## GUINEA — THIRD REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUEST FOR MODIFICATION OF PERFORMANCE CRITERION AND FINANCING ASSURANCES REVIEW (content unit: 1ginea2019004) ## Source details **Canonical URL:** [GUINEA — THIRD REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUEST FOR MODIFICATION OF PERFORMANCE CRITERION AND FINANCING ASSURANCES REVIEW (content unit: 1ginea2019004)](https://www.imf.org/-/media/files/publications/cr/2019/1ginea2019004.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1ginea2019004.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1ginea2019004.pdf.json) --- ### Executive findings and program status - Real growth: estimated at 5.8 percent in 2018; expected at about 6 percent in 2019–20 (staff/authorities projections). - Program performance: - Satisfactory at end-December 2018 and end-March 2019. - All end-December 2018 performance criteria (PCs) and the indicative target (IT) on domestically-financed social safety net spending were met; the ITs on tax revenue and accumulation of new domestic arrears were not met in 2018. - Most ITs were met at end-March 2019; the IT on tax revenue missed at end-March 2019; the IT on domestically-financed social safety net programs missed at end-March 2019 due to institutional delays. - IMF action recommended: staff supports completion of the third review under the ECF arrangement, which would result in the disbursement of SDR 17.213 million and catalyze donor support. ### Macroeconomic outcomes and projections - Growth and sectoral activity: - Real GDP growth (GDP at constant prices, annual percentage change): 2016: 10.8; 2017: 10.0; 2018: 5.8; 2019 (prel.): 5.8; 2020 (prog./req.): 5.8; 2021 (proj.): 5.9; 2022 (proj.): 5.9; 2023 (proj.): 5.9; 2024 (proj.): 6.0. - Mining growth: 2018: 7.5 (source text presented as "7.5 in 2018"); mining projected increases (e.g., mining exports +7.4 percent (y-o-y) in 2019 under program scenario). - Inflation: - Headline inflation: 9.9 percent at end-2018; 9.7 percent (y-o-y) in March 2019. - Core inflation: 4 percent (y-o-y) in March 2019 (down from 4.5 percent at end-2018). - Consumer prices (average, percent): 2016: 8.2; 2017: 8.9; 2018: 8.2; 2019 (prel.): 8.2; 2020 (prog./req.): 9.7; 2021 (proj.): 8.9; 2022 (proj.): 8.9; 2023 (proj.): 8.3; 2024 (proj.): 8.0. - External sector and reserves: - Current account: widened to 18.4 percent of GDP in 2018; projected at about 19 percent of GDP in 2019–20 (including official transfers in staff tables: e.g., 2018: -21.3 percent in one table and -18.4 percent in narrative; staff highlights CA gap and model-based overvaluation). - Gross international reserves: US$945 million (3.3 months of import coverage) at end-2018; US$1,030 million (3.6 months) at end-March 2019; program target: 3.8 months of import coverage by 2020 (ARA-CC average optimal level computed as 3.8 months). - Real effective exchange rate: appreciated by 7.2 percent in 2018 and further by 13.7–13.8 percent (average, y-o-y) in early 2019; model-based REER overvaluation assessed at 16–31 percent (various model ranges reported). ### Fiscal performance, targets, and adjustment measures - Fiscal outcomes: - Basic fiscal surplus: 0.8 percent of GDP at end-2018; 0.4 percent of GDP at end-March 2019 (alternate staff reporting: end-March surplus revised from GNF 502 billion (0.4 percent) to GNF 261 billion (0.2 percent) with a noted missed IT). - Tax revenues: 0.3 percent of GDP lower-than-expected in 2018; tax revenue IT missed at end-2018 and end-March 2019. - Domestic arrears: net accumulation of 0.2 percent of GDP at end-2018; net reduction by 0.9 percent of GDP at end-March 2019; narrative reports reductions (e.g., net reduction GNF 961 billion revised). - 2019 fiscal strategy and additional measures: - Staff supports revised fiscal framework (prior action) to achieve a basic fiscal surplus of 0.6 percent of GDP in 2019. - Package of additional adjustment measures about 1.3 percent of GDP (text table items total 1.25 percent of 2019 GDP reported as): - Non Tax revenue mobilization: 0.70 - Exceptional payment due to the sale of 4G licenses: 0.70 - Containing public expenditures: 0.55 - Reduction in electricity subsidies (from tariff increase): 0.05 - Rephasing non-priority domestically-financed public investments: 0.50 - Total: 1.25 (Text Table 1). - Re-profiling of quarterly fiscal path: basic fiscal surplus 0.3 percent of GDP at end-June 2019 and 0.4 percent of GDP at end-September 2019; submission of a 2019 Supplementary Budget (end-September SB) is key. - Maintain non-concessional loans within programmed amounts to preserve debt sustainability; program ceiling on new non-concessional external debt during the arrangement: US$650 million (continuous PC). - Tax mobilization performance and targets: - Programmed package mobilized about 0.05 percent of GDP at end-May 2019 against a 0.4 percent of GDP end-year target (Text Table 2). - Actions taken: performance contracts signed (May 2019), new DNI organizational structure, permanent tax number operationalized. - Text Table 2 reports itemized mobilization and execution rates (preserve exact figures in source). ### Electricity sector, subsidies, and tariff reform - Electricity subsidies: reduced to 0.8 percent of GDP in 2018; expected to increase to 1.6–1.7 percent of GDP in 2019 due to Kaleta dam payments (added cost 0.8 percent of GDP per year). - Tariff actions: - Retail petroleum prices increased by 25 percent in July 2018 (from 8,000 to 10,000 Guinean francs per liter), lowered to 9,500 GNF per liter in January 2019 (footnote). - Electricity tariffs increased by 15 percent for households and 5 percent for professional/industrial users in June 2019 (prior action), expected to save 0.05 percent of GDP in the second half of 2019. - Multi-year tariff reform to reach cost recovery by 2025 (end-September 2019 SB); tariffs expected to double cumulatively over 2019–25 while maintaining a social tariff. - Metering and efficiency: meter installations in ministries completed; progress for private consumers (e.g., about 150,000 customers metered by end-April 2019). ### Debt, debt sustainability, and financing assurances - Debt dynamics: - Total public debt at end-2018: US$4.5 billion (37.6 percent of GDP). - External public debt: 19.1 percent of GDP in 2018; domestic debt: 18.6 percent of GDP in 2018. - Short-term pick-up from Souapiti dam loan (US$1.2 billion signed September 4, 2018): expected disbursements US$980 million in 2019, US$155 million in 2020, US$41 million in 2021. - DSA incorporates non-concessional borrowing of US$658 million over 2019–21 (US$598 million signed in 2018 for roads; US$60 million non-concessional budget support from Qatar disbursed April 2019). - DSA assessment: - Under the program scenario, debt dynamics sustainable with a moderate risk of external debt distress and moderate overall risk of public debt distress (staff judgment applied). - PV of total public debt-to-GDP peaks in 2019 at 37.2 percent of GDP (vis-à-vis a 35 percent benchmark); staff assigned “moderate” risk given marginal, temporary breach and other mitigating factors. - Reserve adequacy ARA-CC: staff computes an average optimal reserves level of 3.8 months of imports; program target reserves: 3.8 months by 2020. - Financing assurances and pledges: - Firm financing assurances in place for next 12 months; examples cited: - World Bank budget support: US$100 million in 2019 and US$40 million in 2020. - European Union: Euros 20 million in 2019 and in 2020. - IMF disbursements per ECF schedule (each scheduled disbursement: 17.213 millions of SDRs; total arrangement: 120.488 millions of SDRs or 56.250 percent of quota as per Table 9). - Outstanding Fund credit: SDR 262.6 million (about 122.6 percent of quota) at time of report. ### Monetary, exchange rate, and financial sector policy - Monetary policy: - Maintain prudence to moderate inflation; target reserve/base money consistent with program objectives. - Limit central bank lending to government to programmed amounts; MoU signed in May 2018 sets limits (no more than 5 percent of average fiscal revenues of last three years repayable within 92 days). - Active liquidity management and use of liquidity instruments; liquidity forecasting framework operationalized. - Exchange rate and reserves: - BCRG moved to a more active reserve accumulation strategy, including foreign exchange purchase auctions; eliminate limit on auction allocation to a single participant (phased out by June 2019) to strengthen market competition. - Finalize a rule-based intervention strategy for the foreign exchange market (draft prepared; expected finalization end-2019). - Financial sector: - Banking supervision and regulation strengthening: new accounting framework, risk-based rating methodology operationalized, legal framework for deposit guarantee fund set up, banking resolution framework planned by end-2019. - Banking indicators: private sector credit growth 11 percent in 2018 (average, y-o-y); 15 percent in Q1 2019; NPLs: 12.2 percent at end-2018; provisioning improved to 37.8 percent at end-2018. - Safeguards and central bank governance: IFRS-compliant financial statements published; external audits completed for selected periods; outstanding safeguards recommendations being advanced (e.g., middle office, internal audit capacity). ### Structural reforms, governance, and social protection priorities - Revenue and tax administration reforms: - Modernize DNI management practices, operationalize MERCURY project by end-2019, finalize new CGI by end-2019, expand cross-checking of import and tax databases, collect recoverable tax arrears (targeted amounts reported in Text Table 2 and narrative). - Public financial management and PIM: - Operationalize Treasury Single Account (TSA) expansion during 2019; finalize budget execution manuals by end-2019; finalize regulatory framework for public investment management by end-2019 and manual for appraisal by end-March 2020 (SB). - Governance, anti-corruption, AML/CFT: - Implement asset declaration regime (implementation decree by end-September 2019 SB); strengthen AML/CFT legal framework and CENTIF; improve independence of National Agency Against Corruption. - Business climate and financial inclusion: - One-stop-shop for international trade established; specialized Commerce Court operationalized; permanent business identification number implemented; National Strategy for Financial Inclusion to be finalized by end-2019. - Social safety nets: - National Agency for Economic and Social Inclusion (ANIES) created January 2019; planned expansion of cash transfers and labor-intensive public works starting September 2019 after biometric census finalization; unified social registry prototype by end-February 2020 (SB) and final registry by end-2020. ### Risks and recommended policy responses - Key risks (identified by staff and authorities): - Social unrest and political instability around elections; delays in mining projects; commodity price volatility; capacity and governance constraints; large swings in energy prices; tightening global financial conditions. - Policy responses and priorities: - Preserve program ownership and reform momentum; finalize and implement revenue measures; apply petroleum price adjustment mechanism; increase electricity tariffs toward cost recovery while protecting vulnerable through targeted social programs; keep non-concessional borrowing within programmed amounts; strengthen debt management, PFM, and bank supervision; build external buffers and allow greater exchange rate flexibility; implement rule-based FX intervention; continue IMF technical assistance and capacity building. *International Monetary Fund. July 10, 2019.* ### 2019. The authorities have started implementing additional adjustment measures to achieve ### GUINEA — THIRD REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUEST FOR MODIFICATION OF PERFORMANCE CRITERION AND FINANCING ASSURANCES REVIEW ### Executive summary - Real growth: estimated at 5.8 percent in 2018; expected at about 6 percent in 2019–20. - Program performance: satisfactory at end-December 2018 and end-March 2019; all end-December 2018 performance criteria and the indicative target on social safety net spending were met. The indicative targets on tax revenue and the accumulation of new domestic arrears were not met in 2018. - Policy stance: additional adjustment measures implemented to achieve a basic fiscal surplus in 2019 while scaling up growth-supporting public investment. - IMF action: staff supports authorities’ request for completion of the third review under the ECF arrangement, which would result in the disbursement of SDR 17.213 million and catalyze donor support. - Report date: July 10, 2019. ### Context and background - Country context: - Guinea is described as a fragile country with weak institutional capacity and pervasive poverty. - Poverty incidence: 60 percent of the population. - Social and political tensions: intensified by delays in legislative elections and issues related to the 2020 presidential elections. - Program objective (2017–20 ECF arrangement): foster high and broad-based growth, reduce poverty, preserve macroeconomic stability, scale-up public investment while preserving debt sustainability, strengthen social safety nets, and promote private sector development. - Program risks: electoral pressures, political and social instability, weak institutions and governance, commodity price volatility, and capacity constraints. ### Recent economic and financial developments - Growth and sectoral activity: - Real growth: 5.8 percent in 2018. - Mining growth: 7.5 in 2018 (note: presented as "7.5 in 2018" in source). - Mining dynamics: stronger-than-expected bauxite and diamond production; sharp decline in artisanal gold production due to a government ban on a chemical used by artisanal miners. - Inflation: - Headline inflation: 9.9 percent at end-2018; decelerated to 9.7 percent (y-o-y) in March 2019. - Core inflation: slowed to 4 percent (y-o-y) from 4.5 percent at end-2018. - External sector: - Current account deficit: widened to 18.4 percent of GDP in 2018. - Exports: declined by 3.4 percent (y-o-y) in 2018. - Imports: picked-up by 19 percent (y-o-y) in 2018. - Gross international reserves: increased to 3.6 months of import coverage at end-March 2019. - Real effective exchange rate: appreciated by 11.0 percent (average, y-o-y) at end-April 2019. - Fiscal outcomes: - Basic fiscal surplus: 0.8 percent of GDP at end-2018; 0.4 percent of GDP at end-March 2019. - Tax revenues: 0.3 percent of GDP lower-than-expected in 2018. - Domestic arrears: accumulation of 0.2 percent of GDP (net basis) at end-2018; reduced by 0.9 percent of GDP at end-March 2019. - Spending: wage bill and electricity subsidies in line with objectives; capital expenditures lower-than-programmed; spending on goods and services contained to offset electricity subsidy pickup. - Financial sector and credit: - Private sector credit growth: 11 percent in 2018 (average, y-o-y); 15 percent in the first quarter of 2019 (average, y-o-y). - Commercial banks’ net lending to government: increased by 27 percent in 2018 (average, y-o-y). - Non-performing loans (NPLs): 12.2 percent at end-2018. - Bank compliance: three banks did not comply with the net equity capital requirement at end-2018; one bank did not comply with reserve requirements. ### Performance under the program and policy strategy - Program status: - Most indicative targets were met at end-March 2019. - Two of four structural benchmarks were met at the time of the report; substantial progress on the other two with full completion expected by end-2019. - Fiscal strategy and measures: - Aim to achieve a basic fiscal surplus in 2019 to preserve stability while scaling-up growth-supporting public investment. - Revenue mobilization: advance programmed tax revenue measures and apply the petroleum price adjustment mechanism. - Electricity subsidies: gradually bring electricity tariffs to cost recovery to reduce untargeted subsidies and create fiscal space for priority spending. - Social protection: strengthen targeted social safety nets to protect the most vulnerable and reduce poverty. - Public investment management: improve public investment management to foster returns and efficiency. - Debt management: maintain non-concessional loans to programmed amounts and continue strengthening debt management to preserve debt sustainability. - External and monetary policies: - External buffers: continue building reserves; greater exchange rate flexibility to support reserve accumulation. - Foreign exchange market: strengthen competition and finalize a rule-based intervention strategy. - Monetary policy: maintain prudence to moderate inflation; limit central bank lending to government; pursue active liquidity management to meet monetary targets. - Financial sector stability: strengthen banking supervision and regulation. ### Structural reforms and governance - Structural priorities: - Strengthen anti-corruption framework. - Strengthen the AML/CFT regime. - Improve the business climate to support private sector development. - Capacity building: - Guinea is a pilot country under the IMF’s Capacity Building Framework for fragile states; targeted IMF technical assistance is supporting program objectives. ### Staff views and program risks - Staff recommendation: support for completion of the third review under the ECF arrangement given satisfactory program performance and supplementary actions. - Expected financing: disbursement of SDR 17.213 million upon review completion. - Risk assessment: program subject to significant risks; continued strong ownership is essential for program success. *International Monetary Fund. July 10, 2019.* ### 8. Performance against end-December 2018 program targets was satisfactory. All end- ### 8. Performance against end-December 2018 program targets was satisfactory. All end-December 2018 performance criteria (PCs) and the indicative target (IT) on domestically-financed social safety net programs were met. ### Program performance and key outcomes - All end-December 2018 performance criteria (PCs) and the indicative target (IT) on domestically-financed social safety net programs were met. - The IT on tax revenue at end-2018 was missed, reflecting the impact of social tensions and delays in revenue mobilization measures (¶6, ¶10). - The IT on new domestic arrears was missed, with a net accumulation against a programmed reduction (¶6). - Program performance at end-March 2019 continued to be satisfactory: - ITs on the basic fiscal balance, net government budgetary borrowing from the central bank, net domestic assets of the central bank, and net international reserves were met. - The IT on new domestic arrears was met by a large margin, more than compensating for the arrears accumulation at end-2018. - The IT on tax revenue was missed, reflecting still limited progress in programmed tax administration measures (¶16). - The IT on domestically-financed social safety net programs was missed, due to delays in releasing budgeted resources for social programs because of institutional changes (¶21). - Two out of four structural benchmarks (SBs) were met, with substantial progress on the other two and with full completion expected by end-2019 (MEFP Table 2) (¶11). ### Adjustment measures implemented to achieve end-2018 fiscal target - Retail prices of petroleum products were increased in July 2018 to protect tax revenues (¶17). - Tax policy and administration measures mobilized 0.2 percent of GDP additional revenues in 2018 (about half of the end-2018 target, Text Table 2) (¶9). - Rationalizing ad-hoc tax exonerations overperformed; administrative delays were recorded in most tax administration measures, notably conducting tax audits and recovering tax arrears (¶9). - Electricity tariffs were increased to reduce untargeted subsidies (¶19). - Measures to contain the wage bill in line with program objectives were adopted; non-priority spending in goods and services was contained; and non-priority investment projects were re-phased (¶9). ### Outlook and risks - Real growth is expected to reach about 6 percent in 2019–20 under the program scenario (¶12). - Large FDI in the mining sector will increase production capacity. - Scaling-up infrastructure investments will continue boosting construction. - Strengthening the business climate and governance and higher electricity provision to the economy will support private sector development over the medium-term (¶12). - Inflation is expected to be moderate owing to a prudent monetary policy and contained central bank financing of the government (¶12). - Current account deficit is expected at about 19 percent of GDP in 2019–20, financed by large FDI inflows and external project loans (¶13). - Mining exports would increase by 7.4 percent (y-o-y) in 2019. - Imports are expected to increase by 7.7 percent (y-o-y). - International reserves would increase to 3.8 months of import coverage by 2020 (¶13). - Downside risks: - Social unrest and political instability in the run-up to the legislative and presidential elections could weaken near-term growth, policy discipline, and reform implementation (¶14). - Delays in mining projects, a decline in commodity prices, weaker demand of bauxite due to tariffs on trading partners’ aluminum exports, capacity and execution constraints in public investment, and governance slippages could undermine medium-term growth (¶14). ### Preserving macroeconomic stability — Fiscal policy and additional 2019 measures - Electricity subsidies are expected to sharply increase in 2019 due to structural changes in the electricity sector (¶15). - Electricity subsidies are expected to be 1.1 percent of GDP larger than in the 2019 Budget Law (¶15). - Tax revenues are projected to be 0.3 percent of GDP lower-than-budgeted, reflecting a lower base effect from 2018 and outcomes in the first quarter of 2019 (¶15). - Staff supports the authorities’ revised fiscal framework for 2019 (prior action) to achieve a basic fiscal surplus of 0.6 percent of GDP (¶15). - The revised framework entails a package of additional adjustment measures (about 1.3 percent of GDP), and a modest easing of the end-year target (by 0.3 percent of GDP) to avoid an excessive contraction in spending (¶15). - Specific adjustment measures include mobilizing additional non-tax revenues, re-phasing non-priority domestically-financed public investment, and increasing electricity tariffs to contain subsidies (Text table 1) (¶15). - Additional details and phasing: - These measures will add to the package of tax measures, agreed at the second ECF arrangement review, to mobilize 0.4 percent of GDP in additional revenues (¶15). - Larger-than-anticipated external financing will support stepping-up public investments and repaying domestic arrears (¶15). - As new adjustment measures will mainly affect the second half of 2019, the quarterly fiscal path was re-profiled: - Basic fiscal surplus of 0.3 percent of GDP expected at end-June 2019. - Basic fiscal surplus of 0.4 percent of GDP expected at end-September 2019. - Submission to the National Assembly of a 2019 Supplementary Budget in line with measures above will be key to achieving the end-2019 program objectives (end-September SB) (¶15). - Text Table 1. Additional Adjustment Measures, 2019 Third ECF Review (Percent of 2019 GDP): - Non Tax revenue mobilization: 0.70 - Exceptional payment due to the sale of 4G licenses: 0.70 - Containing public expenditures: 0.55 - Reduction in electricity subsidies (from tariff increase): 0.05 - Rephasing non-priority domestically-financed public investments: 0.50 - Total: 1.25 ### Creating fiscal space — Tax mobilization - The programmed package of tax policy and administration measures mobilized about 0.05 percent of GDP revenues at end-May 2019, against a 0.4 percent of GDP end-year target (Text Table 2) (¶16). - Actions taken: - Performance contracts with the tax revenue authorities were signed in May 2019 (prior action), setting revenue collection targets (¶16). - A new organizational structure of the Directorate of Taxes (DNI) was adopted, and a permanent tax number for businesses was operationalized (¶16). - Further needs: - Modernizing DNI management practices, cleansing taxpayers’ files and conducting a review of non-tax revenues will support revenue mobilization (¶16). - Text Table 2. Tax Policy and Administration Measures, 2018–19 (Percent of GDP) — execution and targets (as reported): - Tax revenue mobilization: 0.39 % of GDP; Execution (End May 2019) GNF 2275; % of Target 3.9; Programmed Revenue Mobilization 0.42 % of GDP; Additional Revenue Mobilization in 2019 0.05 % of GDP; Execution (End Dec 2018) 14.2 % of Target. - Tax policy measures: 0.06 % of GDP; GNF 891; % of Target 45.1; Programmed 0.07 %; Additional 0.02 %; Execution (End Dec 2018) 37.0 % of Target. - Rationalize ad-hoc exonerations: 0.04 % of GDP; GNF 892; % of Target 21.3; Programmed 0.06 %; Additional 0.01 %; Execution (End Dec 2018) 35.5 % of Target. - Broadening the base for the insurance tax: 0.02 % of GDP; GNF 0; % of Target 0.0; Programmed 0.01 %; Additional 0.01 %; Execution (End Dec 2018) 39.9 % of Target. - Tax administration measures: 0.33 % of GDP; GNF 1393; % of Target 38.5; Programmed 0.35 %; Additional 0.03 %; Execution (End Dec 2018) 10.4 % of Target. - Tax recovery from general audits of large enterprises: 0.17 % of GDP; GNF 593; % of Target 32.9; Programmed 0.12 %; Additional 0.02 %; Execution (End Dec 2018) 11.6 % of Target. - Tax recovery from desk audits of the enterprises: 0.03 % of GDP; GNF 175; % of Target 51.8; Programmed 0.03 %; Additional 0.00 %; Execution (End Dec 2018) 8.9 % of Target. - Collection of recoverable tax arrears: 0.09 % of GDP; GNF 1010; % of Target 10.9; Programmed 0.10 %; Additional 0.00 %; Execution (End Dec 2018) 2.9 % of Target. - Tax recovery from matching of customs and tax databases: 0.02 % of GDP; GNF 42; % of Target 2.1; Programmed 0.05 %; Additional 0.00 %; Execution (End Dec 2018) 0.0 % of Target. - Strengthen collection of Single Land Contribution: 0.03 % of GDP; GNF 347; % of Target 148.0; Programmed 0.05 %; Additional 0.01 %; Execution (End Dec 2018) 33.6 % of Target. - Note: "This is total additional revenue in 2019 relative to a baseline in which no measures were undertaken in 2019." (Text Table 2 note) (¶16). ### Petroleum price adjustment mechanism and social protection - Retail prices of petroleum products were increased by 25 percent in July 2018, the first time since 2015 (¶17). - The retail price of fuel, gasoil and kerosene was increased from 8,000 to 10,000 Guinean francs per liter in July 2018. - The price was lowered to 9,500 Guinean Francs per liter in January 2019 (¶17, footnote). - Ad-hoc reductions of custom duties on petroleum products led to revenue losses of 0.6 percent of GDP in the first half of 2018 (¶17, footnote). - The price adjustment rule requires retail prices to be adjusted on a monthly basis if import prices, expressed in local currency, are 5 percent higher or lower than in the previous month (¶17, footnote). - Staff underscores that upward price adjustments will be needed to protect tax revenue in case of higher international oil prices or exchange rate depreciation (¶17). - Implementing the programmed scaling-up in social safety nets (¶21) is needed to protect the most vulnerable (¶17). - The petroleum prices adjustment mechanism will be reviewed by end-2019, with the support of IMF technical assistance (¶17). ### Mining sector revenue and governance reforms - Since June 2018, a new mining agreement for bauxite extraction was put fully in line with the tax provisions of the mining code (¶18). - Two new agreements, entailing new infrastructure investments and local transformation of bauxite, were presented to the National Assembly with an assessment of tax expenditures (continuous SB) (¶18). - Key international taxation provisions were introduced in the legal framework to address risks of profit shifting from transfer pricing, including to support the arm’s length principle (MEFP ¶24) (¶18). - Strengthening tax administration capacity will be key to identifying and tackling cases of transfer pricing (¶18). ### Electricity sector, subsidies, and tariff reform - Electricity subsidies were reduced to 0.8 percent of GDP in 2018, thanks to the implementation of a package of measures including tariff increases in May 2018, substitution of thermal by cheaper hydro production, and efficiency measures (MEFP ¶19) (¶19). - Electricity subsidies are expected to increase to 1.6 percent of GDP in 2019, due to the increase in the financing needs of the electricity public utility (EDG) (¶19). - Payment of the electricity produced by the Kaleta dam started in early 2019 after a contractual grace period; this is expected to increase EDG’s costs by 0.8 percent of GDP in 2019 and per year (¶19). - The average electricity tariff currently covers only about 40 percent of production and service costs (¶19, footnote). - Staff welcomes the increase in electricity tariffs by 15 percent for households and by 5 percent for professional and industrial users in June 2019 (prior action), while maintaining the social tariff (¶19). - This is expected to generate savings of 0.05 percent of GDP in electricity subsidies over the second half of 2019 (¶19). - The 2019 tariff increase is the first step of a multi-year reform to gradually increase electricity tariffs to reach cost recovery levels by 2025 (end-September 2019 SB) (¶19). - On a cumulative basis, tariffs are expected to double over 2019–25 while the social tariff would be maintained to protect the most vulnerable (¶19). - Other measures: improving revenue collection and curbing commercial fraud; installation of consumption meters completed in all ministries and advancing for private consumers (¶19). ### Public financial management and public investment management reforms - Treasury Single Account was operationalized in early 2019 on a sub-set of accounts and its coverage will be gradually expanded (MEFP ¶27) (¶20). - Budget execution manuals were finalized and will be implemented by-end 2019 (MEFP ¶26) (¶20). - Strengthening institutional coordination will support better aligning expenditure commitment plans with cash flows (MEFP ¶28) (¶20). - Public investment management reforms: - A regulatory framework of public investment management will be finalized by end-2019 to establish mechanisms, mandates and procedures (MEFP ¶29) (¶21). - A manual for the preparation, appraisal and selection of public investment projects will be adopted, requiring feasibility studies to be conducted for major projects (end-March 2020 SB) (¶21). - Finalizing the integrated investment management platform will support better execution and monitoring of projects (MEFP ¶29) (¶21). ### Monetary and exchange rate policies; reserve build-up - Foreign exchange reserves of the BCRG reached 3.6 months of import coverage at end-March 2019 (¶22). - The BCRG has moved towards a more active reserve accumulation strategy, including through a foreign exchange purchase program (¶22). - Further accumulation of reserves will support reaching the ARA-CC metric reserve adequacy estimate of 3.8 months of import cover by 2020 (Annex II) (¶22). - Greater exchange rate flexibility will support building reserves and help reduce the real effective exchange rate overvaluation (Annex II) (¶23). - Finalizing the rule-based intervention strategy for the BCRG in the foreign exchange market will be important to reduce discretion and support greater flexibility (¶23). - Fully eliminating the limit on auction allocation to a single participant will strengthen market competition (¶23). - Monetary policy guidance: - Targeting base money in line with program objectives is needed to reduce inflation (¶24). - Limiting government recourse to central bank financing to programmed amounts will be key (¶24). - Active liquidity management, using available instruments and calibrating operations based on the new liquidity forecasting framework, is needed (¶24). - The initial step to establish the legal basis for a new emergency assistance liquidity framework for illiquid but solvent banks was completed; further reforms will be needed to operationalize the framework with IMF technical assistance (¶24). ### Central bank governance and safeguards - The BCRG implemented some important recommendations of the 2018 safeguard assessment: - Financial reporting transparency and accountability were strengthened through the publication of IFRS-compliant financial statements (¶25). - Internal compliance processes and semi-annual reports to the Board were established to strengthen governance and internal controls (¶25). - External audits of the monetary data for end-June 2018 and end-December 2017 were completed and did not point to any significant issue; the end-December 2018 external audit is underway and will be completed by end-September 2019 (¶25). - Outstanding recommendations include: - Conducting regular reviews of the investment policy. - Establishing a middle office in the foreign exchange operations. - Conducting a peer review of currency operations. - Improving internal audit capacity and oversight. - Strengthening the central bank law. - The BCRG is in the process of advancing these reforms (¶25). *Source: IMF staff report excerpt for Guinea (sections 8–25).* ### 26. Banking supervision and regulation are being strengthened. The new accounting ### 26. Banking supervision and regulation are being strengthened. The new accounting ### Banking supervision and regulatory reforms - The new accounting framework and reporting system for banks were adopted and will be gradually implemented (MEFP ¶43). - The new risk-based rating methodology of banks was operationalized. - Strengthening human resources in banking supervision will be important. - The legal framework for a deposit guarantee fund was set-up. - A banking resolution framework will be set-up by end-2019, with the support of IMF technical assistance. - The BCRG will ensure that all banks comply with capital and reserve requirements. - The legal basis for a new emergency assistance liquidity framework for illiquid but solvent banks was established. ### Scaling-up infrastructure investment while preserving debt sustainability - Capital expenditures are expected to increase to 7 percent of GDP in 2019, more than half of it devoted to infrastructure. - The program supports stepping-up public investment in infrastructure to foster economic diversification and broad-based growth. - Prudent borrowing will be key to support the scaling-up while preserving medium-term debt sustainability. - Staff: "Keeping non-concessional loans to programmed amounts is needed to preserve debt sustainability." ### Debt concessionality, non-concessional borrowing, and arrears - Maximizing debt concessionality and limiting non-concessional loans to programmed amounts is key to preserve debt sustainability. - Under the program scenario, Guinea’s debt dynamics is sustainable, with a moderate risk of external debt distress. - The overall risk of public debt distress is assessed to be moderate, although space for additional borrowing is very limited (2019 Debt Sustainability Analysis Update). - Guinea has fully utilized the US$650 million envelope of non-concessional loans (NCLs) allowed under the program to finance priority infrastructure projects. - In 2018, two NCLs (US$598 million, 5 percent of GDP) were signed for the rehabilitation of a national road and the road system in Conakry. These loans are collateralized by future mining revenues streams. - A non-concessional budget support was signed with Qatar in 2018 (US$60 million, 0.4 percent of GDP). - Efforts to resolve long-standing external arrears (1.4 percent of GDP) continue (MEFP¶35). - Staff concerns: collateralized borrowing earmarking revenues weakens budget flexibility and may complicate debt restructuring in the unexpected events of debt distress (IMF Country Report No. 19/30). ### Strengthening debt management and public debt institutional capacity - A time-bound action plan was finalized in early 2019 to address vulnerabilities identified in the 2018 Debt Management Performance Assessment (DeMPA) (MEFP ¶36). - A medium-term debt strategy was updated in February 2019, with the support of IMF technical assistance. - A working group on public debt management was operationalized and started preparing sustainability analysis. - A full-fledged statistical bulletin will be published and a modern debt recording system will be acquired by end-2019. - Implementation of the end-2017 strategy to clear longstanding domestic arrears is moving ahead (MEFP ¶34). ### Public-private partnerships (PPPs) and fiscal risks - Implementation decrees of the 2017 PPP law are being finalized, with the support of IMF technical assistance. - Staff recommendations for PPPs: - Ensure PPPs are in line with the public investment plan. - Apply rigorous selection and appraisal processes. - Cap explicit commitments and guarantees. - Assess and monitor fiscal risks (MEFP ¶31). ### Strengthening social safety nets - A new National Agency for Economic and Social Inclusion was set-up in early 2019 to coordinate the implementation of Guinea’s strategy to foster inclusion (MEFP ¶21). - Delays occurred in releasing budgeted resources to social safety nets programs in Q1 2019 due to the institutional change. - Staff stressed the need to advance social programs, notably: - Programmed expansion of cash transfers to poor households. - Labor-intensive public works in urban and peri-urban areas to compensate for higher petroleum products prices. - These measures are expected to start in September 2019, once the biometric census to better target beneficiaries is finalized. - Setting-up a unified registry of vulnerable population, with the support of the World Bank, will strengthen targeting (end-February 2020 SB). ### Advancing growth-supporting structural reforms and governance - Measures to strengthen the business climate: - The specialized Commerce Court was operationalized. - A one-stop-shop for international trade was set-up. - A permanent business identification number was established (MEFP ¶46). - Finalizing on-line tax declaration and payment and strengthening private-public dialogue remain important. - Anti-corruption and AML/CFT: - The implementation decree for the asset declaration regime is being prepared, with the support of IMF technical assistance, to be adopted by end-September 2019 (SB). - The AML/CFT regime is being strengthened, contributing to anti-corruption efforts (MEFP ¶47). - Moving ahead: adopt an AML/CFT law in line with international standards, implement the asset declaration regime, and strengthen the independence of the National Agency Against Corruption. - Reforms in the mining sector (¶24) and public financial and investment management (¶25) will strengthen governance and reduce vulnerabilities to corruption. ### Financial inclusion and access to finance - A new framework for microfinance and electronic money institutions was operationalized. - A National Strategy for Financial Inclusion will be finalized by end 2019 to foster access to finance, notably for SMEs, women and the youth. ### Program modalities, financing assurances, and program monitoring - Guinea’s credit outstanding to the IMF is at SDR 262.6 million (about 122.6 percent of quota). - Staff considers Guinea has adequate capacity to repay the Fund, given the good track record, program strength, favorable medium-term growth outlook, and sustainable debt position (Table 7). - Firm financing assurances are in place for the next 12 months, with good prospects thereafter, including: - World Bank budget support: US$100 million in 2019 and US$40 million in 2020. - European Union: Euros 20 million in 2019 and in 2020. - IMF disbursements (Table 9). - A safeguard assessment update was completed in 2018. - Proposed program modifications include revisions and clarifications to ITs and PCs on the basic fiscal balance, net domestic assets of the central bank, net government budgetary borrowing from the central bank, net international reserves, tax revenues, accumulation of new domestic arrears, and the continuous PC on new non-concessional external debt; and re-phasing the SB on the register for vulnerable populations. - Program performance will be monitored through semi-annual reviews based on quantitative performance criteria and structural benchmarks (Table 1 and 2 in the MEFP). ### Staff appraisal: outlook, policy priorities, and risks - Growth: - Real growth is estimated at 5.8 percent in 2018 and is expected at 6 percent in 2019–20, supported by large FDI in mining and the scaling-up of infrastructure investments. - Fiscal framework and public investment: - Staff supports the authorities’ revised fiscal framework for 2019 with additional measures to achieve the end-2019 program objective and a modest easing of the end-year target. - Measures: mobilize additional non-tax revenues, re-phase non-priority domestically-financed investment projects, contain electricity subsidies, scale up public investments supported by larger-than-anticipated external financing, and adopt a 2019 Supplementary Budget in line with the revised fiscal framework. - Advancing programmed tax measures and applying the petroleum price adjustment mechanism, while strengthening social safety nets, is pivotal to mobilize tax revenues. - Electricity sector: - Staff supports the increase in electricity tariffs to contain the anticipated pick-up in electricity subsidies in 2019. - Gradually bringing electricity tariffs to cost recovery levels over the medium-term and increasing EDG’s efficiency are key to reduce untargeted subsidies and free-up resources for targeted social safety nets and priority public investment. - External buffers and exchange rate policy: - Foreign exchange reserves of the BCRG have gradually increased, supported by more active reserve accumulation. - Further building buffers will strengthen resilience against external shocks. - Greater exchange rate flexibility will support building reserves and improve the external position, which is substantially weaker than the level consistent with economic fundamentals and desirable policies. - Finalizing the rule-based intervention strategy for the BCRG in the foreign exchange market will reduce discretion; phasing out the limit on auctions allocation will support market competition. - Monetary policy and inflation: - Monetary policy needs to remain prudent to moderate inflation. - Targeting reserve money in line with program objectives is important to contain inflationary pressures. - Limiting government recourse to central bank lending is key. - Active use of liquidity instruments and the new liquidity forecasting framework will support achieving monetary targets. - Banking supervision: - Strengthening banking supervision and the regulatory framework is advancing. - The BCRG should ensure that all banks comply with reserve requirements and capital adequacy. - Governance and business climate: - Strengthening the anti-corruption framework and the business climate will improve governance and support private sector development. - Finalizing and implementing the asset declaration regime and strengthening the AML/CFT framework are key. - Adopting a national strategy for financial inclusion will support improving access to finance. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### 43. In view of the satisfactory program performance and progress in reforms, staff ### 1ginea2019004 - 43. In view of the satisfactory program performance and progress in reforms, staff ### Program status and IMF requests - Staff supports the authorities’ request for completion of the third review under the ECF arrangement, for modification of the external debt PC, and the completion of the financing assurances review. ### Recent economic developments: real activity, mining, inflation, and external sector - Real GDP growth (GDP at constant prices, annual percentage change): - 2016: 10.8 - 2017: 10.0 - 2018: 5.8 - 2019 (prel.): 5.8 - 2020 (prog./req.): 5.8 - 2021 (proj.): 5.9 - 2022 (proj.): 5.9 - 2023 (proj.): 5.9 - 2024 (proj.): 6.0 - Mining and non-mining growth (GDP at constant prices, annual percentage change): - Mining (selected years): 2016: 48.4; 2017: 53.3; 2018: 7.5; 2019 (prel.): 6.7; 2020 (prog./req.): 7.5; 2021 (proj.): 8.3; 2022 (proj.): 10.0; 2023 (proj.): 6.5; 2024 (proj.): 5.1 - Non-mining (selected years): 2016: 7.1; 2017: 4.1; 2018: 5.5; 2019 (prel.): 5.6; 2020 (prog./req.): 5.6; 2021 (proj.): 4.5; 2022 (proj.): 4.5; 2023 (proj.): 4.9; 2024 (proj.): 4.9 - Consumer prices (average, percent): - 2016: 8.2 - 2017: 8.9 - 2018: 8.2 - 2019 (prel.): 8.2 - 2020 (prog./req.): 9.7 - 2021 (proj.): 8.9 - 2022 (proj.): 8.9 - 2023 (proj.): 8.3 - 2024 (proj.): 8.0 - Current account balance (percent of GDP, including official transfers): - 2016: -31.9 - 2017: -7.1 - 2018: -21.3 - 2019 (prel.): -21.0 - 2020 (prog./req.): -16.1 - 2021 (proj.): -18.4 - 2022 (proj.): -15.9 - 2023 (proj.): -20.2 - 2024 (proj.): -20.7 - Gross available reserves (months of imports; selected): - 2016: 2.4 - 2017: 2.5 - 2018: 3.2 - 2019 (prel.): 3.2 - 2020 (prog./req.): 3.2 - 2021 (proj.): 3.3 - 2022 (proj.): 3.5 - 2023 (proj.): 3.5 - 2024 (proj.): 3.6 ### Fiscal and monetary indicators (high-level) - Central government: total revenue and grants (percent of GDP; selected years) - 2016: 16.0 - 2017: 15.3 - 2018: 15.4 - 2019 (prel.): 14.6 - 2020 (prog./req.): 15.7 - 2021 (proj.): 15.6 - 2022 (proj.): 15.8 - 2023 (proj.): 15.5 - 2024 (proj.): 16.0 - Total expenditure and net lending (percent of GDP; selected): - 2016: 16.1 - 2017: 17.4 - 2018: 20.8 - 2019 (prel.): 18.0 - 2020 (prog./req.): 17.5 - 2021 (proj.): 17.9 - 2022 (proj.): 18.4 - 2023 (proj.): 18.5 - 2024 (proj.): 18.4 - Overall budget balance including grants (percent of GDP; selected): - 2016: -0.1 - 2017: -2.1 - 2018: -2.5 - 2019 (prel.): -2.2 - 2020 (prog./req.): -2.0 - 2021 (proj.): -1.1 - 2022 (proj.): -2.2 - 2023 (proj.): -2.1 - 2024 (proj.): -2.1 - Basic fiscal balance (percent of GDP; selected): - 2016: -0.7 - 2017: -1.1 - 2018: 0.6 - 2019 (prel.): 0.8 - 2020 (prog./req.): 0.8 - 2021 (proj.): 1.0 - 2022 (proj.): 0.9 - 2023 (proj.): 0.6 - 2024 (proj.): 1.0 ### Key macro-financial aggregates and projections (selected from Table 1) - GDP at market prices (annual percentage change): - 2016: 17.1 - 2017: 21.5 - 2018: 14.0 - 2019 (prel.): 14.4 - 2020 (prog./req.): 16.0 - 2021 (proj.): 16.4 - 2022 (proj.): 14.5 - 2023 (proj.): 15.2 - 2024 (proj.): 15.2 - Exports, f.o.b. (US$ terms, percent changes; selected): - 2016: 35.6 - 2017: 67.1 - 2018: 19.3 - 2019 (prel.): 0.8 - 2020 (prog./req.): 7.3 - 2021 (proj.): -3.4 - 2022 (proj.): 10.2 - 2023 (proj.): 3.5 - 2024 (proj.): 7.9 - Imports, f.o.b. (US$ terms, percent changes; selected): - 2016: 102.1 - 2017: -6.6 - 2018: 3.2 - 2019 (prel.): 24.8 - 2020 (prog./req.): 19.8 - 2021 (proj.): 18.9 - 2022 (proj.): -5.3 - 2023 (proj.): 9.5 - 2024 (proj.): 7.7 - Broad money (M2, year-on-year growth, percent; selected): - 2016: 9.9 - 2017: 15.8 - 2018: 14.0 - 2019 (prel.): 10.4 - 2020 (prog./req.): 12.0 - 2021 (proj.): 10.2 - 2022 (proj.): 14.4 - 2023 (proj.): 12.4 - 2024 (proj.): 6.4 ### Balance of payments (selected figures, US$ millions; Table 2) - Exports, f.o.b. (US$ millions; selected years): - 2016: 2,414 - 2017: 4,034 - 2018: 3,745 - 2019 (prel.): 4,066 - 2020 (prog./req.): 4,329 - 2021 (proj.): 3,898 - 2022 (proj.): 4,482 - 2023 (proj.): 4,480 - 2024 (proj.): 4,204 - Imports, f.o.b. (US$ millions; selected years): - 2016: -4,429 - 2017: -4,136 - 2018: -4,683 - 2019 (prel.): -5,126 - 2020 (prog./req.): -4,918 - 2021 (proj.): -4,918 - 2022 (proj.): -4,854 - 2023 (proj.): -5,386 - 2024 (proj.): -5,298 - Current account including official transfers (US$ millions; selected): - 2016: -2,745 - 2017: -732 - 2018: -2,099 - 2019 (prel.): -2,407 - 2020 (prog./req.): -1,896 - 2021 (proj.): -2,231 - 2022 (proj.): -1,973 - 2023 (proj.): -2,550 - 2024 (proj.): -2,768 - Financial account (US$ millions; selected): - 2016: 2,548 - 2017: 1,510 - 2018: 2,169 - 2019 (prel.): 2,501 - 2020 (prog./req.): 1,925 - 2021 (proj.): 1,861 - 2022 (proj.): 2,044 - 2023 (proj.): 2,632 - 2024 (proj.): 2,796 - Gross available reserves (US$ millions; selected): - 2016: 584 - 2017: 686 - 2018: 915 - 2019 (prel.): 922 - 2020 (prog./req.): 922 - 2021 (proj.): 945 - 2022 (proj.): 1,134 - 2023 (proj.): 1,134 - 2024 (proj.): 1,140 ### Fiscal operations of the central government (selected levels, GNF billions; Table 3a) - Total revenue and grants (GNF billions; selected): - 2016: 12,325 - 2017: 14,342 - 2018: 16,933 - 2019 (prel.): 15,965 - 2020 (prog./req.): 17,101 - 2021 (proj.): 19,709 - 2022 (proj.): 19,876 - 2023 (proj.): 23,780 - 2024 (proj.): 22,327 - Total expenditures and net lending (GNF billions; selected): - 2016: 12,439 - 2017: 16,276 - 2018: 19,167 - 2019 (prel.): 17,132 - 2020 (prog./req.): 19,467 - 2021 (proj.): 22,584 - 2022 (proj.): 23,102 - 2023 (proj.): 26,172 - 2024 (proj.): 25,249 - Capital expenditure (GNF billions; selected): - 2016: 3,682 - 2017: 5,395 - 2018: 7,157 - 2019 (prel.): 5,417 - 2020 (prog./req.): 6,739 - 2021 (proj.): 9,567 - 2022 (proj.): 8,847 - 2023 (proj.): 10,282 - 2024 (proj.): 9,027 - Overall balance including grants (GNF billions; selected): - 2016: -114 - 2017: -1,935 - 2018: -2,234 - 2019 (prel.): -1,167 - 2020 (prog./req.): -2,366 - 2021 (proj.): -2,875 - 2022 (proj.): -3,226 - 2023 (proj.): 254 - 2024 (proj.): -2,876 ### Central bank, deposit money banks, and monetary survey (selected, GNF billions; Tables 4–5) - Central bank: reserve money (end period, GNF billions; selected): - 2016: 10,097 - 2017: 11,138 - 2018: 11,695 - 2019 (prel.): 12,728 - 2020 (prog./req.): 12,751 - 2021 (proj.): 11,838 - 2022 (proj.): 13,945 - 2023 (proj.): 14,008 - 2024 (proj.): 12,386 - Deposit money banks: domestic credit (GNF billions; selected): - 2016: 10,702 - 2017: 11,319 - 2018: 13,332 - 2019 (prel.): 12,716 - 2020 (prog./req.): 13,052 - 2021 (proj.): 13,675 - 2022 (proj.): 14,854 - 2023 (proj.): 14,899 - 2024 (proj.): 15,049 - Monetary survey: broad money (M2, GNF billions; selected): - 2016: 19,395 - 2017: 22,458 - 2018: 24,422 - 2019 (prel.): 24,804 - 2020 (prog./req.): 25,163 - 2021 (proj.): 24,746 - 2022 (proj.): 27,846 - 2023 (proj.): 28,381 - 2024 (proj.): 28,285 - Monetary indicators (selected annual percent changes): - Reserve money (annual percentage change): 2016: 15.5; 2017: 10.3; 2018: 13.9; 2019 (prel.): 14.3; 2020 (prog./req.): 14.5; 2021 (proj.): 6.3; 2022 (proj.): 11.3; 2023 (proj.): 9.6; 2024 (proj.): 9.9 - Broad money (M2, annual percentage change): 2016: 9.9; 2017: 15.8; 2018: 14.0; 2019 (prel.): 10.4; 2020 (prog./req.): 12.0; 2021 (proj.): 10.2; 2022 (proj.): 14.0; 2023 (proj.): 14.4; 2024 (proj.): 12.4 ### Financial soundness and banking sector indicators (Table 6, selected) - Regulatory Capital to Risk-Weighted Assets (end period; percent; selected): - 2015: 16.45 - 2016Q4: 16.95 - 2017Q4: 16.83 - 2018Q4: 15.24 - Non-performing Loans to Total Gross Loans (end period; percent; selected): - 2015: 6.07 - 2016Q4: 6.66 - 2017Q4: 10.68 - 2018Q4: 12.15 - Return on Assets (percent; selected): - 2015: 2.39 - 2016Q4: 2.60 - 2017Q4: 2.04 - 2018Q4: 2.04 - Liquid Assets to Total Assets (percent; selected): - 2015: 25.56 - 2016Q4: 24.35 - 2017Q4: 26.83 - 2018Q4: 26.16 ### Indicators of capacity to repay the IMF (Table 7; SDR millions and percent metrics) - Fund obligations based on existing credit (principal, millions of SDRs; selected): - 2019: 3.0 - 2020: 28.2 - 2021: 34.6 - 2022: 38.3 - 2023: 34.4 - 2024: 37.6 - 2025: 22.2 - 2026: 15.8 - 2027: 10.3 - Total obligations based on existing and prospective credit (in millions of SDRs; selected): - 2019: 3.1 - 2020: 28.6 - 2021: 34.9 - 2022: 38.6 - 2023: 34.7 - 2024: 37.9 - 2025: 31.1 - 2026: 29.9 - 2027: 24.4 - Outstanding Fund credit (millions of SDRs; selected): - 2019: 262.6 - 2020: 268.8 - 2021: 234.2 - 2022: 196.0 - 2023: 161.7 - 2024: 124.1 - 2025: 93.3 - 2026: 63.7 - 2027: 39.6 - Memorandum items (selected): - Exports of goods and services (US$ millions): 2019: 4,311; 2023: 5,576; 2024: 5,776 - External Debt service (US$ millions): 2019: 95; 2023: 329; 2024: 384 - Gross International Reserves (US$ millions): 2019: 1,140; 2023: 1,625; 2024: 1,750 - Quota (millions of SDR): 214 ### Quantitative performance criteria, indicative targets, and ECF schedule (selected) - Quantitative performance criteria and outcomes (examples from Table 8): - Basic fiscal balance (floor; cumulative change for the year): selected entries show values and met/not met statuses (e.g., 519; 614; -1,030 Not Met; 346; 503; 1,196 Met). - Net domestic assets of the central bank (ceiling; stock): entries include 7,208; 7,350; 8,236 Not Met; 7,137; 7,369; 8,070 Not Met; subsequent entries list met statuses and numbers (e.g., 8,358; 7,460 Met; 8,112; 8,156; 7,068 Met). - Net international reserves of the central bank (floor; stock), US$ million: sample values include 345; 330; 357 Met; 420; 395; 390 Not Met; 422; 437 Met; 506; 501; 494 Not Met. - Continuous performance criterion — new non-concessional external debt contracted or guaranteed by the central government or central bank (cumulative ceiling; US$ million): 650; 650; 0 Met; continuing with 650 across reporting dates and Met statuses. - Schedule of disbursements and timing of reviews under the ECF arrangement (Table 9; percent of quota and millions of SDRs): - December 11, 2017: 8.035 percent of quota; 17.210 millions of SDRs; condition: Executive Board approval of the three-year arrangement under the ECF arrangement. - June 11, 2018: 8.036 percent of quota; 17.213 millions of SDRs; condition: Observance of all relevant performance criteria and completion of the first review. - December 11, 2018: 8.036 percent of quota; 17.213 millions of SDRs; condition: Observance of all relevant performance criteria and completion of the second review. - June 11, 2019: 8.036 percent of quota; 17.213 millions of SDRs; condition: Observance of all relevant performance criteria and completion of the third review. - December 11, 2019; June 11, 2020; November 26, 2020: each 8.036 percent of quota; 17.213 millions of SDRs; conditions tied to observance of performance criteria and successive reviews. - Total: 56.250 percent of quota; 120.488 millions of SDRs. *Sources: Guinean authorities; and IMF staff estimates, projections, and ECF program tables as presented in the supplied content.* ### 1. Gross financing requirements ### 1. Gross financing requirements ### Gross financing and external balances - Reported external current account deficit figures (selected entries from table): 2,828; 782; 2,212; 2,460; 1,946; 2,281; 2,037; 2,600; 2,821; 2,380; 2,595; 2,194; 2,191; 2,069; 2,051. - Debt amortization (selected entries as presented): 51 46 77778467 677470 86 84 96105120143. - Gross reserves accumulation (selected entries): 123; 102; 235; 236; 236; 259; 212; 212; 195; 192; 101; 175; 120; 88; 125. - IMF repayments (selected entries): 3; 0; 0; 0; 0; 0; 0; 4; 4; 4; 40; 40; 49; 55; 44; 39. ### Available financing (selected table entries) - Total available financing (selected entries): 2,964; 886; 2,396; 2,641; 2,136; 2,458; 2,193; 2,774; 2,896; 2,581; 2,685; 2,489; 2,445; 2,295; 2,331. - Foreign direct investment, net (selected entries): 2,577; 1,424; 1,314; 1,586; 1,593; 1,619; 1,216; 1,259; 1,283; 1,901; 1,940; 1,754; 1,741; 1,556; 1,577. - Identified disbursements (selected entries): 115; 307; 1,082; 1,057; 543; 399; 977; 1,484; 1,509; 660; 7; 30; 757; 726; 758; 773. - Grants (selected entries): 93; 175; 150; 125; 188; 150; 132; 118; 126; 125; 131; 184; 168; 180; 179. - Loans (selected entries): 22; 132; 932; 932; 356; 250; 845; 1,366; 1,383; 535; 599; 573; 559; 577; 593. - Other flows (selected entries): 272; -851; 0; -3; 0; 440; 0; 30; 104; 21; 15; -22; -22; -18; -19. - Debt relief (annotation in table): 1,2 0 6 0000 000 0 0 0000. ### Residual financing and program disbursements (selected) - Residual financing (selected entries): -22; -40; -111; -129; -127; -127; -124; -113; -171; -114; -112; 0000. - ECF and RCF disbursement (selected entries): 22; 24; 48; 49; 49; 49; 50; 48; 48; 49; 48; 0; 0; 0; 0. - World Bank budget support (selected entries): 40; 60; 60; 60; 50; 40; 100; 40; 40. - EU budget support (selected entries include ellipses and numbers in table fragment): ... 16 22201818 242523 25 23 ............ ### Projected external borrowing (Table 11 excerpts, January 1, 2019–December 31, 2020) - New external debt is recorded on a signature basis. - By sources of debt financing (table layout): 16010089100265100122100 (as presented). - Concessional debt, of which: 100634652265100122100. - Non-concessional debt, of which: 603843480000. - By Creditor Type (table layout): 16010089100265100122100; Multilateral 100634652265100122100; Bilateral - Non-Paris Club 603843480000. - Uses of debt financing (table layout): Infrastructure 0002258510385; Budget Financing 1601008910040151815. - Memo items (indicative projections): Year 2 (2020)265122; Year 2 (2021)6530; Year 3 (2021)6530; Year 3 (2022)18384. - Note: Table entries preserved exactly as presented in source. ### Key balance sheet/flow annotations - Footnotes included in source: - "1 New external debt is recorded on a signature basis." - "4 Includes private short-term capital flows." - "In 2015 includes debt cancellation (under IMF repayments) and debt relief provided under the IMF's CCR Trust." - "Excludes public transfers and capital grant from IMF CCR Trust for debt cancellation." - "Projected clearance of outstanding debt arrears to non-Paris Club official creditors and commercial creditors through debt relief." ### Sources cited in table - "Sources: Guinean authorities; and IMF staff estimates and projections." --- ### Risk Assessment Matrix (selected entries and policy responses) - Rising protectionism and retreat from multilateralism - Relative likelihood: High - Impact if realized: High - Policy response: "Advance structural reforms to support economic diversification and private sector development." - Sharp tightening of global financial conditions - Relative likelihood: Low/ Medium - Impact if realized: Medium - Policy response: "Build external buffers and allow greater exchange rate flexibility. Mobilize additional tax revenues." - Weaker-than-expected growth in the U.S. and Euro area - Relative likelihood: Medium/ High - Impact if realized: High - Policy response: "Strengthen non-mining tax revenue mobilization. Move ahead with structural reforms to support economic diversification and improve the business climate." - Weaker-than-expected growth in China - Relative likelihood: Medium - Impact if realized: (not numerically restated in table fragment) - Intensification of security risks - Relative likelihood: High - Impact if realized: High - Policy response: "Intensify structural reform to remove bottlenecks to growth and support economic diversification." - Large swings in energy prices - Relative likelihood: Medium - Impact if realized: Medium - Policy response: "Implement the automatic price adjustment mechanism for petroleum products to allow pass-through to domestic prices. Build external buffers and allow greater exchange rate flexibility to absorb external shocks and build adequate FX reserve coverage." - Deterioration of the domestic socio-political and security situation - Relative likelihood: Medium - Impact if realized: High - Policy response: "Focus reforms on areas less sensitive to socio-political environment. Orient fiscal policy towards supporting macroeconomic stability and promoting inclusive growth." --- ### Capacity Building and Technical Assistance (FY19 highlights and forward priorities) - TA intensity and delivery in FY19: - "Guinea received 40 missions (21 from AFRITAC West and 19 missions from HQ, including two long-term experts (LTX))." - TA delivery channels: "TA missions from headquarters and AFRITAC West, resident long-term experts at the Ministry of Economy and Finance and the Ministry of Budget, a regional advisor for fragile countries, training workshops, and participation in ICD training courses." - Main areas of IMF TA in FY19: - "tax policy and administration, public expenditures and investment management, treasury single account and cash management, government finance statistics, national accounts, the monetary policy framework, reserves accumulation strategy, debt management, external sector and monetary statistics, banking supervision, the anti-corruption framework and the AML/CFT regime." - Authorities’ response and commitments: - "PEFA, PIMA, and DemPA exercises were conducted in mid-2018" leading to approval of the action plan for reform of public finances (PREFIP) 2019-2022, adopted December 2018. - Implementation highlights: "recommendations...strengthening the monetary policy framework and support the accumulation of foreign exchange reserves were swiftly implemented by the Central Bank." Adoption of "a new organic framework of the National Tax Directorate." - Monitoring: "With the approval of the PREFIP 2019-2022, a monitoring process has been established and quarterly reports will be produced on reform implementation of public finances, including a dedicated section on the implementation of TA recommendations." - Main TA priorities ahead (as stated): - "(i) preserve macroeconomic stability; (ii) scale-up public investments in infrastructure to put the economy on a higher growth path and support economic diversification while preserving macroeconomic stability and debt sustainability; (iii) strengthen social safety net programs; and (iv) advance key structural reforms to foster high and more inclusive growth." - Planned TA focus areas: "advancing the tax policy and administration reform; strengthening public financial and investment management; improving cash management and setting-up the treasury single account; improving debt management; strengthening central bank’s internal audit; banking supervision; strengthening the anti-corruption framework and AML/CFT regime; strengthening macroeconomic statistics, including national accounts." --- ### External Sector Assessment (Annex II: summary findings) - Current account (CA) developments: - "The current account (CA) deficit deteriorated to -18.4 percent of GDP in 2018 from -7.1 percent in 2017." - "Mining exports fell by about 4 percent in 2018, owing to a sharp decline in gold production. Imports increased by 19 percent (y-o-y) in 2018." - "The export base remains narrow, with 88 percent of exports originating in the mining sector." - Financing and projections: - "The CA deficit was financed mostly by FDI, which reached 13 percent of GDP in 2018, and external project financing." - "The CA deficit is projected to widen to 20.7 percent of GDP in 2019 and to 17.7 percent of GDP in 2020, driven by mining and infrastructure investment-related imports." - "The CA deficit would narrow to 13.6 percent of GDP by 2021 as mining exports continue to increase and growth of investment-related imports moderates." - "FDI is expected to remain high during 2020–24, averaging 10.4 percent of GDP." - Exchange rate and REER: - "Guinea’s real effective exchange rate (REER) appreciated by 7.2 percent in 2018, as inflation gained momentum." - "The REER has further appreciated by 13.7 percent on average in the first four months of 2019, mostly reflecting high inflation." - "The nominal effective exchange rate (NEER) was broadly stable in 2018 in the first four months of 2019." - Model-based assessments (EBA-Lite results): - "The CA model suggests the real exchange rate was overvalued by between 17–31 percent in 2018." - "The REER model indicates an overvaluation of 16–30 percent in 2018." - Both models: "point to the external position being substantially weaker than implied by fundamentals and a misalignment of the REER." - Reserve adequacy: - "Guinea’s gross international reserves rose from 2.5 months in 2017 to 3.3 months of import coverage at end-2018 (excluding imports related to large FDI-financed projects) or US$945 million." - "Gross international reserves further accumulated to about US$1 billion at end-March 2019 (3.6 months of import cover), reflecting a more active accumulation strategy of the BCRG." - Policy guidance highlighted in assessment: - "Continued efforts to enhance exchange rate flexibility, strengthen the fiscal position, and continue a more active reserve accumulation strategy should help strengthen the external position." *Sources: Guinean authorities; and IMF staff estimates and projections.* ### 6. Reserves are progressing towards achieving the reserve adequacy metrics (Figure 3). The ### 6. Reserves are progressing towards achieving the reserve adequacy metrics (Figure 3). ### Reserve adequacy assessment — factual findings - 2018 reserve level is above the 3-month rule of thumb. - 2018 reserves are at around 34 percent of broad money, which is significantly above the 20 percent of broad money rule of thumb. - Standard metrics may not account for the full range of benefits and costs of holding reserves in Guinea because: - Guinea is an undiversified commodity exporter. - Guinea is a fragile state, suggesting higher benefits to holding reserves as a buffer against shocks. - As the authorities move toward a more flexible exchange rate regime, there may still be a need to intervene to: - provide market liquidity, or - avoid large exchange rate fluctuations, which would also require holding more reserves. - Without access to the international capital market, Guinea faces higher opportunity costs to holding reserves. ### ARA-CC quantification and staff judgment - A cost-benefit analysis using the IMF’s reserve adequacy assessment framework for credit constrained LICs (ARA-CC) estimates the optimal level of reserves for Guinea to be in the range of 0.9-5.1 months of imports. - Given limited export diversification and high dependency on the mining sector, staff considers the range of adequate reserves to be between the levels for a resource rich country with a flexible or fixed regime of 2.5 to 5.1 months of import coverage, respectively. - Staff computes an average optimal level of reserves of 3.8 months. - The authorities are targeting an import reserve coverage of 3.8 months under the program by 2020, in line with the average optimal level. Summary of ARA-CC Results (Adequate Reserve Coverage in Months of Imports) - Economic Classification: Resource Rich — Flexible: 2.5; Fixed: 5.1 - Economic Classification: Fragile — Flexible: 0.9; Fixed: 1.7 - Note: Assumes cost of holding reserves of 6.2 percent. ### Staff assessment of external position (2018–19) - Staff assesses the CA gap for 2018 to be -5 to -9 percent of GDP. - Staff assesses REER overvaluation to be 17–30 percent, based mainly on the CA and REER model results. - Recent REER appreciation and current account widening suggest the external position is likely to remain substantially weaker than the level consistent with fundamentals and desirable policies in 2019. - Economic volatility and data quality issues create significant uncertainty regarding the external assessment. ### Related macroeconomic and reserve-relevant statistics (selected) - Current account deficit is estimated to have widened to 18.4 percent of GDP in 2018, financed by large FDI inflows. - FDI inflows in the mining sector are estimated at 13 percent of GDP in 2018. - Gross international reserves increased to US$945 million (equivalent to 3.3 months of import coverage) at end-2018. - Gross international reserves increased to US$1030 (equivalent to 3.6 months of import coverage) at end-March 2019. - The REER appreciated by 7.2 percent in 2018. - The REER appreciated by 13.8 percent (y-o-y) at end-March 2019; the nominal effective exchange rate appreciated by 6.3 percent (y-o-y). - The premium between the official and foreign exchange bureaus rates: 0.48 percent at end-2018 and 1.08 percent at end-April 2019. ### Policy implications and recommended actions under the program - Finalize market-driven reforms of the foreign exchange market with IMF technical assistance. - Develop a rules-based intervention strategy for the central bank to manage liquidity and volatility while moving toward greater exchange rate flexibility. - Strengthen the fiscal position through: - revenue mobilization, and - containing non-priority current expenditure, to help improve the current account balance. - The BCRG to continue implementing a more active strategy to build external buffers against exogenous shocks. - Authorities’ program target: build foreign exchange reserves to reach 3.8 months of import coverage by 2020. *Sources: Guinean authorities; and IMF staff estimates and projections.* ### 1.9 percent of GDP, was recorded while government borrowing from commercial banks increased ### 1ginea2019004 - 1.9 percent of GDP, was recorded while government borrowing from commercial banks increased ### Fiscal performance and arrears - Net domestic arrears of 0.2 percent of GDP were accumulated at end 2018, despite repaying 181 GNF billion out of the 1982-2013 arrears to the private sector in line with the end-2017 arrears-clearing strategy. - A basic fiscal surplus of 0.4 percent of GDP (on an annual basis) was achieved at end-March 2019, in line with program objectives. - Mining revenues were 0.5 percent of GDP in the first quarter of 2019, increasing by 38 percent (y-o-y). - Non-mining tax revenues were 2.6 percent of GDP, increasing by 24 percent (y-o-y). - Indirect taxes were 2.3 percent of GDP and increasing by 51 percent (y-o-y), supported by a more than four time increase in TSPP revenues and strong taxes on international trade. - Direct taxes were 0.3 percent of GDP and declined by 38 percent (y-o-y) in Q1 2019, reflecting a decline in corporate income taxes revenues. - Spending in goods and services and the wage bill were contained at 0.8 and 0.5 percent of GDP, respectively, in Q1 2019. - Electricity subsidies increased to 0.3 percent of GDP in Q1 2019, half of the overall budgeted amount for 2019, reflecting EDG’s payment for electricity produced by the Kaleta dam (started January 2019). - Government net borrowing from the central bank increased to 0.5 percent of GDP at end-March 2019. - Domestic arrears (on a net basis) were reduced by 1.2 percent of GDP (Q1 2019). ### Banking system, credit, and liquidity - Private sector credit growth: declined by 1.3 percent in 2017; increased by 11.2 percent (average, y-o-y) in 2018; increased by 15 percent in Q1 2019 (average, y-o-y). - Commercial banks’ lending to the government increased by 27 percent (average, y-o-y) in 2018 and by 33 percent in Q1 2019 (average, y-o-y), while remaining in a situation of non-conformity at end-March 2019 at the same level as end-2018. - Deposits growth: 12.9 percent (average, y-o-y) in 2018 and 14.3 percent (average, y-o-y) in Q1 2019. - Deposits in GNF increased by 17.7 percent (average, y-o-y) in 2018. - Deposits in foreign currency increased by 3 percent (average, y-o-y) in 2018 and by 3.5 percent (average, y-o-y) in Q1 2019; another statement reports foreign currency deposits increased by 19.2 (average, y-o-y) in Q1 2019 (source text contains both figures). - Excess reserves in domestic currency increased from 268 billion GNF in 2018 to 932 billion GNF in Q1 2019. - Interbank market transactions: 27 in 2018 compared to 22 in 2017. - One bank was non-compliant with reserve requirements at end-2018. - One bank remained non-compliant with the share minimum capital adequacy requirement at end-2018 (six banks non-compliant at end-2016; two banks at end-2017). - Three banks did not comply with the net equity capital requirement at end-2018. - Non-performing loans (NPLs) increased to 12.2 percent at end-2018 (10.6 percent in 2017). - Provisioning for NPLs improved to 37.8 percent at end-2018 (11.3 percent at end-2017). ### Program objectives and key elements - Primary objective: generating higher and more broad-based growth and reducing poverty while preserving macroeconomic stability and debt sustainability. - Policy commitments and aims: - Preserve Guinea’s macroeconomic stability and build external buffers; preserve moderate inflation. - Achieve a basic fiscal surplus to: (i) preserve medium-term debt sustainability; (ii) gradually repay government borrowing from the Central Bank above programmed levels in 2017 and limit Central Bank advances to short-term cash management within statutory limits; (iii) limit borrowing from the banking sector to ensure provision of credit to the private sector; and (iv) gradually repay all new domestic arrears accumulated in 2017 and arrears to the private sector from previous fiscal years. - Add decumulation of domestic arrears (on a net basis) as an indicative target to the ECF arrangement; avoid accumulating domestic and external arrears. - Maintain financial sector stability. - Scale-up public investments in infrastructure (energy production, transport, agriculture) while preserving stability and medium-term debt sustainability. - Mobilize additional domestic revenues via tax policy and administration reform and contain non-priority spending. - Gradually phase out untargeted energy subsidies while putting mitigating measures to protect the most vulnerable. - Limit non-concessional external borrowing contracted or guaranteed during the three-year ECF arrangement to a maximum of US$650 million to maintain medium-term debt sustainability and contain debt vulnerabilities. - Implement a domestic debt policy to support debt sustainability and gradually clear government arrears to the private sector. - Mobilize additional domestic resources to strengthen social safety nets and reduce poverty; implement the recently adopted social protection strategy. - Advance reforms to strengthen public finances, public investment management, monetary policy framework, and finalize exchange market reform; strengthen governance, business climate, and financial inclusion. ### Macroeconomic outlook and external sector - Real growth expected at about 6 percent (y-o-y) in 2019–20, driven by buoyant mining and construction activity. - Current account deficit projected to widen to an average of about 20.7 in 2019–20, financed by FDI inflows and project loans, and gradually narrow over the medium term. - Mining exports would increase by 7.4 percent in 2019. - Imports would increase by 7.7 percent (y-o-y) on the back of large FDI (about 9 percent of GDP) and infrastructure development. - International reserves would increase to 3.6 months of import coverage in 2019 and reach 3.8 months of import coverage in 2020. - Export growth would average at 6.2 percent over the medium term. - Import growth would average at 2.3 percent over the medium term, financed by large FDI notably in the mining sector (9.9 percent of GDP, on average over 2019–23). ### Fiscal policy stance and targets (2018–20) - Basic fiscal surplus of 0.8 percent of GDP at end-2018 (achieved). - Committed basic fiscal surplus targets: 0.6 percent of GDP in 2019 and 0.9 percent of GDP in 2020. - Objectives: recoup fiscal slippages in 2017, contain budgetary financing needs, gradually repay government borrowing from the central bank, limit commercial banks’ financing consistent with credit provision to the private sector, and gradually repay domestic arrears. - Avoid occurrence of extrabudgetary expenditures and accumulation of new domestic arrears; better align cash flows and expenditure commitment plans. ### Fiscal strategy for 2019: spending, revenues, and financing - 2019 Budget Law (BL) targeted a fiscal surplus of 0.9 percent of GDP; revised target set to 0.6 percent of GDP in 2019 given lower-than-expected tax revenues and other outcomes. - Tax revenues expected at 13.5 percent of GDP in 2019, about 0.3 percent of GDP lower-than-anticipated in the 2019 BL. - Non-tax revenues expected to be 0.7 percent of GDP higher-than-anticipated in 2019, reflecting payment of the 4G licenses for US$90 million. - External financing expected to be 0.8 percent of GDP higher-than-anticipated in 2019, due to larger-than-expected World Bank budget support (US$100 million vs. previously expected US$40 million) and disbursement of a US$60 million loan from Qatar in April 2019. - Revised budgetary framework to be adopted by the Council of Ministers to achieve the 0.6 percent of GDP fiscal target (prior action); a 2019 Supplementary Budget Law (end-September 2019 SB) will be submitted to the Economic and Financial Commission of the National Assembly. - Part of additional external financing will be used to reduce net domestic arrears more than planned to compensate for 2018 net accumulation. - Specific 2019 targets and allocations: - Overall tax revenues expected to increase to 13.5 percent of GDP in 2019. - Mining tax revenues expected at 2.5 percent of GDP. - Non-mining tax revenues expected to increase to 11.0 percent of GDP. - Direct taxes expected to strengthen to 2.5 percent of GDP. - Indirect taxes expected to increase to 8.5 percent of GDP. - Taxes on goods and services expected to increase to 6.1 percent of GDP in 2019. - Taxes on international trade expected at 2.3 percent of GDP. - Non-tax revenues expected to surge to 1.2 percent of GDP in 2019 (payment of 4G licenses for US$90 million, of which US$45 million were disbursed in March 2019 and transferred to central government in May 2019). - Wage bill contained to 3.6 percent of GDP. - Spending on goods and services contained to 3.3 percent of GDP in 2019. - Electricity subsidies expected to increase to 1.7 percent of GDP (structural increase in production costs of the public electricity company). - Overall capital expenditures scaled up to 7 percent of GDP. - Domestically-financed public investment scaled up to 3 percent of GDP, of which 0.4 percent of GDP (15 percent of expected mining revenues) dedicated to the Local Development Fund. - Foreign-financed capital expenditure to increase to 4 percent of GDP, supported by large project loans. - Net repayment to the BCRG equivalent to 0.2 percent of GDP. - Reduce domestic arrears (on a net basis) by 1.2 percent of GDP. - Contain government borrowing from commercial banks to a level consistent with banks’ provision of credit to the private sector. ### External borrowing and investment financing - Commitment to limit non-concessional external borrowing signed during the three-year ECF arrangement to a maximum of US$650 million. - Intended use of these loans: priority infrastructure projects including rehabilitation of the RN1 road, rehabilitation of the Conakry urban road network, construction of an electrical interconnection line, and rehabilitation of a university. - Feasibility studies for these projects were conducted and finalized in March 2018. - If external program loans and grants exceed budgeted amounts, additional public expenditure will be directed to priority sectors, including social spending and social safety nets, in consultation with IMF staff. ### Mobilizing revenues and tax administration reforms - Creation of a new unit at the Prime Minister’s office (MAMRI) in early 2019 to provide political impulse to revenue mobilization; MAMRI will not have an operational role. - Adoption of new organizational structure of the National Directorate of Taxes (DNI) in February 2019; modernization of DNI management practices underway. - The Ministry of Economy and Finance to sign performance contracts with the DNI and the General Directorate for Customs (DGD) (prior action). - Establishment in January 2019 of a permanent tax number for all businesses to improve tax compliance monitoring. - Operationalization of data interconnections between the National Directorate for Taxes and the Directorate for Customs to strengthen fiscal control. - Commitment to implement a package of tax policy and administration measures to mobilize additional revenues and to conduct a review of non-tax revenues with IMF technical assistance. *Source: IMF mission report text (content unit: 1ginea2019004).* ### 0.4 percent of GDP in 2019. In 2018, we started implementing a package of tax policy and ### 1ginea2019004 - 0.4 percent of GDP in 2019. In 2018, we started implementing a package of tax policy and ### Revenue mobilization measures (2018–2019) - Additional tax revenues mobilized in 2018 from tax policy and administration measures: about 0.2 percent of GDP. - Target additional revenues for 2019 from continued measures: 0.4 percent of GDP. - Rationalization of ad-hoc tax exonerations: - Mobilized in 2018: GNF 89 billion (0.08 percent of GDP), exceeding target of GNF 40 billion. - Overall ad-hoc tax exonerations estimated at GNF 500 billion. - Expected additional mobilization in 2019: GNF 69 billion (0.06 percent of GDP). - Delay in broadening tax base on insurance contracts in 2018 cost expected GNF 21 billion; decree signed early 2019, expected mobilization in 2019: GNF 15 billion. - Tax administration measures: - Mobilized in 2018: 0.13 percent of GDP (about one third of programmed target). - Planned mobilization in 2019 from tax administration: 0.35 percent of GDP. - Specific audit and arrears actions: - General audits of large enterprises expected mobilization in 2018: GNF 180 billion (0.17 percent of GDP); actual mobilized in 2018: GNF 59 billion (0.05 percent of GDP). - Desk audits expected mobilization in 2018: GNF 33 billion (0.03 percent of GDP); actual mobilized in 2018: GNF 17 billion (0.02 percent of GDP). - Cross-checking import data expected mobilization in 2018: GNF 20 billion (0.02 percent of GDP); actual mobilized in 2018: ~GNF 4 billion. Expected mobilization in 2019: GNF 60 billion. - Recovery of tax arrears expected mobilization in 2018: GNF 95 billion (0.09 percent of GDP) from identified stock of recoverable arrears of GNF 622 billion. In 2019, expected mobilization from negotiations with ten companies: GNF 122 billion. - Planned 2019 mobilization from stepping-up general and desk audits: GNF 155 billion (0.1 percent of GDP) and GNF 36 billion (0.03 percent of GDP) respectively. - Strengthened controls and collection of the Single Land Contribution (CFU): - Expected in 2018: GNF 32 billion (0.05 percent of GDP). - Mobilized by end-2018: GNF 47 billion. - Expected additional in 2019: GNF 65 billion. ### Tax policy measures and base broadening - 2018 Budget Law tax policy changes: - Corporate income tax reduced from 35 percent to 25 percent (excluding banks, mining and telecom companies). - Minimum tax on turnovers rate reduced from 3 to 1.5 percent and ceiling removed (allowing broader application). - Introduced higher withholding tax bracket at 20 percent for personal income from wages. - Expected mobilization from these measures in 2018: 0.1 percent of GDP. - Actual 2018 impact: neutral (implementation delays and low compliance). - Ceiling on minimum tax on turnovers reintroduced in 2019 Budget Law. - Policy objective: continue dialogue to eliminate the ceiling and lower threshold of the 20 percent bracket to broaden tax base. ### Petroleum products pricing and automatic adjustment mechanism - Past measures and 2018 outcomes: - Mid-2017–mid-2018: reduced taxes and ad-hoc downward adjustments leading to revenue losses; custom duty adjustments on petroleum products caused revenue losses of about 0.6 percent of GDP in H1 2018. - July 1, 2018: retail petroleum prices increased by 25 percent, from 8,000 to 10,000 Guinean francs per liter (more than the programmed 12 percent), with mitigating measures for the vulnerable. - Resulting mobilization: additional custom duties revenues of 0.8 percent of GDP in H2 2018 (compared to baseline), netting overall international trade tax losses to about 0.6 percent of GDP in 2018. - Automatic adjustment mechanism: - Started implementation in January 2019. - January 2019 price reduction of 5 percent from GNF 10,000 to GNF in 9,500 per liter due to lower end-2018 international oil prices. - Technical committee meets monthly; current rule requires monthly retail price adjustments if import prices (in local currency) change by 5 percent or more relative to previous month. - Committee concluded automatic application would generate excessive volatility; prices kept constant in first five months of 2019. - Commitment: implement upward adjustments of retail prices as needed to protect budgetary revenues if international oil prices increase and/or the exchange rate depreciates. - Review of automatic price adjustment mechanism with IMF support by end-2019 to consider more smoothing and longer lags. - Communication campaign and stakeholder engagement to build consensus on energy subsidies reform and to advance mitigating measures (expand cash transfers and high intensity public works schemes in urban and peri-urban areas). - If automatic adjustment is delayed, additional tax revenue measures will be undertaken to meet program revenue target. ### Containing current spending and subsidies - Contain spending on goods and services to 3.3 percent of GDP in 2019 through rationalizing electronic material, vehicles, furniture, and office material. - Electricity subsidies reduction strategy (three-pronged): - Gradually increase electricity tariffs toward cost recovery. - Improve EDG efficiency: strengthen payments collection rate; reduce commercial and technical losses. - Substitute costly thermal production with cheaper hydro production. - Electricity subsidies and reforms (2018–2019): - Reduced electricity subsidies to 0.8 percent of GDP in 2018; generated savings of about 0.6 percent of GDP through: - April–May 2018 tariff orders: 25 percent increase for industrial/professional tranche; 10 percent increase for households (applied May 2018). Combined with earlier increases, tariff changes generated GNF 148.6 billion in savings in 2018 (0.13 percent of GDP). - Substituting thermal with hydro reduced EDG production costs by GNF 440 billion in 2018 (0.4 percent of GDP). - New contract with fuel suppliers reduced purchasing costs by about GNF 25 billion in 2018 (0.02 percent of GDP). - Regularization and elimination of illegal connections regularized about 82,000 clients by end-2018 and generated about GNF 6 billion in savings in 2018. - Meter installations: Prime Minister’s Office and all Ministries; about 55 percent of domestic consumers (end-February 2019 SB); about 65 percent of administrative buildings. As at end-April 2019, consumption meters installed for about 150,000 customers (65 percent of initial target and 29 percent of current target) and in 86 percent of administrative buildings. - 2019 pressures and responses: - EDG began paying for Kaleta dam production in January 2019, adding about GNF 788 billion in additional costs over the year. - Anticipated 14 percent increase in electricity production in 2019 (y-o-y) increasing subsidy needs. - EDG subsidy needs projected: GNF 2,206 (1.8 percent of GDP) in 2019 versus programmed GNF 880 (0.7 percent of GDP) in 2019 Budget Law. - Planned tariff increases in June/July 2019: Ministerial order for 15 percent increase for households and 5 percent increase for professionals and industrials in 2019 (prior action), expected savings: about GNF 49 billion (0.04 percent of GDP), containing subsidies to GNF 2,157 billion (1.7 percent of GDP) in 2019. - Multi-year tariff reform strategy to be adopted by end-September 2019 to reach cost recovery by 2025 (gradual increases during 2020–25). World Bank support based on July 2018 electricity tariff study. - EDG commitments: continue elimination of illegal connections (additional GNF 6 billion expected in 2019), strengthen collection rate, finalize installation of consumption meters for 80 percent of private consumers and all public administration by end-2019. ### Administration, civil service, and wage bill control - Biometric census conducted covering 91,095 individuals: - Pensioners: 56,074 - Civil servants: 24,327 - Contractual employees: 10,694 - Census exposed ghost and deceased workers; ongoing new census to further clean irregular cases. - Measures and progress: - 120 machines installed in public workplaces to monitor civil servant work data (with World Bank support), exposing about 2,800 ghost workers. - Installed 150 additional machines by end-April 2019. - Pilot biometric cards launched in 2018 covering about 55,800 employees; aim to cover all civil servants by end-2019. - Medium-term objective: establish electronic platform to monitor and consolidate data on civil servant work activity and salaries. ### Strengthening social safety nets - National Social Protection Policy finalized November 2016 covering multiple objectives (social protection, employment, living conditions, health and education access, food and nutrition security, crisis prevention and resilience, social housing). - National Agency for Economic and Social Inclusion (ANIES) created January 2019 to coordinate inclusion strategy; financing and operations to respect provisions of law of public finances (LORF) and new law on governance of public entities. - Use share of 2019 electricity tariff increase savings to reinforce domestically-financed safety nets: - Target increase in funding for Social Development and Solidarity Fund and Program Filets Social Productive (PFSP): to GNF 130 billion in 2019. - Allocated in 2019 Budget Law: GNF 37 billion (US$4 million) to expand targeted cash transfers under PFSP to urban and peri-urban areas and step up labor-intensive public works (THIMO). - Implementation notes and delays: - Institutional changes for NAI caused delays; planned expansion expected to start as pilot over five regions by September 2019 after biometric census finalization. - Disbursement delays affected implementation of Social Development and Solidarity Fund programs. - Other commitments: - Continue financing social projects to reduce gender inequality and foster women’s integration in the labor force; provide social assistance to elderly, disabled, and those impacted by HIV/AIDS and Ebola. - Roadmap finalized to establish prototype of unified social register of vulnerable populations by end-January 2020 (SB); unified social register to be finalized by end-2020. Workshop with donors and stakeholders held March 2018; roadmap defined March 2019 for setting-up unified social registry (World Bank support). ### Medium-term revenue mobilization strategy - Continued commitment to broadening the tax base and strengthening revenue mobilization through combined tax policy, tax administration, subsidy reform, efficiency gains, and targeted social protection financing. *GUINEA — INTERNATIONAL MONETARY FUND* ### 22. We are committed to mobilizing additional tax revenues to create fiscal space for ### 22. We are committed to mobilizing additional tax revenues to create fiscal space for ### Revenue mobilization strategy - Focus on fostering mining and non-mining tax revenues, notably direct taxes, through broadening the tax base and strengthening controls and payments. - Revenue mobilization is key to creating needed fiscal space to scale-up growth-support priority public expenditures. ### Tax policy measures - Continue to rationalize tax exemptions based on our ongoing review of tax expenditures (the latter are estimated at about 4 percent of GDP) to support broadening the tax base. - Streamline excises and review rates. - Review the property tax regime. - Develop a strategy to reduce the outstanding stock of VAT credit arrears. - Revise the General Tax Code (CGI), with the support of IMF technical assistance, to: - eliminate the global income tax; - increase the coherence of the withholding system; - bring international taxation provisions closer in line with international standards. - Finalize the new CGI by end-2019. - Work with IMF technical assistance during 2019 to model mining revenues and improve revenue projections from the mining sector. ### Tax administration measures - Finalize development of online tax declaration and payment modalities by end-2019. - Further advance computerization, with alternatives and replacement of the RAND project; operationalize the MERCURY project by end-2019 to enable real-time processing of tax obligations and consolidate information and data from various tax units into a centralized network (SFIG). - Operationalize the new organizational structure and modernize management practices of the DNI, oriented towards effectiveness to support revenue mobilization: - New organizational structure developed with IMF technical assistance to separate strategic operation management functions from control functions; aim to operationalize by end-June 2019. - Completed a draft of a procedural manual for the DNI and operationalized a reform committee within the DNI to support the reform. - Finalize the development of a procedural manual and an internal audit protocol for the DNI, with the support of the EU. - Continue to expand cross-checking of import data with declared turnover to reduce under-declaration and improve taxpayer identification, with support of the interdepartmental committee on reform and modernization (CIRMDI) established between Customs and the DNI. - Continue to collect tax arrears from large companies (estimated at 0.7 percent of GDP). - Strengthen the capacity of the Directorate for Taxes and the recovery focusing on large enterprises. - Improve compliance of large and medium tax-payers. - Continue cleansing and transferring of taxpayers files to management services. - Make progress with the digitalization of customs. ### Mining sector revenue mobilization and governance - Continue to apply tax provisions of the new mining code to mobilize additional mining revenues on the back of buoyant mining activity. - Progress on governance and transparency: - Joined the Extractive Industries Transparency Initiative (EITI) in 2007; designated ‘EITI compliant’ in 2014. - 2011 mining code amended in 2013 with IMF technical assistance to introduce taxation provisions in line with international standards. - Reviewed mining agreements and titles signed before 2011 with AFDB support to align them with the new code. - Modernized the mining cadaster with World Bank support; implemented a new cadastral procedure and made the cadaster accessible online. - Set up an inter-ministerial Committee for monitoring integrated mining projects to facilitate issuance of non-mining permits and authorizations. - Policy on new and renewed mining agreements: - Ensure all new and renewed expiring mining agreements, excluding those with new investments in infrastructure for multiple users and/or transformation in Guinea in higher value-added products, will be put in line with the tax provisions of the 2013 mining code. - All new agreements with new investment in infrastructure and/or transformation will be presented to the National Assembly with an assessment of tax expenditures (continuous SB). - Recent contracts: - During June-December 2018, ratified a new mining contract fully in line with the mining code. - A new mining contract signed in late 2018 and ratified and published in the first quarter of 2019 entailed new investments in infrastructure and domestic transformation and was presented to the National Assembly with an assessment of tax expenditures (continuous SB). - Measures to reduce profit shifting and strengthen international taxation: - Introduced key international taxation provisions supporting the ‘arm’s length principle’, adopted in the 2019 Budget Law (with IMF technical assistance). - Working on the Tax Base Erosion and Profit Shifting (BEPS) program in the mining industry with OECD support. - Committed to start strengthening the capacity of tax administration to tackle price transfers issues. - Revenue modeling and capacity building: - Started modeling mining revenues using internal human capacity with IMF technical assistance to strengthen revenue projections. - Ministry of Mining and Geology prepared a projection for mining revenues over 2019–35. - Building capacity in economic and financial modeling of mining projects with support from GIZ and Natural Resources Governance Institute (NRGI). ### Fiscal structural reforms and public financial management (PREFIP) - Strengthen public financial management to support fiscal strategy and scaling-up of investments; prepared comprehensive strategy over 2019–22. - Conducted PEFA exercise in April 2018 with IMF TA; prepared updated action plan for reform of public finances (PREFIP) over 2019–22 based on conclusions from 2018 PEFA and PIMA exercises (end-September 2018 SB). - PREFIP 2019–22 road map (ten pillars) aims at strengthening: - (i) domestic revenue mobilization; - (ii) budget preparation and presentation, including planning and allocation of resources to public investments; - (iii) budget execution, notably of public investments, and internal controls; - (iv) strengthening cash management and debt management; - (v) the accounting and reporting of central government operations; - (vi) evaluation and monitoring of budgetary risks from government-owned public enterprises, local authorities, public enterprises and public-private partnerships; - (vii) improvement of internal and external audits of public finances; - (viii) capacity building; - (ix) improvement of the computerized management system of public finances; and - x) improved steering and monitoring of reforms. - PREFIP 2019–22 validated by a committee chaired by the Minister of Economy and Finance and the Minister of Budget in September 2018 and adopted by the Council of Ministers in December 13, 2018. - Committed to implement the PREFIP 2019–22 overarching strategy. ### Budget transparency, nomenclature, and execution - Presented a medium-term budget (MTB) with the 2017 budget law (first time). - Adopted the new budget nomenclature for the 2018 Budget Law, in line with the GFSM 2001 manual; implemented the new budget nomenclature for the 2018 budget execution and modernized the information system for preparation and execution of the budget. - Established a top-down budgetary approach by setting targets for medium-term budgeting in line with the ECF-arrangement fiscal targets. - Enhanced the budget preparation calendar and made progress adhering to the calendar for the 2018 Supplementary Budget Law and the 2019 budget preparation. - Will continue to publish quarterly reports of budgetary execution. - Adopted in December 2017 the new law on the financial governance of public enterprises and institutions in accordance with the new legislative and regulatory framework of public finances. - Prepared budget execution procedural manuals in February 2019; operationalize on the chain of expenditures by the end of 2019 following validation and approval by July 2019. - Limited the use of exceptional expenditure procedures during 2018 and Q1 2019 to sovereign expenditures and special funds, and linked execution of all authorized expenditures to budget lines in accordance with the Budget Management and Public Accountancy Decree (RGGBCP). - Ended use of the payment authorization (PA) terminology and will limit exceptional procedures to execution of expenses of special funds, sovereignty expenses of the President of the Republic, and expenditures of constitutional institutions, linked to appropriations available on budget lines. - Provide and continue to provide a quarterly report to IMF staff on the use of exceptional procedures for specified expenditures, excluding payment of debt interest. ### Treasury Single Account (TSA) and cash management - Committed to establishing a Treasury Single Account (TSA) to strengthen transparency, budget monitoring and cash management. - Closed all accounts of public administration entities (EPA) held at commercial banks in Conakry and opened a centralizing account with the Central Bank to consolidate accounts within the TSA perimeter. - Finalized a census of EPA accounts in Conakry and the rest of the country; elaborated a list of concerned EPA in March 2019. - Issued an instruction to implement the TSA between the Ministry of Economy and Finance and the BCRG and set up in January 2019 a TSA system operating with a Treasury current account and 8 operational accounts of the 5 main state accountants in the BCRG books. - Will finalize a TSA convention between the Ministry of Economy and Finance and the BCRG by end-June 2019. - Committed to expand TSA coverage and consolidate accounts of all ministries and the majority of EPA in the TSA by end-2019, except accounts opened for public projects and development programs financed by donors. - Continue consolidation in 2020 with extension of TSA to accounts of donors-financed public projects and programs, most of which are opened in commercial banks. ### Improving cash management - Continue to align expenditures commitment plans with cash flows; started conducting this exercise monthly since January 2018. - Hold weekly technical inter-ministerial meetings to support the committee for cash management, including the Central Bank, to support the Treasury Committee. - Committed to hold the Treasury Committee meetings, including the Prime Minister, on a regular monthly basis; will restart these meetings in the second quarter of 2019. - Working to strengthen cash management forecasting in line with recent IMF TA recommendations to improve assessment of budgetary needs. - Reviewing the ministerial order establishing the unit supporting the Treasury Committee to strengthen its functionality. ### Public investment management - Strengthen public investment management to improve transparency, efficiency and maximize returns of the public investment plan. - Commit to prioritizing public investment projects with higher growth and poverty reduction impact; conduct full cost-benefit analysis of projects (cost-advantages for social projects). - Conducted the PIMA with IMF TA in May 2018; in line with PIMA recommendations will: - Finalize draft decrees establishing a regulatory framework clarifying responsibilities of major public sector actors along phases of public investment management by end 2019, with IMF TA support; adopt them by January 2020. - Develop and adopt a manual for preparation, appraisal and selection of priority investment projects; require major public investment projects be accompanied by feasibility studies following rigorous processes (end-May 2020 SB). - Establish processes for producing reports on project execution and completion. - Conduct a stock-taking exercise of all projects in progress for at least 10 years before continuing to finance them in the 2020 Budget Law. - Installed the software platform for integrated investment management with support from the African Development Bank and UNDP; following testing, will make the platform fully operational by 2019 to improve tracking of financing and evolution of public investments. ### Procurement reform and transparency - Enforce provisions of the new procurement code and conduct competitive bidding for public investment projects. - Adopted a new procurement code in 2014 establishing competitive bidding for projects above a certain threshold. - Conducted and published an audit of public contracts in 2016. - Reduced turnaround times in procurement by streamlining processes; finalized survey of providers’ prices in May 2018; implementing a system of sanctions as specified in the public procurement code. - Prepared and published the first report on public contracts on the Ministry of Finance website; will continue to publish on a six-month basis. - Created a national agency for procurement control in early 2019 and deconcentrated procurement to ministries/contracting authorities; these authorities now possess the legal mandate for planning, programming, execution and monitoring of technical and financial implementation. - Working with World Bank technical assistance to amend related texts and simplify/streamline procedures, reduce delays, and improve transparency and monitoring of contracts including application of sanctions. - Phased reforms taken in 2018: - (i) Removed control of procurement procedures at the level of the Administration and Control of Major Projects and Public Procurement; - (ii) Abolished the National Directorate of Public Procurement; - (iii) Created a new National Directorate for Public Procurement Control and Public Service Delegation; - (iv) Transferred public procurement to contracting authorities and established competent technical services. - Second phase: revise the Code des Marches Publics and all implementation texts; two draft decrees prepared and will be submitted to the Council of Ministers by end-2019. - Finalize elaboration of the new Public Procurement Code by end-2019. - 2019 activities: update standard documents; update procedure manual of the Public Procurement Code and public service delegations; information and training of public control actors; installation of competent services; and a communication strategy. *Source: 1ginea2019004 - 22. We are committed to mobilizing additional tax revenues to create fiscal space for* ### 31. We will finalize our public-private partnership (PPP) framework in line with best ### 31. We will finalize our public-private partnership (PPP) framework in line with best ### Public-Private Partnerships (PPPs) - A new PPP law was adopted by the Parliament in July 2017. - Commitments: - Publish the new PPP law in the Official Gazette by end-June 2019. - Finalize the implementation decrees by November 2019 and adopt them by end-2019. - Establish a PPP unit at the Ministry of Economy and Finance by end-2019. - Policy and process requirements: - Ensure the new PPP framework aligns with best practices and is consistent with the organic law on public finance (LORF). - Subject PPPs to the same rigorous preparation, selection and appraisal processes as public investment projects. - Cap explicit commitments and guarantees of PPPs. - Open unsolicited PPP offers to competition. - Conduct an analysis of the fiscal risk emerging from existing PPP commitments. - Prudence and monitoring: - Exercise prudence in the use of PPPs given risks and contingent liabilities. - Ensure guarantees are well monitored, evaluated, and contained. ### Reform of Public Entities (SOEs) - Background and legal changes: - Completed a census of all public entities in 2017. - Submitted the 2016 SOEs’ annual financial report to the Parliament in 2017. - Revised law on governance of SOEs approved by the Parliament in December 2017; ensured consistency with LORF and the decree on budget management and public accounting. - Draft implementation decree of the new SOEs’ law discussed at the Council of Ministers and approved in September 2018 (end-September 2018 SB). - Governance enhancements in the new SOEs’ law: - (i) applying the tax provisions of the common law; - (ii) strengthening the obligation to pay dividends; - (iii) clarifying the eventual granting of subsidies; - (iv) strengthening control of fiscal risks stemming from SOEs. - Implementation and reporting: - Reviewed the regulations of ten SOEs and brought them in line with the new legislation. - Prepared the annual financial report for SOEs for 2017 and submitted it to the Parliament as an Annex of the 2019 budget law. - Committed to prepare the financial report for SOEs on a yearly basis and submit it to the National Assembly. - Started preparation of the SOEs’ annual financial report for 2018 to be submitted with the 2020 budget law. - Financial stabilization and restructuring plans: - Working to develop a medium-term strategy to improve the financial conditions of loss-making SOEs to reduce fiscal costs and the build-up of contingent liabilities. - Aim to improve management and performance of SOEs, consolidate their financial position, and establish their Board of Directors. - Identified loss-making enterprises and will recruit an audit firm to elaborate the economic and financial diagnosis as a basis for restructuring or recapitalization decisions. - Timeline for harmonization: - Pursue harmonization of SOE texts by end-2029 and mobilize technical assistance in this area. ### Debt Policy and Management - Debt sustainability objective: - Committed to preserving medium-term debt sustainability and ensuring Guinea does not exceed a moderate level of risk of external and overall public debt distress. - Recent non-concessional borrowing: - Signed a US$1.2 billion non-concessional loan in September, 2018 to finance the Souapiti dam project (about 11 percent of GDP). - Limits and commitments on non-concessional debt: - Committed to limit additional non-concessional debt contracted or guaranteed to the program ceiling to preserve medium-term debt sustainability. - Specifically committed to limiting non-concessional debt that will be contracted or guaranteed during the three years of the ECF arrangement to a maximum of US$650 million to finance key growth-supporting infrastructure projects. - Loans signed within the envelope: - Signed two loans in September 2018 for financing the rehabilitation of the RN1 road and Conakry urban road network, respectively, for an overall amount of US$598. These loans were collateralized by future stream of mining revenues. - Signed at end-November a US$60 million non-concessional loan for budget support which was disbursed in April 2019; will continue negotiations to achieve concessional financing terms and earmark it to key infrastructure projects as specified in the TMU (¶15). - Domestic borrowing strategy: - Planning the issuance of a GNF 800 billion three years bond in the domestic market in 2019. - Will reduce in part the planned issuance of treasury bills to contain the increase in the overall stock of domestic debt. - Started publicizing to institutional investors to smooth issuance plans. - Domestic arrears: - Overall stock of domestic arrears was at GNF 3383 billion (3.1 percent of GDP) end-2018. - Completed in 2016 an audit of domestic arrears over 1982-2013. - Adopted in December 2017 a strategy for clearance of longstanding domestic arrears focusing on clearing small creditors (80 percent of number of creditors and 20 percent of the nominal value of audited and validated arrears). - Repayments: GNF 43 billion in 2017; GNF 181 billion in 2018; about GNF 208 billion planned in 2019. - Plan to repay remainder amounts over a seven-year period through issuance of securities and direct payments. - Start in March 2020 the second phase of the external audit to continue negotiations with creditors and finalize memoranda of understanding for audited and validated amounts. - Negotiating with the same external auditor to review domestic arrears contracted during 2014–17. - Committed to avoid accumulation of new domestic arrears. - External arrears resolution: - Initiated discussions to resolve pre-HIPC external arrears to Non-Paris Club and commercial creditors. - Sent letters to creditors; will re-send letters to advance discussions. - Committed to ensure not to accumulate new external arrears, including through improving debt management. - Strengthening debt management framework: - Progress and tools: - 2015: elaborated an operational procedures manual and the National Debt Policy statement; conducted an audit of domestic arrears. - Set up a National Debt Committee in 2014 and a National Debt Working Group on debt management in 2015. - Published a calendar of bond issuance on the Ministry of Economy and Finance website in April 2018. - Set up in 2018 a computerized tracking system for live monitoring of the auction of the Treasury Bills. - Conducted the DEMPA exercise in May 2018 with World Bank support. - Action plan and strategy: - Finalized in March 2019 a time-bound action plan to strengthen debt management on the basis of DEMPA findings with measures for 2019–20. - Prepared a draft update of the medium-term debt management strategy (MDTS) in November 2018 and finalized it in February 2019. - Operationalized the National Working Group on the Management of Public Debt in February 2019 which updated the medium-term debt strategy and conducted an analysis of debt sustainability to assess the impact of potential new loans on a regular basis. - Transparency and systems: - Published, for the first time, a report on public debt in June 2018 and committed to publish it on a quarterly basis. - Will publish a fully-fledged statistical bulletin by September 2019. - Started updating the T-bills calendar on a weekly basis according to forecast needs. - Plan to operationalize the National Debt Committee by September 2019. - Strengthen public debt recording system by end-2019 by adopting the Debt Management and Financial Analysis System (DMFAS) funded by UNCTAD. - Aim to reduce refinancing risk and facilitate bond issuance with IMF support. ### Monetary and Exchange Rate Policies - International reserves and reserve targets: - International reserves reached 3.5 months of imports coverage in 2018. - Aim to reach the ARA-CC metric reserve adequacy estimate of 3.8 months of imports by 2020. - BCRG started unilateral and competitive auctions to purchase foreign exchange in September 2018 and purchased US$0.5 million during September 2018–April 2019. - Foreign exchange market reforms: - Replaced foreign exchange allocation system with a bilateral foreign exchange market (MEBD) in early 2016. - Auctions held twice a week (Tuesday and Friday), preceded by a communiqué the day before; reference rate published before 9 a.m. on a daily basis. - Issued instructions in May 2018 (methodology for daily reference exchange rate) and June 2018 (rules for banks’ participation in the MEBD). - Increased limit on auction allocations to a single participant: to 40 percent in September 2018 (from 20 percent), to 60 percent in December 2018, and will fully eliminate it by June 2019. - Will establish an electronic platform to make MEBD operations more fluid by 2020. - Strengthened foreign exchange liquidity forecasting (finalized a weekly foreign exchange liquidity forecast in December 2018). - Will ensure that the premium between the official exchange rate and commercial banks’ purchase and sales rate does not exceed 2 percent on a given day. - Monetary policy stance and targets: - BCRG will aim at maintaining inflation within single digits. - Reserve money growth was 6.3 percent in 2018 (y-o-y). - For 2019, BCRG will target the monetary base to expand at about 4.6 percent (y-o-y), which is consistent with an inflation rate at about 8.9 percent and growth of credit to the private sector at about 7.6 percent (in percent of broad money). - Will maintain prudent monetary policy and stand ready to tighten to maintain a positive real interest rate. - Will use more active liquidity management, including absorbing liquidity through the issuance of TRM as needed in 2019. - Government borrowing from the central bank: - MoU signed in May 2018 limits BCRG advances to statutory limits: no more than 5 percent of the average fiscal revenues of the last three years to be repaid within a period of 92 days. - Net borrowing from the central bank picked up by 11.5 percent (y-o-y) in the first quarter, after declining in the second half of 2018. - Commitment to maintain government borrowing from the central bank in line with the 2018 MoU and program objectives. - BCRG holds weekly Executive Committee meetings to strengthen monitoring of provision of credit to the government. - Preparing and will continue to prepare periodic reports to the BCRG’s Board on the level of credit to the government and compliance with the BCRG law. - Liquidity management and operational tools: - Re-introduced short-term securities to absorb excess liquidity and refinancing windows to meet liquidity needs, creating an interest rate corridor. - Improved liquidity monitoring: daily monitoring liquidity table and weekly liquidity report. - Established a liquidity forecasting regime in August 2018 with a liquidity committee and forecast team. - Liquidity committee meets weekly to manage liquidity and determine calibration of liquidity operations. - Began publishing results of monetary policy operations shortly after execution. - Set up an electronic platform for interbank transactions in domestic and foreign currencies since March 2016. - Initial step to establish legal basis of an emergency liquidity assistance framework for illiquid but solvent banks completed in February 2019 (SB); will proceed with reforms to operationalize it with IMF technical assistance. - Central bank autonomy and recapitalization: - Amended the BCRG Law in 2017 to strengthen autonomy; law prohibits issuance of guarantees by the BCRG to the private sector. - MoU signed in May 2018 between BCRG and Ministry of Economy and Finance specifies modalities and timeline for recapitalization of the BCRG (about U$300 million). - Letter between BCRG and Ministry sent in October 2018 to kick-start implementation phase. - BCRG was recapitalized in 2018 through issuance of marketable government securities (about $300 million), restoring operational and financial autonomy. - Will issue government securities to the BCRG for interests falling due in 2019 by the last quarter of 2019 in line with the 2018 MoU. *1ginea2019004 - 31. We will finalize our public-private partnership (PPP) framework in line with best* ### 43. We will continue to move forward in addressing remaining recommendations of the ### We will continue to move forward in addressing remaining recommendations of the 2018 Safeguards Assessment Update ### Strengthening BCRG financial reporting, internal audit, and IT audit capacity - Adopted and started implementing the International Financing Reporting Standards (IFRS). - Published IFRS-compliant financial statements for 2017 in November 2018 (September 2018, SB). - Commitment to continue publishing BCRG financial statements in line with IFRS moving forward. - Actions to improve Audit Committee oversight: - Improved technical presentation of audit files. - Adopted the principle of an annual assessment of auditors. - Recruited an IT audit firm in March 2019. - Developed an internal platform to share information and data. - Personalized training program for Audit Committee members to be carried out in September 2019. - Regular monitoring of implementation of audit recommendations. - Strengthening internal audit processes and capacity: - Ensure adequate legal and institutional frameworks; align approach with international standards of a risk-based assessment. - Producing periodic reports for the Audit Committee focusing on high-risk areas. - Set up a capacity building program, including reinforcing personnel in digital audit, with support from IMF TA. - Implement an action plan for improving IT audit capacity to be approved and monitored by BCRG’s Management by June 2019. - Review internal audit practices and assess measures needed to implement the International Professional Practices Framework (IPPF), with IMF technical assistance. - Conduct a peer-review of currency operations by June 2019. - Investment policy and external audits: - Started reviewing the BCRG investment policy; conclude review by end-2019 and create a middle office once the trading floor is in place. - Complete external audit of the monetary data at end-December 2018 by September 2019 after closing of accounts in accordance with the traditional standards. - Complete external audit of monetary data at-end June 2019 by end-2019. - Internal compliance: - Set up internal compliance processes at the BCRG to review adherence with legislation and provide semi-annual reporting to the Board in September 2018 (SB). ### Banking sector stability and supervision - Committed to maintaining banking sector stability and strengthening banking supervision. - Accounting and reporting reforms: - BCRG signed in April 2019 the instruction to adopt the new chart of the accounts. - Instruction to adopt updated accounting and financial reporting for banks to be issued in May 2019 and implemented by the end of 2020. - Begin gradual implementation of the new chart of accounts and revised banking reporting framework by the end-2019 and finalize by May 2020. - Adopt IFRS standards for banks from the 2020 financial statements with IMF and partner technical assistance. - Supervisory frameworks and tools: - New bank rating methodology operationalized; banks' ratings on the statements at end-2018 underway. - Implemented banking law via remaining texts and procedures, including instructions on banks’ internal controls and corporate governance, use of external auditors, and conditions of appointment of a second accounts auditor. - Additional instructions on supervision of business introducers and customer protection to be finalized by September 2019. - Aim to improve cross-border supervision after cooperation agreements with WAMU Banking Commission and the Central Bank of Nigeria; Joint Inspection Missions underway for Nigerian bank subsidiaries. - Strengthen banking supervision by implementing the bulk of Basel II/III provisions by end-2020, with IMF technical assistance. - Strengthen human resources for banking supervision (document controls and on-site controls) by recruiting and/or redeploying around ten people by the end of September 2019. - Credit information and resolution frameworks: - New credit information system set up with World Bank support; fully operational since end-2017. - Plan to convert the credit information system into a credit bureau with World Bank assistance by end-2019. - Insurance Code adopted in July 2017 to improve sector supervision. - Set up a banking resolution framework by end-2019, with IMF technical assistance. - Deposit Guarantee Fund: - Legal framework finalized in December 2018 by signing a Decision of the Approval Committee. - Board of Directors for the Fund set up, chaired by the Governor of the BCRG and composed of banking sector and State representatives (Ministries of Finance and Justice). - Contribution rate of banks to the Fund fixed by the Board of Directors. - First contributions expected by the end-September 2019. - Supervision of weak banks: - Three banks that did not meet the net equity requirement at the end of 2018 placed under stricter supervision and prohibited from dividend distribution in accordance with the Banking Act. - BCRG will ensure that all banks comply with the reserve requirement. ### Structural reforms to support higher and more inclusive growth - Overall commitment: - Move ahead with implementation of key structural reforms to support higher and more inclusive growth, develop the private sector, and generate job-creation to reduce poverty. - Reforms targeted at improving the business climate, governance, and strengthening financial inclusion over the program period. #### Improving the business climate - Guinea improved its World Business Indicators ranking by 27 places between 2013 and 2018 (152 out of 190 countries). - Action plan to improve the business climate developed in March 2018 with short, medium, and long-term actions, notably to: - Ease procedures to start a business. - Ease paying taxes, including by introducing a business identification number and online tax declarations. - Improve access to credit, notably for small and medium-sized enterprises. - Strengthen contract enforcement. - Ease cross border trade. - Develop a framework for public-private dialogue. - Implemented measures and progress: - Computerized the one-stop-shop and operationalized the online business creation platform SyNERGUI, allowing new businesses to be created in less than 72 hours. - Finalized the permanent tax identification number; over 2,000 private sector operators have the new tax identification number. - Interconnection between the Agency to promote private investment (APIP) and the National Tax Directorate created in January 2019. - Progress in establishing online tax declaration and payment system to be finalized by end 2019. - Set up a specialized Commerce Court in Conakry in October 2018 (SB); decree signed in August 2018 nominating the President and a judge. - Headquarters of the Commerce Court inaugurated in March 2019; Consular Judges selected and first court cases started at end-April 2019. - Established a one-stop shop for foreign trade; operator selected and operationalization moving ahead by end-June 2019; General Director nominated and specifications being elaborated. - Credit Information system at the Central Bank established and banks and microfinance institutions interconnected; debtors of each bank declared on the platform. - Reinforce public-private consultative platform by establishing a consultative platform between the private sector and public administration by June 2019. #### Strengthening governance and anti-corruption measures - Strengthening legislative and institutional anti-corruption framework: - Parliament adopted the anti-corruption law in July 2017. - Organized three workshops to ensure coherence between the new anti-corruption law and the national strategy and plan of action, with EU support. - Adopted anti-corruption strategy in October 2018. - Adopted a decree on the organization and operation of the National Agency for the Fight Against Corruption (NAFC) in October 2018 (SB). - Commitment to improve NAFC’s capacity, independence, and financial autonomy. - Adopt the implementation decrees for the asset declaration regime and whistle blowers and victims’ protection by end-September 2019 (SB). - With IMF TA, reviewing criminalization of acts of corruption to align with United Nations Convention against Corruption (UNCAC). - Launched second review cycle of UNCAC with UNODC; next steps: - Finalization of the workshop of Guinea's self-assessment checklist by May 2019. - Holding of the Guinea self-assessment workshop in Conakry by end-July 2019. - Submission of the report of the Guinea self-assessment workshop to UNODC followed by a self-assessment monitoring workshop in Guinea. - Submission of the final report of the self-assessment of Guinea to the two States reviewers for observations, comments, and recommendations followed by country visits by experts of its two Reviewing States and UNODC by the end-September 2019. - Implementing the asset declaration regime: - Implementation decree being prepared with IMF TA to cover high-level officials, their family members and close associates; require declaration of all assets domestically and abroad, directly and beneficially; establish dissuasive sanctions for non-compliance; require publication of declarations. - Mobilize resources for the Audit Court to establish logistical structure to manage and control declarations and implement sanctions. - Expect first declarations to be filled in early 2020 and subsequently published in the Official Gazette as required by the Constitution. - Strengthening AML/CFT regime: - Committed to revise legislation in line with the 2012 Financial Action Task Force standard; preparing new AML/CFT draft law with IMF technical assistance; Council of Ministers to approve by November 2019. - Developing tools for a risk-based approach to AML/CFT supervision of the banking sector with IMF TA; operationalized by October 2019. - Strengthening the Financial Intelligence Unit (CENTIF) with IMF TA by improving institutional framework, personnel capacity, and operational processes and strategies. - Set up an inter-ministerial AML/CFT committee to steer national AML/CFT strategy and oversee the AML/TF National Risk Assessment. - With IMF TA, developing internal risk-based AML/CFT controls and procedures for the BCRG; BCRG adopted a dedicated policy early this year and developed a risk matrix. - AML/CFT risk management procedures to be rolled out by end-2019, following training of BCRG staff. #### Strengthening financial inclusion - Adopted Financial Inclusion Law in July 2017 to provide a framework for microfinance institutions and support increased credit access for SMEs, women, and youth. - Law introduces regulations for microfinance institutions, electronic money institutions, and financial services of the Guinean Post. - Adopted the law’s implementation decrees in 2018. - Adopted fourteen draft instructions with World Bank support; transmitted to stakeholders and discussed in workshop in April 2018. - Develop a National Strategy on Financial Inclusion with World Bank support by end-2019. - Aim to develop digital finance supported by a well-developed payment system, good physical infrastructure, appropriate regulations, and strong consumer protection safeguards. - Member of the Alliance for Financial Inclusion (AFI); actively engaged in African Financial Inclusion Policy Initiative (AfPI); Governor of the BCRG elected the new Chair. ### Program monitoring - Program monitored on a semi-annual basis through quantitative performance criteria and indicative targets (Table 1) and structural benchmarks (Table 2). - Quantitative targets set for end-June 2019 and end-December 2019 are performance criteria; those for end-September 2019 and end-March 2020 are indicative targets. - Fourth review to be completed on or after December 11, 2019; fifth review on or after June 11, 2020. - Continue to evaluate implementation of macroeconomic policies and reforms through Economic Coordination and Reform Council (CCER) and Technical Unit for Program Monitoring (CTSP). *Source: IMF country document 1ginea2019004* ### 50. We will continue our ongoing efforts to strengthen our statistical system to ensure ### 1ginea2019004 - 50. We will continue our ongoing efforts to strengthen our statistical system to ensure ### Strengthening the statistical system and macroeconomic data - Continued efforts to strengthen the statistical system to ensure appropriate assessment and monitoring of macroeconomic policies and reforms. - Methodology actions: - Strengthened in March 2017 methodology for compilation of the national accounts and adopted the 1993 SNA, with support of IMF technical assistance. - Commit to migrate from SNA 1993 to SNA 2008 by end-2020 with the support of IMF TA. - Institutional arrangements: - Steering bodies of the national statistical system have been put in place. - Operationalization of the macroeconomic framework committee will be ensured to facilitate harmonization of the data. - Surveys: - Complete by end-2019 household survey to update assessment of living conditions of the population. ### Quantitative performance criteria and indicative targets (Table 1: selected indicators and statuses) - Basic fiscal balance (floor; cumulative change for the year) — assorted reported figures and statuses: - 519; 614; -1,030 — Not Met - 346; 503; 1,196 — Met - 1,022; 1,749 — Met - 1,387; 1,417; 999 — Not Met - 904; 899; 924 — Met - 499; 502 — Met - 903; 548; 691; 651; 762; 1,197; 1,366 - Net domestic assets of the central bank (ceiling; stock) — assorted reported figures and statuses: - 7,208; 7,350; 8,236 — Not Met - 7,137; 7,369; 8,070 — Not Met - 8,358; 7,460 — Met - 8,112; 8,156; 7,068 — Met - 7,909; 7,902; 6,869 — Met - 7,780; 7,205 — Met - 7,652; 5,518; 5,856; 5,767; 5,636; 5,526; 5,569 - Net government budgetary borrowing from the central bank (ceiling; stock) — assorted reported figures and statuses: - 7; 7,179; 7,321; 7,983 — Not Met - 7,108; 7,340; 7,651 — Not Met - 7,939; 6,648 — Met - 7,693; 7,737; 6,257 — Met - 7,656; 7,649; 5,920 — Met - 7,533; 6,601 — Met - 7,410; 5,794; 5,626; 5,611; 5,556; 5,521; 5,339 - Net international reserves of the central bank (floor; stock); US$ million¹ — reported figures and statuses: - 345; 330; 357 — Met - 420; 395; 390 — Not Met - 422; 437 — Met - 506; 501; 494 — Not Met - 544; 544; 555 — Met - 583; 631 — Met - 622; 679; 739; 784; 798; 814; 850 - Continuous performance criteria: - New non-concessional external debt contracted or guaranteed by the central government or central bank (cumulative ceiling); US$ million²,⁶ — 650; 650; 0 — Met (repeated across periods) - Note: "The continuous performance criterion was missed in November 2018 by a total amount of US$8 million. A waiver was approved by the Board at the time of the second review." - New external arrears of the central government and central bank (ceiling)³ — 0 repeatedly reported as Met - Indicative targets (selected): - Tax revenues collected (floor) — assorted reported figures and statuses: - 12,893; 12,893; 12,443 — Not Met - 3,115; 3,115; 2,995 — Not Met - 7,524; 6,849 — Not Met - 11,089; 11,089; 10,383 — Not Met - 14,702; 13,609; 13,609 — Not Met - 3,995; 3,914 — Not Met - 8,489; 12,939; 16,960; 4,863; 9,944; 14,181; 19,973 - Domestically financed social safety programs to reduce poverty (cumulative floor)4 — assorted: - 138; 138; 47 — Not Met - 76; 76; 6 — Not Met - 99; 16 — Not Met - 148; 148; 51 — Not Met - 75; 75; 105 — Met - 33; 19 — Not Met - 65; 98; 130; 35; 69; 104; 139 - New domestic arrears accumulated by the central government (net) — assorted reported values including negatives and statuses: - -340; -409 — Met - -390; -390; 434 — Not Met - -82; -82; 244 — Not Met - -95; -1,192 — Met - -152; -857; -812; -45; -90; -104; -127 - Memorandum items: New concessional external debt contracted or guaranteed by the central government or central bank (cumulative); US$ million⁴,⁵ — reported series: - 315; 315; 315; ...; 365; 365; 339; ...; 339; 343; ...; 399; 399; 405; ...; 399; 399; 405; ...; 415; 405; ...; 455; 405; 505; 505; 530; 530; 610 - Sources explicitly cited: Guinean authorities; and IMF staff estimates and projections. - Footnotes included in the table: - ¹ It will be calculated using program exchange rates. - ² External debt contracted or guaranteed other than with a grant element equivalent to 35 percent or more, calculated using a discount rate of 5 percent, excluding the $1.2 billion loan for the Souapiti dam. Excludes borrowing from the IMF. Continuous performance criterion. - ³ Continuous performance criterion. - 4 Cumulative from the beginning of each year. - 5 To be monitored continuously, reflects projected disbursements. - 6 The continuous performance criterion was missed in November 2018 by a total amount of US$8 million. A waiver was approved by the Board at the time of the second review. - 7 Excluding recapitalization of the central bank. ### Prior actions and structural benchmarks under the ECF arrangement (Table 2: summarized measures, dates, statuses, objectives) - Prior Actions (selected items and statuses): - Limit use of authorization letters (ALs) to sovereign expenditures and special funds; provide report on use of ALs during January-May 2018 to IMF staff — Not met. A minor deviation recorded: ALs used for expenditures other than sovereign expenditures and special funds for a marginal amount (0.001 percent of GDP). Objective: Ensure execution of public expenditures in line with legal procedures and avoid extra-budgetary expenditures. - Adopt a time-bound action plan to rationalize ad-hoc tax expenditures — Met. Objective: Support mobilization of additional tax revenues. - Council of Ministers to approve a budgetary framework for 2018 in line with agreed corrective measures and revised program fiscal targets — Met. Objective: Strengthen macroeconomic stability. - Memorandum of Understanding between the BCRG and Ministry limiting BCRG lending to statutory limits — Met. Objective: Limit government borrowing from the Central Bank. - Memorandum of Understanding between the BCRG and Ministry with modalities and timeline for recapitalization of the BCRG — Met. Objective: Ensure operational autonomy of the BCRG. - Implementation of electricity tariff increases (25 percent for industrial/professional; 10 percent for households) as detailed in circular 2018/3334 — Met. Objective: Reduce electricity subsidies. - Ministerial order to increase price of petroleum products by at least 12 percent starting July 1, 2018 — Met. Objective: Protect budget revenues. - Second Review (selected): - Council of Ministers to adopt revised budgetary framework for 2018 consistent with end-2018 fiscal program target — Met. Objective: Strengthen macroeconomic stability. - Third Review (selected prior actions with deadlines and statuses): - Ministry of Budget to sign performance contracts with National Directorate of Taxes and National Directorate of Customs by end-May 2019 — Met. Objective: Mobilize additional tax revenues. - Council of Ministers to adopt revised budgetary framework for 2019 by end-June, 2019 — Met. Objective: Preserve macroeconomic stability. - Minister of Economy and Finance and Minister of Energy to sign ministerial order increasing electricity tariffs by 15 percent for households and by 5 percent for professionals and industrials in 2019 by June 10, 2019 — Met. Objective: Reduce electricity subsidies. - Structural benchmarks (selected, First Review and subsequent): - Adoption of action plan for targeted tax policy and administration reform — End Dec-17 — Met. Objective: Mobilize and safeguard tax revenues. - Adoption of Government strategy for clearance of domestic arrears — End-Dec-17 — Met. Objective: Improve fiscal management and transparency. - Implementation of 25% increase in electricity tariffs for industrial consumers and large consumers adopted Oct 2016 — End Dec-17 — Met. Note: Electricity tariffs for industrial and large consumers were increased by 42 percent in November 2017; increase suspended in March 2018 and re-instated at 25 percent in May 2018 as a prior action. Objective: Reduce electricity subsidies. - Completion of electricity tariff study including impact analysis — End Feb-18 — Not met. Study completed with delay in July 2018. Objective: Establish tariffs that cover medium-term electricity costs and accompanying measures to protect the most vulnerable. - Implementation of existing automatic price adjustment mechanism for petroleum products — End Mar-18 — Not met. Retail prices increased by 25 percent on July 1, 2018. Adjustment mechanism applied in January 2019 leading to 5 percent reduction in prices. Automatic implementation was not applied in first five months of 2019. Objective: Protect budget revenues. - Finalization of feasibility studies for public investment projects financed by non-concessional borrowing — End Mar-18 — Met. Objective: Ensuring efficiency and good management of public investments. - BCRG signing Memorandum with modalities and timeline for recapitalization — End Feb-18 — Not met (signed with delay in May 2018). Objective: Ensure operational autonomy of the BCRG. - BCRG to establish liquidity forecasting framework — End Mar-18 — Met. Objective: Strengthen monetary policy framework and improve liquidity management. - Adoption of action plan to improve business climate — End Mar-18 — Met. Objective: Foster private sector development. - Submission to Parliament of 2016 SOEs annual financial reports — End Dec-17 — Met. Objective: Improve transparency and governance. - Second Review structural benchmarks (selected): - EDG to install electricity consumption meters in premises of Prime Minister and fifteen Ministries and provide report on installation for rest of consumers — End Jun-18 — Met. Objective: Increase revenues of public electricity utility and reduce budgetary transfers to the company. - Integrate PEFA recommendations in action plan to reform public finances — End Sep-18 — Met. Objective: Strengthen public financial management. - Submit Supplementary Budget Law for 2018 in line with agreed corrective measures and revised program fiscal target — End Sep-18 — Not met. A Supplementary Budget Law in line with program fiscal target was submitted in August 2018 but composition revised; a revised budgetary framework for 2018 was adopted by Council of Ministers as a prior action. Objective: Strengthen macroeconomic stability. - All new/renewed mining agreements to be in line with tax provisions of mining code; agreements with new investments in infrastructure or transformation submitted to National Assembly with assessment of tax expenditures — End Nov-18 — Met. Objective: Mobilize additional mining revenues and foster governance and transparency. - BCRG to publish IFRS-compliant financial statements for 2017 — End Sep-18 — Not met (published Nov 28, 2018). Objective: Strengthen BCRG financial accountability. - BCRG to establish internal compliance processes and semi-annual Board reporting — End Sep-18 — Met. Objective: Strengthen internal audits and control functions. - BCRG to establish unilateral and competitive auctions for small foreign exchange purchases — End Sep-18 — Met. Objective: Conduct active strategy to accumulate international reserves. - Adoption of implementation decree of 2017 law on governance of public entities — End Sep-18 — Met. Objective: Improve transparency and governance and reduce fiscal risks. - Establish a specialized Commerce Court in Conakry — End Oct-18 — Met. Objective: Improve the business climate. - Adoption of implementation decree on organization and operation of National Agency for the Fight Against Corruption — End Oct-18 — Met. Objective: Strengthen governance. - Third Review structural benchmarks and status highlights: - EDG to complete installation of electricity meters in all Ministry buildings and install meters for 80 percent of rest of consumers — End Feb-19 — Not met. Installed in buildings of all Ministries; installation for rest of consumers reached 55 percent at end-February 2019. Objective: Increase revenues of public electricity utility and reduce budgetary transfers. - Continuous mining agreement condition — Continuous — Met. New mining agreement signed Nov 2018, ratified and published in Q1 2019; submitted to National Assembly with assessment of tax expenditures. - BCRG to establish emergency liquidity assistance framework for illiquid but solvent banks — End Feb-19 — Met. Instruction for liquidity signed by Governor of BCRG. - Elaborate a rule-based intervention strategy for BCRG in the foreign exchange market — End May-19 — Not met. Draft prepared and shared with IMF staff; expected finalization by end-December 2019. Objective: Limit discretion in interventions and increase FX market transparency. - Fourth Review (newly proposed measures): - Submit to National Assembly a Supplementary Budget Law for 2019 in line with agreed budgetary measures and program fiscal target — End Sept-19 — (status listed to ensure macroeconomic stability). - Council of Ministers to adopt multi-year tariff reform strategy over 2019-25 to gradually bring electricity tariffs to reach cost recovery — End Sept-19 — (status listed to reduce electricity subsidies). - Adoption of implementation decrees of the 2017 corruption law on asset declaration regime and whistle blowers and victims’ protection — End Sept-19 — In progress. Draft decree on asset declaration being revised to incorporate IMF TA recommendations. Objective: Strengthen governance. - Fifth Review (selected newly proposed/rehased): - Establish a prototype for unified social register of vulnerable populations by Ministry of Social Affairs (re-phased from end-July 19) — End-Feb 20 — In progress. Roadmap for setting-up finalized with support of World Bank. Objective: Improve targeting of social protection programs. - Prepare and adopt manual for preparation, appraisal and selection of investment projects, requiring major public investment projects be accompanied by feasibility studies following rigorous processes — End May-20 — (newly proposed). Objective: Strengthen public investment management. *Source: Attachment II. Technical Memorandum of Understanding, May 21, 2019.* ### 1. This memorandum sets out the understandings between the Guinean authorities and ### 1ginea2019004 - 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 purposes. - Quantitative performance criteria, indicative targets, and test dates are detailed in Table 1 of the MEFP attached to the Letter of Intent dated Mai 21, 2019. - For program purposes, all foreign-currency-denominated assets, liabilities, and flows at the Central Bank are valued at the “program exchange rate” (paragraph 3), except items affecting government budgetary accounts, which are measured at current exchange rates. ### Program exchange rates and gold price (program exchange rate basis) - 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 - Note: SDR to US$ exchange rate will be based on World Economic Outlook (WEO) projections. - Notes: Rates and prices as of end-December 2016. LBM connotes London Bullion Market. ### Performance criteria, continuous criteria, indicative targets, and memorandum item - 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. - Ceiling on new domestic arrears accumulated by the central government (net). - Memorandum Item: - Ceiling on new concessional external debt contracted or guaranteed by the central government or central bank. ### Definitions and scope - Central government definition: - All ministries and agencies subject to central budgetary administration in accordance with the organic law on public finances. - Excludes local governments, the Central Bank of the Republic of Guinea (BCRG), and public entities with autonomous legal personality, notably établissements publics administratifs, unless otherwise indicated. - Basic fiscal balance (floor): - Defined as difference between 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 approved by the accountants. - Net domestic assets (NDA) of the BCRG (ceiling): - NDA = reserve money (defined below) − net foreign assets (NFA) of the BCRG, both calculated at the program exchange rate. - Reserve money: - Comprises (i) local banks’ deposits and other private sector deposits with the BCRG (including bank reserve requirements) denominated in Guinean francs and foreign currencies; and (ii) Guinean francs in circulation and Guinean francs in the vaults of local banks. - Foreign currency amounts converted to Guinean francs at the program exchange rate. - Net Foreign Assets (NFA) of the BCRG: - NFA = gross foreign assets (GFA) − gross foreign liabilities. - Gross foreign liabilities = gross foreign exchange liabilities (paragraph 13) plus any other foreign liabilities not listed in that paragraph. - Gross foreign assets (GFA) = gross reserves assets (paragraph 12) plus: - (i) any foreign currency claims on residents; - (ii) capital subscriptions in international institutions; - (iii) foreign assets in nonconvertible currencies; - (iv) 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; - (v) assets obtained through currency swaps of less than three months duration; - (vi) gross reserves that are in any way encumbered or pledged (including assets blocked as collateral, assets lent that are not available before maturity and are not marketable, foreign reserves blocked for letters of credit). - Net government budgetary borrowing from the central bank (ceiling): - Defined as BCRG claims on the central government minus total government deposits at the BCRG and amounts related to recapitalization of the central bank (which includes stock and cumulative annual interest as set out in the MoU between the Governor and the Minister of Finance dated May 30, 2018). - Central government borrowing includes loans, advances, arrears, and purchases of government securities and treasury bills by the BCRG. - Net international reserves (NIR) of the BCRG (floor): - NIR = gross reserve assets of the BCRG − gross foreign exchange liabilities of the BCRG. - Gross reserve assets include: - (i) monetary gold holdings of the BCRG; - (ii) holdings of SDRs; - (iii) the reserve position in the IMF; - (iv) foreign convertible currency holdings; - (v) foreign currency denominated deposits held in foreign central banks, the Bank for International Settlements, and other banks; - (vi) loans to foreign banks redeemable upon demand; - (vii) foreign securities; and - (viii) other unpledged convertible liquid claims on nonresidents. - Gross reserve assets exclude: - (i) any foreign currency claims on residents; - (ii) capital subscriptions in international institutions; - (iii) foreign assets in nonconvertible currencies; - (iv) transfers of foreign currency claims to BCRG by other institutional units in Guinea just prior to reporting dates with accompanying reversals; - (v) assets obtained through currency swaps of less than three months duration; - (vi) gross reserves that are in any way encumbered or pledged (including assets blocked as collateral, assets lent that are not available before maturity and are not marketable, foreign reserves blocked for letters of credit). - Gross foreign exchange liabilities (paragraph 13): - Sum of: - (i) outstanding medium and short-term liabilities of the BCRG to the IMF; - (ii) all short-term foreign currency liabilities of the BCRG to nonresidents with original maturity up to, and including, one year; - (iii) all foreign currency denominated liabilities to residents, including foreign currency denominated deposits of domestic banks and other residents with the BCRG; - (iv) any outstanding central bank guarantees in foreign currency. - SDR allocations are excluded from gross foreign exchange liabilities. ### External debt definitions, ceilings, and exclusions - Concessional external debt: - For program purposes, debt is concessional if it includes a grant element of at least 35 percent. - Grant element = (nominal value − present value) / nominal value, expressed as a percentage. - Present value calculated on the date contracted by discounting debt service using a discount rate of 5 percent. - Ceiling on concessional external debt applies to contracting and guaranteeing by the central government and the BCRG; deemed contracted or guaranteed at the date of signature. - Non-concessional external debt: - Non-concessional if grant element is less than 35 percent. - Total 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. - Permitted uses: finance specified 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) as specified in relevant loan documents. - Ceiling applies to contracting and guaranteeing by the central government and the BCRG and is monitored continuously; deemed contracted or guaranteed at the date of signature. - Exclusions from non-concessional debt limit: - (i) use of IMF resources; - (ii) debts classified as international reserve liabilities of the BCRG; - (iii) the non-concessional loan that the government is contracting to finance the Souapiti dam project; - (iv) debt non-concessional upon signature but later cancelled or renegotiated to be concessional once cancellation/renegotiation becomes effective under contract law and as determined by applicable law; - (v) any Guinean franc denominated government security holdings by non-residents. ### External arrears - New external arrears: - Defined as external debt obligations contracted or guaranteed by the central government or the BCRG that have not been paid when due in accordance with contractual terms (taking into account contractual grace periods). - The PC on non-accumulation of new external payment arrears excludes arrears on external financial obligations of the government subject to rescheduling. ### Tax revenue, social safety nets, and domestic arrears - Floor on tax revenues collected: - Defined as total central government revenue in the TOFE, excluding external grants and non-tax revenue as defined in the TOFE. - Domestically-financed social safety nets programs (floor): - Defined as domestically-financed spending disbursed to support: - (i) all non-contributory social programs under the Programmes Filets Sociaux Productifs (PFSP); - (ii) activities of the Ministry of Social Action and Women Promotion and Infancy, including all non-contributory social programs under the Social Development Fund; - (iii) transfers to public administrative entities conducting activities aimed at protecting the most vulnerable, including activities of National Fund for Youth Placement (FONIJ), Center for Women Autonomy, and schooling of children with handicaps; - (iv) targeted health activities, notably medical coverage for the poor, free medical procedures, support to individuals with infectious diseases; - (v) targeted activities in education, notably provision of school meals and health support; - (vi) scholarships to students to improve living conditions. - New domestic arrears accumulated by the central government (net) (ceiling): - Domestic arrears defined as spending recorded by public accountants of the Treasury as due by the central government and which have not been paid, including checks issued but not yet cashed. ### Adjustment factors for performance criteria (adjustors) - Adjustor for Basic Fiscal Balance (paragraph 21): - Floor 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 1). - Floor adjusted downward by an amount equal to 40 percent of the surplus of external program loans and external program grants compared to programmed amounts (allowing 40 percent of the surplus to be used for supplementary expenditures). - Adjustor for Net International Reserves (paragraph 22): - Floor on NIR 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 specified in Table 1. - Floor on NIR adjusted 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 specified in Table 1. - Adjustor for Net Domestic Assets of the Central Bank (paragraph 23): - Ceiling on NDA 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 in Table 1. - Ceiling on NDA adjusted downward by an amount equal to 60 percent of the Guinean Franc equivalent (calculated at the program exchange rate) of the cumulative surplus in external program loans and program grants compared to programmed amounts in Table 1. - Adjustor for Net Government Budgetary Borrowing from the Central Bank (paragraph 24): - Ceiling 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 in Table 1. - Ceiling adjusted downward by an amount equal to 60 percent of the Guinean Franc equivalent (calculated at the program exchange rate) of the cumulative surplus in external program loans and program grants compared to programmed amounts in Table 1. *Source: 1ginea2019004 (IMF).* ### 25. Performance under the program will be monitored from data supplied to the IMF by ### 1ginea2019004 - 25. Performance under the program will be monitored from data supplied to the IMF by ### Data reporting for program monitoring - Authorities will transmit promptly to IMF staff any data revisions and other information necessary to monitor the arrangement. - Table of required reports, frequency, and deadlines (selected entries preserved exactly as in source): - 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. - Central Bank net 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. - Status report, including a detailed statement of revenue, expenditure, and cash-flow operations. Frequency: Monthly. Deadline: 30th of the month for the previous month. - Status report on the use of exceptional procedures, specifying nature of the public expenditures and link to budgetary lines. Frequency: Quarterly. Deadline: One month after the end of each quarter. - General Treasury balances (TOFE). 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. - New mining contracts and revised expiring contracts, including annexes with tax provisions. Frequency: Quarterly. Deadline: One month after the end of each quarter. - Stock of VAT credits to be refunded, and domestic debt arrears. Frequency: Monthly. Deadline: 30th of the month for the previous month. - Consumer price index, Conakry. Frequency: Monthly. Deadline: 30th of the month for previous month’s data. - National accounts. Frequency: Annual. Deadline: Summary estimates: nine months after the end of the year. - Imports by use and exports by major products, trade balance. Frequency: Quarterly. Deadline: Three months after the end of the quarter. - Price and volume indices of imports and exports. Frequency: Quarterly. Deadline: Three months after the end of the quarter. - Consolidated balance of payments estimates. Frequency: Annual. Deadline: Summary estimates: six months after the end of the year. - Debt service due before and after debt relief. Frequency: Monthly. Deadline: 30th of the month for previous month’s data. - Debt service paid. Frequency: Monthly. Deadline: 30th of the month for previous month’s data. - Debt service reconciliation table. Frequency: Monthly. Deadline: 30th of the month for previous month’s data. - End-of-month outstanding debt and stock of daily debt service outstanding (after relief) and unpaid, stock of daily arrears according to the program definition. Frequency: Monthly. Deadline: 30th of the month for previous month’s data. - Drawings on new loans. Frequency: Monthly. Deadline: 30th of the month for previous month’s data. - External grants and loans disbursements. Frequency: Quarterly. Deadline: Quarterly. 30th of the last month of the quarter for previous quarter’s data. ### Debt sustainability assessment (Joint Bank-Fund DSA update) - Risk ratings: - Risk of external debt distress: Moderate - Overall risk of debt distress: Moderate - Granularity in the risk rating: Some space to absorb shocks - Application of judgment: Yes - Key conclusion: The overall risk of debt distress is assessed to be moderate against a mechanical rating of high risk of debt distress. - DSA context: - Prepared jointly with the World Bank and in collaboration with the Guinean authorities. - Follows the revised Debt Sustainability Framework (DSF) for LICs and Guidance Note (2017) in effect as of July 1, 2018. - Guinea’s debt carrying capacity classified as weak based on the Composite Indicator (CI) under the revised LIC DSF. - Thresholds for debt burden indicators are those established in the revised 2017 DSF. - Policy recommendation: A prudent external borrowing strategy aimed at maximizing the concessionality of new debt, limiting non-concessional loans to programmed amounts and strengthening debt management will be key to preserving medium-term debt sustainability. ### Coverage of public debt and contingent liability treatment - Definition of public debt in the DSA covers: - Central government debt - Central government-guaranteed debt - Central bank debt contracted on behalf of the government - Included in baseline: - Audited and validated arrears to suppliers over 1982–2013 - Domestic arrears accumulated in 2018 (domestic arrears stock of 3.1 percent of GDP at end-2018) - Not included due to data constraints: - Non-guaranteed debt of state-owned enterprises and social security funds (a contingent liability stress test is performed) - Souapiti dam loan: - Loan amount: US$1.2 billion, about 10 percent of 2018 GDP - Signed on September 4, 2018 - Grant element estimated to be 29 percent - Loan will be transferred to a Special Purpose Vehicle (SPV) jointly owned by the Guinean government (51 percent) and China International Water & Electricity Corporation (49 percent) - SPV will manage and operate the dam on a commercial basis and will be responsible for servicing it - The government is assumed to be responsible for servicing the loan in the DSA - The Souapiti loan is not included in the public investment of the central government as it will be carried out by an SPV that is not considered as part of the central government - C2D mechanism: - PPG external debt definition excludes French claims under C2D debt-for-development swaps, which were cancelled in the context of the HIPC debt relief - Payments with respect to C2D are included in debt service of the fiscal baseline ### Recent debt developments (end-2018) - Total public debt: - US$4.5 billion (37.6 percent of GDP) at end-2018 - Compared with US$4.1 billion (39.6 percent of GDP) in 2017 - External public debt: - 19.1 percent of GDP in 2018 (declined from 19.4 in 2017) - Stock of external debt: US$2.3 billion at end-2018 compared to US$2 billion in 2017 - Drivers: lower-than-anticipated loan disbursements - Domestic debt: - 18.6 percent of GDP in 2018 (declined from 20.2 percent of GDP in 2017) - Domestic debt stock: US$2.2 billion in 2018 from US$2.1 billion in 2017 - Drivers: increase in issuance of treasury bills and a net accumulation of domestic arrears ### Underlying macroeconomic assumptions and projections - Real GDP growth: - Revised to 10.8 percent in 2016 (from 10 percent) - Revised to 10 percent in 2017 (from 9.9 percent) - Estimated at 5.8 percent in 2018 - Projected at 6 percent over 2019–20 - Long run (2022–39): projected to remain at about 5 percent - Risks: tilted to the downside from socio-political tensions in the run-up to elections and delays in projects and reform implementation; upside potential if mining production capacity comes on stream faster than expected - Inflation: - Expected to remain moderate at around 8.9 percent in 2019 - Gradually decrease to 7.8 percent over the medium term - Fiscal balance and public finances: - Primary fiscal balance recorded a deficit of 0.3 percent of GDP in 2018 (versus a projected 1 percent in the 2018 DSA) - Expected primary fiscal balance deficit of 1.8 percent of GDP in 2019 - Average primary fiscal balance of 1.2 percent of GDP over 2020–24 - Additional tax revenues of about 1.7 percent of GDP expected to be mobilized over 2019–20 - Continued revenue mobilization expected to gradually increase tax revenue by 1.4 percent of GDP over 2021–29 - Capital expenditures expected to rise from 5 percent of GDP in 2018 to 7.4 percent in 2024 under PDNES - Capital expenditures expected to remain high at 7.6 percent of GDP, on average, over 2025–29 - Grants: stood at 1.4 percent of GDP in 2018 and expected to remain at 1.1 percent of GDP on average over 2019–21 - Note on fiscal anchors: While the primary fiscal balance drives public debt, the basic fiscal balance is the main fiscal anchor under the ECF program. The basic fiscal surplus is projected to improve from 0.8 percent of GDP in 2018 to an average of 0.8 percent of GDP during 2019–24. - Current account: - Expected deficit of about 19 percent of GDP in 2019–20 - Expected to average 12 percent of GDP over 2021–24 - Drivers: high imports for mining and public infrastructure projects, including the Souapiti dam, financed by FDI and external borrowing; investments will boost exports and gradually narrow the current account deficit - External financing mix and terms: - New external borrowing expected to pick up from 4.0 percent of GDP in 2018 to 12.1 percent in 2019 *Prepared by the International Monetary Fund and the International Development Association; Guinea: Joint Bank-Fund Debt Sustainability Analysis (July 10, 2019).* ### 6.8 percent of GDP over 2019–21. The pick-up in debt accumulation in the short term ### 1ginea2019004 - 6.8 percent of GDP over 2019–21. The pick-up in debt accumulation in the short term ### Short-term pick-up in debt accumulation - The pick-up in debt accumulation over 2019–21 reflects the one-off impact of borrowing to finance the construction of the Souapiti dam signed in September 2018. - For the Souapiti loan (US$1.2 billion signed on September 4, 2018): - US$980 million expected to be disbursed in 2019. - US$155 million expected to be disbursed in 2020. - US$41 million expected to be disbursed in 2021. - The DSA also incorporates non-concessional borrowing of US$658 million (5 percent of 2018 GDP) to finance priority projects to be disbursed over 2019–21. - Out of this envelope, US$598 million were signed with Eximbank China and ICBC in September 2018 to finance the rehabilitation of the RN1 national road and the Conakry urban road network. - For the US$598 million envelope: US$109 million is expected to be disbursed in 2019, US$208 million in 2020, and the remaining amount in 2021. - In addition, US$60 million (0.4 percent of 2019 GDP) in non-concessional budget support from Qatar was signed in November 2018 and disbursed in April 2019. - Net effect on public sector debt: - Public sector debt (PV) peaks in 2019 at 37.2 percent of GDP (vis-à-vis the benchmark of 35 percent of GDP). - The pick-up in 2019–21 contributes to an increase in identified debt-creating flows and a temporary breach of the PV of total public debt-to-GDP benchmark for 2019 and 2020. ### External borrowing composition, terms, and expected path - External borrowing is expected to remain sustained to finance infrastructure development: - Averaging at about 3 percent of GDP over 2021-29. - Averaging 2.3 percent of GDP over 2030–39. - Anticipated World Bank support and project loans included in projections: - World Bank budget support of US$100 million in 2019 and US$40 million in 2020. - Project loans of US$325 million over the period 2020-24, including the World Bank enclave loan of $200 million for the agricultural sector. - Grant element and concessionality: - Average grant element of new borrowing expected to decline sharply to about 31 in 2019 (36.3 in 2018). - Average grant element expected to be 30.4 percent in the long run. - The decline reflects the mostly non-concessional nature of near-term borrowing and large expected disbursements from the Souapiti loan. ### Domestic borrowing and fiscal financing assumptions - Net government domestic financing is expected to be negative throughout 2019–24: - -1.1 percent of GDP in 2019. - -0.7 percent of GDP in 2020. - Averaging -0.5 percent of GDP for 2021-24. - Rationale: - Government expected to gradually repay past borrowings from the BCRG, domestic arrears accumulated during 2017–18, and the validated 1982–2013 arrears to the private sector in line with the clearance strategy approved in December 2017. - Supported by revenue mobilization and containing current non-priority spending. - Net domestic borrowing is expected to turn positive in the long term. - Key macro-fiscal assumptions noted in the projections: - Real GDP growth projections at about 6 percent in 2019–20, predicated on conservative assumptions. - Primary deficit projections and revenue/grants assumptions are built into the public sector DSA tables (examples: revenue and grants 15.6 percent in 2019; primary deficit 1.8 percent in 2019). ### Debt sustainability assessment, risk rating, and stress tests - Composite Indicator and capacity: - The Composite Indicator for Guinea is 2.51 based on the April 2019 WEO vintage and the 2018 update for the CPIA index, which classifies Guinea at weak debt-carrying capacity. - Overall risk assessment: - Guinea stands at moderate risk of external debt distress. - Guinea’s overall risk of debt distress is assessed to be moderate, with staff judgement applied. - External debt ratios and projections: - Under the baseline scenario, all external debt ratios remain below their policy dependent thresholds. - The PV of external debt-to-GDP is expected to peak at 23.3 percent in 2026. - Total public debt: - PV of total public debt-to-GDP ratio peaks in 2019 at 37.2 percent of GDP. - Staff applied judgment to assign a moderate risk rating because: (i) the magnitude of the breach is marginal and temporary (two years); and (ii) the 2018 recapitalization of the BCRG affects only one debt burden indicator and will not add to near-term debt service burden (recapitalization conducted by issuing 30-year bonds; no payment expected until 2046). - Tailored and contingent liabilities stress tests: - Two tailored stress tests were triggered given Guinea’s features: - A contingent liabilities stress test capturing combined shocks from SOEs’ external debt default, PPPs’ distress and/or cancellations, and financial market vulnerabilities amounting to 8.3 percent of GDP. - A commodity prices stress test, given mining exports constitute more than 80 percent of total exports. - Under the historical scenario and most extreme stress tests, indicators breach thresholds; under two more plausible country-specific scenarios (weak policy and higher non-concessional loans) indicators were assessed separately. - Notes on stress-test definitions: - The contingent liability shock of 8.3 percent of GDP comprises a minimum starting value of 5 percent of GDP (average cost to a LIC of a financial crisis since 1980) plus a tailored PPP shock estimated at 3.8 percent of GDP based on the 2018 PIMA report. - The most extreme stress test is defined as the test that yields the highest ratio in or before 2029. ### Country-specific scenarios and sensitivity analyses - Country-specific alternative scenarios performed: - Weak policy implementation scenario: - Assumes real GDP growth is 1 percentage point below the baseline over 2019–38. - Assumes the basic fiscal balance is 0.5 percent of GDP in 2019–20 (slower revenue collection). - Higher non-concessional loans scenario: - Assumes an additional non-concessional borrowing of U$260 million (projected cost of the envisaged Lissan-Foni electricity transmission project to be disbursed during 2019–22) on top of the programmed envelope of US$650 million in non-concessional loans. - Sensitivity analyses (selected outcomes reported in DSA tables and figures): - Under the weak policy scenario and higher non-concessional borrowing scenario, debt indicators were stressed and compared to thresholds; specific tabled values and breaches are provided in the DSA tables. ### Policy implications and authorities’ stance - Authorities’ position: - Authorities broadly agreed with DSA conclusions and underscored commitment to maintaining a sustainable level of debt that does not exceed a moderate risk of debt distress. - Authorities concurred on the importance of maximizing concessional borrowing where possible but noted concessional financing is not available at the scale needed for large infrastructure plans. - Authorities committed to continuing the strategy to gradually clear domestic arrears to the private sector and strengthening debt management. - Policy implications highlighted in the analysis: - Space for additional borrowing is limited, notably in the near term. - Risks that could worsen total public debt dynamics include delays in repaying domestic arrears or debt owed to the BCRG, higher-than-anticipated government borrowing from the BCRG, or new audits of domestic arrears. - The ECF arrangement supports a fiscal adjustment considered feasible given Guinea’s fragility and capacity constraints. *Source: IMF staff estimates and projections (excerpts from the Guinea DSA chapter).* ### 4. Market Financingn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a. ### 4. Market Financingn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a. ### Debt dynamics and DSA findings - Guinea’s overall public debt at end-2018 stood at 37.6 percent of GDP, down from 39.6 percent in 2017. - External public debt decreased from 19.4 percent of GDP in 2017 to 19.1 percent in 2018. - The updated debt sustainability analysis (DSA) indicates Guinea remains at moderate risk of external debt distress with some space to absorb shocks. - Figures and charts in the chapter illustrate: - PV of Debt-to-Revenue Ratio, Debt Service-to-Revenue Ratio, PV of Debt-to-GDP Ratio (projections and breaches indicated by bold values). - Drivers of debt dynamics (nominal interest rate, real GDP growth, price and exchange rate, current account + FDI, residual, change in PPG debt). - Distribution across LICs (interquartile range and median) for 5-year historical and projected change in PPG debt and contribution of unexpected changes. ### Recent macroeconomic developments and program performance - Real GDP growth in 2018: 5.8 percent. - Real GDP growth projected for 2019 and 2020: 6 percent (each year). - Headline inflation: 9.9 percent at end-December 2018; 9.7 percent (y-o-y) in March 2019. - Core inflation: 4 percent (y-o-y) in March 2019, down from 4.5 percent at end-2018. - Basic fiscal balance: - Staff report initially identified a surplus of GNF 502 billion (0.4 percent of GDP) at end-March 2019 (IT met). - Revised data indicate a surplus of GNF 261 billion (0.2 percent of GDP) at end-March 2019 (end-March IT on the basic fiscal balance missed by about 0.2 percent of GDP). - Domestic arrears: - Previously reported reduction (net) of GNF 1,192 billion (IT met). - Revised reduction (net) of GNF 961 billion (IT continues to be met by a considerable margin). - New domestic arrears accumulated by the central government (net) reflected in table and memorandum items (selected entries: -340; -409 Met; -390; -82; 244 Not Met; -95; -961 Met; -152; -857; -812; -45; -90; -104; -127). - Tax revenues and collection: - Overall tax revenues increased to 5.5 percent of GDP at end-May 2019 (from 3.0 percent of GDP at end-March 2019). - Mining tax revenues: 1 percent of GDP at end-May 2019 (from 0.5 percent of GDP at end-March 2019). - Non-mining tax revenues: 4.6 percent of GDP at end-May 2019 (from 2.4 percent of GDP at end-March 2019). - Indicative targets on tax revenue were missed at end-2018 and end-March (shortfalls noted in Table 1). - Current account: - Current account deficit widened to 18.4 percent of GDP in 2018 from 7.1 percent of GDP in 2017. - Projected current account deficit: 19 percent of GDP (on continued investment-related imports, largely financed by FDI). - International reserves: - Central bank gross international reserves: 3.3 months of imports coverage at end-December 2018; 3.6 months at end-March 2019. - BCRG’s international reserves expected to reach 3.8 months of imports cover by 2020. - Exchange rate: - Premium between official and foreign exchange bureaus rates: 0.48 percent at end-December 2018. - Banking sector: - Credit to the private sector grew by 11.2 percent (average, y-o-y) in 2018 and by 15 percent (average, y-o-y) in 2019 Q1. - Non-performing loans: 10.6 percent in 2017; 12.2 percent in 2018. - Program implementation and performance criteria (selected): - All quantitative PCs at end-December 2018 on net international reserves, basic fiscal balance, net government borrowing from the central bank (BCRG) and net domestic assets were met. - Continuous PCs on non-accumulation of external arrears and new non-concessional external debt contracted or guaranteed by the government and the central bank were met. - Indicative target on domestically-financed social safety net programs at end-2018 was observed. - Indicative targets on tax revenue and on accumulation of new domestic arrears by the central government were missed due to social tensions affecting activity and finances. - Continuous performance criterion on new non-concessional external debt contracted or guaranteed (US$ million cumulative ceiling) reported with multiple met entries at 650 (and related memorandum items). ### Fiscal policy, revenue mobilization and public investment - Fiscal framework for 2019 revised to meet target of basic fiscal surplus of 0.6 percent of GDP. - Fiscal policy objectives: - Create space to scale up public investments in infrastructure and social protection. - Mobilize additional tax revenues and contain non-priority spending. - Revenue mobilization measures: - Modernize tax administration to increase effectiveness of tax collection. - Streamline tax exemptions. - Conduct tax audits and pursue recovery of tax arrears. - Boost mining sector revenue through enhanced transparency and governance. - Review by end-2019 the petroleum price adjustment mechanism. - Increase electricity tariffs to cost-recovery level to reduce subsidies over the medium-term. - Public financial management: - Fiscal structural reforms guided by 2018 PEFA recommendations to reinforce public financial management. - Finalize new regulatory framework of public investment management by end-2019 for better project execution and monitoring. ### Debt policy, domestic arrears clearance, and debt management capacity - Authorities plan to: - Sustain moderate risk position by implementing a prudent debt policy anchored by pertinent program PCs. - Improve public debt management and address capacity constraints through technical assistance. - Gradually clear domestic arrears accumulated in previous fiscal years to help contain public debt and reinvigorate private sector activity. ### Monetary and financial sector policies - Monetary policy stance: - Remain prudent to reduce inflation further to single digits and increase exchange rate flexibility. - Contain central bank financing to government within program limits. - Use new liquidity forecast and liquidity instruments to meet monetary targets. - Implement BCRG’s rule-based foreign exchange intervention strategy to reduce discretion and promote market flexibility. - Central bank governance and supervision: - Fully execute remaining recommendations of the 2018 safeguard assessment to strengthen governance, financial reporting, transparency and accountability. - Enhance banking supervision, regulation and financial stability, including adoption of a banking resolution framework by end-2019. - Ensure banks comply with capital and reserve requirements. - Financial inclusion: - Develop by end-2019 a National Strategy to facilitate access to finance for SMEs, women and the youth (with World Bank support). - Promote digital finance to extend services to vulnerable and unbanked populations. ### Structural reforms, governance, and social safety nets - Structural reform priorities: - Improve business climate and governance; Guinea gained 27 places in World Business Indicators between 2013 and 2018. - Finalize by end-2019 online tax declaration and payment system. - Operationalize one-stop shop for foreign trade. - Establish a Credit Information System to promote private sector financing. - Governance and anti-corruption: - Approve by September 2019 decrees implementing the asset declaration regime and fully operationalize the National Agency for the Fight Against Corruption. - Adopt a new AML/CFT law in line with international standards by end-November 2019 (with Fund technical assistance). - Develop tools for a risk-based approach to AML/CFT and enhance capacities of the Financial Intelligence Unit. - Social safety nets: - Establishment in January 2019 of National Agency for Economic and Social Inclusion (ANIES). - Reinforce non-contributory and domestically-financed social safety nets under the Social Development and Solidarity Fund and the Productive Social Safety Net Program. - Finalize a unified social register of vulnerable population by 2020 (with World Bank assistance). - Expand cash transfer and labor-intensive public works programs. ### Realism tools and fiscal adjustment feasibility - Figures show: - Distribution of 3-year adjustment in primary balance (percentage points of GDP) for Fund-supported programs for LICs (since 1990). - Fiscal adjustment and possible growth paths under different fiscal multipliers (multipliers shown: 0.2, 0.4, 0.6, 0.8). - Public and private investment rates (percent of GDP) and contribution to real GDP growth (percent, 5-year average). - Charts compare historical and projected government and private investment (Prev. DSA vs. Current DSA). ### Conclusion and authorities’ request - Authorities reaffirm commitment to ECF-supported program objectives through prudent macroeconomic policies and reforms. - They request Executive Board approval for: - Completion of the Third Review under the ECF arrangement. - Modification of the external debt performance criterion. *Sources: Country authorities; and staff estimates and projections.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1ginea2019004.pdf_