## EXECUTIVE SUMMARY (cr17387) ## Source details **Canonical URL:** [EXECUTIVE SUMMARY (cr17387)](https://www.imf.org/-/media/files/publications/cr/2017/cr17387.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2017/cr17387.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2017/cr17387.pdf.json) --- ### Context and background - Guinea rebounded from the Ebola epidemic; strengthening macroeconomic resilience remains necessary given vulnerabilities. - Key challenges: - International reserves below comfortable levels; exposure to commodity price shocks and limited diversification. - Increased debt vulnerabilities; banks’ credit to the economy remains subdued. - Infrastructure bottlenecks (energy and transport), limited access to credit, and poor governance constrain private sector development. - Pervasive poverty and weak social outcomes: - Incidence of poverty increased to around 60 percent (compared with 55 percent in 2012; 65 percent in rural areas). - Guinea ranks 183 out of 188 countries on the Human Development Index. - Average years of schooling: 2.6 years. - Female secondary enrollment: 40 percent (male: 50 percent). - Female labor force participation: 75 percent (male: 85 percent). - National accounts revision: - Adoption of the 1993 SNA and revision for 2006–15 resulted in an average upward revision of nominal GDP by 40 percent. ### Recent economic and financial developments - Growth and inflation: - Real growth estimated at 6.6 percent in 2016. - Average inflation: 8.2 percent (y-o-y) in 2016; 9.3 percent (y-o-y) in September 2017. - External sector: - Current account deficit widened to 32 percent of GDP in 2016, financed by a surge in FDI. - FDI in mining: 19 percent of GDP in 2016. - Gross international reserves: US$594 million in 2016 (2.3 months of import cover); US$686 million at end-September 2017 (2.5 months of import cover). - Exports increased by 21 percent (y-o-y) in H1 2017; imports increased by 31 percent (H1 2017). - Real effective exchange rate: depreciated by 9 percent in 2016, appreciated by 2.9 percent (y-o-y) at end-September 2017. - Nominal effective exchange rate: depreciated by 2.7 percent (y-o-y) at end-September 2017. - Premium between official and foreign exchange bureaus rates: 0.8 percent in September 2017 (14 percent in November 2015). - Fiscal developments: - Basic fiscal balance recorded a 0.9 percent surplus in H1 2017. - Tax revenues: 7.1 percent of GDP in H1 2017. - Revenues from the excise tax on petroleum products (TSPP): 0.25 percent of GDP. - Electricity subsidies: 0.7 percent of GDP (0.2 percent of GDP higher than in the 2017 budget law). - Capital expenditures execution: 1.9 percent of GDP (slow due to delays in external financing). - Net budgetary financing from the central bank and commercial banks: close to zero. - Financial sector and banking: - Private sector credit growth: -1.4 percent (y-o-y) in July 2017. - Reserve requirements reduced from 18 to 16 percent in March 2017. - Deposit growth: 8 percent in the first seven months of 2017 (compared to end-2016). - Non-performing loans (NPLs): 11.4 percent in June 2017. - Two banks non-compliant with capital adequacy requirements (six banks were not compliant at end-2016). - Three banks not complying with reserve requirements. - Socio-political context: - Significant socio-political tensions, opposition protests over delayed local elections, violent demonstrations in the bauxite region, and frequent protests over electricity shortages. ### Program objectives and financing - Authorities requested a successor ECF arrangement to support the 2016–20 National Social and Economic Development Plan (PNDES). - ECF objectives: - Strengthen macroeconomic resilience. - Scale-up public growth-supporting investments while preserving macroeconomic stability and medium-term debt sustainability. - Strengthen social safety nets. - Promote private sector development. - IMF access: 56.25 percent of quota (SDR 120.488 million). - Guinea expected to have a balance of payments financing gap of US$270 million during 2017–20 to achieve comfortable reserves. - Catalytic donor support expected: World Bank budget support US$40 million in 2018 and the European Union €55 million over 2017–19. *IMF staff report content.* ### Core program strategy - Policy pillars: - Build external buffers against shocks. - Strengthen fiscal position to preserve moderate inflation and maintain medium-term debt sustainability. - Create fiscal space and pursue prudent external borrowing to scale-up growth-supporting public investment in infrastructure and social safety nets while preserving stability. - Implement reforms to support sound macroeconomic policies and foster private sector development. - IMF technical assistance (TA) will support reform implementation. - Ex-Post Peered Review Assessment (PRA) lesson: program success limited by capacity constraints, exogenous shocks, and social and political uncertainty; strong reform ownership is crucial. --- ### Macroeconomic targets and buffers - International reserves: increase to 2.5 months of import coverage in 2017 and gradually to 3.8 months of import coverage in 2020. - Inflation: will be maintained at about 8 percent. - Basic fiscal balance: target a basic fiscal surplus of 0.6 percent in 2017 and an average basic surplus of 0.9 percent over 2018–20. - Objective: build buffers against shocks given Guinea’s limited economic diversification. ### Fiscal policy stance and objectives - Primary aim: preserve macroeconomic stability and debt sustainability by targeting a basic fiscal surplus and improving spending composition. - Key constraints and rules: - Avoid recourse to inflationary financing from the BCRG. - Ensure healthy credit growth to the private sector. - Limit external borrowing to preserve medium-term debt sustainability. - Avoid accumulating new domestic and external arrears while gradually clearing outstanding government arrears to the private sector (about US $220 million). - Supplementary Budget Law (September 2017): - Targeted a basic fiscal surplus of 0.2 percent of GDP (against 0.5 percent of GDP fiscal surplus in the 2017 budget) to account for larger electricity subsidies. - Electricity subsidies expected at 1.3 percent of GDP—almost three times larger than in the 2017 budget. - Revenue and expenditure measures: - Tax and administrative measures (MEFP ¶ 12) expected to raise additional tax revenues of 0.1 percent of GDP. - Contain non-priority current spending in goods and services. ### Public investment and external borrowing strategy - Public investments: increase by about 3.5 percent of GDP over the program period, notably in infrastructure. - External borrowing policy: - Maximize reliance on concessional financing. - Limit additional non-concessional borrowing to a maximum of US$650 million to preserve debt sustainability. - Note: Excludes the US$1.2 billion non-concessional loan for the Souapiti dam which is being finalized. ### Social spending and safety nets - Increase domestically-financed public spending on social safety nets to reduce poverty and foster inclusion, notably of women and youth. - Financing approach: use budgetary savings from reducing untargeted electricity subsidies to strengthen social safety nets programs (0.8 percent of GDP cumulative during 2018–20). ### Structural reforms and capacity building - Strengthen medium-term budgetary framework and public finance and investment management. - Strengthen monetary and exchange rate framework to support exchange rate flexibility and appropriate liquidity provision to banking sector. - Structural reforms to improve business climate and governance to foster private sector development. - Guinea is a pilot country under the IMF Capacity Building Framework for fragile countries. ### Macroeconomic outlook and external sector (program assumptions) - Real growth: - Expected to reach 6.7 percent in 2017 and average at 6 percent over the medium term. - Authorities’ objective: average growth of 9 percent (acknowledged as an objective, program adopts conservative assumptions). - Current account: - Expected to remain large in 2017 and gradually narrow over the medium-term; current account deficit: 24 percent of GDP in 2017. - FDI and medium-term external flows: - Pick-up in FDI in mining and infrastructure projects expected to continue (12 percent of GDP, on average during 2018–21). ### Risks to the outlook - Downside risks: - Socio-political tensions (elections), delays in mining projects, decline in commodity prices, capacity and financing constraints for infrastructure, and delays in structural reforms. - Upside possibility: - Faster commissioning of new mining production capacity and infrastructure investment. --- ### Public Financial Management, Fiscal Strategy, and Specific Measures ### Wage bill and public payroll - Wage bill: will be contained by 0.2 percent of GDP, reflecting some postponement in recruitments and in the government contribution to pension funds, due to delays in their setting-up. - Authorities aim at maintaining the wage bill contained at about 4 percent of GDP. - Civil service reforms: - Finalize distribution of biometric cards to all civil servants by December 2017. - Continue cleaning civil servants’ registries; 2,800 ghost workers exposed. ### Revenue mobilization and tax policy - Potential tax revenue gap: estimated in the range of 3–5 percent of GDP. - Program target: tax policy and administration reform plus sustained growth and buoyant mining activity would increase tax revenues by about 3 percent of GDP under the program. - Action plan: adopt targeted tax policy and administration reform by end-2017 (SB) with IMF TA — would increase non-mining revenues by 2 percent of GDP. - Tax policy measures: - Rationalize tax exemptions (estimated at about 4 percent of GDP). - Review corporate income taxes (from 35 to 30 percent mentioned for review). - Set up proper tax scheme for small taxpayers and facilitate electronic payments. - Streamline excises and review rates. - Reduce VAT credit repayment delays and the stock of arrears. - Tax administration measures: - Reinforce capacity of the National Directorate for Taxes by separating management and operations. - Introduce on-line tax declarations and payments; advance informatization (projects RAN and MERCURY to connect TVA payments). ### Petroleum pricing and TSPP - Petroleum automatic price adjustment mechanism: implement by March 2018 (SB) to support mobilization and predictability of TSPP revenues; preceded by communication campaign and mitigating measures for vulnerable households and strengthened social safety nets. - TSPP context: - Retail prices kept constant since early 2015 at GNF8000. - TSPP treated as a “floating tax” leading to revenue uncertainty. - TSPP downwards adjustment in Q1 2017 led to 0.1 percent of GDP in Q1 2017 against budgeted 0.3 percent of GDP. - TSPP revenues strengthened to 0.25 percent of GDP in H1 2017 but remained below objectives. ### Containing current non-priority spending and electricity sector reform - Electricity subsidies: - Large transfers to EDG; program supports gradual reduction of untargeted electricity subsidies. - Measures: - Implement 25 percent tariff increase for industrial and large consumers by end-2017 (SB). - Finalize tariff study including impact analysis by February 2018 (SB). - Install meters in public buildings of Prime Ministry and fifteen Ministries by June 2018 (SB); install meters throughout central government and 80 percent of the rest of consumers by February 2019 (SB). - Strengthen controls to curb electricity theft and reduce distribution losses. - Expected outcome: gradual reduction of untargeted electricity subsidies to 0.6 percent of GDP by 2020. ### Public investment management and PPPs - Target scaling-up: program supports additional 2.8 percent of GDP, on average, per year compared with 2017 to reach about 8 percent of GDP during 2018–20. - Public investment management priorities: - Prioritize and phase projects to maximize impact and account for capacity and execution constraints. - Conduct cost-benefit analysis and feasibility studies for priority infrastructure projects financed by non-concessional loans by March 2018 (SB). - Finalize integrated platform for investment management; continue PIMA with IMF TA. - PPPs: - Finalize PPP framework in line with best practice; prudence required due to contingent liabilities. --- ### Monetary, Exchange Rate, and Financial Sector Policies ### Monetary and exchange rate objectives - Objective: bolster external buffers and gradually accumulate reserves to reach 3.8 months of import coverage by 2020. - BCRG interventions in MEBD: limited to maintaining liquidity and preventing disorderly market conditions. - Foreign exchange liquidity forecasting: develop a weekly FX liquidity forecasting framework by end-2017. - Real effective exchange rate overvaluation: estimated within 19–23 percent at end-2016 (Annex VII). - MEBD reform goals: eliminate limit on auction allocations; strengthen BCRG intervention strategy with IMF TA to limit discretion by February 2019 (SB); introduce an electronic platform for FX transactions. ### Monetary policy stance and liquidity management - Aim: preserve moderate inflation within single digits; base money is intermediate target. - Policy: remain prudent, maintain a positive real interest rate, and ensure banks’ liquidity needs are fulfilled. - Liquidity management improvements: - Re-introduced monetary regulation instruments. - Prepared daily monitoring liquidity table and weekly liquidity report. - Liquidity forecasting framework: develop by March 2018 (SB), supported by IMF TA. - Emergency liquidity framework for illiquid but solvent banks: establish by February 2019 (SB), supported by IMF TA. ### Central bank governance and reporting - Correct version of amended BCRG law published in Official Journal in August 2017 (prior action); law strengthens central bank autonomy and prohibits issuance of guarantees to the private sector. - Planned actions: - Recapitalize the BCRG to ensure operational autonomy; memorandum of understanding between BCRG and Ministry of Economy and Finance to be signed by February 2018 (SB) specifying recapitalization timetable. - IFRS implementation: BCRG expects to publish IFRS compliant financial statements for 2017 by September 2018 (SB), with IMF TA. - Approve capacity building program for internal audit and undergo peer review of currency operations. ### Financial sector stability and supervision - Objectives and measures: - Establish banking resolution framework by end-2018. - New insurance code adopted in July 2017 to improve oversight. - Strengthen banking supervision including updating accounting norms and automating reporting of financial data (MEFP¶ 32). - Establish deposit guarantee system. - New credit information system to be established by end-2017. - BCRG action plan to bring remaining banks into compliance with capital adequacy requirements by end-2017; ensure all banks meet reserve requirements. --- ### Debt Sustainability, DSA Findings, and Borrowing Limits ### Key debt findings and projections - Present value of external debt-to-GDP ratio expected to increase from 16 percent in 2016 and peak at 26.2 percent in 2025 (driven by infrastructure borrowing). - Debt dynamics under baseline: all external debt ratios remain below policy-dependent thresholds; PV of debt-to-GDP peaks at 26.2 percent in 2025. - Liquidity indicators: - PV of debt-to-exports ratio: Guinea (2017): 44.5 | Guinea (Max 2017-37): 64.6 | Policy-dependent threshold: 100. - PV of debt-to-revenue ratio: Guinea (2017): 100.6 | Guinea (Max 2017-37): 143.4 | Policy-dependent threshold: 200. - Debt service-to-exports ratio: Guinea (2017): 1.9 | Guinea (Max 2017-37): 5.6 | Policy-dependent threshold: 15. - Debt service-to-revenue ratio: Guinea (2017): 4.2 | Guinea (Max 2017-37): 11.5 | Policy-dependent threshold: 18. - Risk classification: Guinea remains at a moderate risk of debt distress while vulnerabilities have increased. ### Major project and borrowing details - Souapiti dam financing: - US$1.2 billion (13 percent of GDP) non-concessional loan being finalized for construction of Souapiti dam. - Souapiti assumed: 20-year maturity with 7-year grace period; 2 percent interest rate; 0.5 percent commitment fees and 0.5 percent management fees; grant element estimated at 29.7 percent. - Disbursement schedule assumed: US$184 million in 2017; US$544 million in 2018; US$265 million in 2019; US$180 million in 2020. - Non-concessional borrowing cap during three-year ECF: limit new non-concessional loans, additional to the Souapiti loan, to a maximum of US$650 million (6 percent of GDP) during 2017–20. - Indicative new non-concessional loans expected during 2017–20 (indicative contracted basis; excludes Souapiti): - Rehabilitation of RN1 (national road): 275 (USD million) - Rehabilitation of road system in Conakry: 159 (USD million) - Construction of electricity transmission line (Lisan-Fomi-Kankan): 150 (USD million) - University Rehabilitation: 63 (USD million) ### DSA stress tests and country-specific scenarios - Under historical and extreme shock scenarios nearly all indicators breach thresholds; breaches are larger than in the 2016 DSA. - Country-specific scenarios: - Weak policy implementation scenario: real GDP 1 percentage point below baseline over 2018–37; basic fiscal balance 0.5 percent of GDP in 2018–19. - Less prudent phasing (frontloaded disbursement) scenario: $650 million non-concessional loans disbursed over three rather than five years. - Under these two scenarios indicators remain below policy-dependent thresholds but come closer to them. ### Policy recommendations to preserve debt sustainability - Maximize concessional borrowing and limit additional non-concessional borrowing to US$650 million (excluding Souapiti) during 2017–21. - Strengthen debt and public investment management: - Update bond issuance practices; enhance capacity to analyze DSA; improve public debt statistics; strengthen domestic debt procedures. - Conduct DeMPA and implement PIMA with IMF TA. - Ensure cost-recovery electricity tariffs and restructure EDG to support Souapiti SPV loan serviceability. - Phase and prioritize investment to manage borrowing and maintain debt sustainability. --- ### Social Protection, Inclusion, and Structural Reforms ### Social safety nets and targeting - Current SSN spending: PFSP and FDSS domestically-financed public spending at 0.1 percent of GDP in 2016. - National Social Protection Strategy (2016): aims to reduce poverty rate to 45 percent by 2020. - Reallocation: use savings from electricity subsidy reform (0.8 percent of GDP cumulative during 2018–20) to step-up public spending on PFSP and FDSS. - Targeting improvements: - Unified social register of vulnerable populations to be put in place by February 2019 (SB), with World Bank support. ### Structural reforms to support private sector and inclusion - Business climate: - Action plan by March 2018 (SB) to ease procedures to start a business, introduce business identification number, online tax declarations, strengthen credit information, and establish one-stop-shop for trade. - Governance and anti-corruption: - New anti-corruption law adopted in July 2017; implementing decrees to criminalize all acts of corruption and publish asset declarations of high-officials. - Strengthen National Agency to Fight Corruption; create pool of specialized judges and dedicated police. - AML/CFT improvements: operationalized Fraud Investigation Unit; implement GIABA recommendations. - Financial inclusion: - Financial Inclusion Act approved by parliament in July 2017. - Banking penetration: only 7 percent of the Guinean population has a bank account. - Adoption of implementing decrees by end-2017 expected to facilitate banking services and improve access to credit for SMEs, women and youth. --- ### Capacity Building and Technical Assistance (Annex IX) ### TA priorities and delivery - Medium-term capacity building program (2017–2020); revised annually. - Key TA priorities: - Increase non-mining tax revenues. - Strengthen public finance and investment processes. - Improve debt management. - Improve BCRG liquidity management and forecasting. - Support exchange rate mechanism reforms. - Strengthen statistics: inflation, national accounts, balance of payments. - Reinforce AML/CFT framework. - Modes of delivery: diagnostic HQ missions, short-term expert visits, long-term advisors (LTX), AFRITAC West support, and training. - Expected TA results: - Raise non-mining tax revenue by 2.4 percent of GDP by 2020. - Inclusion of a DSA in the budget law starting with the 2018 budget. - Rebase CPI and reconcile macro estimates with national accounts by end-2017. - Rollout interest rate survey to financial institutions by end-2017. ### Main risks to TA traction and mitigation - Risks: weak capacity, insufficient ownership, lack of financing, weak donor coordination, poor statistical capacity. - Mitigating measures: - Ensure TA is demand-driven and coordinated with donors. - Combine training with on-the-job support; tie further TA to satisfactory implementation of prior recommendations. - Use Resident Representative to engage stakeholders and improve buy-in. ### Authorities’ commitments for capacity building - Provide political support, staffing, and resources to achieve CBF goals. - Strengthen units (CTA and CTSP) monitoring reform implementation; produce semi-annual reports on TA recommendations. --- ### Risk Assessment Matrix — Selected risks and policy responses - Tighter or more volatile global financial conditions: Relative Likelihood: High | Impact If Realized: Medium | Policy Response: Advance structural reform and allow greater exchange rate flexibility. - Weaker-than-expected global growth: Relative Likelihood: High/Medium (AEs) / Low/Medium (EMEs) | Impact If Realized: High | Policy Response: Intensify structural reform to diversify growth. - Lower energy prices: Relative Likelihood: Low | Impact If Realized: Medium | Policy Response: Implement automatic fuel price adjustment mechanism. - Heightened risk of fragmentation/security dislocation in region: Relative Likelihood: High | Impact If Realized: Medium | Policy Response: Intensify structural reform and protect buffers; fiscal focus on revenue mobilization. - Deterioration of domestic socio-political and security situation: Relative Likelihood: Medium | Impact If Realized: High | Policy Response: Refocus reforms to less sensitive areas; strengthen social safety nets; maintain fiscal control. - Resurgence of Ebola: Relative Likelihood: Low | Impact If Realized: High | Policy Response: Keep fiscal accommodation within financing limits; focus on priority spending. --- ### Program Modalities, Monitoring, and Expected Outcomes - ECF arrangement: three years from December 2017 to December 2020. - Proposed access: 56.25 percent of quota (SDR 120.488 million); disbursements in equal installments tied to reviews and performance criteria. - Monitoring: semi-annual program reviews with quantitative performance criteria and structural benchmarks (test dates are last day of each semester starting December 2017). - Staff appraisal summary: - Recent achievements: inflation curbed, international reserves preserved, fiscal imbalances reduced, HIPC completion point reached; real growth 6.6 percent in 2016. - Growth outlook: about 6 percent over the medium-term under the program scenario. - Key priorities reiterated: - Target basic fiscal surplus to contain budgetary needs and preserve debt sustainability. - Mobilize additional tax revenues and implement automatic petroleum price adjustment mechanism. - Gradually phase out electricity subsidies and use savings to strengthen social safety nets. - Maximize concessional borrowing and limit non-concessional borrowing. - Accumulate reserves, finalize FX reform, and develop FX liquidity forecasting. - Maintain prudent monetary policy and positive real interest rates. - Strengthen banking supervision, establish deposit guarantee system and resolution framework, and ensure banks meet capital and reserve requirements. *Italic: IMF staff report content from cr17387 (PDF chapter/section).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and background - Guinea rebounded from the Ebola epidemic; strengthening macroeconomic resilience remains necessary given vulnerabilities. - Key challenges: - International reserves below comfortable levels; exposure to commodity price shocks and limited diversification. - Increased debt vulnerabilities; banks’ credit to the economy remains subdued. - Infrastructure bottlenecks (energy and transport), limited access to credit, and poor governance constrain private sector development. - Pervasive poverty and weak social outcomes: - Incidence of poverty increased to around 60 percent (compared with 55 percent in 2012; 65 percent in rural areas). - Guinea ranks 183 out of 188 countries on the Human Development Index. - Average years of schooling: 2.6 years. - Female secondary enrollment: 40 percent (male: 50 percent). - Female labor force participation: 75 percent (male: 85 percent). - National accounts revision: - Adoption of the 1993 SNA and revision for 2006–15 resulted in an average upward revision of nominal GDP by 40 percent. ### Recent economic and financial developments - Growth and inflation: - Real growth estimated at 6.6 percent in 2016. - Average inflation: 8.2 percent (y-o-y) in 2016; 9.3 percent (y-o-y) in September 2017. - External sector: - Current account deficit widened to 32 percent of GDP in 2016, financed by a surge in FDI. - FDI in mining: 19 percent of GDP in 2016. - Gross international reserves: US$594 million in 2016 (2.3 months of import cover); US$686 million at end-September 2017 (2.5 months of import cover). - Exports increased by 21 percent (y-o-y) in H1 2017; imports increased by 31 percent (H1 2017), driven by investment-related imports. - Real effective exchange rate: depreciated by 9 percent in 2016, appreciated by 2.9 percent (y-o-y) at end-September 2017. - Nominal effective exchange rate: depreciated by 2.7 percent (y-o-y) at end-September 2017. - Premium between official and foreign exchange bureaus rates: 0.8 percent in September 2017 (14 percent in November 2015). - Fiscal developments: - Basic fiscal balance recorded a 0.9 percent surplus in H1 2017. - Tax revenues: 7.1 percent of GDP in H1 2017. - Revenues from the excise tax on petroleum products (TSPP): 0.25 percent of GDP. - Electricity subsidies: 0.7 percent of GDP (0.2 percent of GDP higher than in the 2017 budget law). - Capital expenditures execution: 1.9 percent of GDP (slow due to delays in external financing). - Net budgetary financing from the central bank and commercial banks: close to zero. - Financial sector and banking: - Private sector credit growth: -1.4 percent (y-o-y) in July 2017. - Reserve requirements reduced from 18 to 16 percent in March 2017. - Deposit growth: 8 percent in the first seven months of 2017 (compared to end-2016). - Non-performing loans (NPLs): 11.4 percent in June 2017. - Two banks non-compliant with capital adequacy requirements (six banks were not compliant at end-2016). - Three banks not complying with reserve requirements due to liquidity constraints and limited interbank market activity. - Socio-political context: - Significant socio-political tensions, opposition protests over delayed local elections (expected in early 2017, delayed to 2018), violent demonstrations in the bauxite region, and frequent protests over electricity shortages. ### Program objectives and key elements - The authorities requested a successor Fund arrangement to support the 2016–20 National Social and Economic Development Plan (PNDES). - PNDES objectives: foster higher and more inclusive growth and reduce poverty through: - Structural transformation and diversification via major infrastructure investments in energy, transport, and agriculture. - Promoting good governance. - Fostering human capital accumulation. - Better managing natural resources. - ECF arrangement objectives: - Strengthen Guinea’s macroeconomic resilience. - Scale-up public growth-supporting investments in infrastructure while preserving macroeconomic stability and medium-term debt sustainability. - Strengthen social safety nets. - Promote private sector development. - Financing and catalytic role: - IMF access: 56.25 percent of quota (SDR 120.488 million) to help close balance of payments financing gap. - Guinea expected to have a balance of payments financing gap of US$270 million during 2017–20 to achieve a comfortable level of reserves. - ECF support expected to catalyze donors’ financing: World Bank budget support US$40 million in 2018 and the European Union €55 million over 2017–19. ### Program strategy - Core policy pillars: - Build external buffers against shocks. - Strengthen the fiscal position to preserve moderate inflation and maintain medium-term debt sustainability. - Create fiscal space and pursue prudent external borrowing to allow a significant scaling-up of growth-supporting public investment in infrastructure and social safety nets while preserving stability. - Implement reforms to support sound macroeconomic policies and foster private sector development. - Technical support: - IMF technical assistance will support the authorities in advancing their reform agenda. ### Ex-Post Peered Review Assessment (PRA) - PRA conducted with feedback from the authorities drawing lessons from the last three arrangements with Guinea. - Main lesson: program success can be limited by capacity constraints, exogenous shocks, and social and political uncertainty; therefore, strong reform ownership is crucial. *Source: EXECUTIVE SUMMARY, November 27, 2017.* ### 3.8 months of imports cover (Annex VII) and will be gradually increased to this level to build ### 3.8 months of imports cover (Annex VII) and will be gradually increased to this level to build ### Macroeconomic targets and buffers - International reserves: increase to 2.5 months of import coverage in 2017 and gradually to 3.8 months of import coverage in 2020. - Inflation: will be maintained at about 8 percent. - Basic fiscal balance: target a basic fiscal surplus of 0.6 percent in 2017 and an average basic surplus of 0.9 percent over 2018–20. - Objective: build buffers against shocks given Guinea’s limited economic diversification. ### Fiscal policy stance and objectives - Primary aim: preserve macroeconomic stability and debt sustainability by targeting a basic fiscal surplus and improving spending composition. - Key fiscal objectives and constraints: - Avoid recourse to inflationary financing from the BCRG (central bank). - Ensure healthy credit growth to the private sector. - Limit external borrowing to preserve medium-term debt sustainability. - Avoid accumulating new domestic and external arrears while gradually clearing outstanding government arrears to the private sector (about US $220 million). - Supplementary Budget Law (September 2017) response: - Targeted a basic fiscal surplus of 0.2 percent of GDP (against 0.5 percent of GDP fiscal surplus in the 2017 budget) to account for larger electricity subsidies. - Electricity subsidies expected at 1.3 percent of GDP—almost three times larger than in the 2017 budget—owing to higher electricity consumption and production costs, and the authorities’ decision to clear most of EDG’s outstanding arrears to suppliers. - Revenue and expenditure measures: - Tax and administrative measures (MEFP ¶ 12) expected to lead to additional tax revenues of 0.1 percent of GDP. - Non-priority current spending in goods and services to be contained. ### Public investment and external borrowing strategy - Public investments: to be increased by about 3.5 percent of GDP over the program period, notably in infrastructure. - External borrowing policy: - Maximize reliance on concessional financing. - Limit recourse to additional non-concessional borrowing to finance infrastructure to a maximum of US$650 million to preserve debt sustainability. - Note: Excludes the US$1.2 billion non-concessional loan for the construction of the Souapiti dam which is being finalized. ### Social spending and inclusion - Increase domestically-financed public spending allocated to social safety nets to reduce poverty and foster inclusion, notably of women and youth. - Rationale: Social safety nets in Guinea are small and mainly donor-financed. - Financing approach: use budgetary savings stemming from reducing untargeted electricity subsidies to strengthen social safety nets programs. ### Structural reforms and capacity building - Advance reforms in priority areas to support sound macroeconomic policies and foster private sector development. - Strengthen the medium-term budgetary framework and public finance and investment management to support scaling-up and efficiency of public investments. - Strengthen monetary and exchange rate framework to support greater exchange rate flexibility and ensure appropriate liquidity provision to the banking sector. - IMF technical assistance (TA) will be tailored to support reforms to achieve program objectives (Annex IX). - Structural reforms to improve the business climate and governance will foster private sector development and more broad-based growth. - Guinea is a pilot country under the IMF Capacity Building Framework for fragile countries. ### Macroeconomic outlook and external sector - Real growth: - Expected to reach 6.7 percent in 2017 and average at 6 percent over the medium term. - Program scenario assumptions: new mining production capacity comes on stream only gradually; public investments are lower than envisaged in the PNDES to account for capacity and financing constraints; productivity gains in the agricultural sector are gradual. The authorities’ objective is to achieve average growth of 9 percent. - Drivers: - Large FDI in the mining sector expected to support buoyant activity. - Scaling-up of infrastructure investment expected to boost construction and support agriculture. - Improved infrastructure and energy provision, structural reforms, and strengthened bank credit expected to support private sector development. - Current account: - Expected to remain large in 2017 and gradually narrow over the medium-term, financed by FDI inflows. - Current account deficit: 24 percent of GDP in 2017, reflecting FDI-related imports in mining and in infrastructure (16 percent of GDP), notably the start of the construction of the Souapiti dam. - FDI and medium-term external flows: - Pick-up in FDI in mining and infrastructure projects expected to continue over the medium-term (12 percent of GDP, on average during 2018–21). - External imbalances expected to gradually narrow owing to stronger mining and agricultural exports, despite strong FDI-related imports and a pick-up in repatriated profits. ### Risks to the outlook - Downside risks: - Socio-political tensions arising from further delays in local elections and the run-up to the 2018 legislative elections could undermine near-term growth and weaken policy discipline. - Delays in mining projects, a decline in commodity prices, capacity and financial constraints in implementing infrastructure projects, and delays in structural reforms could weaken medium-term growth. - Upside possibility: - A faster pace of new mining production capacity coming on stream and infrastructure investment would support higher near- and medium-term growth. *IMF staff report content.* ### 0.1 percent of GDP. The wage bill will be contained by 0.2 percent of GDP, reflecting some ### cr17387 - 0.1 percent of GDP. The wage bill will be contained by 0.2 percent of GDP, reflecting some ### Public financial management and fiscal strategy - Wage bill: will be contained by 0.2 percent of GDP, reflecting some postponement in recruitments and in the government contribution to pension funds, due to delays in their setting-up. - Mining tax revenues: expected at 14.8 percent of GDP, reflecting buoyant activity. - Net government actions enabled by revenue: net government repayments to the central bank, repaying government arrears to the private sector, and containing borrowing from commercial banks. - Draft 2018 Budget Law: presented to the Parliament in line with program objectives. - Priorities to strengthen the medium-term budget framework (MBT): - (i) implementing the new budget nomenclature for the execution of the 2018 budget; - (ii) establishing a top-down budgetary approach by setting MBT targets in line with the program targets; - (iii) modernizing the information system for the preparation and execution of the budget. - Treasury Single Account (TSA): finalize the TSA and transfer accounts of autonomous public entities into the TSA by June 2018. - Compliance: ensure budgetary and accounting management of public agencies complies with the new legislative and regulatory framework of public finances by end-2017. ### Monetary and exchange rate policies - Objective: bolster external buffers and gradually accumulate reserves to build comfortable buffers against commodity price shocks and limited economic diversification. - BCRG interventions: in the bilateral foreign exchange auction market (MEBD) will be limited to maintaining liquidity and preventing disorderly market conditions. - Foreign exchange liquidity forecasting: central bank will develop a weekly foreign exchange liquidity forecasting framework by end-2017. - Real effective exchange rate overvaluation: estimated within 19–23 percent at end-2016 (Annex VII). - Foreign exchange market reform: - MEBD established in 2016 replaced a foreign exchange allocation system. - Differential between official rate and foreign exchange bureaus reduced below 2 percent. - Reform completion aims: eliminate limit on auction allocations, strengthen BCRG’s intervention strategy with IMF TA to limit discretion by February 2019 (SB). - Introduce an electronic platform for foreign exchange transactions to make MEBD operations more fluid and secure. - Monetary policy stance: - Aim: preserve moderate inflation while ensuring liquidity in the banking sector to support healthy private sector credit growth. - BCRG objective: keep inflation broadly stable and within single digits and base money is its intermediate target. - Policy: remain prudent, maintain a positive real interest rate, and ensure banks’ liquidity needs are fulfilled including by strengthening regular use of liquidity regulation instruments. - Liquidity management improvements: - Re-introduced monetary regulation instruments. - Prepared daily monitoring liquidity table and weekly liquidity report. - Liquidity forecasting framework: develop by March 2018 (SB), supported by IMF TA. - Emergency liquidity framework for illiquid but solvent banks: establish by February 2019 (SB), supported by IMF TA. - BCRG autonomy, transparency, accountability: - Correct version of amended BCRG law published in the Official Journal in August 2017 (prior action); law strengthens central bank autonomy and prohibits issuance of guarantees to the private sector. - 2016 external audit of the BCRG completed on a timely basis in line with international standards. - Planned actions: recapitalize the BCRG to ensure operational autonomy; enhance financial reporting transparency; develop internal audit capacity; strengthen controls in currency operations. - Memorandum of understanding between the BCRG and the Ministry of Economy and Finance to be signed by February 2018 (SB) to specify modalities and timetable for recapitalization. - IFRS implementation: BCRG expects to publish IFRS compliant financial statements for 2017 by September 2018 (SB), with IMF TA. - Approve capacity building program for internal audit and undergo peer review of currency operations. ### Financial sector stability and supervision - Objective: maintain financial sector stability. - Banking resolution framework: establish by end-2018 to strengthen resilience. - Insurance and oversight: - New insurance code adopted in July 2017 to improve sector oversight. - Banking supervision to be strengthened including updating accounting norms and automating reporting of financial data (MEFP¶ 32). - Deposit guarantee system will be established. - Non-performing loans (NPLs): due to recent increase, a new credit information system to be established by end-2017. - Capital adequacy and reserve requirements: - BCRG developing action plan to bring remaining banks into compliance with capital adequacy requirements by end-2017. - BCRG will ensure that all banks comply with reserve requirements. ### Scaling-up infrastructure investment while preserving stability - Strategy: two-pronged—create fiscal space and ensure prudent external borrowing. - Target scaling-up: program supports additional 2.8 percent of GDP, on average, per year compared with 2017 to reach about 8 percent of GDP during 2018–20. - Infrastructure priorities: step-up electricity generation and transmission/distribution, improve transport (roads and railways), foster mechanization of agriculture. - Electrification rates: 26 percent overall and 11 percent in rural areas. - Public investment management priorities: - Prioritize and phase projects to maximize impact and account for capacity and execution constraints. - Conduct cost-benefit analysis and feasibility studies for priority infrastructure projects financed by non-concessional loans by March 2018 (SB). - Conduct competitive bidding for public investment projects to foster transparency. - Finalize integrated platform for investment management to improve coordination and monitoring. - Continue Public Investment Management Assessment (PIMA) with IMF TA. - Public-private partnerships (PPPs): - Finalize PPP framework in line with best practice; implementing decrees of new PPP law adopted in early July must ensure consistency with PNDES and LORF. - Prudence required due to contingent liabilities; guarantees must be well-monitored and contained. ### Creating fiscal space — mobilizing additional tax revenues - Potential tax revenue gap: estimated in the range of 3–5 percent of GDP. - Program target: tax policy and administration reform plus sustained growth and buoyant mining activity would increase tax revenues by about 3 percent of GDP under the program. - Action plan: authorities to adopt an action plan for a targeted tax policy and administration reform by end 2017 (SB), with IMF TA — would increase non-mining revenues by 2 percent of GDP. - Tax policy measures (key elements): - Rationalize tax exemptions (estimated at about 4 percent of GDP). - Review corporate income taxes. - Set up proper tax scheme for small taxpayers and facilitate electronic payments. - Streamline excises and review rates. - Reduce VAT credit repayment delays and the stock of arrears. - Tax administration measures (key elements): - Reinforce capacity of the National Directorate for Taxes by separating management and operations. - Strengthen control of the tax base by improving taxpayer identification and cross-checking taxpayers’ imports with declared turnover. - Strengthen customs’ procedural efficiency and human/material resources. - Introduce on-line tax declarations and payments. - Strengthen informatization. ### Petroleum pricing and mining revenue measures - Petroleum automatic price adjustment mechanism: implement by March 2018 (SB) to support mobilization and predictability of TSPP revenues; preceded by communication campaign and mitigating measures for vulnerable households and strengthened social safety nets. - TSPP context: retail prices of fuel products kept constant since early 2015; TSPP adjusted monthly leading to revenue losses in 2017. - Mining Code application: - New Mining Code of 2014 introduced taxation provisions; existing companies were grand-fathered. - Ensuring application of tax provisions to new companies expected to mobilize additional 0.8 percent of GDP during 2017–20 (cumulative). - Continue efforts to bring expiring agreements under the new code. ### Containing current non-priority spending - Electricity subsidies: - Large budgetary transfers to EDG to compensate for below cost-recovery tariffs, weak revenue collection and large technical/distribution losses; EDG runs financial losses and arrears cleared ad-hoc by government. - Program supports gradual reduction of untargeted electricity subsidies via: - (i) bringing electricity tariffs closer to cost recovery; - (ii) improving EDG efficiency by strengthening collection rate and reducing distribution losses. - Measures: - Implement 25 percent tariff increase for industrial and large consumers by end-2017 (SB). - Finalize tariff study including impact analysis by February 2018 (SB) to establish cost-recovery tariff and mitigation for vulnerable. - Install electricity consumption meters in public buildings of the Prime Ministry and fifteen Ministries by June 2018 (SB). - Install meters throughout central government and 80 percent of the rest of consumers by February 2019 (SB). - Strengthen control measures to curb electricity theft and reduce distribution losses. - Wage bill: authorities aim at maintaining the wage bill contained at about 4 percent of GDP. - Civil service reform measures: finalize distribution of biometric cards to all civil servants by December 2017; continue cleaning civil servants’ registries; strengthen system for monitoring civil servants (MEFP ¶17). ### Mobilizing external financing and preserving debt sustainability - Debt dynamics under program: - Present value of external debt-to-GDP ratio expected to increase from 16 percent in 2016 and peak at 26.2 percent in 2025, driven by infrastructure-related borrowing. - Souapiti dam financing: - US$1.2 billion (13 percent of GDP) non-concessional loan being finalized for construction of Souapiti dam. - Non-concessional borrowing cap: - Authorities committed to limit new non-concessional loans, additional to the Souapiti loan, to a maximum of US$650 million (6 percent of GDP) during 2017–20. - Indicative new non-concessional loans to finance priority projects (expected during 2017–20, indicative contracted basis; excludes US$1.2 billion Souapiti loan): - Rehabilitation of RN1 (national road): 275 (USD million) - Rehabilitation of road system in Conakry: 159 (USD million) - Construction of electricity transmission line (Lisan-Fomi-Kankan): 150 (USD million) - University Rehabilitation: 63 (USD million) - Outstanding external arrears: US$147.4 million to non-Paris Club and commercial creditors pre-date the HIPC completion; negotiations ongoing. - Government arrears to private sector: strategy to clear arrears will be developed by end-2017 (SB). - Debt management strengthening: - Publish statistical bulletin on public debt. - Set up technical group to analyze debt sustainability. - Update medium-term debt management strategy. - Participate in Debt Management Performance Assessment (DEMPA). ### Strengthening social safety nets - Current SSN spending: domestically-financed public spending allocated to PFSP and FDSS was at 0.1 percent of GDP in 2016. - National Social Protection Strategy (2016): aims to reduce poverty rate to 45 percent by 2020. - Reallocation: budgetary savings from reducing electricity subsidies (0.8 percent of GDP cumulative during 2018–20) will be used to step-up public spending on PFSP and FDSS to reduce dependence on external financing. - Targeting improvements: - Current targeting combines geographic factors, self-identification, community-based committees, basic means testing; targeting hindered by absence of national ID system, remoteness, and limited monitoring. - Unified social register of vulnerable populations to be put in place by February 2019 (SB), with World Bank support. ### Advancing growth-supporting structural reforms - Business climate: - Action plan to improve the business climate to be developed by March 2018 (SB). - Measures: ease procedures to start a business; introduce business identification number and online tax declarations; strengthen credit information system; establish one-stop-shop to facilitate trade; develop government-private sector dialogue framework. - Governance and anti-corruption: - New anti-corruption law adopted in July 2017; implementing decrees to criminalize all acts of corruption and publish asset declarations of high-officials. - Strengthen National Agency to Fight Corruption; create pool of specialized judges and dedicated police. - AML/CFT improvements: operationalized Fraud Investigation Unit; set-up inter-ministerial committee and steering committee; implement GIABA recommendations including measures related to politically-exposed persons. - Financial inclusion: - Financial Inclusion Act approved by parliament in July 2017 to provide framework for microfinance institutions. - Adoption of implementing decrees by end-2017 expected to facilitate banking services and improve access to credit for SMEs, women and youth. - Banking penetration: only 7 percent of the Guinean population has a bank account. ### Program modalities, IMF support, and expected outcomes - ECF arrangement: three years from December 2017 to December 2020. - Proposed access: 56.25 percent of quota (SDR 120.488 million). - Disbursement: spread in equal installments; schedule of disbursements tied to reviews and performance criteria (see program documents). - Monitoring: semi-annual program reviews based on quantitative performance criteria and structural benchmarks (test dates are last day of each semester starting December 2017). - Staff appraisal summary: - Recent achievements: inflation curbed, international reserves preserved, fiscal imbalances reduced, HIPC completion point reached; real growth estimated at 6.6 percent in 2016 with momentum expected to be sustained in 2017. - Program objectives: strengthen macroeconomic resilience; scale-up growth-supporting public investments while preserving macroeconomic stability and debt sustainability; strengthen social safety nets; promote private sector development. - Growth outlook: Guinea’s growth expected at about 6 percent over the medium-term under the program scenario. - Risks: potential commodity price volatility and capacity constraints; strong ownership and implementation of policies and reforms critical for success. - Key program fiscal and monetary priorities reiterated: - Target basic fiscal surplus to contain budgetary needs, preserve moderate inflation, ensure bank credit to private sector, and preserve debt sustainability. - Mobilize additional tax revenues and implement automatic petroleum price adjustment mechanism. - Gradually phase out electricity subsidies and use savings to strengthen social safety nets. - Maximize concessional borrowing and limit non-concessional recourse to preserve debt sustainability. - Accumulate reserves, limit discretionary FX interventions, finalize foreign exchange reform, and develop FX liquidity forecasting. - Maintain prudent monetary policy, positive real interest rate, strengthen liquidity management, and implement BCRG recapitalization and IFRS-compliant reporting. - Strengthen banking supervision, establish deposit guarantee system and banking resolution framework, and ensure banks meet capital and reserve requirements. *Italic: IMF staff report content from cr17387 (PDF chapter/section).* ### 1. Gross financing requirements1,123 ### 1. Gross financing requirements1,123 ### Gross financing requirements: headline figures - Numerical lines as presented in source: - 2,9582,509 - 2,5071,540 - 2,4192,248 - External current account deficit1,358 - 2,7892,316 - 2,212 - 1,2682,1301,970 - Capital account balance - 1 - -16-16 - -17-17 - -18-18-19 - Debt amortization - 52 - 514277677973 - Change in arrears, net - 2 - -11 - 182 - 0000 - Gross reserves accumulation-29113386235218188 - 175 - IMF Repayments - 3 - 3000044049 ### Available financing: headline figures - 2. Available financing1,0602,9352,4692,396 - 1,469 - 2,3702,248 - Foreign direct investment, net - 4 - 685 - 2,5761,5401,3149341,8341,681 - Identified disbursements - 2691158471,082800 - 703567 - Grants - 4593126150140 - 149160 - Project - 33107299859299 - Program12835451555762 - Loans - 22322721932 - 660554407 - Project - 18722 - 701922 - 650544397 - Program36020 - 10911 - 10 - Other flows6324400-265-1670 - Debt relief - 1,2 - 43 - 0820000 ### Residual financing and program-related disbursements - 3. Residual financing-63-22-40-111-71-490 - ECF and RCF disbursement - 6322 - 244849490 - World Bank budget support... - ...... - 40 - ......... - EU budget support...... - 162222...... ### Notes and footnotes related to financing - Sources: Guinean authorities; and IMF staff estimates and projections. - 1 Excludes public transfers and capital grant from IMF CCR Trust for debt cancellation. - 2 Projected clearance of outstanding debt arrears to non-Paris Club official creditors and commercial creditors through debt relief. - 3 In 2015 includes debt cancellation (under IMF repayments) and debt relief provided under the IMF's CCR Trust. - 4 Includes private short-term capital flows. - Proj. - 2015 - 2016 ### Table 12. Guinea: Projected External Borrowing (January 1, 2017–December 31, 2017) — selected figures - USD million / Percent / USD million / Percent (table headings preserved in structure) - By sources of debt financing1921.91001345.4100 - Concessional debt, of which 314.916184.214 - Multilateral debt286.315166.212 - Bilateral debt28.5118.01 - Other0.000.00 - Non-concessional debt, of which1607.0841161.286 - Semi-concessional1607.0841161.286 - Commercial terms0.000.00 - By Creditor Type1921.91001345.4100 - Multilateral286.315166.212 - Bilateral - Paris Club0.000.00 - Bilateral - Non-Paris Club1635.5851179.288 - Other0.000.00 - Uses of debt financing1921.91001345.4100 - Infrastructure1878.6981322.798 - Social Spending0.000.00 - Budget Financing0.000.00 - Other43.32.322.71.7 - Memo Items / Indicative projections - Year 2266.0186.6 - Year 350.022.9 - PPG external debt - Volume of new debt in 2017 - PV of new debt in 2017 (program purposes) ### Table 13. Guinea: Risk Assessment Matrix — summary of risks, likelihood, impacts, and policy responses - Tighter or more volatile global financial conditions (surge in the US dollar) - Relative Likelihood: High - Impact If Realized: Medium — Competitiveness could be further impaired and reserve buffers strained - Policy Response if Materialized: Further advance the structural reform agenda to remove bottlenecks and allow greater exchange rate flexibility. - Weaker-than-expected global growth - Relative Likelihood: High/Medium (AEs) / Low/Medium (EMEs) - Impact If Realized: High — Investment in large-scale mining projects (bauxite) would likely be delayed, lowering medium-term growth prospects. - Policy Response: Intensify structural reform to improve the business climate and diversify growth. - Lower energy prices - Relative Likelihood: Low - Impact If Realized: Medium — Would lead to an improved balance of payment position, support growth and possibly higher fiscal revenues as taxes are adjusted to maintain unchanged fuel prices. - Policy Response: Implement the automatic fuel price adjustment mechanism to reduce uncertainty in revenues. - Heightened risk of fragmentation/security dislocation in the Middle East, Africa, and Europe - Relative Likelihood: High - Impact If Realized: Medium — Large-scale investment projects would likely be postponed. Progress out of fragility would be in doubt. - Policy Response: Intensify structural reform to remove bottlenecks to growth, and protect buffers. Fiscal policy to focus on revenue mobilization, and delivery of public services. - Deterioration of the domestic socio-political and security situation - Relative Likelihood: Medium - Impact If Realized: High — Investment and growth would be affected; poverty could increase; implementation of program could weaken. Macroeconomic stability would be at risk. - Policy Response: Refocus reform on areas less sensitive to socio-political environment. Strengthen further social safety nets. Aim to maintain fiscal control and promote inclusive growth through diversification. - Resurgence of Ebola - Relative Likelihood: Low - Impact If Realized: High — Additional to the human toll, investor sentiment and consumer confidence would deteriorate further. Mining investments would be delayed. - Policy Response: Intensify structural reform. Fiscal accommodation should remain within the limits of available financing, and focus on priority sector spending. ### RAM explanatory note - The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. The relative likelihood categories: “low” (probability below 10 percent), “medium” (between 10 and 30 percent), and “high” (between 30 and 50 percent). The RAM reflects staff views as of the time of discussions with the authorities. “Short term (ST)” and “medium term (MT)” indicate within 1 year and 3 years, respectively. ### Annex I — Strengthening National Accounts Statistics: key points - INS migration of methodology: - Previously based on SNA 1968; work to implement SNA 1993 started in 2011. - Fund provided technical assistance on compiling supply and use tables (SUT) and integrating economic accounts (IEA) in accordance with SNA 1993. - Revised national accounts published May 2017: - Time series commences in 2006. - Broadly compliant with SNA 1993. - Incorporates improvements: new economic surveys, better categorization of activities and products, improved estimates for informal activity.1 - Base year revised to 2006 (from 2003); reference years for prices changed to 2010 (from 2003). - Result: nominal GDP revised up by an average 40 percent between 2006–15; real growth and key economic indicators significantly improved. - Staff treatment: - Staff incorporated revised national accounts data for 2006–14 in the program scenario. - Staff uses an estimate for 2015; final number not released until December 2017. - Migration plans: - INS aims to migrate from SNA 1993 to SNA 2008 over the coming 2–3 years. - Migration contingent on new surveys: household survey, census of companies, agricultural census. - INS will also revise the base year to 2015. - Fund and other TA providers (UNECA, AFRISTAT, EU) continue to support migration and data collection improvements. - Footnote on sector weights: - The total weight for agriculture, mining and construction in GDP declined by 16 percent, while weights of the components of the tertiary sector have increased, including for trade activities. ### Table A1.1. Guinea: Change in Key Indicators — selected figures (Old NA vs Revised NA) - Old NA (Annual percentage change / Percent of GDP) - Real GDP Growth: 3.3 3.2 1.5 1.1 0.1 (2011–2015) - Basic fiscal balance: -1.6 -2.5 -2.8 -6.5 -7.0 - Overall fiscal balance: -1.1 -3.6 -5.3 -4.2 -8.9 - Current account balance: -24.8 -26.0 -17.2 -17.6 -19.9 - Total public debt: 82.1 32.1 42.5 43.8 50.7 - Revised NA (Annual percentage change / Percent of GDP) - Real GDP Growth: 5.6 5.9 3.9 3.7 3.5 - Basic fiscal balance: -1.2 -1.9 -2.1 -5.0 -5.4 - Overall fiscal balance: -0.8 -2.8 -3.9 -3.2 -6.9 - Current account balance: -18.4 -20.0 -12.5 -13.4 -15.4 - Total public debt: 58.1 24.4 31.3 33.9 39.8 ### Annex II — A Buoyant Mining Sector: projections and investment - Context and drivers: - Guinea holds the largest high-grade reserves of bauxite in the world—estimated to be around a third of total global reserves. - Demand for aluminum is set to increases by around 5% annually over the medium term. - Indonesia introduced an export ban in 2014; Malaysia in January 2016. - Investment expectations (2017–20): - Total investment in bauxite and alumina production and associated infrastructure expected to reach around $6.5 billion in 2017–20 (14 percent of GDP, cumulatively over the period). - CBG investing $1 billion to expand capacity by almost 50 percent by 2021. - New mining companies investing a total of $4.8 billion (10 percent of GDP, cumulatively over the period) between 2017 and 2020. - Gold production investments around $400 million over 2017–21 (gold ~25 percent of overall mining production), leading to an increase in capacity of almost 50 percent. - Production capacity: - Total production capacity for bauxite and alumina expected to quadruple—from a productive capacity of 20 million tons to 80 million tons by 2021. - Contribution to growth: - Mining could contribute as much as 3 percentage points on average to growth between 2017 and 2021 if expansion reaches maximum capacity. - Weight of mining in total output could increase from around 13 percent in 2016 to 20 percent by 2021 if production reaches full capacity. - Program scenario assumes more conservative impact: 1.5 percentage point average contribution to growth over 2017–21 due to gradual commissioning of capacity. - Expansion by existing producers impacts growth in 2018 and 2021; new companies expected to start production in 2018 and 2019. ### Annex III — Sources of Growth and Employment: labor and sectoral implications - Demographics and labor force: - Working-age population growth expected to accelerate to 3.4 percent on average between 2015–25 compared with around 2.5 percent between 2010–15. - Around 35 percent of the population are either inactive or unemployed (2012 Household Survey). - More than 60 percent of the population are under the age of 25. - Employment composition and sectoral contributions: - Between 2014–16, mining contributed around 1.5 percentage points on average to growth with a contribution in 2016 of over 3.5 percent. - Agriculture contributed around 0.5 percentage points to growth over the same period. - Mining accounts for around 13 percent of Guinea’s economic output but employs only 3 percent of the total workforce. - Agriculture employs close to two-thirds of the workforce while making up around 10 percent of output. - Gender and employment: - Employment rate for females was at 68 percent in 2012; male employment at 63 percent. - Only 1.9 percent of females are employed in mining. - Between 2007 and 2012 female employment in agriculture declined by around 4 percent on average per year compared with 0.8 percent for males. - Policy implications: - Mining is low labor intensive; limited scope to generate employment despite strong contribution to growth. - Diversification toward labor-intensive industries (agriculture, services) and productivity-enhancing investments are critical for job creation. - PNDES (2016–20) focuses on agricultural mechanization, developing agro-industries, and enabling Guinea to become an exporter of agricultural products. - PNDES aims to step up infrastructure investments to support private sector development and diversification. - Investments in human capital and productivity are important to enable the workforce to participate in higher value-added industries. ### Annex IV — Mobilizing Revenue: targets and reform priorities - Fiscal revenue target: - PNDES target: 17.8 percent of GDP in tax and non-tax revenue by 2020, from 15.0 percent at end-2016. - Composition and priorities: - Strengthen direct taxes (2.5 percent of GDP in 2016 and 23 percent of overall revenues, below comparator countries). - Reduce overdependence on indirect taxes (9.7 percent of GDP in 2016), notably taxes collected at customs (including VAT and excises on imports). - Improve non-tax revenue collection by line ministries and the Treasury. - Administrative reform focus (Direction Nationale des Impôts — DNI): - A complete overhaul of the DNI is needed: separate management and operations; establish clear segmentation between large, medium, and small businesses. - Increase human and material resources to ensure tighter control of the tax base via proper identification of taxpayers using available data sources. - Tax policy reform to improve direct taxation performance: review tax exemptions; streamline corporate and personal income taxes (rates, brackets, deductions); set up a proper small taxpayer regime. - Customs reform: - Improve operations efficiency through increased staff and material resources, continued expansion of the SYDONIA platform, and better use of data to shift to a risk-based approach. - AFRITAC-West long term advisor dedicated to fragile states to provide support to Guinea on administration of the tax system and domestic revenue mobilization. *Sources: Guinean authorities; and IMF staff estimates and projections.* ### Annex V. Implementing the Automatic Fuel Price Adjustment ### Annex V. Implementing the Automatic Fuel Price Adjustment Mechanism to Preserve Fiscal Revenues ### Current pricing and tax structure - Domestic fuel prices in Guinea have been constant since early 2015. - Since March 2015, the price of the three fuel products (gasoline, gasoil, and kerosene) has been maintained at GNF8000. - Retail prices of fuel products were increased to GNF10000 in 2010, but were then reduced in early 2015 following social pressures from trade unions and threats from the opposition parties. - Taxes represent about 36 percent of fuel prices in Guinea—higher than most comparator countries. - Fuel prices (USD per liter) as shown in source table: - Guinea0.890.890.89 - Cote d'Ivoire0.920.920.56 - Senegal1.080.960.83 - Liberia0.73...0.70 - Sierra Leone0.830.830.83 - Taxes on fuel products (Percent of pump price) as shown in source table: - Guinea36.1% 36.1%38.4% - Burkina Faso39% ...28% - Sierra Leone15%21%16% - CIV.........37.30% - Liberia10%10%10% - Senegal......31% - Mali41%not appl.33% ### Automatic fuel price adjustment mechanism: design and implementation status - An automatic fuel price adjustment mechanism is in place in Guinea but has never been implemented. - Timeline and rules: - In 2001, the authorities first introduced an automatic price adjustment mechanism for fuel products, which was never implemented. - In 2014, a Ministerial Decree adopted a revised automatic fuel price adjustment mechanism, which requires retail prices to be adjusted at end of each month when the average fuel products import prices (average of previous month, expressed in local currency) increases/decreases by more than 5 percent. - Despite import price movements above the +/- 5 percent threshold, the adjustment mechanism has never been applied. ### Fiscal practice and revenue outcomes - The tax on petroleum products (TSPP) has been adjusted to maintain unchanged prices at the pump, leading to revenue uncertainty. - The TSPP has been treated as a “floating tax” that is adjusted to maintain the targeted fuel price at the pump. - Monthly setting of the TSPP is based on domestic price policy in view of movements in international import price and exchange rate. - Fiscal impacts and performance: - TSPP downwards adjustment in the first quarter of 2017 led to 0.1 percent of GDP during the first quarter of 2017 against budgeted 0.3 percent of GDP. - TSPP revenues strengthened to 0.25 percent of GDP in the first half of 2017, owing upward tax adjustments due to declining import prices, but remained below objectives. ### Policy recommendation and needed measures - Implementing the fuel prices automatic adjustment mechanism is needed to: - preserve fiscal revenues, and - strengthen predictability. - Benefits of implementing the mechanism: - Would allow the authorities to abandon the practice of using the TSPP as an adjustment variable. - Would strengthen revenue predictability. - Complementary requirements: - Putting in place adequate mitigating measures to protect vulnerable households will be needed. *Source: Country authorities; IMF staff estimates and projections (from Annex V text).* ### 1. Since becoming a member of the IMF in 1963, Guinea has been engaged in a series of ### Guinea: Fund Arrangements and Program Performance (1963–2016) ### A. Fund Engagement and Financial Arrangements - Guinea has been a member of the IMF since 1963 and engaged in a series of Fund arrangements, including two PRGT arrangements over the last ten years, an SMP, an ECF (2012–16), and an RCF in 2014 in response to the Ebola crisis. - Key arrangements and emergency assistance: - A three-year PRGF arrangement approved in 2007 for an amount of SDR 48.195 million (45 percent of quota); access augmented by 20 percent of quota at the first review (July 2008); program went off-track after the end-2008 military coup. - A one-year Staff Monitoring Program (SMP) approved in June 2011 (covering January–December 2011) aimed at restoring macroeconomic stability and building a track record. - A three-year Extended Credit Facility (ECF) arrangement approved in February 2012 for an amount of SDR 128.52 million (120 percent of quota); access augmented by 42 percent of quota in response to the Ebola epidemic in 2014; program extended to end-2015 and further to end-October 2016 due to policy slippages in 2015. - An RCF approved in September 2014 for an amount of SDR 26.775 million (25 percent of quota, single disbursement) provided as budget support in response to Ebola. - Debt relief under the Catastrophe Containment and Relief Trust (CCR) in an amount of SDR 21.42 million (20 percent of quota) to repay Fund debt service falling due during 2017–19. ### B. Program Performance - PRGF 2007–10 - Objectives: support conditions for sustained growth and help reach the HIPC completion point and MDRI debt relief. - Performance up to July 2008 was weak: two quantitative performance criteria (PCs) and several indicative targets were missed, including PCs on net international reserves (NIR), external arrears, the fiscal target, and two structural PCs. - Contributing factors: rising international food and fuel prices, social and political instability, threat of general strike and military unrest; government offset a 63 percent increase in retail petroleum prices to civil servants (0.4 percent of GDP budgetary impact); repayment of wage arrears to soldiers. - Program went off track after the December 2008 military coup; Fund withdrew recognition of the self-appointed military government in September 2009. - SMP 2011 - Aimed at establishing a track record, addressing macroeconomic imbalances, and stabilizing the economy after fiscal deterioration under 2009–10 military regime. - Results: quantitative benchmarks met with considerable margins; strong fiscal adjustment reduced fiscal imbalances and stopped deficit monetization; exchange rate stabilized; gross official reserves increased to about 5 months of imports (end-2011), reflecting a windfall in mining revenues. - Macroeconomic indicators: annual inflation surged to about 21 percent at end-2010 and stabilized by end-2011 at 19 percent; real GDP growth rebounded; structural reforms improved financial management and governance in the mining sector. - ECF 2012–16 - Built on SMP progress to strengthen macroeconomic stabilization, support growth, and curb inflation; completed at the eighth and final review in November 2016 following an extension in March 2015. - Macroeconomic outcomes (selected): - Inflation reduced from 19 percent at end-2011 to 8.2 percent in 2016, but remained above the program objective of 5.9 percent. - Basic fiscal balance improved from a deficit of 2.5 percent of GDP in 2011 to -0.2 percent of GDP by 2016, short of the program expectation of a fiscal surplus of 1.7 percent of GDP in 2016. - Foreign exchange reserves maintained at 2.3 months of imports at end-2016, below the program objective of about 5 months of imports in 2016. - HIPC Initiative completion point reached in October 2012 at the completion of the first review, reducing external debt from $3.2 billion (62 percent of GDP) at end-2011 to $1.3 billion (23 percent of GDP) at end-2012—a decline of almost 60 percent. External debt rose to $1.9 billion (26 percent of GDP) at end-2016 due to large infrastructure investments. - Growth and social indicators: - Real GDP growth averaged only 1.5 percent between 2012–15, below program expectations. - Poverty at 55 percent in 2012, slightly up from 53 percent in 2007. - Life expectancy increased from 54 years in 2007 to 59 years in 2015. - Primary school enrollment increased from 67 percent in 2007 to 76 percent in 2014. - Constraints and slippages: - Adverse shocks (Ebola epidemic 2014–15, decline in commodity prices), political instability, delays in mining projects (e.g., Simandou project did not materialize), and weak structural reform implementation contributed to weaker outcomes. - Program compliance: most PCs met up to the fifth review; non-observances included accumulation of external arrears and NIR targets during the first review, contracting non-concessional external debt during the second review; most PCs missed at the sixth review amid Ebola and policy slippages. - Specific policy issues: lower-than-expected tax revenues due to mining project delays and maintained retail petroleum prices below budgeted levels; emergency Ebola spending and accelerated infrastructure spending led to fiscal expansion in H1 2015. - Financial management problems: financing of public investment with central bank guarantees and contraction of non-concessional external debt amid reduced external financing led to misreporting—net domestic assets of the central bank exceeded program projections and NIR targets were missed. - Structural reform implementation under ECF 2012–16 - Progress in some areas: public financial management improvements; exchange rate mechanism reform; new mining code and strengthened regulatory framework; energy sector reform plan; performance contract for electricity public utility. - Reforms not completed due to Ebola-related priorities, capacity constraints, difficulty securing technical assistance, and lack of political will. Notably unimplemented measures included: - Reinstating the automatic adjustment mechanism for petroleum product prices to reflect international prices and the exchange rate. - Approving a timetable for clearing domestic payment arrears. - Transferring accounts of autonomous public entities to the Treasury Single Account. - Revising legal texts for public entities for consistency with the new budget framework law and regulation on budget management and public accounting. ### C. Lessons for Future Fund Engagement and Programs - Political and institutional risks: - Guinea faces considerable social and political uncertainty which can limit program success; strengthening institutions, intra-institutional coordination, and political stability is vital. - Realism in projections: - Growth projections should be realistic; the 2012–16 ECF growth projections were optimistic and based on a major mining project that did not materialize, causing shortfalls in GDP growth and tax revenues. - Program design: - Program targets should be ambitious but realistic, accounting for capacity constraints and weak institutional frameworks. - Adjustors to program targets should reflect risks given Guinea’s susceptibility to external and domestic shocks. - Flexibility and responsiveness: - Flexibility to adjust macroeconomic policies and targets to shocks is warranted; the Ebola epidemic showed the Fund’s capacity to respond by adjusting targets and providing additional resources. - Donor budget support was important to keep the program on track during shocks. - Structural reform implementation: - Capacity constraints and lack of political will hampered structural reform implementation; the number of structural benchmarks in future programs should be streamlined and aligned with available technical assistance. - Ensuring strong reform ownership is needed to advance the structural reform agenda and foster higher and more inclusive growth. ### D. Authorities’ Views - Authorities agreed with the broad assessment of the PRA and emphasized that the recent Fund-supported program enabled macroeconomic stabilization. - Authorities indicated that continued Fund support will be important to build on achievements and foster sustainable and inclusive growth. - They highlighted that a new Fund-supported arrangement aligned with the National Development Plan (PNDES) will be critical to realize long-term sustainable growth and poverty reduction. *IMF staff assessment as presented in the PRA chapter on Guinea (arrangements and program performance).* ### Annex IX. Capacity Building Framework Strategy Note ### Annex IX. Capacity Building Framework Strategy Note ### A. Introduction - Presents TA priorities identified by the Guinea mission team, the Guinean authorities, and key stakeholders for strengthening macroeconomic policies and institutions. - Defines identified TA programs, their objectives, and an indicative set of milestones. - Notes coordination with other development partners already active in some TA areas; the Fund will seek to cooperate with them. - Presents risks to the TA strategy and recommendations on mitigating those risks. - The strategy covers the medium-term capacity building program (2017-2020) and will be revised annually. ### B. Past Capacity Building — delivery and achievements - Guinea is an intense user of Fund technical assistance (TA). - Since the inception of the previous 2012–16 ECF arrangement, Guinea received annually about 10 missions from AFRITAC West and 10 missions from HQ, and three long-term experts (LTX). - In FY16, Guinea received 2.3 full time equivalents (FTE), and was among the top 20 beneficiaries of Fund TA in SSA. - Since 2011 AFW carried out 53 missions to Guinea, including 15 missions in the area of statistics. - Focus areas of past Fund TA: - Improve macroeconomic management and statistics. - Strengthen Public Financial Management (PFM) and modernize tax and customs systems. - Develop monetary policy instruments and the financial sector. - Target quick wins: budget management and treasury operations through the Treasury Single Account (TSA), revenue mobilization, banking supervision, civil service, and competitiveness. - Achievements supported by Fund TA: - PFM: adoption of a new public finance organic law; initial work on the TSA; revisions of fiscal provisions of the mining code and of the investment code; reform of the VAT reimbursement mechanism; budget execution report. - Monetary and financial sector: national payments system; approved new central bank law and its amendment and a new banking law; strengthened banking supervision; reformed exchange rate determination mechanism. - Statistics: progress toward upgrading balance of payments statistics to BPM6; adopted the SNA 1993 and published revised national accounts for 2006–15. - Constraints on TA implementation: - Limited absorptive capacity hindered implementation of TA recommendations. - Full rollout of the new finance organic law is lagging due to difficulties realigning existing regulations, especially on fiscal risks from public enterprises and agencies. - A first medium term budget was prepared with the 2017 Budget but weaknesses remain. - Number of participating ministries in medium-term budget exercise is 7, and the target for 2018 is to go beyond 20 ministries. - Poor quality of data hampers fiscal reporting and the adoption of past budgets’ settlement laws. - Placement of LTX has helped ease constraints through training and closer monitoring. ### C. Policy Priorities (2017–20 ECF) - Program objectives: - Reinforce macroeconomic resilience and preserve stability gains. - Scale-up public investments in infrastructure to support higher growth and economic diversification while preserving macroeconomic stability and debt sustainability. - Strengthen social safety net programs. - Advance structural reforms to support higher and more inclusive growth. ### D. Main TA Priorities in the Period Ahead - IMF capacity building to be closely integrated with program work to support key program objectives. - Key priorities: - Increase non-mining tax revenues. - Strengthen public finance and investment processes. - Improve debt management. - Improve BCRG’s liquidity management and forecasting. - Support finalization of exchange rate mechanism reforms. - Strengthen statistics: inflation, national accounts, balance of payments. - Reinforce the AML/CFT framework. - Detailed focus and objectives: - Enhance domestic revenue mobilization by widening the tax base, reducing fiscal expenditure, and improving management and governance and core functions of the tax department. - Improve capacities to produce the national budget in a progressive process towards multi-year budgeting. - Improve public finance and investment management to support scaling-up of public-investments and strengthen debt management, including by updating the Medium-Term Debt Strategy. - Strengthen the independence of the central bank, and improve monetary operations and FX markets to support the new exchange rate determination mechanism. - Improve in-year GDP estimates and forecasts, and national accounts and CPI statistics. - Coordination with donors: - Donors already involved in debt management (European Union, and US Treasury), revenue administration (France, and EU), Treasury management (EU), and monetary operations (Central Bank of Morocco). - Coordination discussions underway between FAD’s Revenue Administration division and the EU-funded resident tax advisors. - Recommendation: technical assistance forum coordinated by the authorities; units monitoring the economic program in collaboration with the IMF Resident Representative to play a leading role. ### E. Main Results Expected from the TA over the Medium Term - Overarching expected results: - Gradually close Guinea’s tax revenue gap. - Tilt composition of spending toward productive investment. - Protect vulnerable groups. - Strengthen debt management and eliminate fiscal dominance. - Strengthen bank supervision. - Improve statistics to support policy formulation and monitoring. - Specific objectives: - Raising non-mining tax revenue by 2.4 percent of GDP by 2020. - Adopting comprehensive laws and regulations for managing risks from contingent liabilities, including PPPs. - Inclusion of a DSA in the budget law (as an annex) with simulations of the impact of large investment projects on debt sustainability starting with the 2018 budget. - Issuance of a quarterly report which updates growth estimates and projections from the first quarter of 2018. - Rebase CPI statistics and reconcile macroeconomic estimates with approved national accounts statistics by end-2017. - Rollout the interest rate survey to financial institutions by end-2017. ### F. Main IMF Capacity Building Activities for FY2018 — priority areas and mission types - Priority areas: i) Public Finance Management; ii) Tax administration; iii) Monetary and Exchange framework; iv) Statistics compilation; v) Macroeconomic projections and analysis; and vi) strengthening the AML/CFT framework. - Mode of delivery: diagnostic HQ mission, short term expert visit(s), long term advisor, and AFW; authorities prefer LTX and training alongside traditional TA reports and course participation. - Public Finance Management focus for FY18: - Revenue administration, fiscal policy, macro fiscal management, budget preparation and execution, public investments management and budgeting, treasury operations and management of the wage bill. - Delivered by AFW and FAD, including LTXs placed at the treasury and the budget and funded by the European Union. - Planned missions and TA inputs (selected highlights): - Accounting (AFW): Support for the review of the government chart of account to strengthen fiscal reporting. - Public Finance Statistics (AFW): Finalization of the Table of Financial Operations of the State of the Central Budget Administration based on the Manual of Statistics of Public Finances 2001 and social security. - Public Debt Management (AFW): Strengthening the terms of issuing public securities: follow-up mission; (HQ) Debt capacity management; MTDM. - Public Financial Management – Budget: (AFW) Strengthening Expenditure Programming Documents (Medium-Term Budget Framework, Medium Term Expenditure Framework); (FAD) Budget nomenclature; Tax policy; Treasury and Financial Control; PEFA and PIMA. - Customs (AFW): Monitoring and control of exemptions; Transit. - Tax Administration (AFW): Strengthening the tax operations of the Tax Directorate; Strengthening tax audit and broadening the tax base. - Bank Supervision and Regulation (AFW): Follow-up mission reporting and chart of accounts; Risk Based Supervision; Reporting and Chart of Accounts. - Central Bank Operations (MCM): Monetary policy and exchange rate market; Open market operations; Liquidity management and forecasting. - Safeguards Assessments (FIN): Safeguards assessment. - AML/CFT (LEG): AMF/CFT Scoping Mission; AML/CFT Supervision of financial institutions and operations of FIU. - Monetary and Financial Statistics (STA): Monetary and Financial Statistics. - Real Sector Statistics (AFW): Preparation of the National Accounts 2014–2015–2016; Implementation of the 2008 National Accounts System: Nomenclatures and data sources; (STA) CPI; External sector statistics. - Macroeconomic Analysis and Projections (AFW): Strengthening the institutional set-up and deepening the process of developing macroeconomic frameworks. ### G. Main Risks and Mitigating Measures - Identified risks to traction of IMF TA: - Weak capacity. - Insufficient ownership of the TA program. - Lack of financing. - Lack of coordination with donors. - Need to strengthen the Statistics National Institute in technical and financial terms. - Limited knowledge and endorsement of TA plans by individuals and work units targeted by the TA program. - Overlapping efforts and conflicting messages if donor coordination is weak. - Recommendations with large financial implications (e.g., recapitalization of the central bank, clearance of domestic arrears) may be difficult to implement. - Enforcement challenges: examples include non-compliant procurement contracts and central bank exceeding limits of advances to the government. - Mitigating measures: - Ensure TA is demand-driven and reinforce coordination at all levels. - Consult the government to ensure stakeholders’ views and milestones are reflected before rolling out TA. - Country team to closely follow-up TA recommendations to identify difficulties early and discuss needed steps with authorities. - Combine training activities and on-the-job training with traditional TA delivery to improve traction. - Tie further TA in a given area to satisfactory progress in implementing past TA recommendations. - Use the Fund Resident Representative to identify stakeholders with vested interests and help develop strategies to allay concerns and showcase merits of reforms. - Increase outreach on the role and importance of timely and accurate statistics for policy design and performance monitoring. ### H. Authorities’ Commitments - Authorities intend to commit necessary political support, staffing, and other resources to overcome constraints and achieve CBF goals. - Commitments include: - Strengthen units (CTA and CTSP) tasked with monitoring implementation of reforms by providing resources to manage the overall medium-term capacity building program. - Provide financial and human resources to priority sectors (such as national statistics and CPI) identified in the capacity building program, and budget resources to implement TA recommendations with financial implications. - Put in place mechanisms for strict enforcement of rules and regulations (laws on public procurement, governance of public enterprises and agencies, banking law, etc.). - Produce a semi-annual report by the CTSP to address the status of implementation of TA missions’ recommendations and constraints; submit the report to the government for discussion and validation. - Before endorsing capacity building plans in a sector, promote a robust and inclusive discussion with individuals and units responsible for implementation. *Annex IX. Capacity Building Framework Strategy Note — content as presented in the source PDF.* ### 4. The attached Memorandum of Economic and Financial Policies (MEFP) lays out the ### 4. The attached Memorandum of Economic and Financial Policies (MEFP) lays out the ### Program scope and monitoring - MEFP details medium-term economic policies and reform program of the government of Guinea and policies of the Central Bank of the Republic of Guinea for 2017–20. - Performance monitoring: - Semi-annual reviews with quantitative performance criteria, indicative targets and structural benchmarks, as described in the MEFP and Technical Memorandum of Understanding. - Six reviews to monitor progress and agree on corrective measures. - Disbursements requested in equal installments. - First and second reviews to be completed on or after June 11, 2018 and December 11, 2018, based on performance criteria at end-December 2017 and end-June 2018, respectively. - Public investment effectiveness and reforms to strengthen public investment management will be key elements in program evaluation. - Commitment to consult IMF staff before revisions to macroeconomic policies in the MEFP and to provide all necessary information for monitoring. ### Recent economic and financial developments (summary) - Post-Ebola rebound: - Guinea declared free of Ebola on June 1, 2016. - Real growth: 6.6 percent in 2016 (against 3.5 percent in 2015). - Mining sector real growth: 33.5 percent in 2016. - Agricultural sector growth: 4 percent in 2016. - Manufacturing growth: 1.5 percent in 2016. - Average inflation: 8.2 percent in 2016; inflation edged up to 9.2 percent (year-on-year) in September 2017. - External sector and reserves: - Current account deficit: 32 percent of GDP in 2016. - FDI: surged to 19 percent of GDP in 2016 (3 percent of GDP in 2015). - International reserves: US$594, equivalent to 2.3 months of import coverage at end-2016. - First nine months of 2017: exports up 21 percent (y-o-y); imports up 31 percent (y-o-y). - FDI inflows in Q1 2017: US$11 million. - International reserves increased to US$686 million, covering 2.5 months of projected imports, as of end-September 2017. - Real effective exchange rate: depreciated by 9 percent in 2016, then appreciated by 2.9 percent in first nine months of 2017. - Nominal effective exchange rate: slightly depreciated by 2.7 percent. - Premium between official and foreign exchange bureaus rates: 0.8 percent in September 2017 (14 percent in November 2015). - Fiscal and public debt developments: - Basic fiscal deficit narrowed to 0.7 percent in 2016. - Tax revenues strengthened by 1.3 percent of GDP (y-o-y). - Current expenditures declined by 2.8 percent of GDP (y-o-y). - Capital expenditure declined by 1.1 percent of GDP. - Net budgetary financing from central bank: 0.4 percent of GDP; from commercial banks: 0.3 percent of GDP. - Further private sector arrears accumulated equivalent to 0.2 percent of GDP. - External public debt: 21.5 percent of GDP at end-2016. - Domestic public debt: 19.4% of GDP. - First half of 2017 fiscal outturn: - Basic fiscal surplus: 0.9 percent of GDP in H1 2017. - Tax revenues: 7.1 percent of GDP in H1 2017 (0.13 percentage points of GDP higher than expected). - Additional revenues from tax measures: 0.06 percent of GDP. - Excise tax on petroleum products (TSPP): 0.25 percent of GDP in H1 2017 (target 0.43 percent of GDP). - Contained non-priority goods and services expenditures by 0.23 percent of GDP. - Electricity subsidies maintained at 0.7 percent of GDP (0.2 percent of GDP higher than overall budgeted amount for 2017). - Overall capital expenditures: 5.3 percent of GDP. - Net budgetary financing from central bank and commercial banks: close to zero percent of GDP. - Banking sector and credit: - Reserve money increased by 15.5 percent at end-2016. - Private sector credit growth: 2.9 percent at end-2016; declined by 1.4 percent (y-o-y) in July 2017. - Reserve requirement lowered from 18 to 16 percent in March 2017. - Banks subscribed GNF500 billion government bond to finance road development. - Non-performing loans (NPLs): 9.6 percent in June (6 percent in 2015). - Deposit growth slowed to 8 percent in July 2017 since end-2016. - Foreign currency deposits increased by 25 percent since end-2016; domestic currency deposits increased by 1.1 percent over same period. - Provisioning deterioration: net of provision to capital increased to 14.7 percent at end-2016 (6.8 percent in 2015). - Interest margin-to-income: 39 percent at end-2016 (20 percent at end-2015). - Two banks remain non-compliant with capital adequacy requirement (six banks non-compliant at end-2016). - Three banks not complying with central bank reserve requirements. ### Program objectives and key elements - Overall goals: - Strengthen macroeconomic stability and buffers. - Generate higher and more broad-based growth to reduce poverty and improve living conditions. - Key commitments and targets: - Avoid borrowing from the Central Bank (excluding statutory advances refunded within 92 days). - Reduce borrowing from banking sector and ensure appropriate credit growth to private sector. - Avoid accumulating domestic and external arrears; maintain financial sector stability. - Scale-up public investments in infrastructure to support growth and diversification while preserving macroeconomic stability and debt sustainability. - Mobilize domestic revenues through tax policy and administration reforms; contain non-priority spending. - Gradually reduce untargeted energy subsidies while protecting most vulnerable. - Maximize concessionality of external borrowing and limit non-concessional borrowing contracted or guaranteed during three years of ECF arrangement to a maximum of US$650 million. - Implement sustainable domestic debt policy, including gradual clearing of arrears to private sector. - Mobilize additional domestic resources to strengthen social safety nets and implement social protection strategy. - Strengthen medium-term budget framework and investment management; strengthen monetary framework and finalize exchange rate market reform. - Advance governance and business climate reforms and financial inclusion strategy. ### Macroeconomic outlook and projections - Growth: - Real growth: expected 6.7 percent in 2017. - Medium-term growth projected at 6 percent. - Export growth projected to average 13 percent over the medium term. - Current account and reserves: - Current account deficit expected to slightly reduce to 24 percent of GDP in 2017. - Exports expected to grow by 30 percent in 2017. - International reserves expected to increase to 2.5 months of import coverage in 2017 and gradually to 3.8 months of import coverage over the medium-term. - Import growth projected to average 4.7 percent over the medium term. - Fiscal policy and public investment scaling-up: - Commit to scale-up public investments by about 3.5 percent of GDP during 2017–20. - Limit non-concessional borrowing signed during three years of ECF arrangement to a maximum of US$650 million; these loans to finance priority infrastructure projects (RN1 road rehabilitation, Conakry urban road network rehabilitation, construction of an electrical interconnection line and rehabilitation of a university). - Finalize feasibility studies for these projects by end of March 2018 (structural benchmark—SB). - If external program loans and grants exceed budget, direct additional public expenditure to priority sectors, including social spending and social safety nets, in consultation with IMF staff. - Fiscal strategy for 2017: - Aim to achieve a 0.6 percent of GDP basic fiscal surplus in 2017 (2017 budget law targeted a basic surplus of 0.5 percent of GDP). - Electricity subsidies to EDG projected at 1.3 percent of GDP (0.5 percent of GDP budgeted for 2017). - Corrective measures initiated to achieve 0.6 percent of GDP basic surplus. - Commitments include: - Abstain from additional borrowing from BCRG in second half of the year. - Repay government borrowing from the central bank in 2015 (0.3 percent of GDP) and in the first quarter (0.1 percent of GDP). - Initiate repayment of part of government arrears accumulated in previous fiscal years to the private sector. - Ensure payment of amortization of domestic and external debt. ### Structural and institutional reforms (high-level) - Strengthen public investment management, transparency, and efficiency. - Implement tax policy and administration reforms to mobilize revenues. - Gradually reduce untargeted energy subsidies with mitigating measures for vulnerable households. - Maximize concessionality of external borrowing and apply limits on non-concessional borrowing (maximum US$650 million over three years of ECF). - Clear domestic arrears to private sector to support private sector recovery and allow companies to repay banking system. - Strengthen monetary framework and finalize exchange rate market reform. - Advance governance, business climate, and financial inclusion reforms. - Increase domestic budgetary resources for social safety nets and implement social protection strategy. *Attachment: Memorandum of Economic and Financial Policies; Technical Memorandum of Understanding (as described in the MEFP).* ### 12. Our fiscal adjustment strategy for 2017, supported by an overperformance of mining ### 12. Our fiscal adjustment strategy for 2017, supported by an overperformance of mining ### Corrective actions taken to mobilize additional revenues and contain spending - Adopted tax revenue measures expected to generate additional 0.3 percent of GDP tax revenues in 2017. Tax policy and administration measures included: - (i) the introduction of a stamp duty on imported vehicles; - (ii) administrative reform to streamline the collection of import taxes on new vehicles; - (iii) improved scrutiny of public contracts awarded to contractors, capturing previously unpaid taxes by comparing revenue to expenditure databases; and - (iv) administrative reforms to extend the tax base of professionals and facilitate tax compliance for small and medium size businesses by opening banks withdrawal points (flash cash), including four at the National Directorate of Taxes. - Contained non-priority current spending in goods and services, realizing savings of 0.1 percent of GDP in 2017. Measures included rationalizing orderings of electronic material and stopping purchases of furniture and office material. ### Medium-term Fiscal Strategy - Aim to mobilize additional tax revenues of 3 percent of GDP during the program period. - Rationale: - Guinea’s tax revenue performance has improved over time, but further efforts are needed to support scaling-up in public investment and reducing reliance on external financing. - Strengthen collection of non-tax revenues alongside tax measures. *Source: IMF staff report chapter 12* ### 14. Our targeted tax policy and administration reforms, coupled with sustained growth, will ### 14. Our targeted tax policy and administration reforms, coupled with sustained growth, will ### Revenue mobilization: tax policy and administration - Objective: raise non-mining tax revenues by about 2 percent of GDP over 2018–21. - Action plan for a targeted tax policy and administration reform to be adopted by end-2017 (SB) to widen the tax base, simplify the tax regime and strengthen tax collection and controls. - Tax policy measures: - Rationalize tax exemptions based on a review of tax expenditures (estimated at about 4 percent of GDP) to broaden the tax basis. - Establish a Unique Professionals Tax (TPU) to encourage tax compliance for small and medium-size businesses in the informal sector through electronic and secured payment available in banks and electronic forms of payment. - Review existing corporate (from 35 to 30 percent) to make the tax system more competitive and equitable. - Streamline excises and review rates. - Review the property tax regime. - Put in place a strategy to reduce the outstanding stock of VAT credit arrears. - Tax administration reform measures: - Finalize development of online tax declaration and payment modalities. - Advance informatization: projects RAN and MERCURY to connect TVA payments to the National Directorate of Taxes (DNI) network by end-2018; enable real-time processing and consolidate information into a centralized network (SFIG). - Reinforce DNI capacity notably by separating management and operations. - Finalize procedural manual and internal audit protocol for DNI, with EU support. - Increase tax control via improved taxpayer identification and cross-checking taxpayers’ imports with declared turnover. - Strengthen human and material resources to improve collection and processing of tax data. ### Petroleum pricing and related revenue measures - Implement the automatic adjustment price mechanism for petroleum products (SB) and fix the TSPP at a level consistent with revenue targets by end-March 2018. - Retail fuel prices have been kept constant since early 2015 at 8,000 Guinean francs per liter; TSPP used as adjustment variable leading to revenue losses in 2017. - Prepare communication strategy; put in place targeted mitigating measures including strengthening social safety nets to protect the most vulnerable. - If implementation is delayed beyond March 2018, undertake additional tax revenue measures to achieve revenue target. ### Mining sector revenues and governance - Mobilize additional mining revenues on the back of buoyant mining activity and application of new mining code provisions. - Progress: joined EIT initiative in 2013; new Mining Code in 2014 aligning taxation with international standards; review of mining agreements and titles; more transparent permit issuance and transfers. - Ensure tax provisions of new code applied to new companies and bring existing agreements that will expire under the new code. ### Expenditure reprioritization and electricity sector - Objective: contain non-priority current public expenditure to free fiscal resources for infrastructure and social spending. - Electricity sector: - Gradually reduce untargeted electricity subsidies to 0.6 percent of GDP by 2020. - Two-pronged strategy: (i) improve EDG efficiency by strengthening payment collection and reducing commercial losses; (ii) increase electricity tariffs toward cost recovery. - Adopted management contract and restructuring plan for EDG. - Install electricity consumption meters at the Prime Ministry and fifteen Ministries by June 2018 and throughout the central government and 80 percent of the rest of consumers by the end of February 2019 (SB). - Review EDG contracts with fuel suppliers and tax exonerations in energy sector; strengthen controls to curb electricity theft. - Implement 25 percent tariff increase for industrial and large consumers by December 2017 (SB). - Finalize tariff study and impact analysis by February 2018 (SB) with AfDB support to establish medium-term cost recovery tariff and mitigating measures for vulnerable. ### Wage bill, civil service and social protection - Maintain a sustainable wage bill and proceed with administration and civil service reform to reduce fiscal cost. - Distribution of biometric cards to civil servants: finalize to all civil servants by December 2017. - Cleaning of registries has exposed 2,800 ghost workers; expected budgetary annual savings. - Install 150 additional attendance-monitoring machines by end-2018. - Aim to establish a new electronic platform to monitor and consolidate civil servant work activity and salaries in the medium-term. - Social safety nets: - Increase domestically-financed public expenditures on non-contributory social safety nets under Program Filet Social Productive (PFSP) and the Social Development Fund using budgetary savings from electricity subsidy reform. - Objective: reduce over-reliance on donor financing and strengthen coverage of programs (labor-intensive public works, conditional transfers for school enrolment and health services, non-conditional cash transfers, social projects addressing gender inequality, social assistance to elderly and disabled, health improvements and epidemiological risk prevention). - Establish a unified social register of vulnerable populations by February 2019 (SB). ### Public financial management and public investment - Strengthen medium-term budget framework (MTB): presented MTB with 2017 budget law; commit to improve monitoring and manage scaling-up of public investment. - Implement new budget nomenclature for 2018 budget execution. - Establish top-down budgetary approach aligning MTB targets with ECF arrangement fiscal targets. - Modernize information system for budget preparation and execution. - Publish quarterly budget execution reports and finalize Treasury Single Account (TSA) by June 2018; clean public accounts at Central Bank and transfer closing balances into TSA. - Strengthen public investment management: - Prioritize projects with higher growth and poverty reduction impact; conduct full cost-benefit analyses. - Strengthen PIMA-based public investment management with IMF TA. - Finalize integrated investment management platform by end-December 2017 with AfDB support. - Enforce procurement code, finalize providers’ price survey by end-2017, adopt procurement manual by end-2017, set up central purchasing agency and establish contract execution monitoring. ### PPPs and SOEs - Finalize PPP implementation decrees by end-2017 to align PPP framework with best practices, PNDES projects, and organic law on public finance (LORF); exercise prudence on contingent liabilities. - SOE reform: - Amend SOE provisions in 2018 budget law and finalize implementing decrees by March 2018. - Finalize compliance texts for all SOEs by end-2018. - Submit first annual financial report for SOEs to Parliament by end-2017 (SB). - Develop medium-term strategy to improve financial conditions of loss-making SOEs and reduce contingent liabilities. ### Debt policy and management - Preserve medium-term debt sustainability and avoid exceeding moderate level of external debt distress. - Maximize concessional element of new external borrowing; limit contracting or guaranteeing additional non-concessional debt. - Limit non-concessional debt contracted or guaranteed during the three years of the ECF arrangement to a maximum of US$650 million. - Note: large non-concessional loan to finance Souapiti dam project is about 13 percent of GDP. - Domestic arrears: - Conducted internal arrears audit in 2016; identified around 120 creditors for initial repayment. - Adopt strategy for clearance of domestic arrears (SB) and repay some arrears by end-December 2017. - Avoid accumulation of new arrears through better debt management. - External arrears: - Begin negotiations to liquidate external arrears to Non-Paris Club and commercial creditors; objective to normalize by end-2017. - Strengthen debt management framework: - Published operational procedures manual and National Debt Policy; completed audit of domestic arrears in 2016. - With IMF, U.S. Treasury, AFD and others: update bond issuance practices, operationalize national technical group for DSA by March 2018, update medium-term debt management strategy (MDTS). - Finalize and publish statistical bulletin on public debt by December 2017; upgrade statistical IT systems; strengthen domestic debt procedures. - Conduct DEMPA exercise with World Bank. ### Monetary and exchange rate policies - Foreign exchange reserves: - Reserves strengthened but remain below 3 months of import coverage and below ARA-CC metric of 3.8 months. - Exchange rate policy oriented to gradually accumulate reserves to reach 3.8 months of import coverage by 2020. - Develop weekly foreign exchange liquidity forecasting by December 2017. - Foreign exchange market reform: - Continue reform of MEBD auctions; auctions held twice a week (Tuesday and Friday) with communiqué the day before. - Gradually eliminate limit on auction allocations; develop rule-based intervention strategy for BCRG by March 2019 (SB) with IMF TA. - Establish electronic platform for MEBD by end 2018; ensure premium between official exchange rate and foreign exchange bureaus rate does not exceed 2 percent. - Monetary policy and liquidity management: - BCRG to aim at broadly stable inflation within single digits by continuing to target base money. - For 2017: monetary base expected to expand at about 2 percent (y-o-y), consistent with inflation rate at 8.5 percent and growth of credit to the private sector of 2 percent (in percent of broad money). - Maintain prudent policy with positive real interest rate and ensure banks’ liquidity needs are met. - Re-introduced short-term securities and refinancing windows; create interest rate corridor. - Develop full-fledged liquidity forecasting framework by March 2018 with IMF TA; establish emergency liquidity framework for illiquid but solvent banks by February 2019 (SB). ### Central Bank governance and financial sector stability - BCRG autonomy and safeguards: - Corrected version of amended BGRG Law published (prior action) to strengthen autonomy; law prohibits issuance of guarantees by BCRG to private sector. - Sign Memorandum of Understanding between BCRG and Ministry of Economy and Finance by February 2018 specifying modalities and timeline for recapitalization of the BCRG (estimated at about U$100 million) (SB). - Publish IFRS compliant financial statements for 2017 by September 2018 (SB). - Banking supervision and financial sector: - BCRG to define action plan to bring two remaining non-compliant banks into capital regulatory compliance by end 2017; ensure all banks meet reserve requirement. - Set up new credit information system by end-2017 with World Bank support. - Aim to establish banking resolution framework and deposit guarantee scheme by end-2018. - Insurance Code adopted July 2017. ### Structural reforms to support inclusive growth - Business climate: - Adopted Investment Code in 2015 and implementing decrees; National Charter of SMEs; National Quality Policy; National Strategy for Promotion of Intellectual Property. - Launched call for tender for one-stop-shop for foreign trade in August 2017. - Reduced business registration tax rate from 5 to 2 percent. - Develop action plan to improve business climate by March 2018 (SB): ease procedures to start a business and pay taxes, public-private dialogue framework, informatization, introduce business identification number, online tax declarations, improve access to credit and credit information coverage. - Governance and anti-corruption: - Parliament adopted anti-corruption law in July 2017; move ahead with implementing decrees and asset declaration publication of high-officials with IMF TA. - Strengthen National Agency to Fight Corruption (NAFC) with human, technical and logistic capacity, independence, financial autonomy and create specialized magistrates pool and judicial police brigade within NAFC. - Continue strengthening AML/CFT regime and implement GIABA assessment recommendations with IMF TA; operationalized Fraud Investigation Unit and set up inter-ministerial and steering committees. - Financial inclusion: - Adopted Financial Inclusion Law in July 2017 to regulate microfinance, electronic money institutions and Guinean Post financial services; support increased credit access for SMEs, women and youth. - Adopt Financial Inclusion law and implementing decrees by end-2017. ### Program monitoring, targets and benchmarks - Program monitoring: semi-annual through quantitative performance criteria and indicative targets and structural benchmarks. First review on or after June 11, 2018; second review on or after December 11, 2018. - Statistical improvements: - Strengthened methodology for national accounts in March 2017 adopting SNA 1993; migrate to SNA 2008 with IMF TA. - Conduct new household survey to update living conditions by end-2018. - Selected quantitative/benchmarked figures from program tables and text (preserved as in source): - Net non-mining tax revenue target: raise by about 2 percent of GDP over 2018–21. - Tax expenditures: estimated at about 4 percent of GDP. - Corporate tax review: from 35 to 30 percent. - Electricity subsidies target: 0.6 percent of GDP by 2020. - Metering: Prime Ministry and fifteen Ministries by June 2018; 80 percent of rest of consumers by end February 2019 (SB). - Limit on non-concessional debt during three years of ECF: US$650 million. - Souapiti dam loan size: about 13 percent of GDP. - BCRG recapitalization estimated at about U$100 million (SB). - Reserve adequacy target: 3.8 months of import coverage by 2020 (current reserves below 3 months). - Monetary base growth for 2017: about 2 percent (y-o-y); inflation target referenced at 8.5 percent; private sector credit growth referenced at 2 percent (in percent of broad money). - Program review dates: first review on or after June 11, 2018; second review on or after December 11, 2018. *Source: IMF staff and Guinean authorities (Attachment II. Technical Memorandum of Understanding, November 27, 2017).* ### 1. This memorandum sets out the understandings between the Guinean authorities and ### cr17387 - 1. This memorandum sets out the understandings between the Guinean authorities and ### Overview - Sets out understandings between the Guinean authorities and IMF staff on: - Definitions of quantitative performance criteria and indicative targets for the ECF arrangement. - Content and frequency of data reporting to IMF staff for program monitoring. - Quantitative performance criteria, indicative targets, and test dates are detailed in Table 1 of the MEFP, attached to the Letter of Intent dated November 27, 2017. - For program purposes, all assets, liabilities, and flows denominated in foreign currency at the Central Bank are valued at the “program exchange rate” except items affecting the government’s budgetary accounts (measured at current exchange rates). ### Program exchange rates and gold price - For program purposes, the exchange rate corresponds to the accounting exchange rate of the GNF prevailing on December 31, 2016. - Gold holdings of the BCRG will be valued at the gold price in effect on December 30, 2016: 1159.10 US$ per oz. - Program Exchange Rates, Guinean Franc per Foreign Currency and Gold Price: - Gold bullion LBM US$/troy ounce: 1159.10 - Euro to US$ exchange rate: 0.95 - Yen to US$ exchange rate: 116.80 - Sterling UK to US$ exchange rate: 0.81 - Yuan to US$ exchange rate: 6.95 - Guinean Franc to US$ exchange rate: 9225.31 - Guinean Franc to SDR exchange rate: 12362.72 - Source: IMF (International Financial Statistics). - Notes: - Rates and prices as of end-December 2016. - LBM connotes London Bullion Market. ### Performance criteria and indicative benchmarks (Table 1 of MEFP) - Performance Criteria: - Floor on the basic fiscal balance of the central government. - Ceiling on net domestic assets of the central bank. - Ceiling on net central government budgetary borrowing from the central bank. - Floor on the net international reserves of the central bank. - Continuous Performance Criteria: - Ceiling on new non-concessional external debt contracted or guaranteed by the central government or the central bank. - Zero ceiling on new external arrears of the central government and the Central Bank. - Indicative Targets: - Floor on tax revenues collected. - Floor on domestically-financed social safety nets program. - Memorandum Item: - Ceiling on new concessional external debt contracted or guaranteed by the government or central bank. ### Definitions — Central government - Central government is defined as all ministries and agencies subject to central budgetary administration in accordance with the organic law on the government budget. - Unless otherwise indicated, central government excludes: - Local governments. - The Central Bank of the Republic of Guinea (BCRG). - Any other public entity with autonomous legal personality, notably administrative public entities (établissements publics administratifs). ### Definition — Floor on the Basic Fiscal Balance of the Central Government - Basic fiscal balance is defined as: - The difference between the government’s total tax and nontax revenue (excluding grants and proceeds of privatizations, the latter recorded as financing) and total expenditure (including expenditure corresponding to earmarked revenues) plus net lending, excluding interest payments on external debt and externally financed capital expenditures. - Government expenditures are defined as expenditures for which payment orders have been issued and which have been assumed by the Treasury, regardless of the execution procedure followed. ### Definition — Ceiling on Net Domestic Assets (NDA) of the Central Bank - NDA of the BCRG = reserve money (defined below) − net foreign assets (NFA) of the BCRG, both calculated at the program exchange rate. - NFA = gross foreign assets of the BCRG (including foreign assets that are not part of reserve assets) − foreign liabilities of the BCRG. - Reserve money comprises: - Local banks’ deposits and other private sector deposits with the BCRG (including bank reserve requirements) denominated both in Guinean francs and in foreign currencies. - Guinean francs in circulation, and Guinean francs in the vaults of local banks. - Amounts in foreign currencies converted to Guinean francs at the program exchange rate. - Gross foreign liabilities = gross foreign exchange liabilities as defined in paragraph 13, including SDR allocations, plus any other foreign liabilities not listed in that paragraph. - Gross foreign assets (GFA) of the BCRG include: - Gross reserves assets (paragraph 12). - Any foreign currency claims on residents. - Capital subscriptions in international institutions. - Foreign assets in nonconvertible currencies. - Transfers of foreign currency claims to BCRG by other institutional units in Guinea just prior to reporting dates with accompanying reversals soon after those dates. - Assets obtained through currency swaps of less than three months duration. - Gross reserves that are in any way encumbered or pledged, including: - Assets blocked when used as collateral for third party loans and third-party payments, or pledged to investors as a condition for investing in domestic securities. - Assets lent by BCRG to third parties that are not available before maturity, and are not marketable. - Foreign reserves blocked for letters of credit. ### Definition — Ceiling on Net Government Budgetary Borrowing from the Central Bank - Net borrowing of the central government from the Central Bank = BCRG claims on the central government − total of all government deposits at the BCRG. - Central government borrowing from the BCRG includes loans, advances, arrears, and purchases of government securities and treasury bills. - Monitoring is based on the central government’s net position at the BCRG. ### Definition — Floor on the Net International Reserves (NIR) of the Central Bank - NIR of the BCRG = gross reserve assets of the BCRG − gross foreign exchange liabilities of the BCRG. - Gross reserve assets include: - Monetary gold holdings of the BCRG. - Holdings of SDRs. - The reserve position in the IMF. - Foreign convertible currency holdings. - Foreign currency denominated deposits held in foreign central banks, the Bank for International Settlements, and other banks. - Loans to foreign banks redeemable upon demand. - Foreign securities. - Other unpledged convertible liquid claims on nonresidents. - Gross reserve assets exclude: - Any foreign currency claims on residents. - Capital subscriptions in international institutions. - Foreign assets in nonconvertible currencies. - Transfers of foreign currency claims to BCRG by other institutional units in Guinea just prior to reporting dates with accompanying reversals soon after those dates. - Assets obtained through currency swaps of less than three months duration. - Gross reserves that are in any way encumbered or pledged (including items listed under NDA exclusions). - Gross foreign exchange liabilities are the sum of: - Outstanding medium and short-term liabilities of the BCRG to the IMF. - All short-term foreign currency liabilities of the BCRG to nonresidents with an original maturity of up to, and including, one year. - All foreign currency denominated liabilities to residents, including foreign currency denominated deposits of domestic banks and other residents with the BCRG. - Any outstanding central bank guarantees in foreign currency. - SDR allocations are excluded from gross foreign exchange liabilities of the BCRG. ### Ceiling on New Non-Concessional External Debt Contracted or Guaranteed - Concessional external debt: - Considered concessional if it includes a grant element of at least 35 percent. - Grant element = (nominal value − present value) / nominal value, calculated using a discount rate of 5 percent. - Definition of debt for program purposes follows paragraph 8a of the Guidelines on Public Debt Conditionality in Fund Arrangements (IMF Executive Board Decision No. 15688-(14/107), adopted on December 5, 2014). - Non-concessional external debt: - Non-concessional if it includes a grant element of less than 35 percent. - Total amount of non-concessional debt allowed during the arrangement is limited to a ceiling of US$650 million on a cumulative basis from the start of the arrangement, to be used to finance priority infrastructure projects: - Rehabilitation of the RN1 national road. - Rehabilitation of the road system in Conakry. - Construction of the Lisan-Fomi-Kankan electricity transmission line. - University rehabilitation. - Ceiling applies to contracting and guaranteeing of debt with nonresidents by the central government and the BCRG. - Monitored on a continuous basis and measured from the start of the arrangement. - For monitoring purposes, non-concessional external debt is deemed contracted or guaranteed at the date of its signature. - Exclusions from the non-concessional debt limit: - Use of IMF resources. - Debts classified as international reserve liabilities of the BCRG. - The non-concessional loan that the government is contracting to finance the Souapiti dam project. ### Ceiling on New External Arrears of the Central Government and Central Bank - For the PC on non-accumulation of new external payment arrears: - Arrears are defined as external debt obligations of the central government or the BCRG that have not been paid when due in accordance with contractual terms (taking into account any contractual grace periods). - Excludes arrears on external financial obligations of the government subject to rescheduling. ### Floor on Tax Revenues Collected - Defined as total central government revenue, as presented in the central government financial operations table (TOFE), excluding external grants and non-tax revenue (recettes non-fiscales), defined as such in the TOFE. ### Domestically-financed Social Safety Nets Programs - Defined as domestically-financed spending disbursed to support implementation of all non-contributory social programs under: - Program Filet Sociaux Productifs (PFSP). - Social Development Fund. ### Adjustment factors for program performance criteria - Adjustor for Basic Fiscal Balance (paragraph 20): - Floor for the basic fiscal balance will be adjusted: - Upward by an amount equal to 40 percent of the shortfall of external program loans and external program grants compared to programmed amounts (Table 2). - Downward by an amount equal to 40 percent of the surplus of external program loans and external program grants compared to programmed amounts (Table 2). - Table 2. Guinea: External Financing Assumptions (Non-cumulative) (Millions of U.S. Dollars) - Columns: Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 (2017 2018) - Government external financing: 6 7 3 5 5 6 2 7 7 5 9 2 1 1 7 - Drawings: 11 3 3 4 1 6 1 3 6 1 0 1 1 2 5 - Project: 11 3 3 4 1 4 1 3 3 9 8 1 2 3 1 2 3 - of which: World Bank: 0 0 0 0 3 3 3 3 - of which: BID: 7 7 7 7 2 4 2 4 2 4 - Program: 0 0 0 2 0 2 2 2 2 2 - Budget grants: 2 4 3 2 4 7 4 0 - Project grants: 1 7 2 1 1 5 1 9 2 2 6 2 6 - Budget support: 7 1 1 3 2 2 1 4 0 2 2 1 7 3 4 - of which: World Bank: 0 0 0 0 4 0 0 0 0 0 0 0 0 - of which: EU: 0 0 0 1 6 0 2 2 0 0 - Privatization receipts: 0 0 0 0 0 0 0 0 0 0 - Government external debt service: -1 2 -2 -3 0 -3 0 -9 -1 5 -4 0 -4 3 - Amortization: -5 -2 6 -6 -5 -9 -2 6 -3 3 - Interest: -7 -2 -2 4 -4 -6 -1 4 -1 0 - (Note: Table as presented in source; numbers aligned and grouped as shown in the source text.) - Adjustor for Net International Reserves (paragraph 21): - Floor on NIR will be adjusted: - Downward by an amount equal to 60 percent of the U.S. dollar equivalent of the cumulative shortfall of external program loans and external program grants of the central government as specified in Table 2. - Upward by an amount equal to 60 percent of the U.S. dollar equivalent of the cumulative surplus of external program loans and external program grants of the central government as specified in Table 2. - Adjustor for Net Domestic Assets of the Central Bank (paragraph 22): - Ceiling on NDA will be adjusted: - Upward by an amount equal to 60 percent of the Guinean Franc equivalent (calculated at the program exchange rate) of the cumulative shortfall in external program loans and external program grants compared to programmed amounts as specified in Table 2. - Downward by an amount equal to 60 percent of the Guinean Franc equivalent (calculated at the program exchange rate) of the cumulative surplus of external program loans and program grants compared to programmed amounts as specified in Table 2. - Adjustor for Net Government Budgetary Borrowing from the Central Bank (paragraph 22 repeated): - Ceiling on net government budgetary borrowing from the Central Bank will be adjusted: - Upward by an amount equal to 60 percent of the Guinean Franc equivalent (calculated at the program exchange rate) of the cumulative shortfall in external program loans and external program grants compared to programmed amounts as specified in Table 2. - Downward by an amount equal to 60 percent of the Guinean Franc equivalent (calculated at the program exchange rate) of the cumulative surplus of external program loans and program grants compared to programmed amounts as specified in Table 2. ### Monitoring and reporting requirements - (Section heading present in source; detailed monitoring and reporting requirements follow in the source text beyond the provided excerpt.) *GUINEA — INTERNATIONAL MONETARY FUND* ### 23. Performance under the program will be monitored from data supplied to the IMF by the ### 23. Performance under the program will be monitored from data supplied to the IMF by the Guinean authorities ### Data reporting to IMF staff for program monitoring - Authorities will transmit promptly to IMF staff any data revisions and other information necessary to monitor the arrangement. - Category: Financial and monetary data - Central bank balance sheet, consolidated commercial bank balance sheet, monetary survey (at the current exchange rate as well as at the program exchange rate). - Frequency: Monthly - Deadline: 30th of the month for the previous month. - Detailed net treasury position (NTP) and net government position (NGP). - Frequency: Monthly - Deadline: 30th of the month for the previous month. - Interest rates and stock of government and central bank securities (BDT and TRM). - Frequency: Monthly - Deadline: 30th of the month for the previous month. - Prudential indicators for commercial banks. - Frequency: Quarterly - Deadline: One month after the end of the quarter. - Foreign exchange budget. - Frequency: Monthly - Deadline: 30th of the month for the previous month. - Central Bank gross advances to the Treasury above the statutory limit and advance amounts not paid within 92 days. - Frequency: Monthly - Deadline: 30th of the month for the previous month. - Category: Fiscal data - Status report, including a detailed statement of revenue, expenditure, and cash-flow operations. - Frequency: Monthly - Deadline: 30th of the month for the previous month. - General Treasury balances. - Frequency: Monthly - Deadline: 30th of the month for the previous month. - Cash-flow plan. - Frequency: Monthly - Deadline: 30th of the month for the previous month. - Government fiscal reporting table (TOFE). - Frequency: Monthly - Deadline: 30th of the month for the previous month. - Execution of budgetary expenditures from HIPC resources and other priority expenditures. - Frequency: Monthly - Deadline: 30th of the month for the previous month. - Balance of current expenditures, VAT credits to be refunded, and domestic debt arrears. - Frequency: Monthly - Deadline: 30th of the month for the previous month. ### Relations with the Fund — key financial and membership facts (as of dates cited) - Membership Status: Joined: September 28, 1963; Article VIII. - Quota and holdings (SDR Million / %Quota): - Quota: 214.20 100.00 - IMF's Holdings of Currency (Holdings Rate): 187.35 87.47 - Reserve Tranche Position: 26.85 12.54 - SDR Department (SDR Million / %Allocation): - Net cumulative allocation: 102.47 100.00 - Holdings: 137.24 133.94 - Outstanding Purchases and Loans (SDR Million / %Quota): - RCF Loans: 26.78 12.50 - ECF Arrangements: 152.74 71.31 - Latest Financial Arrangements (types, dates, amounts): - ECF: Feb 24, 2012 – Nov 07, 2016; Amount Approved (SDR Million): 173.66; Amount Drawn (SDR Million): 173.66 - ECF1/: Dec 21, 2007 – Dec 20, 2010; Amount Approved (SDR Million): 69.62; Amount Drawn (SDR Million): 24.48 - ECF1/: May 02, 2001 – May 01, 2004; Amount Approved (SDR Million): 64.26; Amount Drawn (SDR Million): 25.70 - 1/: Formerly PRGF. - Overdue obligations and projected payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs): - Forthcoming principal (by year): 2017 2018 2019 2020 2021 — Principal: 2.95 28.23 34.58 - Charges/Interest: 0.00 0.00 0.00 0.00 - Total: 0.00 2.96 28.23 34.58 - 2/: When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section. ### HIPC, MDRI, and CCR implementation - HIPC Initiative: - Decision point date: Dec 2000 - Assistance committed by all creditors (US$ Million)1/: 639.00 - Of which: IMF assistance (US$ million): 36.01 - (SDR equivalent in millions): 27.80 - Completion point date: Sep 2012 - Disbursement of IMF assistance (SDR Million): - Assistance disbursed to the member: 27.80 - Interim assistance: 11.30 - Completion point balance: 16.49 - Additional disbursement of interest income2/: 7.45 - Total disbursements: 35.25 - 1/: Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts cannot be added. - 2/: Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period. - MDRI: Not Applicable. - CCR (Catastrophe Containment and Relief): - Catastrophe Date: N/A - Board Decision: Mar 18, 2015 - Amount Committed (SDR million): 21.42 - Amount Disbursed (SDR million): 21.42 - Note: As of February 4, 2015, the Post-Catastrophe Debt Relief Trust has been transformed to the Catastrophe Containment and Relief (CCR) Trust. ### Exchange rate arrangement (classification and mechanics) - Arrangement classified as a managed float system with no predetermined path; de facto arrangement reclassified to other managed from a stabilized arrangement, effective February 5, 2015. - Central Bank of the Republic of Guinea (BCRG) interventions: - Intervenes twice a week through a multi-price, two-way, foreign exchange auction with active commercial banks. - Calculates the reference rate every evening by close of business using daily foreign exchange reports submitted by commercial banks. - Reference rate is a weighted average of commercial banks’ purchase and sale rates and is mandatory for government transactions on the day after it is calculated. - Since February 2017, the spread between the reference exchange rate and the foreign exchange bureau rates has remained below 2 percent. - The foreign exchange system can give rise to a multiple currency practice because the reference rate can potentially deviate by more than 2 percent from commercial banks’ purchase and sales rates on a given day. ### Technical assistance 2011–17 (providers, topics, sample entries by year) - Calendar Year 2011 (sample). - AFW: Needs assessment (fiscal, real, financial sectors) — Feb 2011 - FAD: Stocktaking and update of PFM strategy — Apr–May 2011 - FAD resident advisor to the Treasury — Dec 2011–Mar 2013 - AFW Bank supervision — Feb 2011; Mar–Apr 2011; Oct–Nov 2011 - MCM Foreign Exchange Management — Jul 2011 - AFW National accounts; AFW Public finance statistics; AFW Real Sector Statistics — various dates in 2011 - Calendar Year 2014 (sample). - FAD Fiscal forecasting and budgeting — February 10–24, 2014 - FAD VAT refund mechanisms for the mining sector and PFM governance — January 29–February 6, 2014 - MCM Reserve Management — January 30–February 7, 2014 - AFW Bank Supervision — March 3–14, 2014 - AFW National Accounts — January 6–17, 2014 - STA Financial Soundness Indicators — April 14–18, 2014 - Calendar Year 2016 (sample). - FAD Natural Resource Management — January 13–27, 2016 - FAD SOEs and Fiscal Risks — January 13–24, 2016 - AFW Debt Management — Feb 22–March 4, 2016 - MCM Monetary and FX Operations — March 9–22, 2016 - STA Balance of Payments Statistics — Oct 24–Nov 4, 2016 - Calendar Year 2017 (sample). - FAD Budget Execution — Jan 16–27, 2017 - FAD Macrofiscal — Feb 8–22, 2017 - MCM Monetary and Foreign Exchange Operations — Jan 23–Feb 3, 2017 - LEG AML/CFT Diagnostic Mission — May 15–19, 2017; Oct 16–20, 2017 - STA Consumer/Producer Prices — Oct 2–13, 2017 ### Joint World Bank–Fund matrix — planned work and coordination (selected items) - World Bank work program (next 12 months): - Operations: Mineral Governance Support Project — Ongoing - Social Safety Nets Project — Ongoing - Health Services Project — Q1 2018 - Budget Support Lending (DPO) — Q1 2018 - IMF work program (next 12 months): - Program reviews: - First review under the ECF — June 2018 - Second review under the ECF — December 2018 - Technical Assistance: Mining and general tax policy — Ongoing; Public financial management — Ongoing; Monetary and exchange rate policy — Ongoing; Banking supervision — Ongoing; National and fiscal accounts, balance of payments — Ongoing - Joint Bank–Fund product: - Debt sustainability for the new ECF-supported program — Q4 2017 ### Relations with the African Development Bank — key items (2011–15, as of September 2017) - Bank’s Country Strategy Paper (CSP) 2012–16 approved March 1, 2012; two pillars: (i) economic and financial governance; and (ii) infrastructure for development. Mid-term review done February 2016; CSP end extended from 2016 to 2017. - Governance and PFM support: - Budget support allocation UA20 million in 2011; Fragile State Facility support UA 2.5 million; reallocation UA 7.5 million to economic governance project in 2011. - Institutional support project UA 11.4 million at end-2013 for mining contract management and public investment/project management. - Budget support operation UA 12 million approved end-June 2014; UA 6.39 million disbursed end-December 2014. - Programmatic budget support operation: UA 10.5 million in 2016 and indicative UA 10 million in 2017/2018. - Small dedicated capacity building operation targeting Central Bank (BCRG) for UA 2 million early 2017. - Planned co-financing with AFD in 2018 for capacity building targeting public enterprises governance, budget, PPP unit, and project management. - Energy projects and planned infrastructure financing: - PREREC.2 (Conakry Electrical Networks Rehabilitation and Extension Project): UA 11 million (signed end-2013, implementation 2014). - Côte d’Ivoire-Liberia-Sierra Leone-Guinea power regional interconnection project: UA 40.2 million for 1,360 km of 225 kV transmission lines and 12 sub-stations. - OMVG interconnection project (Gambia River Basin Development Organization) involving Kaleta dam and 240 MW hydro-power plant — financing approved 2015. - Planned Guinea-Mali power regional interconnection project for UA 35 million (to be submitted to Board in 2017). - Expected results from these projects: - Increase in the average electricity access rate. - Reduction in the kWh generating cost. - Reduction in the number of power outages. - Creation of temporary and permanent jobs. - Reduction in greenhouse gas emissions. *Prepared by African Department (In Consultation with Other Departments); November 27, 2017.* ### 4. In the transport sub-sector, the Board approved in December 2014 the road development ### 4. In the transport sub-sector, the Board approved in December 2014 the road development ### Regional transport projects and priorities - Approved road development and Transport Facilitation Programme within the MRU including: - road Danané (Côte d’Ivoire) Frontier of Guinea and from the frontier to N’zoo-Lola (Guinea). - Part of a regional project including key roads: - Zantiébougou-Kolondiéba-Kadiana-Frontier of Côte d’Ivoire (140 km) linking Bamako to Abidjan and San-Pédro through the axe Tengréla-Boundiali-Séguéla-Daloa. - Duekoué-Guiglo-Bloléquin-Toulepleu-Frontier of Liberia. - These roads are part of the Transafrican Dakar-Abidjan-Lagos road. - Planned co-financing in 2017 and 2018 with the European Union and other partners for a road program including: - Coyah-Farmoriah-Pamelap road towards Sierra Leone. - Boké (Guinea)-Quebo (Guinea-Bissau) road (part of the ECOWAS Regional Transport Programme). - Feasibility studies for the Kankan-Mandiana-Odiene road. - Rationale: construction aligns with the New Partnership for Africa’s Development (NEPAD) Short-Term Action Plan to have interstate roads without impediment to the free movement of goods and persons. ### Support to private sector operations - 2014–17 period and beyond: the Bank will support specific private sector operations with high and transformative impact. - At the government’s request, AfDB intends to provide a loan of about USD 100 million for financing part of the Global Alumina Bauxite project. - AfDB will support capacity building and provide technical assistance to allow the government to fulfil commitments pertaining to implementation of the mining and other private sector projects. ### Non-lending operations and technical assistance - Bank supported government finalization in 2016, in collaboration with UNDP, of economic and sector works (ESWs) on: - (i) private sector profile - (ii) local taxation - Bank will continue to: - enhance dialogue and provide specific technical assistance on PPP (PPP law and PPP Unit) and on mining sector governance. - support implementation of the country development plan-PNDES, and the link between macroeconomic/budget framework sector policies and the public investment plan. - support through the FSF programme the National Statistics Development Strategy (NSDS). ### Trust funds and financing instruments - In addition to ADF and FSF allocations, the Bank could mobilize supplementary resources from: - the ADB private sector window (including enclave operations in the mining sector infrastructure), - Trust Fund resources to finance complementary operations in sectors covered in the 2012–16 Country Strategy Paper (CSP). - Examples of available instruments: - Rural Water Supply and Sanitation Initiative (strategy could be prepared). - Partial Risk Guarantee Instrument. - Global Environment Fund. - Africa Carbon Facility and Green Fund. ### Response to the Ebola crisis - Regional approach adopted by AfDB: - April 2014: emergency support of USD 2 million UA equivalent to USD 3 million grant to support MRU countries (Guinea, Liberia, Sierra Leone). - July 2014: AfDB approved a UA 40 million equivalent to USD 60 million grant for countries fighting against Ebola. - October 2014: AfDB approved UA 100 million sector budget support to support the three most affected countries. - October 2014: AfDB approved a UA 7.7 million Technical Assistance Capacity Building Programme to support national and foreign health worker programs. - Total Bank’s support for Guinea amounts to UA 35 million (US$52 million) to enhance immediate response and structure a medium to long term plan. - AfDB supporting the government’s 2015–17 post-Ebola recovery plan by accelerating execution of planned projects and mobilizing additional resources for new operations/projects. ### African Development Bank and Fund staff collaboration - Sharing of information on: - the ECF-supported program, - the macroeconomic situation, - the budget, - progress in structural reform, - planned missions, and - mission reports. ### ADF 13 (2011–17) and FSF operations programming (selected financing figures, UA million) - Pillar I – Economic and Financial Governance Support (Sub-Total): 49.0 (ADF) and 6.5 (FSF) — Total 59.5. - Budget support 2011: 20.0 (ADF). - Targeted support 2011: 2.5 (ADF). - Budget support 2014/15: 12.0 (ADF). - Capacity building (Mining One-Stop Shop and Simandou) 2016: 4.0 (ADF) and 2.0 (FSF). - Targeted support for capacity building (Central Bank) 2016: 2.0 (FSF). - Capacity building: co-financed with AFD (France) 2018: 3.0 (ADF) and 4.0 (Regional & Other Funds) — Total 7.0. - Agriculture (Governance, entrepreneurship, and financing) 2018: 10.0 (ADF). - Pillar II – Infrastructure Support (Energy, Transport, etc.) (Sub-Total): 219.5 (ADF) and 116.5 (Regional & Other Funds) — Total 336.0. - CLSG Interconnection (electricity) 2013: 16.0 (ADF) and 24.2 (Regional & Other Funds) — Total 40.2. - Rehabilitation of electric power networks 2013: 11.0 (ADF). - Institutional support project - Public investment management and mining 2013: 11.4 (ADF). - Mano River Union road (CI-Liberia, linked to Mali) 2014: 13.1 (ADF) and 20.3 (Regional & Other Funds) — Total 33.4. - OMVG 2015: 20.0 (ADF) and 30.0 (Regional & Other Funds) — Total 50.0. - Coyah-Farmoriah-Pamelap road including a study for the Kankan-Mandiana-Odiene project 2017: 44.0 (ADF) and 21.0 (Regional & Other Funds) — Total 65.0. - Guinea-Mali interconnection (energy) 2017: 35.0 (ADF). - Boké-Quebo road 2018: 69.0 (ADF) and 21.0 (Regional & Other Funds) — Total 90.0. - Total programming: 268.5 (ADF) and 6.5 (FSF) and 120.5 (Regional & Other Funds) — Grand Total 395.5 (UA million). *Source: IMF/World Bank staff summary as provided in the content unit.* ### 1. Guinea’s external public debt ### 1. Guinea’s external public debt ### Overview - Guinea received US$639 million of debt relief in present value (PV) terms upon reaching the completion point of the HIPC initiative in 2012. - Since 2012 the government has used external borrowing to finance infrastructure investments in the energy and transport sectors, notably the Kaleta hydroelectric dam (US$335 million or 4 percent of GDP). - Total public and publicly guaranteed (PPG) external debt reached US$1.8 billion (21.5 percent of GDP) in 2016, compared with US$1.3 billion (17.9 percent of GDP) in 2012. ### External debt stock and composition (end-2016) - Total PPG external debt (excluding C2D): US$1,776.0 million (22.1 percent of GDP). - Total incl. C2D: US$1,914.8 million (19,34.4 ???) [Note: table entries preserved as in source]. - Creditor composition: - Multilateral creditors: US$700.7 million (42.7 percent of total; 9.2 percent of GDP). - IMF: US$197.9 million (13.2 percent of total; 2.8 percent of GDP). - World Bank: US$161.1 million (12.1 percent of total; 2.6 percent of GDP). - AfDB Group: US$111.2 million (9.8 percent of total; 1.2 percent of GDP). - IsDB: US$113.0 million (10.6 percent of total; 1.3 percent of GDP). - Other Multilateral creditors: US$117.5 million (11.5 percent of total; 1.3 percent of GDP). - Official bilateral creditors: US$979.2 million (54.0 percent of total; 11.6 percent of GDP). - Paris Club (excl. C2D): US$28.5 million (2.5 percent of total; 1.5 percent of GDP). - Non-Paris Club: US$815.3 million (80.8 percent of bilaterals; 44.9 percent of total; 9.5 percent of GDP). - Arab Funds: US$135.3 million (13.8 percent of bilaterals; 8.1 percent of total; 1.7 percent of GDP). - Commercial creditors: US$59.6 million (3.2 percent of total; 0.7 percent of GDP). - Arrears at end-2016: US$147.4 million (1.7 percent of GDP), unchanged from the previous year. - Arrears composition: Non-Paris Club official bilateral creditors US$88.5 million (60 percent of arrears); commercial creditors US$58.9 million (40 percent of arrears). - Arrears pre-date HIPC completion. Creditors have not requested payment; authorities aim to reach an agreement by end-2017. ### Domestic public and publicly guaranteed (PPG) debt - Domestic PPG debt dynamics: - Central bank guarantees issued in 2014–15: US$870 million (9.9 percent of GDP) to commercial banks to provide loans to private companies to pre-finance public investment projects. - Domestic PPG debt rose from 14.9 percent of GDP in 2014 to 22.1 percent of GDP in 2015. - Restructuring and settlement reduced guarantees to US$118 million (1.4 percent of GDP) by end-2016. - “Dette conventionnée” outstanding: US$678 million (8.2 percent of GDP), consolidated central bank advances accumulated prior to 2013, scheduled to be repaid over 40 years starting in 2023. - Inclusion of audited central government arrears (1982–2013) added US$0.2 billion (2.9 percent of GDP) to domestic debt. - PPG domestic debt at end-2016: 20.7 percent of GDP. ### Comparison with previous DSA and drivers of change - Total public debt at end-2016: US$3.5 billion (42.9 percent of GDP), compared with projected US$3.0 billion (35.4 percent of GDP) in the 2016 DSA. - External debt stock at end-2016: US$1.8 billion (slightly higher than projected US$1.7 billion) — projected cancellation of external arrears did not materialize and timing of BCRG guarantee settlements changed. - Domestic debt at end-2016: US$1.7 billion (higher than expected US$1.3 billion) — driven by inclusion of domestic arrears. ### Underlying assumptions, major projects, and lending terms - National accounts revision: - Adoption of SNA 1993 methodology and data revisions for 2006–15 led to a 40 percent increase in nominal GDP and revised historical series (examples shown in source tables for Real GDP Growth, fiscal balances, current account, and total public debt). - Major excluded and included projects: - Simandou iron-ore project: excluded from analysis (put on hold indefinitely). - Souapiti dam project (included): large 450-MW dam; overall estimated project cost US$1.6 billion (18.5 percent of GDP); financing assumed 25 percent equity and 75 percent debt. - Government finalizing a US$1.2 billion non-concessional loan (12.7 percent of GDP) from China Eximbank for the debt portion. - Loan transfer to a Special Purpose Vehicle (SPV) is expected; government may be responsible to repay if SPV unable — loan included in PPG external debt and the government is assumed responsible for servicing it in the analysis. - Grant element of the Souapiti loan is expected to be: 29.7 percent. - Assumed loan terms: 20-year maturity with a 7-year grace period; 2 percent interest rate; 0.5 percent commitment fees and 0.5 percent management fees. - Disbursements expected over 2017–2020: US$184 million in 2017; US$544 million in 2018; US$265 million in 2019; US$180 million in 2020. - SPV ownership and servicing: Government (51 percent) and China International Water & Electricity Corporation (49 percent); SPV responsible for servicing it. - Ensuring cost-recovery electricity tariffs and restructuring the electricity public utility so it can pay Souapiti SPV in a timely manner will be key for SPV loan serviceability. - Additional planned non-concessional borrowing: - Authorities’ plans to borrow an additional US$650 million in non-concessional loans to be disbursed over 2018–21 from China Eximbank to finance priority infrastructure projects (indicative contracted amounts): - Rehabilitation of RN1 (national road): 275 (USD million) - Rehabilitation of road system in Conakry: 159 (USD million) - Construction of electricity transmission line (Lisan-Fomi-Kankan): 150 (USD million) - University Rehabilitation: 63 (USD million) - The grant element of these loans is expected to be approximately 25.9 percent. ### Macroeconomic assumptions in the DSA (selected) - Real GDP growth: - Expected to increase to 6.7 percent in 2017 and average 6 percent over the medium term. - Long run (2021–37) growth projected around 5 percent. - Inflation: expected around 8.5 percent in 2017 and to slightly decline over the medium term. - Fiscal balances: - Basic fiscal surplus projected to strengthen from 0.6 percent of GDP in 2017 to an average of 0.9 percent of GDP during 2018–21. - Capital expenditures expected to rise from 4.8 percent of GDP in 2016 to 9.0 percent in 2021 under PDNES. - Primary fiscal balance: surplus of 0.9 percent of GDP in 2017; deficit of 1.2 percent of GDP in 2018; average deficit of 1.1 percent over 2019–22. - Current account: - Expected deficit of 24.4 percent of GDP in 2017; average deficit of 16.5 percent of GDP over 2018–22. - External financing mix and terms: - New external borrowing expected to increase from 3.6 percent of GDP in 2017 to 9.8 percent of GDP in 2018; average 7.2 percent of GDP over 2019–21; long-run average around 2 percent of GDP. - Average grant element of new borrowing projected to decline from around 33 percent in 2017 to 27 percent in 2019, then increase to 31 percent in 2020 as Souapiti disbursements wind down; long-run average grant element ~25 percent. - Domestic borrowing: - Net government domestic financing expected to be negative throughout 2017–37 as government gradually repays domestic debt, including validated arrears to the private sector. ### Debt sustainability analysis (DSA) findings - Baseline scenario: - All external debt ratios remain below their policy-dependent thresholds; PV of debt-to-GDP expected to peak at 26.2 percent in 2025 (compared with a peak of 17.5 percent of GDP in the 2016 DSA). - Liquidity ratios (debt service-to-exports and debt service-to-revenues) expected to remain well below policy-dependent thresholds given sizeable grant elements in new loans. - Growth rate for accumulation of external debt averaged 3.5 percent (year-on-year) over 2017–21, higher than the 2016 DSA average of 1.1 percent. - Debt service has risen compared with the 2016 DSA due to faster debt accumulation and the non-concessional nature of new borrowing. - Risk classification and stress tests: - Guinea remains at a moderate risk of debt distress while vulnerabilities have increased. - Nearly all indicators breach their thresholds for prolonged periods under the historical and extreme shock scenarios. - Under bound tests, all indicators breach thresholds under the most extreme scenario. - Two more plausible country-specific scenarios considered: - i) weak policy implementation scenario; - ii) less prudent phasing of investment projects scenario with frontloaded disbursements of the anticipated US$650 million non-concessional loans. - Under these two country-specific scenarios, all indicators remain below their policy-dependent thresholds but become slightly closer than under the baseline. ### Policy actions, implementation considerations, and risks - Authorities’ actions and plans: - Continue discussions with creditors to normalize external arrears, aiming for an understanding by December 2017. - Prioritize and carefully phase investment projects and related borrowing to help maintain external debt at sustainable levels. - Plan to clear validated domestic arrears in line with the authorities’ strategy. - Key implementation considerations and risks mentioned in the analysis: - Ensuring cost-recovery electricity tariffs and restructuring the electricity public utility is crucial for the Souapiti SPV to service the loan. - Risks to growth and debt projections include socio-political tensions, delays in projects and reforms, and commodity price developments. - Historical shock scenarios reflect exceptionally adverse economic conditions for Guinea (including the Ebola crisis and commodity price shocks during 2014–15 and earlier civil unrest), which drive severe stress-test outcomes. *Source: cr17387 - 1. Guinea’s external public debt* ### 8. Guinea remains at a moderate risk of debt distress while vulnerabilities have increased. ### 8. Guinea remains at a moderate risk of debt distress while vulnerabilities have increased. ### Key findings on debt vulnerabilities and scenarios - Nearly all indicators breach their thresholds for prolonged periods under the historical and extreme shock scenarios (Figure 4). The magnitude of these breaches is larger than in the 2016 DSA, suggesting an increase in debt vulnerabilities due to faster debt accumulation. - Under the bound tests, all indicators breach their thresholds under the most extreme scenario. These bound tests use historical growth and export averages that reflect exceptionally adverse economic conditions for Guinea, including the Ebola crisis and commodity price shocks during 2014–15, and earlier periods of civil unrest. - Two country-specific scenarios were analyzed: - Weak policy implementation scenario: real GDP is 1 percentage point below the baseline over 2018–37, and the basic fiscal balance is 0.5 percent of GDP in 2018–19. - Less prudent phasing of investment projects (frontloaded disbursement) scenario: assumes the $650 million in non-concessional loans are disbursed over a three rather than five-year period and more rapid disbursement of already signed concessional loans. - Under these two country-specific scenarios, all indicators remain below their policy-dependent thresholds but are slightly closer to those thresholds than under the baseline scenario (Figure 5). - The most extreme shocks are either an exports shock or a combination shock, compared with the 2016 DSA where all most extreme scenarios corresponded to a combination shock. In one extreme test, the most extreme shock is a 10 percent GDP increase in other debt creating flows in 2018. ### Key statistics (policy-dependent thresholds and Guinea indicators) - PV of debt to GDP ratio: 30 | Guinea (2017): 15.5 | Guinea (Max 2017-37): 26.2 - PV of debt-to-exports ratio: 100 | Guinea (2017): 44.5 | Guinea (Max 2017-37): 64.6 - PV of debt-to-revenue ratio: 200 | Guinea (2017): 100.6 | Guinea (Max 2017-37): 143.4 - Debt service-to-exports ratio: 15 | Guinea (2017): 1.9 | Guinea (Max 2017-37): 5.6 - Debt service-to-revenue ratio: 18 | Guinea (2017): 4.2 | Guinea (Max 2017-37): 11.5 ### Total public debt dynamics - Debt indicators remain below the benchmark when adding public and publicly guaranteed domestic debt under the baseline scenario (Figure 6). - The PV of total public debt-to-GDP ratio remains below the policy-dependent benchmark during 2017–21 and then gradually declines over the long-term. This mirrors the path of the PPG external debt stock, which increases in the short-run due to a high rate of debt accumulation. - The PV of total debt-to-GDP ratio would exceed the benchmark in the medium-term under the extreme shock and historical scenarios. - Delays in repaying domestic arrears or debt owed to the BCRG, or the inclusion of additional debt not currently reflected due to data limitations, could worsen total debt dynamics. ### Conclusions and risk assessment - Guinea remains at moderate risk of external debt distress. - External debt is expected to increase significantly due to borrowing to finance critical infrastructure needs. - The authorities’ strategy of carefully phasing investment projects, spreading out loan disbursements, and containing non-concessional external borrowing within the amounts specified under the objectives of the ECF program is key to ensuring that debt remains sustainable and does not exceed a moderate risk of external debt distress. - Nevertheless, indicators have deteriorated under alternative and extreme shock scenarios, and the debt service burden has increased, indicating that Guinea’s debt vulnerabilities have risen. ### Policy recommendations and measures to preserve debt sustainability - Maximize concessional debt and limit non-concessional borrowing to a maximum of US$650 million (excluding Souapiti) during 2017–21. - Strengthen debt and public investment management to preserve debt sustainability in the context of large financing needs. Specific measures include: - Updating bond issuance practices. - Enhancing capacity to analyze debt sustainability. - Improving public debt statistics. - Strengthening procedures for managing domestic debt. - Conduct a holistic assessment such as the World Bank’s Debt Management Performance Assessment (DeMPA) to assess recently implemented measures and identify further areas for improvement. - Further improve coordination among ministries and the central bank to ensure new borrowing is in line with the national strategy. - Strengthen public investment management, including implementation of a platform for integrated public investment management and support from the Public Investment Management Assessment (PIMA) with IMF technical assistance, to enhance transparency and efficiency of the investment plan. ### Authorities’ views and commitments - The authorities broadly agree with the conclusions of the DSA and are committed to maintaining a sustainable level of debt and not exceeding a moderate risk of debt distress. - They noted the current level of external debt remains below the regional average of 28 percent of GDP. - Authorities concur with maximizing concessional borrowing where possible but noted concessional financing is not available at the scale needed to finance large infrastructure needs. The World Bank is envisaging scaling-up the IDA envelope for Guinea. - The authorities agree that addressing domestic debt is a priority and are committed to gradually clearing domestic arrears toward the private sector. - They remain committed to strengthening debt management and have expressed interest in updating DeMPA. *Source: IMF country DSA chapter (Guinea).* ### Box 1. Guinea: Strengthening National Accounts Statistics ### Box 1. Guinea: Strengthening National Accounts Statistics ### Background and technical partners - The National Institute of Statistics (INS) of Guinea has been improving and updating the methodology of compiling the national accounts with technical assistance from: the International Monetary Fund (AFRITAC West), the United Nations Economic Commission for Africa (ECA), AFRISTAT, and the European Commission (EU). ### Methodology update and key outputs - Prior methodology: U.N. Systems of National Accounts 1968 (SNA 1968). - Implementation begun in 2011 of SNA 1993 methodology to improve statistical concepts and classifications and harmonize with international standards. - The Fund provided technical assistance on compiling supply and use tables (SUT) and integrating economic accounts (IEA) in accordance with SNA 1993. - Revised national accounts statistics were published on the INS website in May 2017. - Time series: commences in 2006. - Compliance: data is broadly compliant with SNA 1993. - Relevant improvements incorporated: - new economic surveys, - a better categorization of activities and products, - improved estimates for informal activity. - Base year for national accounts revised to 2006 (from 2003) for key parameters—including population estimates, household and business sector activity, and informal activity. - Reference years for prices changed to 2010 (from 2003). - Nominal GDP revision: nominal GDP was revised up by an average 40 percent between 2006–15. - Sectoral weight changes: the total weight for agriculture, mining and construction in GDP was reduced by 16 percent, while weights of the components of the tertiary sector have increased, including for trade activities. ### Use of revised data in IMF staff work - Staff discussed the revisions during the May 2017 staff visit with support of an STA expert. - Staff incorporated the revised national accounts data for the period 2006–14 in the program scenario. - For 2015 staff uses an estimate—using partially available information on sectoral activity—as the final number will not be released until September 2017. ### Future plans and remaining work - INS aims to migrate from SNA 1993 to SNA 2008 over the coming 2–3 years. - Migration prerequisites: conduct new surveys—specifically a household survey, a census of companies, and an agricultural census. - As part of further enhancements, INS will revise the base year to 2015. - The Fund continues to provide technical assistance on application of SNA 2008 methodologies. - Other TA providers (UNECA, AFRISTAT, and the EU) support INS in developing a roadmap for rebasing to SNA 2008, application of revised classifications, and improving data collection. *Source: IMF staff summary from Box 1. Guinea: Strengthening National Accounts Statistics (published May 2017).* ### 2016. The external position was characterized by a widening of the current account deficit ### 2016. The external position was characterized by a widening of the current account deficit ### External position and near-term outlook - Current account deficit widened in 2016 due to a strong pick-up in investment-related imports, mainly in the mining sector. - International reserves stood at 2.5 months of imports at end-September 2017. - Financial sector needs further improvements; subscription to government bonds compounded by rising NPLs has thus far crowded out credit to private sector. - Authorities share staff positive assessment of the economic outlook: - Growth is projected to remain strong, reaching 6.7 percent in 2017 and average 6 percent over the medium term. - Large FDI flows in the mining sector and scaling-up of infrastructure investment, together with authorities’ planned reforms, should support growth momentum. - External imbalances are expected to gradually narrow as stronger mining and agricultural exports and increased repatriated profits help balance FDI-related imports. - Authorities are fully aware of downside risks and stand ready to take appropriate measures; they will endeavor to maintain sociopolitical stability through democratic and peaceful elections in 2018 onward. ### Program objectives and key policies — overarching aims - Objectives: sustain macroeconomic stability, scale up growth-enhancing public investment while preserving debt sustainability, and step up structural reforms to promote broad-based growth. - Policy focus areas: fiscal consolidation and revenue mobilization; monetary and exchange rate management; public investment management and debt sustainability; structural reforms to support private sector-led and inclusive growth. ### Enhancing macroeconomic stability (fiscal, tax, and PFM measures) - Fiscal strategy: - Fiscal policy geared to increasing domestic revenue mobilization while containing non-priority spending. - Fiscal anchor: a basic fiscal surplus of 0.6 percent in 2017 and an average basic surplus of 0.9 percent over 2018–20. - Revenue measures: - Tax policy and administration reforms, coupled with sustained growth and buoyant mining activity, are expected to increase tax revenue by about 3 percent under the program. - IMF technical assistance to support an action plan for targeted tax policy and administration reform to widen the tax base, simplify the tax regime, and strengthen tax collection and controls. - Specific tax policy measures envisaged: rationalizing tax exemptions, reviewing corporate income taxes, facilitating electronic payments, and streamlining excises. - Tax administration improvements: separation of management and operations within the National Directorate for Taxes; stricter controls over the tax base; improved taxpayers’ identification; introduction of on-line tax declarations and payments; modernization of tax administration. - Additional revenue-enhancing and enforcement measures: - Automatic price adjustment mechanism for petroleum products scheduled to be implemented by March 2018; reform to be preceded by communication campaigns, consensus building with social partners, and measures to protect vulnerable households. - Steps to enforce the new mining code and the new legislation on state-owned enterprises. - Expenditure-side measures: - Phase out untargeted electricity subsidies by bringing tariffs closer to cost recovery and improving the electricity company, EDG’s, efficiency. - Contain the wage bill through unspecified reform measures. - Public financial management: - Strengthen medium-term budget framework (MBT) for better monitoring of public expenditure, especially public investment, via: - Implementing the new budget nomenclature for the execution of the 2018 budget. - Establishing a top-down budgetary approach by setting MBT targets in line with the program targets. - Modernizing the information system for the preparation and execution of the budget. ### Monetary and exchange rate policy, financial sector measures - Monetary and exchange rate objectives: - Preserve moderate inflation, ensure private sector credit growth, and build comfortable external buffers. - Central bank (BCRG) measures: - Planned measures to boost liquidity and ensure bank lending supports activity; address impediments to the well-functioning interbank market. - Work on a comprehensive approach to address the high concentration of credit. - Establishment by end-2017 of a new credit information system aimed at providing better data on the creditworthiness of costumers to enlarge the lending base and boost credit. - Exchange rate regime and central bank governance: - Authorities will step up efforts to ensure greater exchange rate flexibility; further steps envisaged with Fund TA. - Measures underway to strengthen the BCRG’s autonomy, transparency and accountability. - Following publication of the amended BCRG law, next steps include signing a memorandum of understanding between the BCRG and the Ministry of Economy and Finance, specifying modalities and timetable for recapitalizing the BCRG. - These steps aim to strengthen BCRG capacity for improving monetary and exchange rate policies and banking supervision. ### Scaling up growth-enhancing investment while preserving debt sustainability - Priority: scale up public investment, especially infrastructure (electricity, roads) to remove binding constraints to growth. - Debt sustainability stance: - Authorities are mindful of potential impact of scaling up infrastructure investment on debt and committed to prioritize financing options that preserve medium-term debt sustainability. - Borrowing strategy emphasizes concessional resources. - Current envelope of non-concessional loans to finance key growth-enhancing investments has factored in the need to preserve Guinea’s moderate risk of debt distress. - Authorities committed to further improving debt sustainability, including by tapping Fund TA to enhance debt management capacity. - Public investment management improvements: - Complete feasibility studies for priority infrastructure projects. - Strengthen management framework to ensure transparency through competitive bidding and for better monitoring and coordination. - Explore Fund TA for conducting a Public Investment Management Assessment (PIMA). - New PPP law adopted in early July to seek private sector contribution for projects envisaged in the PNDES; completion of legal framework will emulate best practices to monitor and minimize potential contingent liabilities. ### Stepping up other structural reforms (business climate, governance, inclusion) - Business climate improvements (action plan by March 2018) with key measures to: - Ease procedures to start a business. - Introduce a business identification number and online tax declarations to facilitate paying taxes. - Strengthen the credit information system to improve access to credit for SMEs. - Establish a one-stop-shop to facilitate trade. - Develop a framework for dialogue between the private sector and the government. - Governance and anti-corruption: - Strengthen enforcement of the rule of law, the judicial system and the overall anti-corruption framework. - New anti-corruption law adopted; to be supplemented with measures criminalizing all acts of corruption and publicizing asset declarations by high-officials. - AML/CFT regime is being further strengthened. - Financial inclusion and social protection: - New Financial Inclusion Act adopted in July 2017 to provide a framework for microfinance institutions and improve access to credit for SMEs, women and the youth. - Authorities emphasize using savings from cutting non-priority spending to strengthen social safety nets programs and invest in poverty reduction. ### Conclusion and program instrument - Guinea demonstrated strong resilience implementing the first ECF-supported program amid daunting challenges; economy rebounded on dynamism in mining and agriculture and authorities’ reform efforts. - Sustaining growth momentum will require continuing macroeconomic and structural reforms. - The agreed policy package is judged adequate to enhance macroeconomic resilience, scale up public investment while preserving debt sustainability, and strengthen social safety nets for sustained and inclusive growth. - A successor ECF arrangement is proposed to provide the appropriate anchor to help achieve authorities’ policy objectives and mobilize external partners for successful implementation of the authorities’ PNDES for 2016–20. - In view of the strong reform agenda and the authorities’ strong commitment to the objectives of the program, Directors’ support to their requests for an ECF arrangement is sought. *IMF staff report (content unit).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17387.pdf_