed on July 6, 2017."

### Indicators of capacity to repay the Fund (Table 9 highlights)
- Fund obligations (SDR millions, selected years):
  - "Fund obligations based on existing credit Principal 0.72 1.45 1.45 1.45 1.29 1.59 2.20 2.20 2.20 1.63"
  - "Fund obligations based on existing and prospective credit Principal 0.72 1.45 1.45 2.16 2.00 2.30 3.82 4.12 3.41 2.84"
- Outstanding Fund credit (SDR millions):
  - "Outstanding Fund credit 22.63 24.21 22.76 20.60 18.60 16.30 12.49 8.37 4.96 2.12"
- Ratios and memorandum items (selected):
  - "Percent government revenue 0.63 1.01 0.90 1.21 1.02 1.05 1.55 1.46 1.06 0.77"
  - "Percent exports of goods and services 0.27 0.51 0.47 0.65 0.55 0.57 0.87 0.86 0.65 0.50"
  - "Nominal GDP 780.7 832.7 890.9 955.1 1,025.4 1,103.5 1,187.5 1,278.0 1,375.3 1,480.1"
  - "Government revenue 91.7 112.6 125.9 139.7 154.3 172.5 194.6 221.8 253.5 290.4"
- Table caption: "Source: IMF staff estimates and projections."

### Data transparency and reporting (Table 10 highlights)
- Data reporting frequency matrix entries (latest observation and receipt dates preserved where shown):
  - "International Reserve Assets and Reserve Liabilities of the Monetary Authorities — June 2017 Sept. 20, 2017 — Frequency: M M M"
  - "Reserve/Base Money — June 2017 Sept. 20, 2017 — Frequency: M M M"
  - "Broad Money — June 2017 Sept. 20, 2017 — Frequency: M M M"
  - "Consumer Price Index — Aug. 2017 Oct. 2017 — Frequency: M M M"
  - "Central Government — Revenue, Expenditure, Balance and Composition of Financing — June 2017 Aug. 5, 2017 — Frequency: M Q Q"
  - "Gross External Debt — June 2017 Aug. 5, 2017 — Frequency: M Q Q"
- Table footnotes preserved regarding definitions and frequency codes (D, W, M, Q, A, I).

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

### Annex I. Recommendations from the 2015 Article IV Consultation

### Annex I. Recommendations from the 2015 Article IV Consultation

### Fund Advice and Response — Key Recommendations and Implementation Status
- Foster political stability. Implement security sector and structural reforms to strengthen institutions and increase fiscal accountability.
  - Status: Political tensions remained elevated with disputes over implementation of the ECOWAS-brokered Conakry Accord of late 2016. Nevertheless, the security situation has been calm and important progress has been made towards promoting professionalism in the security forces and transparency in defense spending. Good progress on reforms to strengthen public institutions and enhance fiscal accountability, including adoption of a new regulation that clarifies the debt contracting authority.
- Broaden the domestic revenue base. Increase revenue mobilization by broadening the tax base, strengthening tax and customs administration, and streamlining tax exemptions.
  - Status: Tax and customs administration has been strengthened. The authorities extended the tax management software (SYDONIA ++) to a major border post in Bissau and have hired additional tax officers. New uniform sales invoices introduced and taxpayer identification numbers assigned to many taxpayers.
- Improve public expenditure management and build debt management capacities. Strengthen expenditure commitment planning, budget execution and control. Reform the debt unit and improve debt monitoring and management capacities.
  - Status: Public financial management strengthened considerably since late 2016. The Treasury Committee meets twice a week and is approving all expenditure commitments considering available resources. Spending practices that sidestep approved procedures have been eliminated and new domestic arrears avoided.
- Foster job creation and economic diversification. Improve the business environment by streamlining government controls and procedures and by increasing the efficiency of public initiatives in the cashew sector.
  - Status: The ill-managed fund for industrialization of agricultural production (FUNPI) was shut down after an audit of its operations. Electricity provision has improved and steps are underway to improve management of EAGB.
- Restore financial stability. Address undercapitalization of troubled banks in line with international best practices. Do not use scarce government funds for intervention.
  - Status: The ill-conceived bank bailout of 2015 was a major setback to good governance but the authorities took strong measures to reverse the transactions.

---

### Annex II. Capacity Building Amid Fragility

### Background — Political and Institutional Context
- Guinea-Bissau is among the world’s most fragile states. Since independence in 1973, the country experienced a civil war (in 1998–99) and a series of coups with marked negative consequences for the economy and social fabric.
- Conflict and political instability have stymied development of economic institutions and weakened administrative capacity. Weak institutions, high political uncertainty, and low resource mobilization are key features of fragility.
- Restoration of peaceful civilian rule in 2012 offered new hope. Elections held in April-May 2014. The Fund's Executive Board approved a Rapid Credit Facility (RCF) in November 2014. At a March 2015 Roundtable in Brussels donors pledged assistance totaling about $1.5 billion to support the country's 10-year development plan. The present ECF-supported program was approved in July 2015.
- Political instability continued with four changes of government between mid-2015 and late-2016. Early part of this period coincided with problematic bank bailouts and setbacks to effective treasury management, causing the ECF-supported program to go off track and eroding development partner support.

### Fostering Resilience by Building Capacity — Recent Developments and Strategy
- Since end-2016 there has been relative political stability and strong economic reform drive. 2017 noted as a year of relative calm. Under a new Minister of Finance, the ECF-supported program has been back on track and TA activities received new impetus.
- The Fund leads capacity strengthening through TA and training focused on: data compilation and dissemination systems; strengthening AML/CFT institutions like the Financial Intelligence Unit (CENTIF); and assisting with policy reform. Activities coordinated with African Development Bank, European Union, and World Bank.
- Capacity Development Strategy priorities for TA (FY2018) include tax administration, public financial management, debt management, and improving statistics.

### FY2018 TA Priorities, Objectives, and Main Recommendations
- Public Financial Management — Improve budget forecasting, execution, and control.
  - Recommendations:
    - Record all expenditures in the financial management system (SIGFIP), before payment.
    - Strengthen the capacity of the new unit in the Directorate General of Budget and update early year projections in the second half of the year.
    - Prepare and send to Council of Ministers on a timely basis a budget proposal for 2018.
    - Adopt a pilot approach to move towards program budgeting by selecting sectoral ministries and begin to classify expenditures by actions.
    - Broaden the financial programming horizon by prioritizing expenses and providing information to budget execution units.
    - Streamline budget execution procedure and leave financial verification within SIGFIP.
- Tax Policy — Update tax policies and review rates.
  - Recommendations:
    - Review select tax policies (including taxation of SMEs) and outline plans for process of broader tax policy reforms.
- Customs Administration — Enhance collection of duties and taxes, ensure customs control, and facilitate legitimate trade.
  - Recommendations:
    - Strengthen capacity of unit in charge of auditing goods value assessment.
    - Strengthen core customs functions, including valuation and risk management.
- Tax Administration — Strengthen administrative performance, raise compliance, and improve revenue collection.
  - Recommendations:
    - Establish a risk compliance strategy.
    - Guarantee necessary resources for tax administration operations.
    - Implement the IT strategic plan to support core processes.
    - Ensure taxpayers are registered and captured in the IT system.
    - Develop and implement a policy to manage tax arrears.
    - Strengthen fundamental processes: registration, filing and payment.
    - Update auditing practices to enhance compliance.
    - Strengthen the large taxpayer unit.
- Debt Management — Enhance capability of the Ministry of Finance’s Debt Directorate and ensure consistency between debt projections and annual budgets/fiscal projections.
  - Recommendations:
    - Build the workforce of the debt directorate for middle office and public securities tasks.
    - Redeploy personnel based on the new organization of services.
    - Update the manual of procedures.
    - Finalize a draft bill on the creation and functioning of a debt management committee.
    - Install DMFAS 6.0 with assistance of the World Bank and UNCTAD.
- Economic Statistics — Enhance compilation and dissemination.
  - Recommendations and targets:
    - Publish 2016 final national accounts data by March 2018, and provisional 2017 data by August 2018.
    - Strengthen INE institutional capacity.
    - Design a template for CsPro to process survey data.
    - Migrate to MS Excel for processing of survey data.
    - Complete the ongoing household survey on employment, informal sector, and expenditure.
    - Use the MS Excel template for processing financial statements developed by TA experts.
    - Collect necessary data to produce the industrial production index.
    - Involve Ministry of Finance to produce a revised organizational structure of INE.
- Beyond FY2018, strategy guided by progress on FY2018 priorities; exploring peer-learning ties with neighboring countries such as Cabo Verde.

### Risks to Reform Strategy
- Risks include political instability and weak absorption capacity.
- Authorities favor TA delivery with a strong field presence, emphasizing training and long-term advisors. Tailoring TA to country circumstances should mitigate some risks.

---

### Annex III. Risk Assessment Matrix

### Principal Risks, Likelihoods, Expected Impacts, and Staff Recommendations
- Heightened political instability
  - Likelihood: High
  - Expected Impact: High. Uncertainty and security concerns hurt private investment; setbacks to strengthening of public institutions.
  - Recommendations: Focus on maintaining macro-fiscal stability. Advance security sector reforms. Maintain essential spending to foster social cohesion.
- Banking instability, arising from high NPLs, under-capitalization, and the unresolved bailout
  - Likelihood: Medium
  - Expected Impact: High. Credit extension hampered, reducing investment and growth; possibility of contingent liabilities for government, adding to fiscal pressures.
  - Recommendations: Enhance banking supervision and enforce prudential regulations. Improve processes and procedures for banks’ collection of debts and collateral.
- Setbacks to PFM and revenue mobilization
  - Likelihood: Medium
  - Expected Impact: High. Fewer resources for needed social and investment spending; public debt burden could increase.
  - Recommendations: Accelerate implementation of capacity development strategy. Raise efficiency of government spending.
- Continued weaknesses in state-owned enterprises
  - Likelihood: Medium
  - Expected Impact: Medium. Lacking and expensive electricity and water supply; contingent liabilities for government, adding to fiscal pressures.
  - Recommendations: Implement credible strategy to improve management of public enterprises. Strengthen monitoring and oversight.
- Adverse terms of trade movements (external risk)
  - Likelihood: Medium
  - Expected Impact: High. Private sector incomes come under pressure, denting economic activity; government revenues diminish.
  - Recommendations: Build buffers to enhance resilience. Step up diversification efforts. Ensure timely adjustments of retail fuel and electricity prices.

---

### Annex IV. External Stability Assessment

### External Position and Developments
- The external position improved significantly since 2012–13.
  - Current account moved from a deficit of 8.4 percent of GDP in 2012 to a surplus averaging 1.5 percent of GDP in 2014–16.
  - Cashew nut exports volume increased and terms of trade improved sharply.
  - The price of cashew nuts increased by a cumulative 40 percent during 2012–16; fuel and non-fuel import prices fell; terms of trade improved by 80 percent during this time.
- With the CFA franc fixed to the euro, the Real Effective Exchange Rate (REER) has remained broadly stable since 2010. The REER has depreciated by about 6 percent since its peak in 2008 but remains more appreciated than in the 1990s.
- The current account registered surpluses for the last three years, unprecedented for Guinea-Bissau. Exports depend heavily on cashew nuts and have benefited from higher international prices; competitiveness elsewhere is weak.

### EBA-Lite Assessment Results (estimates based on data available as of October 2017)
- Summary of EBA-lite outcomes:
  - EBA-lite Current account (CA) approach: CA gap (percent GDP) = 3.5; REER gap (percent) = -7.2
  - EBA-lite External sustainability (ES) approach: CA gap (percent GDP) = 3.2; REER gap (percent) = -6.2
  - EBA-lite Real effective exchange rate (REER) approach: CA gap (percent GDP) = -9.0
- Interpretation and key points:
  - An application of the EBA-lite methodologies suggests a moderate currency undervaluation in the 5–10 percent range; estimates should be interpreted with caution due to data uncertainties.
  - CA approach: The current account benchmark implied is -2.2 percent of GDP, of which 1.5 percent of GDP are driven by the policy gap, and 0.7 percent by macroeconomic fundamentals and temporary/statistical factors. The actual current account balance registered a surplus of 1.3 percent of GDP in 2016. The implied misalignment of the current account is 3.5 percent of GDP, implying 7.2 percent appreciation of the REER with an elasticity of the current account to movements in the real exchange rate of -0.49 (Tokarick, 2010).
  - REER approach: Guinea-Bissau’s REER is estimated to be undervalued by 9 percent in 2016, driven by the higher terms of trade; higher reserve accumulations moderated the REER overvaluation.
  - ES approach: The NFA ratio in 2015 was estimated at -16 percent of GDP (a net debt position). To prevent indebtedness from growing, the current account deficit should not be larger than -6 percent of GDP. If the actual medium-term current account level is used, the current account gap is 3.2 percent of GDP and closing the NFA-stabilizing level would require a modest REER appreciation of 6 percent. The ES approach is subject to caution given IIP data quality.

### ES Approach Scenarios (selected)
- Scenario 1: Stabilizing net IIP at 16% of GDP
  - CA norm (% of GDP) = -6.1
  - Underlying CA (% of GDP) = -2.9
  - CA gap = 3.2
  - REER gap = -6.2
- Scenario 2: Stabilizing net IIP at -60% of GDP
  - CA norm (% of GDP) = -9.2
  - Underlying CA (% of GDP) = -2.9
  - CA gap = 6.3
  - REER gap = -12.1
- Scenario 2 (alternate): Stabilizing net IIP at -60% of GDP in 2035
  - CA norm (% of GDP) = -10.1
  - Underlying CA (% of GDP) = -2.9
  - CA gap = 7.2
  - REER gap = -14.0

*Annexes I–IV, Recommendations, Capacity Building, Risk Assessment, and External Stability Assessment (selected findings and recommendations) from "cr17380 - Annex I. Recommendations from the 2015 Article IV Consultation".*

### 9.      Guinea-Bissau’s business climate has

### 9.      Guinea-Bissau’s business climate has 

### Business climate improvements (Doing Business, credit reporting)
- Biggest improvement since 2010 in the areas of starting a business and registering property (World Bank’s “Doing Business Index”).
- Starting a business: established a one-stop shop; eliminated the requirement for an operating license; simplified method for providing criminal records and publishing the registration notice.
- Registering property: reduced property registration tax; increased number of notaries dealing with property transactions.
- Credit reporting: in 2018, introduced regulations that govern the licensing and functioning of credit bureaus in the member states of the West African Economic and Monetary Union (UEMOA) and launched a new credit bureau.
- Trading across borders has become more difficult, mainly because of higher cost to export and import goods.

### Remaining bottlenecks and rankings
- Getting credit and electricity remain the main bottlenecks.
- It takes almost 4 times longer to get electricity in Guinea-Bissau than in SSA.
- Despite improvements, Guinea-Bissau still ranks the lowest in WAEMU on Doing Business indicators (distance from frontier, 2018).

### Institutional governance (Worldwide Governance Indicators)
- Guinea-Bissau’s institutions and policies are consistently ranked weaker than other WAEMU countries.
- Per the Worldwide Governance Indicators (WGI), governance indicators in Guinea-Bissau deteriorated in all 6 categories since 2010, including relative to peers in the region.
- WGI categories listed: Voice and accountability; Political stability and absence of violence; Government effectiveness; Regulatory quality; Rule of law; Control of corruption.
- Chart context: Worldwide Governance Indicators, 2016 (estimate, higher value = better). Source: World Bank, Worldwide Governance Indicators.

### External position and vulnerabilities (EBA-lite framework and exports)
- No strong evidence of significant exchange rate misalignment, but external position remains vulnerable to a range of risks.
- Country scores particularly low on the five country risk indicators used in the EBA-lite framework.
- Three of the five indicators (socioeconomic conditions, investment profile and corruption) have deteriorated since 2010.
- High export concentration in cashew leaves the country vulnerable to international price fluctuations and weather conditions.
- High dependence on imported rice and petroleum implies vulnerability to increases in prices of those items.

### Program context, performance, and policy commitments (ECF-supported program)
- Government remains committed to the three-year Extended Credit Facility (ECF) Arrangement approved July 10, 2015.
- Program focuses on revitalizing institutions and strengthening the business environment to promote strong and inclusive growth.
- For 2015–16, real GDP growth revised from 5.1 percent to 6.1 percent in 2015 and to 5.8 percent in 2016; projected real GDP growth for 2017 is 5.5 percent.
- Consumer price inflation: averaged 1.5 percent per year in 2015-16; projected year-average rate of 2.2 percent in 2017.
- Cashew production: 191 thousand tons in 2015; 207 thousand tons in 2016; projected 189 thousand tons in 2017.
- Farmgate reference price increased from CFAF 350 per kg in 2016 to CFAF 500 per kg in 2017.
- Export reference price increased from USD 950 per ton in 2016 to USD 1,150 per ton in 2017.
- In the first eight months of 2017, average realized export price was USD 1,949 per ton, compared to an average of USD 1,390 in 2016.
- External current account surplus: declined from 2.5 percent of GDP in 2015 to 1.3 percent of GDP in 2016 and projected at 0 in 2017.
- Ratio of tax revenue to GDP: rose from 6.8 percent in 2013 to 9.2 percent in 2016.
- Dividend payment from BCEAO: 0.7 percent of GDP; budget support from Saudi Arabia: 0.4 percent of GDP. Total revenue and grants were 2.6 percent of GDP above the end-June target.
- Total expenditure in the first half of 2017: 10.3 percent of GDP (program target 9.8 percent of GDP).
- Overall balance on a commitment basis: deficit of 0.3 percent of GDP versus programmed deficit of 2.4 percent of GDP.
- Cash deficit: 0.4 percent of GDP, 2.2 percent of GDP below the program.
- Development partners provided project support at broadly same aggregate level since 2014; no budget support since 2015.
- Private credit (gross of provisions) expanded by 6.1 percent in 2016 and shrunk by 0.8 (year-on-year) at end-June 2017.
- Gross NPLs at end-June 2017: 32 percent of net bank credit (down from 39 percent at end-2014).
- Banks increased provisioning to cover 65 percent of gross NPLs at end-June 2017 from 46 percent at end-2016.
- Regulatory minimum capital: CFAF 10 billion (previously CFAF 5 billion) effective start of July; one bank had capital significantly below this minimum due to lack of shareholder injection.
- All performance criteria for end-June 2017 were met: floor on domestic tax revenue exceeded by CFAF 8 billion (24 percent); net domestic bank credit to central government was CFAF 8.9 billion below the program ceiling; no non-concessional nor short-term external debt; no external arrears.
- Indicative quantitative targets: all met. No new domestic arrears nor non-regularized expenditures in first half of 2017. Floor on social and priority spending met; ceiling on domestic primary balance on commitment basis met.

### Structural measures and implementation
- Five of seven structural benchmarks for first nine months of 2017 were observed:
  - Prepared rolling monthly cash-flow projections consistent with the 2017 budget.
  - Prepared quarterly reports on ministry-level budget execution and on external debt commitments, agreements, and disbursements.
  - Completed (ahead of April 15 deadline) an assessment of the two banks affected by the bailout, with WAEMU Banking Commission assistance, and recommended actions to bring these banks into compliance with prudential norms.
  - Designed a draft bill to regulate cashew trading to promote cashew production and processing.
- Two structural benchmarks delayed:
  - Monthly reporting on public utility EAGB’s financial flows for July 2017 was not submitted on time due to capacity constraints; first regular monthly report produced in October 2017; an audit of EAGB to be completed by end-2017.
  - Upgrade to debt management software (DMFAS 6.0) was not completed by September 2017 due to procurement problems; new license purchase completed and upgraded software to be operational by end-2017 with UNCTAD technical assistance.

### Medium-term outlook and projections (2017–22)
- Updated macroeconomic framework projects real GDP growth at 5.5 percent in 2017 (upward revision from earlier projection of 5 percent).
- Medium term (2018–22) growth maintained at 5 percent per year.
- Private credit expected to expand on average by about 3 percent per year during 2017-18.
- Current account deficit expected to turn to a modest deficit averaging around 3 percent of GDP per year into the medium term.
- Consumer price inflation expected to average 2.5 percent per year (below the WAEMU convergence criteria of 3 percent).

*Source: IMF Country Report content (cr17380).*

### 15.      Fiscal deficits are expected to remain well contained, supported by vigilant tax

### 15. Fiscal deficits are expected to remain well contained, supported by vigilant tax administration and improved PFM

### Fiscal outlook and public investment
- Overall fiscal deficit (cash basis) for 2017 is projected at 1.8 percent of GDP.
- 2017 projection is consistent with the zero-program target for net domestic bank credit, including a CFAF 1.7 billion government guarantee issued to Bissau City Council for construction of a municipal market and secured by revenue from vendors that will be deposited into an escrow account.
- Anticipated performance excludes revenue from seized timber and EU fishing compensation (previously projected at 0.8 percent of GDP), contributing to a 1.1 percent of GDP reduction in non-tax revenue compared to budget.
- 2018 budget will target a cash deficit of 2.3 percent, reflecting an increase in investment.
- The deficit is expected to remain near this level through the medium term, below the WAEMU convergence criteria of 3 percent of GDP.
- Infrastructure projects (planned increase in electricity generation capacity, high-tension power distribution lines, road network improvements) will be financed mostly through concessional loans and grants.
- Social expenditure will be geared to support enhanced service delivery in health and education.

### Revenue mobilization and tax administration (policy actions and progress)
- Key priority: revenue mobilization through strengthened coordination between tax and customs departments and effective use of taxpayer information.
- Measures and progress as of September 2017:
  - Taxpayer identification numbers assigned to more than 11,000 individuals and almost 2,000 corporations.
  - New uniform sales invoice rolled out and used by some 400 companies.
- Planned and ongoing measures:
  - Prepare quarterly reports (starting September 2017 for performance as of end-June 2017, and quarterly thereafter) on progress in minimizing tax exemptions.
  - Complete a draft law for a new small taxpayer regime with IMF technical assistance (SB for December 2017).
  - Extend SYDONIA to custom posts across the country and ensure its secure use.
  - End temporarily introduced flat-rate customs fees for goods imported by land and move to the general tariff regime.
  - Step up customs controls at land border posts and enhance focus on high-tax items.
  - Set and enforce higher standards for customs clearing agents.
- Additional revenue measures in text:
  - Vigorously pursue recovery of tax arrears from state-owned enterprises.
  - Move forcefully to ensure procedures required to export the stock of seized timber are in place.
  - Minimize and better target tax exemptions and subsidies through the tax exemptions committee at the Ministry of Finance.
  - Regularly adjust domestic fuel and electricity prices in line with the evolution of global fuel prices.
  - Over the medium term, review tax and excise rates and adjust as needed to re-align with regional peers.

### Public financial management (PFM) and expenditure control
- 2017 total expenditure foreseen at 17.5 percent of GDP.
- 2018 planned total expenditure is 19 percent of GDP.
- Transfer payments in 2018 will be lower than in 2017, which included a payment of CFAF 6.6 billion to cover a debt guarantee that was called.
- Additional fiscal space will be directed primarily to domestically financed capital spending and costs (0.5 percent of GDP) of undertaking parliamentary elections.
- PFM reforms and action points:
  - Equip and task the Treasury Committee to ensure timely regularization of all expenses and avoid the use of DNTs, and to maintain a continuous limit of CFAF 1 billion on the outstanding stock and a quarterly limit of 1 percent of current expenditure (as envisaged by the Treasury Plan) on the flow of DNTs.
  - Continue to avoid any accumulation of domestic or external arrears.
  - Extend use of SIGFIP to incorporate remaining parts of revenue operations not currently captured.
  - Tighten annual budget management procedures, institute clearer processes for vetting investment projects, and take credible steps towards instituting a medium-term expenditure framework.
  - Consolidate medium-term payroll reforms by instituting a wage policy to inform annual public sector wage increases and to contain growth in the wage bill.
  - Enhance management and prioritization of capital spending by strengthening the investment database, developing a matrix of short term expenditure priorities, improving formal project appraisal and evaluation, and integrating infrastructure maintenance needs in the recurrent budget.
  - Continue to prepare and review rolling monthly treasury cash-flow projection tables consistent with the 2017 budget (SB for December 2016 and monthly thereafter).
  - Further the preparation of timely quarterly reports on ministry-level budget execution with details along economic classification of expenses (SB for December 2016 and quarterly thereafter).
- Commitment: expenditures will be contained in line with the overall deficit target and the program performance criteria of zero net domestic bank credit to central government.

### Borrowing policies, debt management, and arrears
- Institutional and operational improvements:
  - Debt management unit converted to a Directorate General reporting directly to the Minister of Finance.
  - Strengthened information flow between the enhanced debt Directorate and the Treasury; staff training to enhance capacity.
- External debt progress:
  - Secured debt relief on near-Paris Club terms of arrears to Exim Bank of Taiwan Province of China.
  - Paid off half of arrears to the United Arab Emirates with the remainder scheduled to be cleared by year-end.
  - Negotiations with other bilateral creditors for remaining legacy arrears continuing.
  - Government remains current on remaining external debt obligations.
- Domestic debt management actions:
  - Consolidated outstanding loans from commercial banks into Treasury securities and cancelled all credit lines with the banks.
  - Negotiated higher concessionality in recent loans from BOAD following successful rescheduling of loans in February.
- Domestic supplier arrears:
  - Total claims outstanding exceed CFAF 100 billion:
    - CFAF 14 billion corresponds to the balance of a first audit covering claims from 1994–99.
    - CFAF 86 billion is from a second audit for 2000–07 that has still to be validated.
  - Government intends to audit all outstanding claims by September-2018.
  - By end of 2018, government will draw up a reimbursement strategy to settle legitimate domestic arrears, after deduction of any tax liability of the beneficiaries.

### Financial intermediation, supervision, and inclusion
- Financial stability and supervision:
  - Commitment to ensure compliance with prudential norms and support strong supervisory enforcement by the regional Banking Commission.
  - Government seeking solution to the voided bailout to settle court cases and open the door for private investor capital injections, but stresses need for supervisory enforcement.
- Measures to deepen financial markets and inclusion:
  - Initiatives for developing financial markets (including for SMEs) and encouraging use of the banking system (including for private real estate transactions).
  - Incentives for SMEs per WAEMU Council of Ministers measures of September 2015:
    - Re-financing of BCEAO claims on eligible SMEs.
    - Regulatory incentives to banks for credit to eligible SMEs, including reduced weighting of claims on these enterprises in reckoning compliance with prudential ratios.
  - Continued maintenance of a credit registry to aid banks’ financing decisions.
  - Plan to elaborate a national plan for financial inclusion following BCEAO recommendations.

### Other structural reforms and governance
- Private sector development:
  - Government will sell state assets slated for privatization, including the fruit and vegetable processing plant near Safim.
  - Temporary cap on rice prices introduced in August will not be maintained beyond end-December (original timetable).
- Electricity sector:
  - Investing in new generation capacity with loans from BOAD and BADEA.
  - Restructuring EAGB with World Bank support to transform the utility into an autonomous entity operated under a service contract.
  - Management improvement plan for EAGB to be submitted to the Council of Ministers by March 2018 (new structural benchmark).
- Audits of state-owned enterprises to avoid contingent liabilities and ensure sound financial management; audits to be comprehensive and completed by end-2017 for:
  - National Institute for Social Insurance; ANAC (Civil Aviation Administration); EAGB; GuinéTelecom; GuinéTel; APGB (Sea Port); ARN (National Regulatory Authority for Communications); Fundo Rodoviário (Road Fund).
- Military spending transparency:
  - Terms of reference for an audit of military spending in 2016 completed; calls for interest issued in August.
  - Audit results expected by March 2018.
  - Military spending continues to be on budget and executed per normal expenditure procedures, with almost all salary payments made by bank transfer directly to beneficiaries.

### Anti-corruption, AML/CFT, and statistics
- Anti-corruption and AML/CFT:
  - Approved national strategic plan for AML/CFT.
  - Increased autonomy and financial resources of CENTIF; CENTIF improved information dissemination through an electronic declaration system with TA from GIABA.
  - Remaining priorities: bring exchange houses into AML/CFT regulatory system, require enhanced due diligence over politically exposed persons, implement existing asset disclosure framework, and draft laws on asset recovery, criminalization of human trafficking, and piracy in accordance with GIABA requirements.
- Statistics and data improvements:
  - Plans to reinvigorate the unit identifying TA needs and implementing data-enhancing recommendations with long-term and local consultants.
  - With IMF TA, plan to publish by March 2018 revised national accounts with updated base year following a mini household survey.
  - Ongoing coordination to reconcile official statistics between BCEAO, ANCA, Ministry of Agriculture, Ministry of Commerce, and INE to improve cashew production/export statistics, national incomes accounts, and balance of payments statistics.
  - Resources dedicated to improve infrastructure and strengthen administrative capacity.

### Program monitoring, performance criteria, and structural benchmarks
- Program monitoring:
  - Program will be monitored semi-annually based on quantitative performance criteria, indicative targets, and structural benchmarks.
  - Fifth (and last) program review will be based on end-December 2017 performance criteria and is scheduled to be completed on or after April 15, 2018.
  - Two new proposed structural benchmarks: finalizing a management improvement plan for EAGB; and a draft 2018 budget that seeks to maintain gains in budget management.
- Key numerical program targets and status (select highlights extracted from the text and tables):
  - Net domestic bank credit to the central government (ceiling) for 2017: consistent with zero net domestic bank credit target.
  - Total domestic tax revenue (floor) entries and other detailed numeric targets are defined in the Technical Memorandum of Understanding (TMU).
  - Structural benchmark outcomes (Table 2 highlights):
    - Extend new uniform sales invoice to all taxpayers — September 2017 — Met.
    - Complete assignment of taxpayer identification numbers to all taxpayers — September 2017 — Met.
    - Prepare draft law for new small taxpayer regime with IMF TA — December 2017 — On track.
    - Prepare monthly rolling Treasury cash flow projection table — December 2016 for January 2017, and monthly thereafter — Met.
    - Prepare timely quarterly reports on ministry-level budget execution — December 2016, and quarterly thereafter — Met.
    - Prepare quarterly report on external debt commitments, agreements, and disbursements — December 2016 for September 2016 Report, and quarterly thereafter — Met.
    - Install DMFAS 6.0 and commence use — September 2017 — Not Met (proposed rescheduled for December 2017).
    - Assessment of two banks affected by bailout and action plan — April 15, 2017 — Met.
    - Design strategy to promote cashew production and transformation — June 2017 — Met.
    - EAGB submission of monthly financial flow reports and management improvement plan — July 2017 (reporting) — Not Met for full monthly reporting; monthly flows for 2017 submitted in October 2017; management improvement plan due March 2018 — Proposed benchmark.
    - Submission of a 2018 budget to Council of Ministers — December 2017 — Proposed benchmark.
- Government undertakings:
  - To refrain from accumulating any new domestic arrears (IT) other than those specified in the TMU, and from contracting non-concessional external loans.
  - Not to introduce or increase restrictions on payments and transfers related to current international transactions, to enter into any bilateral payment agreements not in conformity with Article VIII of the IMF Articles of Agreement, or to impose or intensify any import restrictions for balance of payments purposes.
  - To adopt any additional financial and structural measures that may become necessary to ensure the success of its policies, only in consultation with the IMF.

*Source: cr17380 - 15. Fiscal deficits are expected to remain well contained, supported by vigilant tax administration and improved PFM (Bissau, November 17, 2017).*

### INTRODUCTION

### INTRODUCTION

### Memorandum purpose and evaluation basis
- Sets out understandings between the Bissau-Guinean authorities and the IMF regarding definitions of quantitative performance criteria (PCs) and structural benchmarks (SBs) for the program supported by the Extended Credit Facility (ECF) arrangement, and related reporting requirements.
- Unless otherwise specified, all quantitative PCs and indicative targets will be evaluated in terms of cumulative flows from the beginning of the period, as specified in Table 2 of the Memorandum of Economic and Financial Policies (MEFP).

### Program exchange rates
- For the purpose of the program, foreign currency denominated values for 2017 will be converted into local currency (CFA francs) using a program exchange rate of CFA 622.47/US$ and cross rates as of end-December 2016.
- Source of cross-exchange rates: International Financial Statistics.

### Quantitative performance criteria (PCs) — definitions and adjustments

- A. Floor on Total Domestic Tax Revenue
  - Definition: Tax revenue includes direct and indirect taxes as presented in the central government financial operations table, as well as programmed recovery of tax arrears.
  - Adjustment clause: The floor will be adjusted downwards (upwards) by the amount of any shortfall (excess) in programmed recovery of tax arrears.

- B. Net Domestic Bank Credit to the Central Government (NCG)
  - Definition: NCG refers to the net banking system’s claim on the central Government as calculated by the Treasury Department, defined as:
    - a. the net position of the Government with the national BCEAO, including: treasury bills and bonds; less central Government deposits (excluding project-related deposits) at the BCEAO;
    - b. the net position of the Government with commercial banks, including: (a) treasury bills; (b) treasury bearer bonds; and (c) loan and advances of commercial banks to the central Government; less central Government deposits (excluding project-related deposits) in commercial banks;
    - c. Any domestic loan guarantees issued by the government will be included in the net position of the government as defined in a. and b. above.
  - Adjustment clauses:
    - (a) The ceiling on changes in NCG will be adjusted upwards (downwards) by up to the CFA value of the shortfall (excess) in external program grants and loans, including IMF drawings — the upward adjustment will be capped at the equivalent of CFA 10 billion;
    - (b) The ceiling will be adjusted downwards (upwards) by the excess (shortfall) in the CFA value of any programmed privatization receipts;
    - (c) Central government deposits at the BCEAO and commercial banks will be adjusted downwards by any clearance of domestic arrears (excluding any arrears accumulated during the program period, 2015-18) in excess of program;
    - (d) Adjusted downwards by the excess in CFAF value of corporate tax revenue that results from the bank bailout, in light of the court injunction freezing transactions associated with the bank bailout;
    - (e) Adjusted upwards by the amount of the bank bailout (CFAF 34.2 billion), if NCG includes the bailout and the pending court case is not completed by the time of the fourth review.
  - Data source: Monetary survey (Position Nette du Gouvernement (PNG)) table, submitted monthly to the IMF staff by the BCEAO.
  - Definition of Central Government for this memorandum: central administration of the Republic of Guinea-Bissau; excludes local administration, the central bank and other public or government-owned entities with autonomous legal personality not included in the government flow-of-funds table (TOFE).

- C. New Non-Concessional External Debt Contracted or Guaranteed by the Central Government with an Original Maturity of One Year or More
  - Definition: All forms of new debt with original maturity of one year or more contracted or guaranteed by the central government. Excludes normal trade credit for imports and debt denominated in CFA franc, but includes domestically held foreign exchange (non-CFA franc) debts. Applies also to commitments contracted or guaranteed for which value has not been received. Excludes disbursements from the IMF and debts subject to rescheduling or for which verbal agreement has been reached. Applies on a continuous basis.
  - Reporting requirement: Government will report any new external borrowing and its terms to Fund staff as soon as external debt is contracted or guaranteed by the government, but no later than within two weeks of such external debt being contracted or guaranteed.

- D. External Short-Term Debt Contracted or Guaranteed by Central Government
  - Definition: External debt stock with maturity of less than one year contracted or guaranteed by central government. Excludes normal trade credit for imports and debt denominated in CFA franc, but includes domestically held foreign exchange (non-CFA franc) debts. Applies on a continuous basis.

- E. External Payment Arrears of the Central Government
  - Definition: External payment arrears (currency test): debt service payments not paid on due dates (taking into account contractual grace periods, if any) and that have remained unpaid 30 days after the due dates.
  - Arrears not considered “program” arrears:
    - (i) arrears accumulated on service of external debt for which there is a request for rescheduling or restructuring; and/or
    - (ii) amounts subject to litigation which are not considered arrears for the performance criteria.
  - These are defined as “non-program” arrears.

### Quantitative indicative targets — definitions

- F. New Domestic Arrears of Central Government
  - Definition: Ceiling on domestic arrears defined as accounts payable (resto-a-paga) accumulated during the year and still unpaid by one month after the quarter for wages and salaries (including pensions), and three months for goods, services and transfers.

- G. Social and Priority Poverty-Related Expenditures
  - Definition: Include spending on health, education, and the gender ministry (MEFP Table 2).

- H. Domestic Primary Balance (Commitment Basis)
  - Definition: Domestic primary fiscal deficit on a commitment basis = government revenue minus domestic primary expenditure on commitment basis.
  - Government revenue includes all tax and nontax receipts and excludes external grants.
  - Domestic primary expenditure = current expenditure plus domestically financed capital expenditure, excluding all interest payments.
  - Government commitments include: all expenditure for which commitment vouchers have been approved by the Ministry of Finance; automatic expenditure (wages and salaries, pensions, utilities, and other payment-centralized expenditure); and expenditure by means of offsetting operations.

- I. Non-Regularized Expenditure (DNTs)
  - Definition: Any treasury outlay not properly accounted for by the National Budget Directorate and/or not included in the budget.

### Program monitoring and reviews
- The fourth program review will be based on end-June 2017 performance criteria and is scheduled to be completed on or after October 15, 2017.
- The fifth review will be based on end-December 2017 performance criteria and is scheduled to be completed on or after April 15, 2018.
- The Bissau-Guinean authorities shall:
  - recommend policy responses,
  - inform the IMF monthly about the progress of the program,
  - transmit supporting information necessary for the evaluation of QPCs and benchmarks in electronic format as indicated in the attached summary table to IMF staff (Table 1).
- The government will continue to support its reform unit to:
  - periodically report to the Minister of Finance on progress in achieving agreed performance indicators and development objectives;
  - keep an updated list of partners, prioritize technical assistance and agree on division of labor in technical assistance;
  - ensure information sharing, including TA reports, with partners to avoid conflicting and/or overlapping advice.

### Reporting requirements (high-level summary from Table 1)
- Fiscal sector: Central Government budget and outrun — Monthly — 30 days after the end of the month — DGPS.
- Grants (budgetary, project) — Monthly — 30 days after the end of the month — DGPS.
- Change in stock of domestic arrears; unpaid claims; interest arrears; proceeds from bonds issued in the regional WAEMU market — Monthly — 30 days after the end of the month — DGPS.
- Real and external sector: Updates on annual National Accounts by sector — Annually — 30 days after approval — CSO/MEF.
- Balance of Payments data — Annually — 30 days after approval — BCEAO/MEF; Quarterly — 60 days after the end of the quarter — BCEAO/MEF.
- Details of exports/imports breakdown — Quarterly — 45 days after the end of the quarter — BCEAO/MEF.
- CPI — Monthly — 45 days after the end of the month — CSO/MEF.
- Debt sector (external and domestic debt and guaranteed debt by creditor; disbursements; amortization; interest payments; stock of external and domestic debt; arrears on interest and principal; exceptional domestic financing) — Monthly — 30 days after the end of the month — Debt Directorate.
- Copies of any new loan agreements — As occurring — Debt Directorate.
- Monetary/Financial sector (detailed central bank balance sheet; bank-by-bank balance sheets; consolidated balance sheet of commercial banks; the monetary survey; detailed net position of central government (PNG); financial soundness indicators; interest rates; deposit and lending rates) — Monthly — 45 days after the end of the month — BCEAO/MEF.

### Debt sustainability assessment — key findings
- Guinea-Bissau faces a moderate risk of debt distress based on an assessment of public and publicly guaranteed external debt, but a heightened overall risk of debt distress reflecting the currently high level of total public debt.
- Compared to the previous DSA update, the current assessment:
  - scales down non-concessional domestic borrowing to a more realistic, affordable and sustainable trajectory;
  - assumes higher medium-term economic growth.
- Under the baseline scenario, all indicators are below their indicative policy-dependent thresholds throughout the projection period.
- The PV of debt-to-exports ratio breaches its threshold for an extended period under the most extreme shock scenario.
- Overall public debt is projected to decline in the long term but is slightly above its indicative benchmark and is expected to remain so over the next three-four years.
- Policy implication: Need to pursue prudent fiscal and debt management policies and strengthen debt management capacity.
- The DSA results are contingent on successful implementation of structural reforms, improvements in the business environment to boost production and exports, and continued reliance mainly on concessional borrowing.

### Background and vulnerabilities
- Improvements in public external debt position driven by:
  - authorities’ commitment to shun non-concessional debt,
  - enhanced debt management and technical assistance from development partners including AFRITAC West,
  - significant debt relief from Taiwan, China and some payoff of legacy arrears,
  - financing priority projects mainly with concessional loans and grants.
- Robust growth has improved baseline debt and debt service ratios relative to December 2016 Update.
  - Economic growth averaged close to 6 percent in 2015–16 and projected to remain strong.
  - International cashew prices were high in the 2017 cashew campaign.
- Vulnerabilities:
  - Limited export diversification; adverse export shocks (e.g., lower cashew prices) would weaken debt ratios and fiscal receipts.
  - History of conflict; reescalation of political tensions could undermine policies and debt sustainability.

### Baseline macroeconomic assumptions and projections (selected figures)
- Real GDP growth:
  - Current DSA: 2015: 6.1; 2016: 5.8; 2017: 5.5; 2018: 5.0; Medium Term average: 5.1; Long Term: 5.0.
- Consumer price inflation:
  - Expected to average 2.6 percent per year in the medium-term, remaining below the WAEMU convergence criterion (3.0 percent).
- Government balances (primary fiscal balance, cash basis):
  - Current DSA: 2015: -0.8; 2016: -3.6; 2017: -1.4; 2018: -1.9; Medium Term: -1.8; Long Term: -2.1 (percent of GDP).
- Non-interest current account balance:
  - Current DSA: 2015: 2.7; 2016: 1.6; 2017: 0.1; 2018: -2.2; Medium Term: -1.5; Long Term: -2.8 (percent of GDP).
- External debt (percent of GDP):
  - Current DSA: 2015: 15.2; 2016: 14.4; 2017: 12.5; 2018: 13.0; Medium Term: 14.2; Long Term: 18.5.
- Domestic debt (percent of GDP):
  - Current DSA: 2015: 37.6; 2016: 39.7; 2017: 36.7; 2018: 35.3; Medium Term: 32.3; Long Term: 19.5.
- External debt projections reflect expected expansion in externally-financed public investment (including disbursement of a newly contracted concessional loan to enhance electricity supply). Domestic debt decline offsets external debt increase, leading to projected decline in total debt-GDP ratio.
- Official financing flows:
  - Expected to average around 4 percent of GDP in the medium term (2017–22), and to decline to 3.6 percent of GDP in the long term.
  - Concessional loan terms assumed: 0.75 percent interest rate with 40 (IDA) and 50 (AFDB) years maturity and ten-year grace period.
  - Paris Club (Non-Paris Club) loans assume average interest rates of 1.9 (1.6) percent with 23 (23) years maturity and 11 (6) years grace period.

### Notable transactions and concessions referenced
- Guinea-Bissau contracted a US$11 million (0.9 percent of GDP) loan from BADEA to boost electricity supply; the loan carries an interest rate of 1 percent, a grace period of 10 years, and maturity of 30 years; concessional with a grant element of 49 percent.
- Debt relief from Exim-Bank of Taiwan, China:
  - Agreement cancelled 90-percent of the arrears (of US$ 48.2 million, equivalent to 3.6 percent of GDP or 55 percent of total arrears outstanding after the Paris Club agreement in 2011);
  - Requires an upfront payment by Guinea-Bissau of US$1.5 million in late 2017 and re-profiles the remaining amount (US$3.5 million) at an interest rate of 2.5 percent and a maturity of 5 years.

*Prepared jointly by the Staffs of the International Monetary Fund and the International Development Association.*

### 6.      Guinea-Bissau remains at moderate risk of debt distress. The PV of debt-to-GDP and PV of

### 6.      Guinea-Bissau remains at moderate risk of debt distress.

### Key findings
- Guinea-Bissau remains at moderate risk of debt distress.
- All the baseline indicators are lower than their respective policy-dependent thresholds throughout the projection period (2017–37) for PV of debt-to-GDP, PV of debt-to-revenue, and debt service-to-revenue ratios.
- The PV of debt-to-exports and debt service-to-exports ratios have worsened relative to the December 2016 update, reflecting lower projected exports (an average of 29 percent of GDP over the projection period, compared to 35 percent under the previous DSA).

### Debt indicator movements and drivers
- Significant reductions in PV of debt-to-GDP, PV of debt-to-revenue, and debt service-to-revenue ratios compared to the December 2016 update, reflecting positive movements in nominal GDP and tax revenue.
- Deterioration in export-related ratios mainly due to delays in the start of an earlier anticipated phosphate project.
- Except for the scenario with an extreme export shock, the PV of debt-to-exports and debt service-to-exports ratios remain below their respective thresholds in the baseline and historical scenarios for the entire projection period.

### External vulnerability and stress tests
- The external debt outlook remains vulnerable to adverse export and currency depreciation shocks.
- Stress tests indicate vulnerability to adverse shocks to exports, underscoring the need to diversify the economy and increase resilience.
- Compared to the December 2016 update, the PV of debt-to-exports ratio breaches its threshold for a longer period in the exports shock scenario; it falls slightly below the threshold only in the final seven years of the projection period.
- A depreciation of the Communauté Financière Africaine Franc (CFAF) relative to the currencies of main trading partners would increase debt service costs in domestic currency terms and add to vulnerability.

### Public Debt Sustainability Analysis (DSA) specifics
- The public DSA is broadly unchanged from the December 2016 update.
- Historical debt levels have been revised upward, by an average of 4.3 percent in 2014–15, due mainly to more comprehensive data on domestic debt.
- The upward revision has shifted the baseline PV of debt-to-GDP ratio upwards and it breaches the benchmark until 2021, with breaches in the other three scenarios as well.
- At end-2016, domestic debt (currency basis) amounted to 39.7 percent of GDP, which included:
  - BOAD project financing: 12.9 percent of GDP
  - Debt to BCEAO: 14.2 percent of GDP
  - Local banks: 2.9 percent of GDP
  - Government debt guarantees: 0.5 percent of GDP
  - T-bills held by other regional institutions: 4.0 percent of GDP
  - Arrears to local suppliers (estimated): 5.0 percent of GDP
- Despite longer breaches of the PV of debt-to-GDP benchmark compared to the previous DSA, there are improvements in the baseline PV of debt-to-revenue and debt service-to-revenue ratios, reflecting projected improvements in fiscal revenues.

### Sensitivity tests and scenarios
- Sensitivity tests indicate greater vulnerability to shocks.
- In a scenario with growth and the fiscal primary balance at historical averages, all PV of debt ratios exceed the December 2016 update (particularly in 2017-22), while the debt service ratios fall below the previous update over the whole projection period.
- This comparative performance does not change under the other two alternative scenarios:
  - (i) primary balance unchanged from 2016, and
  - (ii) permanently lower GDP growth.

### Policy recommendations
- Authorities should remain prudent in debt contracting despite the moderate risk of external debt distress.
- Recommended policy fronts to moderate vulnerabilities:
  - (i) Vigorous pursuit, and conclusion with relevant creditors of a rescheduling and/or outright cancellation of arrears outstanding after the Paris Club agreement.
  - (ii) Continued prudent borrowing policies, including borrowing on mostly concessional terms.
  - (iii) Revenue enhancement, sustained fiscal consolidation efforts, continued implementation of growth-enhancing reforms, and advances in economic diversification.
- Concessional borrowing is possible but authorities need to exercise caution in new debt contracting and apply recognized assessment procedures to ensure criticality as well as concessionality.

*cr17380 - 6.      Guinea-Bissau remains at moderate risk of debt distress.*

### 12.      The authorities broadly concur with staff’s views on debt sustainability and the

### 12.      The authorities broadly concur with staff’s views on debt sustainability and the recommendations

### Authorities' assessment and policy stance
- The authorities broadly concur with staff’s views on debt sustainability and the recommendations.
- They agree that debt sustainability depends crucially on sound macroeconomic policies that would in turn increase their chances of accessing concessional financing.
- They emphasized that the pace of public investment would be determined by available external concessional resources, and thus some risks identified in this DSA may not materialize.
- The authorities recognize the contributory role of:
  - prudent debt management, and
  - implementation of structural reforms to improve the business environment and to enhance overall growth and export prospects.

### Debt Sustainability Analysis (DSA): scenarios and stress tests
- The DSA presents baseline, historical, and multiple stress scenarios for 2017–37.
- The most extreme stress test is defined as the test that yields the highest ratio on or before 2027; for several indicators this most extreme shock corresponds to an Exports shock.
- Alternative scenarios presented include:
  - A1. Key variables at their historical averages in 2017–2037.
  - A2. New public sector loans on less favorable terms in 2017–2037 (assumes interest rate on new borrowing is 2 percentage points higher than in the baseline).
- Bound tests include shocks such as:
  - B1. Real GDP growth at historical average minus one standard deviation in 2018–2019.
  - B2. Export value growth at historical average minus one standard deviation in 2018–2019 (exports assumed permanently lower while current account share returns to baseline).
  - B3. US dollar GDP deflator shock.
  - B4. Net non-debt creating flows at historical average minus one standard deviation in 2018–2019.
  - B5. Combination of B1–B4 using one-half standard deviation shocks.
  - B6. One-time 30 percent nominal depreciation relative to the baseline in 2018.

### Key projections and indicators (selected)
- PV of external debt (selected projection values shown in the DSA): 7.8; 7.2; 7.7; 8.1; 8.5; 8.9; 9.3; 11.5; 10.7 (series reported in DSA tables).
- PV of PPG external debt mirrors PV of external debt in the table: 7.8; 7.2; 7.7; 8.1; 8.5; 8.9; 9.3; 11.5; 10.7.
- PV of external debt in percent of exports (selected series reported): 29.4; 25.8; 28.4; 29.9; 30.9; 31.8; 32.6; 38.5; 40.0.
- PV of PPG external debt in percent of government revenues (selected value reported): 63.5; 61.2; 56.7; 57.0; 57.9; 59.1; 59.7; 55.1; 24.3.
- Debt service-to-exports ratio (in percent, selected series): 2.4; 2.5; 2.5; 2.7; 1.4; 1.4; 1.6; 1.5; 1.5; 1.4; 2.7 (series as reported).
- PPG debt service-to-revenue ratio (in percent, selected series): 3.8; 5.2; 5.4; 3.8; 2.7; 2.6; 3.0; 2.8; 2.8; 2.0; 1.6.
- Total gross financing need (Millions of U.S. dollars, selected series): -30.3; -37.0; -27.9; -10.2; 4.1; 12.4; 17.5; 16.4; 10.4; -19.4; 119.2.
- Key macro assumptions (selected):
  - Real GDP growth (in percent, series reported): 1.0; 6.1; 5.8; 4.3; 2.9; 5.5; 5.0; 5.0; 5.0; 5.0; 5.1; 5.0; 5.0; 5.0.
  - Effective interest rate (percent, series reported): 2.0; 1.7; 2.2; 2.0; 0.2; 0.7; 0.7; 1.0; 1.1; 1.1; 1.1; 0.9; 1.1; 1.1; 1.1.
  - Grant-equivalent financing (in percent of GDP, selected series): 4.8; 4.4; 4.6; 4.6; 4.6; 4.6; 4.5; 4.1; 4.4.
  - Grant element of new public sector borrowing (in percent, selected series): 43.7; 48.1; 50.8; 50.0; 49.1; 48.2; 48.3; 46.4; 46.4; 46.5 (series reported).
- Sensitivity analysis highlights (selected outcomes from Table 2 and Table 4):
  - PV of debt-to-exports ratio baseline and stress outcomes (selected): baseline 26; under A2 rises to 53 (2037); under B2 (export shock) peaks at 125 (2019) and remains elevated in subsequent years.
  - PV of debt-to-revenue ratio baseline and stress outcomes (selected): baseline 61; under A2 rises to 75 (2027); under B2 (export shock) rises above 125 in early years and remains high.
  - PV of debt-to-GDP ratio baseline and stress outcomes (selected): baseline 7–12 range in projections; under A2 rises to 16 (2027) and 16 (2037) in Table 2; sensitivity tables show marked increases under export shocks and unfavorable financing.

### Policy implications and recommendations reflected in the text
- Maintain sound macroeconomic policies to preserve debt sustainability and improve access to concessional financing.
- Pace public investment according to available external concessional resources to avoid creating unsustainable debt dynamics.
- Strengthen debt management practices.
- Implement structural reforms to:
  - improve the business environment, and
  - enhance overall growth and export prospects — reducing vulnerability to export shocks identified in stress tests.

*Source: IMF staff report material (Guinea-Bissau DSA and related tables, 2017).*

### 1.      Guinea-Bissau joined the World Bank in 1977, three years after independence. The first

### Guinea-Bissau: World Bank, AfDB, and IMF Engagements (cr17380)

### World Bank engagement and Country Partnership Framework (CPF)
- Guinea-Bissau joined the World Bank in 1977; first operation approved in 1979 for a road construction and restoration project.
- Since then, IDA has approved 43 projects for Guinea-Bissau amounting to about US$511 million.
- World Bank engagement in FY2015–2016 was based on a Country Engagement Note (CEN) approved in March 2015.
- The World Bank Group’s Country Partnership framework (CPF) for FY2018–21 is the first full country strategy since 1997.
- CPF focus areas: increased access to quality basic services; expanded economic opportunities and enhanced resilience to shocks. Gender and governance are cross-cutting themes.
- CPF approved by WB Board on June 13, 2017, with five objectives:
  - Focus Area I: Increased Access to Quality Basic Services
    - 1. Increased access to and quality of primary education
    - 2. Increased access to and quality of maternal and child health services
  - Focus Area II: Expanded Economic Opportunities and Enhanced Resilience
    - 3. Improved logistics for market access
    - 4. Improved natural resources and disaster risk management
    - 5. Strengthened social safety nets
- Strategic implementation approaches given political and institutional fragility:
  - Focus on services and economic opportunities outside the capital (rural areas and secondary cities) while solidifying investments in Bissau.
  - Use result-based instruments to strengthen core-state sector functions (HR policies, financial management, regulation, quality assurance).
  - Engage and empower communities and citizens to strengthen bottom-up demand and accountability.
  - Strengthen in-country WBG presence for better collaboration and coordination with development partners, including UN agencies.
- Under IDA 18 (FY2018–21), the national allocation for Guinea-Bissau is estimated at $87.5 million (more than double compared to IDA 17).
  - CPF plans selective use of IDA18 facilities: Regional Integration Window (RIW) and potentially Private Sector Window (PSW), plus expansion through strategic trust funds and partnerships.

### World Bank lending program and portfolio composition
- Current active World Bank portfolio totals US$275.00 million and comprises:
  - Four national IDA operations for a net committed amount of US$90.61 million (of which US$28.43 million remain undisbursed).
  - Four regional IDA operations (US$181 million).
  - One trust fund operation (US$3.5 million).
- Portfolio age: average age for national projects is three years and two years for regional projects.
- Sectoral focus (portfolio shares):
  - Energy and Water: 49 percent
  - Telecom Infrastructure: 17 percent
  - Social Protection and Labor: 15 percent
  - Trade and Competitiveness: 12.5 percent
  - Governance: 7.62 percent
- Non-lending World Bank support includes Public Expenditure Review (PER) and Public Expenditure Management and Financial Accountability Review (PEMFAR).
- The Bank released its first Systematic Country Diagnostic (SCD) report for Guinea-Bissau in 2016.

### IFC and MIGA engagement
- IFC activities: advisory services to support access to finance and improve the investment climate, jointly with the World Bank; focus on enhancing the cashew-value chain.
- IFC has no investment exposure in Guinea-Bissau but is considering an agribusiness investment, which would be the first investment operation since 1997.
- MIGA has a single guarantee exposure in the telecommunications sector at US$9.1 million.

### African Development Bank Group (AfDB) relations and activities
- From first project approval in 1976 to May 2015, AfDB approved 50 operations for Guinea-Bissau, net commitment UA 237.6 million (about CFAF 195.6 billion).
- Sectoral distribution of approvals:
  - Infrastructure: 33.3 percent
  - Social: 26.4 percent
  - Multi-sector: 22.9 percent
  - Agriculture: 15.4 percent
  - Finance: 2.0 percent
- As of September 2016, active AfDB portfolio: nine ongoing national projects, total net amount UA 40.37 million, disbursement rate 23 percent.
- Approvals during January 2008–April 2014 included:
  - Interim HIPC debt release: US$17.48 million
  - Fragile State Facility grant: UA 2 million
  - Fish sector support grant: UA 2 million
  - Health sector grant: UA 6 million
  - Emergency cholera support grants: US$500,000 and US$999,750
  - Capacity building grants to public administration: UA 7.80 million and UA 0.66 million
  - Emergency budget support to budgetary reforms: UA 5.7 million
- May 2015 approvals:
  - New budget support operation: UA 5 million (CFAF 4.1 million)
  - Institutional support project: UA 5 million (CFAF 4.1 billion) for public financial management capacity building and justice sector strengthening
- Non-governance sector approvals in 2015:
  - Energy project to rehabilitate Bissau electricity network: UA 13.3 million (CFAF 10.9 billion)
  - Contribution to OMVG transmission line: UA 4.5 million (CFAF 3.7 billion)
- September 2016 approval:
  - Emergency assistance for Zika response: US$1 million
  - UA 3.8 million (CFAF 3.2 billion) investment project in agriculture (rice value chains) under preparation
- Non-lending program:
  - AfDB 2015–19 country strategy and Country Portfolio Performance Assessment approved January 2015 with two pillars: (i) strengthening governance and foundations of the State; (ii) development of infrastructure to foster inclusive growth.
  - Regional Integration Strategy Paper for West Africa for 2011–15 released March 2011.
  - Recent studies: transport sector review, agriculture sector review, country gender profile (2015), and policy papers on PPPs and natural resource management.

### Statistical issues — data adequacy, standards, and reporting
- General assessment: Data have serious shortcomings that significantly hamper surveillance. Shortcomings most serious in national accounts and balance of payments.
- National Accounts:
  - Annual GDP series compiled and published using base year 2005; inadequate source data.
  - Latest published GDP estimate by NSO is for calendar year 2013.
  - Estimates for 2014, 2015, and 2016 expected to be published shortly.
  - Quarterly GDP estimates are not compiled.
  - Authorities expect to release a rebased GDP time series in March 2018.
- Price Statistics:
  - Harmonized CPI compiled since July 2002, based on WAEMU methodology.
  - CPI updated in 2010 (new base year 2008) with improvements.
  - Price data collected only for the capital city, Bissau.
  - Work underway to update base year to 2014 and extend coverage nationwide.
- Government Finance Statistics (GFS):
  - West AFRITAC technical assistance missions usually visit once a year.
  - Last mission February 2017 emphasized implementation of previous GFS mission recommendations.
- Monetary and Financial Statistics (MFS):
  - MFS compiled and disseminated by BCEAO are broadly adequate.
  - In August 2016 BCEAO completed migration of Guinea-Bissau’s MFS to standardized report forms (SRFs) for central bank and other depository corporations.
- Financial Sector Surveillance:
  - BCEAO has submitted financial soundness indicators (FSIs) for deposit takers to STA for review; a 2018 mission will finalize FSI reporting.
- External Sector Statistics (ESS):
  - Guinea-Bissau moved to BPM6 methodology for balance of payments and IIP in September 2013, reviewing back series from 2007.
  - Balance of payments data are weak due to substantial unrecorded trade and inconsistencies between financial account transactions and IIP position data.
  - Constraints: large number of small-scale operators, large informal sector, institutional weaknesses hamper data collection.
  - No external debt data published by MEF, but stock and flow data are regularly produced and transmitted to BCEAO.
  - Participates in the Coordinated Direct Investment Survey (CDIS).
  - Under a Japan-funded three-year project in 17 francophone countries in West and Central Africa, Guinea-Bissau will receive technical assistance missions to improve ESS.
- Data Standards and Quality:
  - Guinea-Bissau has participated in the Enhanced General Data Dissemination System (e-GDDS) since November 2001.
  - Metadata for all data categories and plans for improvement need updating.
  - No data ROSC is available.
- Reporting to STA:
  - Currently no monthly, quarterly or annual government finance data are submitted for reporting in the IFS or GFS Yearbook.
  - Monthly monetary statistics are reported regularly for IFS publication with some delays.
  - Balance of payments and IIP statistics reported annually to STA, but with delays.
  - CDIS data for inward direct investment position reported for end-December 2011.

### IMF Surveillance: Common Indicators (selected reporting status)
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation June 2017; Date received September 2017; Frequency: M; Frequency of reporting: M; Frequency of publication: M.
- Reserve/Base Money: June 2017; received September 2017; Frequency: M/M/M.
- Broad Money: June 2017; received September 2017; Frequency: M/M/M.
- Central Bank Balance Sheet: June 2017; received September 2017; Frequency: M/M/M.
- Consolidated Balance Sheet of the Banking System: June 2017; received September 2017; Frequency: M/M/M.
- Interest Rates: June 2017; received September 2017; Frequency: M/M/M.
- Consumer Price Index: August 2017; received October 2017; Frequency: M/M/M.
- Revenue, Expenditure, Balance and Composition of Financing – Central Government: GDP 2016; received September 2017; Frequency: A/I/I for GDP (see table for precise items and timing).
- Stocks of Central Government and Central Government-Guaranteed Debt: 2016; received August 2017; Frequency: M/Q/Q.
- External Current Account Balance: 2016; received May 2017; Frequency: A/I/I.
- Gross External Debt: June 2017; received August 2017; Frequency: M/Q/Q.
- International Investment Position: 2015; received June 2017; Frequency: A/I/I.
  - (Table includes notation definitions: D/W/M/Q/A/I/NA).

### Statement by the Executive Director (Mr. Daouda Sembene) — key findings and authorities’ position (December 11, 2017)
- Authorities express appreciation for Fund support and broadly agree with staff’s assessment and policy recommendations.
- Performance under the ECF-supported program continued to be satisfactory during the period under review.
- Authorities reiterate strong commitment to the ECF-supported economic program and request Directors’ favorable consideration of completion of the fourth review under the ECF arrangement.

Recent economic developments and program performance
- Real GDP growth:
  - Reached about 6 percent in 2015–16 after averaging less than 1 percent during 2012–14.
  - Expected to remain at the same level in the current year (as of statement).
  - Growth supported by favorable cashew sector prices and higher public investment.
- External position and inflation:
  - Improved terms-of-trade and a sharp increase in FDI-related imports of construction materials expected to contribute to improved external position.
  - Inflation stood well below WAEMU regional convergence criterion of 3 percent.
- Fiscal performance:
  - Tax revenue to GDP ratio rose from 6.8 percent in 2013 to 9.2 percent in 2016.
  - In first half of 2017, tax revenue performance exceeded program expectations by 0.8 percent of GDP.
  - Overall revenue including grants was well above end-June target by 2.6 percent of GDP.
  - Non-regularized expenditures (DNTs) were eliminated; no domestic and external arrears accumulated.
  - Debt servicing costs significantly reduced due to improved debt management.
  - Civil service recruitment frozen except for social sectors; controls tightened on public servants’ wages and pensions recipients.
  - Medium-term expenditure framework piloted in five line ministries: education, health, agriculture, infrastructure, and energy.
  - Recruitment and training of tax agents with IMF assistance to boost corporate tax revenues.
- Financial sector:
  - Financial soundness indicators are good.
  - Banks increased provisions to cover NPLs related to the voided bailout, in compliance with WAEMU Banking Commission recommendations.
  - Remaining vulnerabilities are being addressed in collaboration with regional authorities.
- Program performance for end-June 2017:
  - All performance criteria (PCs) were met.
  - Domestic tax revenue floor exceeded target by 24 percent.
  - Ceilings on net domestic bank credit to the central government (NCG) were well below the program ceiling.
  - No new non-concessional debt or short-term external borrowing.
  - Indicative quantitative targets: floor on social expenditures largely exceeded; domestic primary balance turned positive against estimated deficit target; zero non-regularized expenditure occurred.
  - Five out of seven structural benchmarks met in a timely manner.
  - Delays: upgrading of debt management software and submission of monthly financial reports for the public utility company due to procurement problems.

Economic outlook and policy plans (rest of 2017 and medium term)
- Real GDP projection: projected to grow by 5 percent per year in 2018–22.
  - Growth drivers: favorable cashew sector environment, high public investment in roads and infrastructure, expected improvements in energy and water supply.
- Current account: expected to turn into a modest deficit of 2–3 percent of GDP over the medium term due to increasing investment activity and expanding economic activity.
- Inflation: projected to increase over the medium-term owing to higher domestic demand and oil prices but to stay around 3 percent in line with WAEMU convergence criterion.
- Authorities’ intended policy actions:
  - Create fiscal space, safeguard financial stability, and advance structural reforms.
  - Improve revenue collection by rationalizing and better targeting tax exemptions and subsidies; modernize customs and tax administrations.
  - Finalize draft law introducing a new small taxpayer regime with IMF technical assistance.
  - Improve composition and quality of spending, with focus on the wage bill and excise taxes.
  - Develop a new wage policy to reduce non-priority spending.
  - Continue avoiding DNTs, tighten annual budget management, and institute clearer vetting processes for investment projects.
  - Seek grants and concessional loans for capital projects to keep debt trend downward.
  - Settle outstanding arrears and maintain contacts with creditors; agreement with Brazilian government on rescheduling debt expected to be signed soon.
  - Plan audit of arrears related to domestic suppliers with support from WAEMU Commission.

Financial sector reforms and AML/CFT
- Continue to ensure financial system stability with assistance of regional Banking Commission and implement necessary actions to ensure banks comply with regulatory norms.
- Develop financial markets (including for SMEs), revise national microfinance strategy, draft national financial inclusion strategy, and strengthen the credit information bureau with regional support.
- Strengthen AML/CFT framework after approval of national strategy consistent with FATF standards.
  - Increased autonomy and financial resources for Financial Intelligence Unit (CENTIF).
  - Remaining tasks: bring exchange houses into AML/CFT regulatory system; implement asset disclosure framework.

Statistics
- Authorities, with technical assistance and training from development partners including the IMF, plan to publish by March 2018 revised national accounts with updated base year.
- Additional efforts will address remaining issues on data compilation and dissemination.

Conclusion
- Authorities reiterate commitment to prudent macroeconomic policies to promote strong and inclusive growth and reduce poverty.
- Sustained satisfactory performance under the ECF-supported program demonstrates determination to achieve policy objectives.
- Emphasis on importance of adequate external assistance to help Guinea-Bissau overcome fragility challenges; Fund’s sustained and timely contribution is deemed critical.

*Source: cr17380 (Guinea-Bissau country chapter, IMF staff report).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17380.pdf_