## IMF Staff Report Excerpt — Guinea (Content unit: 1ginea2020002) ## Source details **Canonical URL:** [IMF Staff Report Excerpt — Guinea (Content unit: 1ginea2020002)](https://www.imf.org/-/media/files/publications/cr/2020/english/1ginea2020002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2020/english/1ginea2020002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2020/english/1ginea2020002.pdf.json) --- ### Context, program objectives, and risks - Real growth expected at 5.8 percent in 2020, supported by rebounding mining production and investment-led construction activity. - Poverty incidence about 60 percent of the population; social outcomes below sub-Saharan Africa average. - 2017–20 ECF arrangement objectives: foster high and broad-based growth and reduce poverty while preserving stability; strengthen macroeconomic resilience; scale-up growth-supporting public investment while preserving debt sustainability; strengthen social safety nets; promote private sector development. - Program quantitative targets include: maintain international reserves at 3.8 months of import cover; achieve an average basic fiscal surplus of 0.6 percent; reduce inflation to 8.5 percent by 2020. - Major program risks: political and social instability related to elections and a constitutional referendum; COVID-19 outbreak risk; weaker external demand and commodity prices; capacity and governance constraints. ### COVID-19 baseline, preparedness, and scenarios - Baseline assumes no outbreak in Guinea; as of March 10, 2020, no declared coronavirus case in Guinea. - Preparedness measures: National Emergency Preparedness and Response Plan adopted in March 2020; preliminary financing needs estimated at US$13 million (0.1 percent of GDP). - COVID-19 Emergency Plan implementation cost estimated at US$47 million (0.4 percent of GDP) in later update. - Alternative scenarios (assume outbreak in Guinea plus lower China growth in 2020): - Adverse scenario: Guinea real growth weakens to 4.9 percent in 2020 (baseline 5.8 percent). - Ebola-like scenario: real growth declines to 3.4 percent in 2020. - Scenario assumptions: baseline assumes a 0.4 percentage points downward revision to China’s real growth in 2020 and no outbreak in Guinea; both adverse and Ebola-like scenarios assume China growth 1.1 percentage points lower than baseline. The adverse scenario models the impact of the COVID-19 outbreak as 20 percent of the anticipated reduction in China’s growth. The Ebola-like scenario replicates the sectoral impact of the 2014 Ebola crisis. ### Recent economic and financial developments (selected) - Growth and mining: - Real growth: 5.6 percent in 2019 (lower-than-anticipated due to adverse weather-related shock). - Mining production: bauxite production declined by 16 percent (y-o-y) in Q3 2019; mining growth slowed from 32 to 10.6 percent (y-o-y) between June and September 2019; mining growth strengthened to 11.2 percent (y-o-y) at end-November 2019. - Bauxite exports increased by 5 percent (y-o-y) at end-November 2019, after a 22 percent decline in Q3 2019. - External buffers and exchange rates: - Gross international reserves: US$1.3 billion at end-2019 (4.2 months of imports coverage). - Nominal exchange rate depreciated by 3.5 percent (y-o-y) at end-2019. - Real effective exchange rate appreciated by 9.5 percent (average, y-o-y) during 2019. - Inflation and monetary aggregates: - Headline inflation slowed to 9.1 percent (y-o-y) at end-2019. - Core inflation declined to 3.7 percent at end-2019. - Reserve money growth larger-than-programmed at end-2019. - Banking sector: - Private sector credit growth at 24 percent (average, y-o-y) at end-2019. - Banks’ net lending to the government increased by 27 percent (average, y-o-y) at end-2019. - Non-performing loans slightly declined to 12.5 percent at end-June 2019 (other series show NPLs 16.6 percent in September 2019 in some tables). - One bank did not comply with the net equity capital requirement at end-June 2019. ### Program performance and corrective measures - End-June 2019: - All end-June 2019 performance criteria and the indicative targets on domestically-financed social safety nets programs and new domestic arrears were met. - End-June IT on tax revenues missed marginally. - End-September 2019: - Performance deteriorated; large tax revenues shortfall of 1 percent of GDP prompted corrective measures. - Authorities adopted an expenditure commitment plan (prior action). - End-December 2019 (preliminary): - Preliminary data point to most end-December 2019 performance criteria having been met; basic fiscal balance PC expected missed by a minor amount. - Revenues, expenditures, financing (end-2019 highlights): - Overall tax revenues 1 percent of GDP lower-than-programmed at end-2019. - Non-tax revenues lower-than-programmed despite US$90 million 4G license payment because SOGEKA dividends were not distributed. - Spending on goods and services 0.2 percent of GDP larger-than-expected. - Domestically-financed investments 0.4 percent of GDP lower-than-expected; externally-financed investments 1.8 percent of GDP lower-than-anticipated. - Net domestic arrears reduced by 1.1 percent of GDP. - Structural benchmarks: three out of five SBs met; one completed with delay; remaining one to be completed by end-March 2020. ### Fiscal policy strategy and measures - Fiscal anchor: achieve basic fiscal surplus of 0.6 percent of GDP in 2020 to contain inflation and preserve debt sustainability. - Staff supports modest easing of end-2020 fiscal objective by 0.3 percent of GDP to account for a one-off US$40 million guarantee in the electricity sector. - Key revenue and expenditure measures: - Mobilize additional tax revenues (package expected to generate 0.4 percent of GDP in 2020). - Rationalize ad-hoc tax exonerations and operationalize DNI reforms and one-stop-shop for international trade. - Adopt an automatic petroleum products price adjustment mechanism by mid-2020; current rule adjusts monthly if import prices in local currency move by 5 percent. - Advance multi-year electricity tariff reform to reach cost recovery by 2025 (tariffs to be doubled over 2019-25 cumulatively). - Reduce electricity subsidies via tariff increases and EDG efficiency gains (expected subsidy reduction 0.04 percent of GDP in second half of 2020 from tariff increases and additional 0.02 percent of GDP from operational improvements). - Strengthen public investment management and adopt prudent borrowing strategy; external borrowing to support scaling-up public investments to about 7 percent of GDP in 2020. - 2019 actions: - Electricity tariffs increased by 15 percent for households and by 5 percent for industrial and professional consumers in June 2019. - Domestically-financed public investments rephased to compensate for Q4 2019 tax shortfall; rephasing of domestically-financed investments was 0.8 percent of GDP (against programmed 0.4 percent). ### Tax revenue mobilization — exact figures and components - Programmed additional revenue mobilization: 0.4 percent of GDP (total additional revenue in 2019 and 2020 relative to baseline). - Execution End-December 2019: - Additional Revenue Mobilization in 2019 = 0.23 percent of GDP. - Additional Revenue Mobilization in 2020 = 0.42 percent of GDP. - Selected lines (exact figures preserved): - Tax policy measures 0.07 percent of GDP. - Rationalize ad-hoc exonerations 0.05 percent of GDP. - Tax administration measures 0.35 percent of GDP. - Tax recovery from general audits of large enterprises 0.12 percent of GDP. - Collection of recoverable tax arrears 0.10 percent of GDP. - Strengthen collection of Single Land Contribution 0.05 percent of GDP. - 2019 outcome: programmed tax revenue measures expected to generate 0.4 percent of GDP but mobilized about 0.2 percent of GDP in 2019. ### External sector, reserves, and exchange rate policy - Current account: about 14 percent of GDP in 2019, widening to 22 percent of GDP in 2020 under baseline. - International reserves: US$1.3 billion at end-2019 (4.2 months of import coverage); target 3.8 months of import coverage at end-2020. - Exchange rate policy recommendations: - Limit central bank interventions and allow greater exchange rate flexibility to preserve external buffers and reduce REER overvaluation (estimated 16-31 percent overvaluation at end-2018). - Finalize and implement a rule-based intervention strategy (finalized October 2019; implementation expected by mid-2020). - Fully eliminate auction allocation limits to a single participant (completed June 2019). - Monetary policy recommendations: - Target base money in line with program objectives to reduce inflation. - Contain central bank’s lending to the government consistent with statutory limits (no more than 5 percent of the average fiscal revenues of the last three years). - Adopt more active liquidity management and use available liquidity instruments. ### Debt, public investment, and debt sustainability - Debt posture and limits: - Guinea fully utilized the US$650 million envelope of non-concessional loans allowed under the program to finance priority infrastructure. - Two non-concessional loans (US$598 million; 5 percent of GDP) signed in 2018 for road rehabilitation; staff raised concerns as they were collateralized by future mining tax revenues. - Non-concessional budget support of US$60 million signed with Qatar in 2018 (0.4 percent of GDP). - Debt Sustainability Analysis (selected): - Overall risk of external and public debt distress assessed as moderate. - Total public debt at end-2019: US$4.7 billion (34.2 percent of GDP). - External public debt as percent of GDP: 19.5 percent in 2019. - PV of total public debt-to-GDP peaks in 2020 at 35.7 percent of GDP (benchmark 35 percent). - Stress tests show vulnerabilities increase under adverse shocks; most extreme stress tests can breach solvency and liquidity thresholds. - Recommended actions to preserve sustainability: - Maximize concessionality of new borrowing and limit non-concessional borrowing to programmed amounts. - Regularly conduct debt sustainability analysis and modernize debt recording systems. - Strengthen institutional coordination and implement prudent debt and public investment management; finalize PPP framework and public investment manual (feasibility studies required for major projects). ### Financial sector reforms and safeguards - Safeguards and central bank: - BCRG recapitalized; financial reporting and accountability strengthened; external audit of monetary data conducted. - Remaining actions: finalize peer review of currency operations; set up a middle office for FX operations; strengthen internal audit capacity and oversight. - Banking supervision and stability: - Updated accounting framework and reporting system for banks being implemented; new risk-based rating methodology operational. - Priority actions: increase human resources in banking supervision; strengthen early intervention policy; operationalize emergency liquidity assistance framework; operationalize deposit guarantee and banking resolution framework with IMF TA. - Newly-created development bank (NIBG) will not be allowed to collect retail deposits. ### Social safety nets, inclusion, and targeting - Program priority: strengthen social safety nets and scale up domestically-financed programs. - Indicative targets: domestically-financed social safety nets raised to GNF 240 billion in 2019 and to GNF 300 billion in 2020. - Actions and pilots: - Cash transfers to poor households in urban and peri-urban areas started; labor-intensive public works stepped up. - Prototype registry of vulnerable population established (end-February 2020 SB) with World Bank support; aim to register 800,000 vulnerable households by mid-2020. - Pilot expansion planned over eight regions during December 2019–June 2020. ### Structural reforms, governance, and business climate - Business climate and reforms: - One-stop-shop for international trade operationalized; SyNERGUI online business creation platform operationalized. - Tax code streamlined; online tax declaration and payment system, and one-stop shop for land registration remain priorities. - Anti-corruption and AML/CFT: - Implementation decree for asset declaration regime finalized and to be adopted by end-March 2020 (missed end-September 2019 SB). - New AML/CFT law to be submitted to National Assembly by March 2020; risk-based AML/CFT internal controls for BCRG and AML/CFT supervision of banks being finalized. - Financial inclusion: - National Strategy for Financial Inclusion being finalized; priorities include digital finance, financial education, electronic safeguards registry to foster credit access for SMEs, women, and youth. ### Program financing, reviews, and staff appraisal - Staff supports completion of the fourth review under the ECF arrangement given satisfactory performance and corrective measures. - Completion of fourth review would result in disbursement of SDR 17.213 million and catalyze donor support. - Firm financing assurances in place until end of the arrangement: - World Bank budget support: US$40 million in 2020. - European Union disbursements: EUR18 million expected in December 2019 were disbursed in early 2020; an additional EUR18 million anticipated in 2020. - Proposed program adjustments: revise end-March 2020 and end-September ITs and set end-June 2020 PCs; continue semi-annual reviews. ### Capacity building and technical assistance (FY2019–20) - Guinea is a pilot country under IMF Capacity Building Framework for fragile countries. - TA delivered: FY19 — 40 missions (21 AFRITAC West, 19 HQ including two resident LTX); FY20 (so far) — 23 missions (13 AFRITAC West, 10 HQ) and two resident LTX experts. - Main TA focus areas: tax policy and administration; public expenditures and investment management; treasury single account and cash management; government finance statistics; national accounts; monetary policy framework; reserves strategy; debt management; banking supervision; anti-corruption and AML/CFT. - Capacity and absorption constraints noted; recommended measures: wider dissemination of TA results, prioritization of recommendations, training on the job, and improved continuity of local staff. *International Monetary Fund staff report excerpt based on the provided content.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and background - Real growth is expected at 5.8 percent in 2020, supported by rebounding mining production and investment-led construction activity. - Legislative elections and a referendum for a new constitution will be held in March and presidential elections by end-year. Protests against the referendum are ongoing. Risks of political and social instability are high. - Poverty incidence is at about 60 percent of the population. Social outcomes are below sub-Saharan Africa average. - The 2017–20 ECF arrangement supports: fostering high and broad-based growth and reducing poverty while preserving stability; strengthening macroeconomic resilience; scaling-up growth-supporting public investment in infrastructure while preserving debt sustainability; strengthening social safety nets; and promoting private sector development. - Program targets include maintaining international reserves at 3.8 months of import cover, achieving an average basic fiscal surplus of 0.6 percent, and reducing inflation to 8.5 percent by 2020. - Guinea is a pilot country under the IMF’s Capacity Building Framework for fragile states; IMF capacity development (CD) is supporting program objectives (Annex I). - The program faces significant implementation risks from political and social instability, electoral pressures, weak institutions and governance. ### Covid-19 baseline and monitoring - The baseline scenario assumes no outbreak in Guinea. As of March 10, 2020, there was no declared coronavirus case in Guinea. - The baseline incorporates initial global downward revisions to growth due to the COVID-19 outbreak. - Country authorities and IMF staff are keeping a close watch on macroeconomic developments, needed policy responses, and their impact on financing needs as the situation evolves. ### Recent economic and financial developments - Mining activity recovered after disruption from severe weather in Q3 2019: - Bauxite production declined by 16 percent (y-o-y) in the third quarter of 2019. - Mining growth slowed from 32 to 10.6 percent (y-o-y) between June and September 2019. - Mining growth strengthened to 11.2 percent (y-o-y) at end-November 2019. - Bauxite exports increased by 5 percent (y-o-y) at end-November 2019, after a 22 percent decline in Q3 2019. - Reserves and exchange rates: - Gross international reserves surged to US$1.3 billion at end-2019 (4.2 months of imports coverage). - The nominal exchange rate (against the US$) depreciated by 3.5 percent (y-o-y) at end-2019. - The real effective exchange rate appreciated by 9.5 percent (average, y-o-y) during 2019. - Inflation: - Headline inflation slowed to 9.1 percent (y-o-y) at end-2019. - Core inflation declined to 3.7 percent at end-2019. - Banking sector: - Private sector credit growth was at 24 percent (average, y-o-y) at end-2019. - Banks’ net lending to the government increased by 27 percent (average, y-o-y) at end-2019. - Non-performing loans slightly declined to 12.5 percent at end-June 2019. - One bank did not comply with the net equity capital requirement at end-June 2019. ### Performance under the program - End-June 2019: - All end-June 2019 performance criteria and the indicative targets (ITs) on domestically-financed social safety nets programs and new domestic arrears accumulated by the central government were met. - The end-June IT on tax revenues was missed by a marginal amount. - End-September 2019: - Program performance deteriorated at end-September 2019 as lower-than-programmed tax revenues weighed on fiscal performance and financing needs. - Corrective measures were implemented to achieve end-2019 program targets. - End-December 2019 (preliminary): - Preliminary data point to most end-December 2019 performance criteria having been met. - Revenues, expenditures, and financing at end-2019: - Overall tax revenues were 1 percent of GDP lower-than-programmed at end-2019. - Non-tax revenues were lower-than-programmed despite the US$90 million payment for the sale of 4G licenses, because dividends from SOGEKA were not distributed. - Spending on goods and services was 0.2 percent of GDP larger-than-expected; the wage bill and electricity subsidies were as programmed. - Domestically-financed investments were 0.4 percent of GDP lower-than-expected. - Externally-financed investments were 1.8 percent of GDP lower-than-anticipated. - After a surge in borrowing from the central bank in September-November, a net repayment was recorded at end-2019; borrowing from commercial banks surged. - Net domestic arrears were reduced by 1.1 percent of GDP. - Structural benchmarks and reforms: - Program-supported reforms advanced and most structural benchmarks were met. ### Program strategy and policy recommendations - Fiscal policy: - Achieving the programmed basic fiscal surplus in 2020 will contribute to containing inflation and preserving debt sustainability. - Mobilizing additional tax revenues and reducing electricity subsidies will create fiscal space to scale-up growth-supporting public investments and strengthen social safety nets. - Key measures: implement programmed tax revenue measures; adopt an automatic petroleum products price adjustment mechanism; advance the multi-year electricity tariff reform. - Strengthen public investment management to support the fiscal strategy. - Prudent borrowing strategy to support scaling-up growth-supporting public investment while preserving debt sustainability. - Monetary and exchange rate policy: - Limit central bank’s interventions in the foreign exchange market and allow greater exchange rate flexibility to preserve external buffers against shocks. - Contain central bank’s lending to the government to reduce inflationary pressures. - Governance and structural reforms: - Strengthen governance and the business climate to foster private sector development. - Strengthening social safety nets is a program priority. ### Staff views and program financing - Given satisfactory program performance at end-June 2019 and corrective actions to achieve end-2019 targets, staff supports the authorities’ request for completion of the fourth review under the ECF arrangement. - Completion of the fourth review would result in the disbursement of SDR 17.213 million and catalyze donor support. - The program is subject to significant risks; maintaining strong ownership is needed. *March 18, 2020 — International Monetary Fund* ### 8. Performance against end-June 2019 program targets was satisfactory. All end-June 2019 ### 8. Performance against end-June 2019 program targets was satisfactory. All end-June 2019 ### Program performance and corrective measures - All end-June 2019 performance criteria (PCs) on the basic fiscal balance, net international reserves, net government borrowing from the central bank, and net domestic assets were met. - End-June indicative targets (ITs) on domestically-financed social safety net programs and new domestic arrears were met. - Tax revenues were in line with program objectives, with the related IT missed by a marginal amount. - After deterioration at end-September 2019: - All end-September ITs, except on net international reserves, were missed. - A large tax revenues shortfall of 1 percent of GDP prompted additional measures to contain spending in late 2019. - Authorities adopted an expenditure commitment plan (prior action); the fourth review was delayed to allow implementation of corrective measures. - Preliminary data point to most end-December 2019 PCs having been met; the PC on the basic fiscal balance is expected to have been missed by a minor amount. - The continuous PC on contracting or guaranteeing of non-concessional external debt was met. - Program risks: the program is subject to significant implementation risks and maintaining strong program ownership is essential. ### Structural reforms and benchmarks - Reforms progressed to: strengthen macroeconomic resilience; reduce untargeted energy subsidies; improve public financial and debt management; strengthen the anti-corruption framework and business climate. - Structural benchmarks (SBs): three out of five SBs were met; one missed SB was completed with a delay; the remaining one will be completed by end-March 2020. ### Outlook and projections - Growth: - Real growth: 5.6 percent in 2019 (lower-than-anticipated due to adverse weather-related shock to mining activity). - Projected: 5.8 percent in 2020 and 6.2 percent in 2021 (rebounds in mining, investment-boosted construction, and scaled-up electricity production). - Baseline assumes initial global downward revisions to growth due to the COVID-19 outbreak, and assumes no outbreak in Guinea. - Baseline program scenario assumptions: (i) new mining production capacity coming on stream gradually; (ii) public investments lower than envisaged in Guinea’s 2016-20 National Economic and Social Development Plan; (iii) Kaleta dam reaching full production capacity and Souapiti dam starting operations in 2020. - Inflation: expected to moderate to 8 percent at end-2020, owing to a prudent monetary policy and contained central bank budgetary financing. - Current account and reserves: - Current account deficit: about 14 percent in 2019, widening to 22 percent of GDP in 2020. - International reserves: expected at 3.8 months of import coverage at end-2020. - External imbalances expected to narrow over the medium-term as mining exports strengthen and import growth slows after Souapiti completion. ### Risks to the outlook - Downside risks include: social and political instability; a COVID-19 outbreak; weaker demand for bauxite from main trading partners; lower aluminum price; capacity and execution constraints in public investment; governance slippages. - Upside factor: stronger-than-expected mining production could support higher growth. ### Box: Risk and Potential Impact of the COVID-19 Outbreak - Preparedness: - A National Emergency Preparedness and Response Plan adopted in March 2020. - Preliminary estimated financing needs: US$13 million (0.1 percent of GDP). - Prevention measures: rapid response teams deployed; enhanced screening at points of entry; three laboratories equipped for diagnosis; a quarantine center prepared in Conakry. - Economic impact if outbreak occurs: - Expected to hit manufacturing, commerce and services, and transport due to border closures, social distancing and reduction in labor supply. - Would weaken tax revenues and, together with scaled-up health spending, deteriorate the fiscal position. - A slowdown in China could weaken demand for bauxite and delay FDI in mining, reducing production, exports, and tax revenues, and straining budgetary resources and international reserves. - Alternative scenarios (assume outbreak in Guinea plus lower China growth in 2020): - Adverse scenario: Guinea real growth weakens to 4.9 percent in 2020 (baseline 5.8 percent). - Ebola-like scenario: real growth declines to 3.4 percent. - Scenario assumptions: baseline assumes a 0.4 percentage points downward revision to China’s real growth in 2020 and no outbreak in Guinea; both adverse and Ebola-like scenarios assume China growth 1.1 percentage points lower than baseline. The adverse scenario models the impact of the COVID-19 outbreak as 20 percent of the anticipated reduction in China’s growth. The Ebola-like scenario replicates the sectoral impact of the 2014 Ebola crisis. ### Fiscal policy and creating fiscal space - End-2019 adjustment: - Domestically-financed public investments were rephased to compensate for the tax revenues shortfall in Q4 2019. - Electricity tariffs increased by 15 percent for households and by 5 percent for industrial and professional consumers in June 2019. - Non-tax revenues from the sale of the 4G licenses were mobilized. - Additional measures to reach programmed end-year basic fiscal surplus of 0.6 percent of GDP included: i) mobilizing additional non-tax revenues; ii) containing non-priority spending in goods and services; iii) rephasing non-priority domestically-financed public investments. - Staff regrets end-2019 adjustment skewed towards containing domestically-financed investments, rephased by 0.8 percent of GDP (against programmed 0.4 percent of GDP), as spending in goods and services was higher-than-anticipated and non-tax revenues from SOGEKA were not disbursed. - Fiscal objective for 2020: - Achieving a basic fiscal surplus of 0.6 percent of GDP in 2020 will help contain inflation and preserve debt sustainability. - Staff supports a modest easing of the end-2020 fiscal objective by 0.3 percent of GDP (compared to the third ECF review) to account for a one-off expenditure for a US$40 million guarantee in the electricity sector and avoid excessive reduction in spending that could harm poverty-reduction objectives. - External borrowing will support scaling-up public investments to about 7 percent of GDP in 2020. ### Tax revenue mobilization and policy measures - 2019 outcomes: - Tax revenue mobilization measures were expected to generate 0.4 percent of GDP revenues in 2019, but programmed measures were partially implemented and mobilized about 0.2 percent of GDP in 2019. - 2020 measures: - Authorities will implement a package of tax policy and administration measures in 2020, expected to generate 0.4 percent of GDP additional revenues. - Measures include rationalizing ad-hoc tax exonerations, operationalizing the new organizational structure of the National Directorate for Taxes (DNI) with IMF TA support, operationalizing the one-stop-shop for international trade, and cleansing taxpayers’ files. - Text Table 3 highlights (preserve exact figures from source): - Tax revenue mobilization: 0.4 percent of GDP (total additional revenue in 2019 and 2020 relative to baseline). - Execution End-December 2019: Additional Revenue Mobilization in 2019 = 0.23 percent of GDP; Additional Revenue Mobilization in 2020 = 0.42 percent of GDP. - Selected lines: Tax policy measures 0.07 percent of GDP; Rationalize ad-hoc exonerations 0.05 percent of GDP; Tax administration measures 0.35 percent of GDP; Tax recovery from general audits of large enterprises 0.12 percent of GDP; Collection of recoverable tax arrears 0.10 percent of GDP; Strengthen collection of Single Land Contribution 0.05 percent of GDP. - Note: The DNI refers to the National Directorate of Taxes. ### Petroleum products pricing and mitigation - A 5 percent increase in retail prices of petroleum products occurred in August 2019. - Current retail prices are expected to remain above import prices in 2020 given the outlook for international oil prices. - Authorities aim to adopt a new automatic petroleum price adjustment mechanism, tailored to Guinea’s social context, by mid-2020 and to conduct a communication campaign ahead of implementation. - The current price adjustment rule (applied ad-hoc historically) increases (decreases) retail prices monthly if import prices in local currency are 5 percent higher (lower) than previous month. - Targeted social safety nets to protect the most vulnerable from energy subsidy reform started to be implemented. ### Mining sector taxation and profit shifting - Mining tax revenues expected to increase by about 0.4 percent of GDP in 2020 due to rebounding production and exports. - Avoiding ad-hoc tax exonerations is pivotal to capture revenue windfalls from new mining entrants. - A new mining tax revenues model, developed with IMF TA, will assess tax revenue losses from exonerations. - Key international taxation provisions to address profit shifting from transfer pricing were adopted in 2019; ensuring appropriate export pricing and strengthening tax administration capacity are needed to reduce profit-shifting risks. ### Electricity tariffs and subsidy reduction - Multi-year tariff reform aims to raise tariffs to cost recovery levels by 2025; tariffs will be doubled over 2019-25 (on a cumulative basis). - Electricity tariff changes: - 2019: increase was first step; in July 2018 earlier increases occurred (25 percent for industrial/professional users and 10 percent for households). - 2020 planned: increase by 9 percent for households and 10 percent for industrial and professional users (social tariff maintained). - Expected fiscal effects: - Reduce electricity subsidies by 0.04 percent of GDP over second half of 2020 from tariff increases. - Improve EDG operational efficiency to contribute an additional 0.02 percent of GDP subsidy reduction in 2020. - EDG operational improvements: installation of consumption meters for private consumers is advancing. - Note: About 90 percent of EDG subsidy needs stem from tariffs being below cost recovery (average tariff covered about 40 percent of production and service costs at end-2018); remaining subsidy need due to EDG operational inefficiencies. _International Monetary Fund staff summary based on the provided content._ ### 20. Greater exchange rate flexibility is needed to preserve Guinea’s external buffers against ### 20. Greater exchange rate flexibility is needed to preserve Guinea’s external buffers against ### Exchange rate policy and external buffers - Gross international reserves were higher-than-programmed at end-June 2019 (3.7 months of import coverage). - Following strong pressures in the foreign exchange market, the BCRG stepped-up interventions during September-October 2019, contributing to a decline in international reserves. - The BCRG limited interventions during November-December 2019 while allowing a modest depreciation, as agreed with staff. - Continued limits on interventions and greater exchange rate flexibility are needed to preserve external buffers in line with the ARA-CC metric reserve adequacy estimate (3.8 months of import cover). - Greater exchange rate flexibility will reduce the real effective exchange rate overvaluation (between 16-31 percent at end-2018) and improve an external position that is substantially weaker than the level consistent with economic fundamentals and desirable policies. - Progress in market-based reforms: - The limit on auctions allocation to a single participant was fully eliminated in June 2019. - The BCRG finalized a rule-based intervention strategy in October 2019; implementation expected by mid-2020 (will allow intervention when market exchange rate change exceeds an undisclosed threshold). ### Monetary policy, liquidity management, and central bank financing - Reserve money growth was larger-than-programmed at end-2019, reflecting an end-year pick-up in net foreign assets. - Central bank’s lending to the government surged during September-November 2019 due to tax revenue shortfalls and large budgetary financing needs; advances were curtailed in December when budget support and exceptional non-tax revenues were disbursed. - Policy recommendations: - Target base money in line with program objectives to reduce inflation. - Limit central bank’s lending to the government (reference: 2018 Memorandum of Understanding limiting BCRG advances to short-term cash management and statutory limits of the Central Bank Law — no more than 5 percent of the average fiscal revenues of the last three years). - Adopt more active liquidity management — use available liquidity instruments and calibrate liquidity operations (MEFP ¶41). ### Safeguards, financial sector, and supervision - Safeguards implementation status: - BCRG recapitalized; financial reporting and accountability strengthened. - External audit of monetary data at end-June 2019 conducted with no significant issues. - Review of BCRG investment policy completed. - Remaining actions needed: finalize peer review of currency operations, set up a middle office for foreign exchange operations, strengthen internal audit capacity and oversight (BCRG committed to address remaining issues; MEFP ¶45). - Financial sector reforms: - Updated accounting framework and reporting system for banks being gradually implemented. - New risk-based rating methodology for banks operationalized. - Priority actions: increase human resources in banking supervision; strengthen early intervention policy; operationalize emergency liquidity assistance framework; operationalize deposit guarantee and set up banking resolution framework — with IMF TA (MEFP ¶46). - Newly-created development bank will not be allowed to collect retail deposits (MEFP ¶47). ### Debt, public investment, and fiscal policy - Prudent external borrowing to scale-up public investment in 2020; under the program scenario Guinea’s debt is sustainable with a moderate risk of external and overall public debt distress (Debt Sustainability Analysis, 2020). - Guinea fully utilized the US$650 million envelope of non-concessional loans allowed under the program to finance priority infrastructure projects. - Two non-concessional loans (US$598 million; 5 percent of GDP) were signed in 2018 for road rehabilitation; these loans were collateralized by future mining tax revenues and raised staff concerns. - Non-concessional budget support also signed with Qatar in 2018 (US$60 million; 0.4 percent of GDP). - Strengthening debt management: - A national committee and a working group for debt management were operationalized; a full-fledged statistical bulletin published (MEFP ¶38). - Implementation of the end-2017 strategy to clear long-standing domestic arrears is advancing (MEFP ¶36). - Long-standing external arrears (1.4 percent of GDP) remain and efforts to resolve them are ongoing (MEFP ¶37). - Recommended actions: regularly conduct debt sustainability analysis, modernize debt recording system, improve institutional efficiency and coordination (MEFP ¶38). - Public investment management: - Decree to strengthen regulatory framework for public investment management prepared (expected adoption by end-March). - Stock-taking of long-standing public investment projects initiated; some projects discontinued in the 2020 Budget Law (MEFP ¶31). - Integrated investment management platform being operationalized; manual for preparation, appraisal and selection of public investment projects to require feasibility studies for major projects (end-May 2020 SB). - Finalize PPP framework to manage infrastructure development risks (MEFP ¶33). ### Social safety nets and inclusion - End-September spending on domestically-financed social safety net programs was above the end-2019 target, driven by stepped-up health programs. - Cash transfers to poor households in urban and peri-urban areas started; labor-intensive public works were stepped up (MEFP ¶23) to protect vulnerable populations from energy subsidy reform impacts. - Authorities raised end-2020 program target for domestically-financed social safety nets. - A prototype registry of vulnerable population was established (end-February 2020 SB) with World Bank support to strengthen targeting. ### Structural reforms, governance, and financial inclusion - Business climate reforms: - One-stop-shop for international trade operationalized. - Platform for public-private dialogue re-activated. - Tax code streamlined with IMF TA (MEFP ¶49). - Remaining priorities: finalize online tax declaration and payment system; finalize one-stop shop for land registration. - Anti-corruption and AML/CFT: - Implementation decree for asset declaration regime finalized; to be adopted by end-March 2020 (missed end-September 2019 SB); implementing regime is a priority (end-June 2020 SB). - New AML/CFT law aligned with international standards to be submitted to National Assembly by March 2020; risk-based AML/CFT internal controls for BCRG and risk-based AML/CFT supervision of banks being finalized (MEFP ¶50). - Financial inclusion: - National Strategy for Financial Inclusion (NSFI) being finalized with World Bank support (MEFP ¶51). - Priorities: develop digital finance, financial education programs, establish an electronic safeguards registry to foster credit access, notably for SMEs, women, and youth. ### Program modalities, financing assurances, and staff appraisal - Guinea’s credit outstanding to the IMF is at SDR 245.4 million (about 114.6 percent of quota). - Staff considers Guinea has adequate capacity to repay the Fund given program strength, favorable medium-term growth outlook, sustainable debt position, and good track record (Table 7). - Firm financing assurances in place until end of the arrangement; external financing to be catalyzed by the program: - Budget support from the World Bank (US$40 million in 2020). - European Union disbursements: EUR18 million expected in December 2019 were disbursed in early 2020; an additional disbursement of EUR18 million is anticipated in 2020. - Proposed program adjustments: - Revise end-March 2020 and end-September ITs and set end-June 2020 PCs for basic fiscal balance, net international reserves, net government budgetary borrowing from the central bank, and net domestic assets of the central bank. - Revise ITs for tax revenues, domestically-financed social safety nets, and net accumulation of new domestic arrears. - Continue semi-annual program reviews based on quantitative performance criteria and structural benchmarks; QPCs aligned with objectives to reduce inflation, preserve debt sustainability and external buffers. - Staff appraisal highlights: - Growth outlook: real growth expected at 5.6 percent in 2019 and to reach 6 percent in 2020-21, supported by mining and construction investment and scaled-up electricity production. - Risks tilted to the downside, particularly from social and political instability. - Fiscal performance: program targets met at end-June 2019 but deteriorated at end-September due to lower-than-programmed tax revenues; corrective measures taken late 2019. - Policy priorities: mobilize additional tax revenues, reduce untargeted electricity subsidies, implement automatic petroleum price adjustment mechanism, advance multi-year electricity tariff reform, and strengthen public investment management. - Reiteration: continuing to limit BCRG interventions and allowing greater exchange rate flexibility will preserve external buffers and reduce real effective exchange rate overvaluation. - Limiting central bank’s lending to the government and active liquidity management are needed to reduce inflation and achieve monetary targets; strengthening banking supervision and regulation will support financial stability. *IMF staff report excerpt.* ### 39. Strengthening the anti-corruption framework and improving the business climate is ### 39. Strengthening the anti-corruption framework and improving the business climate is ### Progress and needs - Strengthening the anti-corruption framework and improving the business climate is progressing. - Implementing the new asset declaration regime and further strengthening the AML/CFT regime is needed to enhance governance. - Finalizing the online tax declaration and payment system will improve the business climate. - Advancing the national strategy for financial inclusion will support access to credit, notably for the most vulnerable. *Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1ginea2020002.pdf* ### 40. In view of the satisfactory program performance, corrective actions taken and progress ### 1ginea2020002 - 40. In view of the satisfactory program performance, corrective actions taken and progress ### Program decision and risks - Staff supports the authorities’ request for: - completion of the fourth review under the ECF arrangement, - modification of indicative targets, - completion of the financing assurances review. - The program is subject to significant implementation risks and maintaining strong program ownership is essential. ### Recent economic developments (selected indicators from figures and tables) - Real GDP Growth at Factor Cost (annual changes and contributions): 10.3, 6.2, 5.9, 5.6, 5.6, 6.0, 5.8, 6.2, 5.6, 5.1, 5.0, 5.0 - Production and Growth in the Mining Sectors (Millions of tons; percent): Bauxite and Gold production series shown in figures (2010–2019 Prel.). - Inflation (Average year-on-year growth, percent): 8.9, 9.8, 8.9, 8.9, 9.5, 8.3, 8.5, 8.0, 7.9, 7.8, 7.8, 7.8 - Exchange rate indicators (averages): official and parallel exchange rate series in GNF per USD; NEER/REER indices shown in figures. ### External sector — Balance of payments (Table 2, selected rows) - Exports, f.o.b. (US$ terms): 4,073; 3,898; 4,204; 4,019; 4,727; 4,709; 5,132; 5,446; 6,036; 6,520; 6,749 - Mining products: 3,644; 3,482; 3,697; 3,556; 4,045; 4,130; 4,353; 4,594; 5,135; 5,549; 5,707 - Imports, f.o.b. (US$ terms): -4,138; -4,903; -5,298; -4,631; -5,552; -6,176; -5,843; -6,009; -6,284; -6,567; -6,859 - Services trade balance: -704; -689; -808; -605; -849; -970; -879; -860; -902; -945; -1,040 - Income balance: -51; -686; -967; -771; -979; -928; -1,002; -1,002; -1,010; -1,147; -1,091 - Current account balance (Including official transfers, percent of GDP): -6.7; -18.7; -20.7; -13.7; -17.7; -21.9; -15.3; -13.2; -10.8; -10.0; -9.8 - Gross available reserves (US$ millions): 686; 945; 1,140; 1,272; 1,241; 1,241; 1,358; 1,514; 1,685; 1,837; 1,935 - Gross available reserves (months of imports): 2.5; 3.2; 3.6; 4.3; 3.8; 3.8; 3.9; 4.0; 4.0; 4.1; 4.1 ### Fiscal sector — central government (Tables 1, 3a, 3b; selected rows) - GDP at market prices (annual percent change): 21.9; 16.8; 15.2; 14.8; 15.4; 14.6; 14.4; 14.9; 14.0; 13.3; 13.2; 13.1 - Total revenue and grants (percent of GDP): 15.3; 14.5; 15.8; 15.8; 15.2; 14.1; 15.6; 15.8; 15.5; 15.2; 15.0; 15.7 - Revenue (percent of GDP): 13.7; 13.1; 14.4; 14.7; 14.1; 13.7; 14.4; 14.7; 14.4; 14.0; 14.7; 14.7 - Non-mining revenue (percent of GDP): 11.4; 10.6; 12.2; 12.0; 11.8; 11.7; 11.7; 12.1; 12.5; 12.9; 13.4; 13.5 - Grants (percent of GDP): 1.5; 1.4; 1.1; 1.1; 0.5; 1.1; 1.1; 1.0; 0.8; 0.9; 0.9; 0.9 - Total expenditure and net lending (percent of GDP): 17.3; 15.6; 18.4; 17.0; 14.6; 17.5; 18.2; 19.7; 19.4; 19.2; 19.3; 19.4 - Current expenditure (percent of GDP): 11.5; 10.6; 11.3; 11.1; 10.9; 11.2; 11.3; 11.5; 11.5; 11.4; 11.5; 11.5 - Capital expenditure and net lending (percent of GDP): 5.7; 4.9; 7.0; 5.8; 3.6; 6.3; 6.8; 8.1; 7.8; 7.8; 7.8; 7.9 - Overall budget balance (Including grants, percent of GDP): -2.1; -1.1; -2.6; -1.8; -0.5; -2.0; -3.0; -4.0; -3.4; -2.6; -2.1; -2.1 - Overall budget balance (Excluding grants, percent of GDP): -3.6; -2.5; -3.7; -2.9; -0.9; -3.1; -4.1; -5.0; -4.2; -3.5; -3.0; -3.1 ### Fiscal operations (selected levels, Table 3a) - Total revenue and grants (GNF billions, selected entries): 14,342; 15,965; 17,101; 19,876; 19,175; 17,903; 3,998; 9,435; 13,709; 19,710; 19,979; 22,327; 22,067; 21,675; 26,152; 30,447; 35,743; 41,887; 47,621 - Tax revenue (GNF billions, selected entries): 12,443; 13,609; 14,796; 16,960; 16,153; 15,869; 3,710; 8,404; 12,187; 17,612; 17,064; 19,973; 19,537; 19,339; 23,112; 27,142; 31,585; 36,799; 41,672 - Expenditures and net lending (GNF billions, selected entries): 16,276; 17,132; 19,467; 23,102; 21,434; 18,497; 4,281; 8,795; 14,408; 22,585; 23,203; 25,249; 26,450; 26,493; 32,757; 36,806; 41,307; 47,012; 53,521 ### Monetary and financial sector (selected tables) - Central bank net foreign assets (GNF billions, Table 4): 2,901; 4,969; 6,530; 6,713; 5,852; 6,513; 6,304; 8,012; 8,315; 7,619; 8,476; 10,034; 11,694; 13,226; 14,640; 16,015 - Reserve money (GNF billions, Table 4): 11,138; 11,838; 12,386; 12,659; 13,057; 12,823; 13,175; 13,822; 15,533; 13,188; 14,231; 15,412; 16,776; 18,038; 19,166; 20,256 - Broad money (M2, GNF billions, Table 5): 22,458; 24,746; 26,328; 29,450; 30,432; 26,147; 27,284; 27,768; 30,432; 32,103; 35,028; 37,798; 40,193; 42,653; 45,074 - Net foreign assets (percent changes, memorandum): 9.6; 8.3; 4.9; 5.7; 12.1; 4.1; 11.0; 8.0; 12.1; 1.8; 4.6; 5.7; 4.4; 4.0; 3.8 - Broad money (M2) annual growth (percent): 15.8; 10.2; 6.4; 19.0; 23.0; 11.3; 21.7; 9.1; 7.9; 6.3; 6.1; 5.6 ### Financial soundness indicators (Table 6, selected series) - Regulatory Capital to Risk-Weighted Assets (end-period): 18.51; 18.59; 16.98; 16.45; 16.95; 17.49; 17.92; 17.89; 18.65; 17.91; 18.38; 16.83; 16.07; 16.97; 17.16; 15.24; 18.20; 16.00 - Non-performing Loans to Total Gross Loans (percent): 6.34; 5.91; 6.19; 6.07; 6.66; 10.08; 9.36; 9.44; 10.00; 11.42; 11.14; 10.68; 11.05; 8.66; 11.89; 12.15; 12.60; 12.50 - Return on Assets (percent): 1.72; 1.84; 2.21; 2.39; 2.60; 2.20; 2.19; 2.15; 2.35; 2.23; 2.06; 2.05; 2.13; 2.05; 2.02; 2.04; 1.70; 2.04 ### Capacity to repay the IMF (Table 7, selected metrics; SDR millions) - Fund obligations based on existing credit — Principal (SDR millions): 28.2; 34.6; 38.3; 34.4; 37.6; 25.6; 19.3; 13.8; 10.3 - Outstanding credit based on existing and prospective drawings (SDR millions): 268.8; 234.2; 196.0; 161.7; 124.1; 95.0; 65.4; 41.3; 20.7 - Outstanding credit as percent of exports of goods and services: 7.7; 6.2; 4.9; 3.6; 2.6; 1.9; 1.2; 0.7; 0.3 - Outstanding credit as percent of GDP: 2.5; 2.0; 1.6; 1.2; 0.9; 0.6; 0.4; 0.2; 0.1 - Net use of Fund credit (SDR millions): 23.4; -34.6; -38.3; -34.4; -37.6; -29.1; -29.6; -24.1; -20.7 ### Quantitative performance criteria and indicative targets (Table 8, selected items) - Basic fiscal balance (floor; cumulative change for the year) — reported entries and statuses: 499; 261; Not Met; 903; 859; 1,502; Met; 548; 592; 497; Not Met; 691; 829; 265; 254; 622 - Net domestic assets of the central bank (ceiling; stock): 7,780; 7,205; Met; 7,652; 7,586; 6,310; Met; 5,518; 5,585; 6,871; Not Met; 5,856; 6,064; 5,722; 5,688; 5,579 - Net government budgetary borrowing from the central bank (ceiling; stock): 7,533; 6,601; Met; 7,410; 7,344; 5,512; Met; 5,794; 5,861; 6,148; Not Met; 5,626; 5,834; 5,641; 5,623; 5,531 - New non-concessional external debt contracted or guaranteed by central government/central bank (cumulative ceiling; US$ million) — continuous criterion: 650; 658; Met across reporting dates shown. - Indicative target: Tax revenues collected (floor) — reported and status entries: 3,995; 3,710; Not Met; 8,489; 8,489; 8,404; Not Met; 12,939; 12,939; 12,187; Not Met ### Schedule of disbursements under the ECF arrangement (Table 9, selected entries) - Disbursement tranches and timing (percent of quota; Millions of SDRs) and conditions: - 8.035; 17.210 — December 11, 2017 — Executive Board approval of the three-year arrangement under the ECF arrangement. - 8.036; 17.213 — June 11, 2018 — Observance of all relevant performance criteria and completion of the first review. - 8.036; 17.213 — December 11, 2018 — Observance of all relevant performance criteria and completion of the second review. - 8.036; 17.213 — June 11, 2019 — Observance of all relevant performance criteria and completion of the third review. - 8.036; 17.213 — December 11, 2019 — Observance of all relevant performance criteria and completion of the fourth review. - 8.036; 17.213 — June 11, 2020 — Observance of all relevant performance criteria and completion of the fifth review. - 8.036; 17.213 — November 26, 2020 — Observance of all relevant performance criteria and completion of the sixth review. - Total: 56.250; 120.488 *Source: Guinean authorities; and IMF staff estimates and projections (content unit: 1ginea2020002).* ### 1. Gross financing requirements ### 1. Gross financing requirements ### Gross financing requirements — key components and year-by-year figures - Headline series (as presented): - 889 - 2,507 2,770 2,263 2,636 - 2,317 2,88 7 3,067 2,355 2,323 - 2,695 - 2,796 - 3,401 - 2,787 2,676 2,422 2,392 2,430 - External current account deficit: - 744 - 2,212 2,460 1,946 2,332 - 2,037 2,6 00 2,821 2,142 1,944 - 2,380 - 2,595 - 3,332 - 2,540 2,365 2,099 2,079 2,178 - Capital account balance: - 1 - -3 - -17 - -3 - -3 - -23 - -3 - -3 - -23 - -23 - -23 - -3 - -24 - -24 - -25 - -25 - -26 - -27 - -28 - Debt amortization (series as presented): - 46 77778467 6774707070 86 84 84 107127130135140 - Change in arrears, net: - 2 - 0 0000 00001 0 0 0 00000 - Gross reserves accumulation: - 102 - 235 - 236 - 236 - 259 - 212 - 212 - 195 - 162 - 327 - 192 - 101 - -31 - 116 157 171 152 - 99 - IMF Repayments: - 3 - 0 0000 44444 404039 4853485341 ### Available financing — components and figures - Aggregate available financing series: - 849 - 2,396 2,641 2,136 2,510 - 2,193 2,774 2,896 2,2 21 2,207 - 2,581 - 2,685 - 3,247 - 2,787 2,676 2,422 2,392 2,430 - Foreign direct investment, net: - 4 - 1,386 - 1,314 1,586 1,593 1,670 - 1,216 1,259 1,283 1,294 1,875 - 1,901 - 1,940 - 1,6 02 - 1,506 1,737 1,552 1,591 1,589 - Identified disbursements (series as presented): - 307 - 1,082 1,057 - 543 - 399 - 977 1,484 1,509 - 833 - 237 - 6 - 60 - 730 - 1,645 - 1,280 939 870 801 841 - Grants (series as presented): - 175 - 150 - 125 - 188 - 150 - 132 - 118 - 126 - 126 - 63 - 125 - 131 - 120 - 164 144 174 184 196 - Project grants (series as presented): - 143 - 99 - 92 - 155 - 118 - 92 - 93 - 97 - 97 - 39 - 101 - 107 - 97 - 90 - 82 - 88 - 94 100 - Program grants (series as presented): - 33 51333232 4025302924 24 24 22 7562869096 - Loans (series as presented): - 132 - 932 - 932 - 356 - 250 - 845 1,366 1,383 - 707 - 174 - 535 - 599 - 1,525 - 1,116 796 696 61 7 644 - Project loans (series as presented): - 132 - 922 - 921 - 356 - 250 - 834 1,366 1,323 - 647 - 114 - 535 - 599 - 1,525 - 1,076 759 678 - 605 632 - Program loans (series as presented): - 0 - 10 - 11 - 0 - 0 - 10 - 0 - 60 - 60 - 61 - 0 - 0 - 0 - 40 - 37 - 18 - 12 - 12 - Other flows: - -851 - 0 - -3 - 0 - 440 - 0 - 30 - 104 - 94 - 96 - 21 - 15 - 0 - 0 - 0 - 0 - 0 - 0 - Debt relief (notation in source): - 1,2 - 6 0000 00000 0 0 0 00000 ### Residual financing - Residual financing (series as presented): - 5 - -40 - -111 -129 -127 -127 - -124 -113 -171 -134 -115 - -114 - -112 - -154 - 0 - 0 - 0 - 0 - 0 - ECF and RCF disbursement (series as presented): - 24 - 48 - 49 - 49 - 49 - 50 - 48 - 48 - 24 - 24 - 49 - 48 - 71 - 0 - 0 - 0 - 0 - 0 - World Bank budget support (series as presented): - ... - 40 - 60 - 60 - 60 - 50 - 40 - 100 - 90 - 91 - 40 - 40 - 40 - ... - ... - ... - ... - ... - EU budget support (notation as presented): - 16 22201818 24252320 0 25 23 42 ............... ### Notes and footnotes (as presented) - Sources: Guinean authorities; and IMF staff estimates and proje ctions. - Footnotes provided in source: - 1 Excludes public transfers and capital grant from IMF CCR Trus t for debt cancellation. - 2 Projected clearance of outstanding debt arrears to non-Paris C lub official creditors and commercial creditors through debt re lief. - 3 In 2015 includes debt cancellation (under IMF repayments) and d ebt relief provided under the IMF's CCR Trust. - 4 Includes private short-term capital flows. - 5 For 2019, this reflects actual disbursments. - Years indicated at end of the section: 2017 2018 2019 2020 --- ### Projected External Borrowing (Table 11) — summary of presented entries ### By sources of debt financing (presentation preserves layout and numbers) - By sources of debt financing491100296100550100328100 - Concessional debt, of which 491100296100550100328100 - Multilateral debt24550143484247725377 - Bilateral debt2465015352126237523 - Other00000000 - Non-concessional debt, of which00 0000 00 - Semi-concessional00 0000 00 - Commercial terms00000000 - By Creditor Type491100296100550100328100 - Multilateral24550143484247725377 - Bilateral - Paris Club5611311170134213 - Bilateral - Non-Paris Club190391224156103310 - Other00000000 ### Uses of debt financing (as presented) - Uses of debt financing491100296100550100328100 - Infrastructure33568206693937123371 - Social Spending5010 291050 9 30 9 - Budget Financing91195318407247 - Other1539367124012 ### Memo and indicative projections - Indicative projections - Year 3 (2021)317205 - Year 4 (2022)222138 - Notes: - Sources: Guinean authorities; and IMF staff estimates. - 1 New external debt is recorded on a signature basis. Includes program loans and project loans. - Labels at bottom: Volume of new debt in 2020 PV of new debt in 2020 (program purposes) PPG external debt Volume of new debt in 2019 PV of new debt in 2019 (layout preserved) --- ### Risk Assessment Matrix (Table 12) — summarized risks, likelihood, impact, and policy responses - External risks (selected entries as presented): - Rising protectionism; retreat from multilateralism - Relative Likelihood: High - Impact if Realized: High - Policy Response: Advance structural reforms to support economic diversification and private sector development. - Sharp rise in risk premia - Relative Likelihood: High - Impact if Realized: Medium - Policy Response: Build external buffers and allow greater exchange rate flexibility. Mobilize additional tax revenues. - Weaker-than-expected growth in U.S. and Europe - Relative Likelihood: High - Impact if Realized: High - Policy Response: Strengthen non-mining tax revenue mobilization. Implement structural reforms to support economic diversification and private sector development. - Weaker-than-expected growth in China - Relative Likelihood: High - Impact if Realized: High - Policy Response: Strengthen non-mining tax revenue mobilization. Advance structural reforms to foster economic diversification and private sector development. - More severe COVID-19 pandemic - Relative Likelihood: High - Impact if Realized: High. - Policy Response: Scale-up social spending, including in the health sector, in the event of a COVID-19 outbreak in the country. - Intensification of geopolitical tensions and security risks - Relative Likelihood: High - Impact if Realized: Medium - Policy Response: Intensify structural reform to remove bottlenecks to growth and support economic diversification. Create fiscal space to scale-up priority spending and advance social programs. - Large swings in energy prices - Relative Likelihood: High - 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. - Domestic risks: - High risks of political and social instability, electoral pressures - Relative Likelihood: High - 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. - Note (RAM explanation preserved): The RAM shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood definitions and short- and medium-term labeling are as presented. --- ### Prior Actions and Structural Benchmarks Under the ECF Arrangement, 2019–20 (Table 13) — highlights ### Prior Actions and Structural Benchmarks — fiscal, monetary, and structural measures - Prior Actions — Fourth Review: - The Minister of Budget will adopt an expenditure commitment plan consistent with agreed fiscal adjustment measures and achieving the end-2019 program fiscal target. - Date: End-Nov. 19 - Status: Met - Objective: Preserve macroeconomic stability - Structural Benchmarks — Third Review — Fiscal Policy: - EDG to complete the installation of electricity meters in all buildings of all Ministries and complete the installation of meters for 80 percent of the rest of the consumers. - Date: End Feb-19 - Status: Not met. Measure expected completed with delay by end-2019. Electricity consumption meters were installed in the buildings of all Ministries at end-February 2019. Installation for rest reached 70 percent at end-August 2019. Data not yet available to assess progress at end-2019. - Objective: Increase the revenues of the public electricity utility to reduce budgetary transfers to the company - Mining agreements policy (continuous) - 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 in line with the tax provisions of the mining code. All new agreements with new investments in infrastructure for multiple users and/or transformation in Guinea in higher value-added products will be submitted to the National Assembly with an assessment of tax expenditures. - Status: Continuous — Met. A new mining agreement was signed in November 2018 and ratified and published in the first quarter of 2019. This contract entailed new investments in infrastructure and local transformation and was submitted to the National Assembly with an assessment of tax expenditures. - Objective: Mobilize additional mining revenues and foster governance and transparency ### Monetary and foreign exchange policy benchmarks — Third Review and Fourth Review - BCRG to establish an emergency liquidity assistance framework for illiquid but solvent banks. - Date: End Feb-19 - Status: Met. An instruction for liquidity was signed by the Governor of the BCRG. - Objective: Strengthening the monetary framework - Elaborate a rule-based intervention strategy for the BCRG in the foreign exchange market. - Date: End May-19 - Status: Not met. Completed with delay in October 2019. A rule-based intervention strategy, in line with IMF TA recommendations, was finalized in October 2019. - Objective: Limit discretion in interventions and increase foreign exchange market transparency - Fourth Review fiscal measures: - Submit to the National Assembly a Supplementary Budget Law for 2019 in line with agreed budgetary measures and program fiscal target. - Date: End Sept-19 - Status: Met. Draft submitted mid-August 2019; adopted in September 2019. - Objective: Ensure macroeconomic stability - Council of Ministers to adopt a multi-year tariff reform strategy over 2019-25 to gradually bring electricity tariffs to reach cost recovery. - Date: End Sept-19 - Status: Not met. Completed with a delay in mid-November 2019. Ministerial order established multi-year tariff reform over 2019-25 to bring electricity tariffs to cost recovery by 2025. - Objective: Reduce electricity subsidies ### Structural reforms and governance benchmarks - Adoption of implementation decrees of the 2017 corruption law on the asset declaration regime and whistle blowers and victims’ protection. - Date: End Sept-19 - Status: Not met. Expected completed with delay by end-March 2020. Draft decree on asset declaration finalized with LEG technical assistance; draft decree on asset declaration form content developed. - Objective: Strengthen governance ### Fifth and Sixth Review highlights and pending measures - Fifth Review: - Establish prototype for unified social register of vulnerable populations by the Ministry of Social Affairs. - Date: End Feb 20 - Status: Met. Presidential decree in November 2019 created unified social registry under Ministry of Social Affairs. Roadmap finalized by ANIES with World Bank support. - Objective: Improve targeting of social protection programs. - Prepare and adopt manual for preparation, appraisal and selection of investment projects (feasibility studies requirement). - Date: End May-20 - Status: To be assessed. FAD TA expected to support authorities in preparing the manual. - Objective: Strengthen public investment management - Ministerial order to increase electricity tariffs by 9 percent for households and 10 percent for professionals and industrials in 2020 (in line with electricity tariff reform strategy 2019-25). - Date: June 1, 2020 - Status: To be assessed - Objective: Reduce electricity subsidies - Sixth Review: - Develop and publish an asset declaration form in line with the decree on the asset declaration regime. - Date: End June 20 - Status: To be assessed. A draft decree on the content of an asset declaration form has been developed. - Objective: Strengthen governance --- ### Capacity Building and Technical Assistance — FY2019–20 ### Brief assessment (FY2019–20) - Guinea is a pilot country under the IMF Capacity Building Framework for fragile countries and an intense user of Fund technical assistance (TA). - TA activity: - FY19: Guinea received 40 missions (21 from AFRITAC West and 19 from HQ, including two resident long-term experts (LTX)). - FY20 (so far): Guinea received 23 missions (13 from AFRITAC West and 10 from HQ) and the two resident LTX experts. - TA alignment and focus: - IMF TA was well-aligned with program objectives and targeted to strengthen institutional capacity. - Areas of TA: tax policy and administration, public expenditures and investment management, treasury single account and cash management, government finance statistics, national accounts, monetary policy framework, reserves accumulation strategy, debt management, external sector and monetary statistics, banking supervision, anti-corruption framework, AML/CFT regime. - Delivery modes: TA missions from headquarters and AFRITAC West, resident LTX 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. - Authorities’ view and capacity constraints: - Authorities expressed satisfaction with TA, but domestic capacity remains a challenge for implementation of TA recommendations. - Staff engagement: TA is demand-driven and prioritized to key areas; staff works closely with TA-delivering departments and AFRITAC West to phase delivery. ### Main TA priorities ahead (FY20) - IMF TA will continue to support ECF objectives: (i) preserve macroeconomic stability; (ii) scale-up public investments in infrastructure for higher growth and diversification while preserving macroeconomic stability and debt sustainability; (iii) strengthen social safety nets; (iv) advance key structural reforms for high and more inclusive growth. - Planned TA focus areas in FY20: - Strengthening tax administration - Public financial and investment management - Central bank internal audit - Banking supervision - Anti-corruption framework and AML/CFT regime - Macroeconomic statistics, including national accounts - TA on tax policy will be scaled down reflecting sizable TA already provided and good absorption of recommendations. - Engagement approach: Staff will continue to ensure TA is demand-driven and prioritized to key areas. ### Technical Assistance missions (selected entries from Table 1, FY2019 and FY2020) - Fiscal Affairs (FAD, AFW): Cash flow management May 3-15, 2018; PIMA May 3-17, 2018; Customs ADM Jun 4-15, 2018; Expenditure assessment Jun 5-14, 2018; multiple missions through 2019 and early 2020 on Tax Administration, Public Expenditure Management, Budget Accounting, GFSM 2014, MTDS. - Legal (LEG): AML/CFT missions Oct 8-12, 2018; Nov 26-30, 2018; Mar 4-8, 2019; Jun 24-July 4, 2019. - Monetary and Capital Markets (MCM, AFW): Bank Supervision May 14-25, 2018; Monetary Policy June 18-29, 2018; Strengthening Internal Audit Nov 26-Dec 7, 2018; FSSR Jan 14-17, 2019; Debt Management and Treasury Bonds Issuance April 1-12, 2019; Banking Supervision Feb 3-5, 2020. - Statistics (STA, AFW): National Accounts May 7-18, 2018; GFS Jun 5-15, 2018; National Accounts Oct 1-12, 2018; Monetary and Financial Statistics Jan 7-18, 2019; External Sector Statistics Aug 26-30, 2019; e-GDDS Nov 18-26, 2019. ### Main risks and mitigating measures - The section header "C. Main Risks and Mitigating Measures" is present; details follow earlier in the Risk Assessment Matrix and in program conditionality and TA priorities. *Source: IMF staff and Guinean authorities, as presented in the provided document.* ### 5. Capacity and absorption constraints might weight on IMF TA implementation. ### 5. Capacity and absorption constraints might weight on IMF TA implementation. ### Capacity and absorption constraints - Presenting the results of TA missions to a larger audience of technical staff directly involved and organizing workshops would increase traction and ownership. - Prioritizing TA recommendations would facilitate absorption and implementation of TA recommendations. - Better management and continuity of local staff and more training on the job would foster continuity and help mitigate capacity and absorption constraints. ### Outreach and risk mitigation - Conducting outreach is helping to mitigate risks. - Outreach activities conducted by the IMF Resident Representative will continue to facilitate the coordination and consultation among the government, Fund staff, and other stakeholders. ### Collaboration with donors and coordination arrangements - The IMF will continue to collaborate closely with donors in the provision of TA. - Donors already involved in TA provision include: - Debt management: European Union, US Treasury. - Revenue administration: France, EU. - Budget execution and cash management: EU. - Government financial information system: EU, World Bank. - Monetary operations: Central Bank of Morocco. - The IMF Resident Representative and the EU Office started to organize periodic meetings, including at the time of IMF TA missions in the country, to brief donors on the outcome of the mission and enhance coordination with the authorities. - In some cases, donors (e.g., the EU) are invited to participate in the concluding meetings of IMF TA missions with the authorities. - Going forward, units in government in charge of monitoring the economic program, in collaboration with the IMF Resident Representative, could play a leading role to enhance coordination and improve the absorption capacity of TA/recommendations. ### Authorities’ commitments and implementation progress - The authorities have advanced in the implementation of TA recommendations to achieve the goals of the capacity building program. - PEFA, PIMA, and DemPA exercises were conducted in mid-2018, with strong authorities’ support and cooperation; their recommendations led to approval of the action plan for the reform of public finances (PREFIP) 2019-2022, adopted by the Guinean government in December 2018. - IMF TA recommendations towards strengthening the monetary policy framework and supporting the accumulation of foreign exchange reserves were swiftly implemented by the Central Bank. - Implementation of IMF TA recommendations on tax administration led to adoption of a new organic framework of the National Tax Directorate. - Authorities are working on strengthening the units (CTA and CTSP) tasked with monitoring the implementation of program-supported reforms. - With approval of the PREFIP 2019-2022, a monitoring process has been established and annual reports will be produced on reform implementation of public finances, including a dedicated section on the implementation of TA recommendations. - Reform monitoring committees will provide an interface for TA missions and support TA absorption. ### Selected recent economic and financial developments (Attachment I, Memorandum of Economic and Financial Policies, November 22, 2019) - Real GDP growth: - 10.8 percent in 2016. - about 10.3 percent in 2017. - estimated at 6.2 percent in 2018. - mining production increased by 8.7 percent (y-o-y) in 2018. - mining production growth reached 10.6 percent (y-o-y) at end-September 2019. - Inflation: - Headline inflation: 9.9 percent at end-December 2018; declined to 9.4 percent (y-o-y) in September 2019. - Food inflation: 11.6 percent (y-o-y) in September 2019. - Core inflation (excluding food and energy): 4.5 percent at end-December 2018; increased to 5.3 percent (y-o-y) in September 2019. - External sector and reserves: - Current account deficit estimated at 18.7 percent of GDP in 2018. - FDI inflows in the mining sector estimated at 13 percent of GDP in 2018. - Gross international reserves: US$1,115 million (equivalent to 3.7 months of import coverage) at end-June 2019; about US$1 billion at end-October 2019 (equivalent to 3.5 months of import coverage). - Real effective exchange rate (REER) appreciated by 7.2 percent in 2018; appreciated by 8 percent (y-o-y) during the first seven months of 2019. - Nominal effective exchange rate appreciated by 2.4 percent (y-o-y) during the first seven months of 2019. - Premium between official and foreign exchange bureaus rates: 0.5 percent at end-2018; 0.8 percent at end-August 2019; 1.4 percent at end-September 2019. - Fiscal performance: - Basic fiscal surplus of 1.2 percent of GDP (on an annual basis) at end-June 2019. - Mining revenues: 1.1 percent of GDP at end-June 2019 (increasing by 0.8 percent (y-o-y)); 1.5 percent of GDP at end-September 2019 (declining by 12.3 percent in 2018 (y-o-y)). - Non-mining tax revenues: 5.5 percent of GDP at end-June 2019 (increasing by 29.2 percent (y-o-y)); 8.1 percent of GDP at end-September 2019 (increasing by 25.1 percent (y-o-y)). - Direct tax revenues: 1.2 percent of GDP at end-June 2019 (increasing by 11.2 percent (y-o-y)); 1.7 percent of GDP at end-September 2019 (increasing by 2.0 percent (y-o-y)). - Indirect taxes: 4.3 percent of GDP at end-June 2019 (increasing by 35.3 percent (y-o-y)); 6.4 percent of GDP at end-September 2019 (increasing by 33.3 percent (y-o-y)). - Non-tax revenues: 0.6 percent of GDP at end-June 2019, boosted by the first payment of US$45 million for the 4G licenses (out of the anticipated US$90 million in 2019). - Spending in goods and services and the wage bill: 1.4 and 1.7 percent of GDP, respectively, at end-June 2019. - Overall capital expenditures: about 2.3 percent of GDP at end-June 2019 (domestically-financed investments at 1.0 percent of GDP; externally-financed at 1.3 percent of GDP); increased to about 3.4 percent of GDP at end-September 2019 (domestically-financed investments at 1.9 percent of GDP; externally-financed at 1.5 percent of GDP). - Electricity subsidies: 0.8 percent of GDP in the first half of 2019 (increasing by 11,3 percent (y-o-y)); 1.3 percent of GDP at end-September 2019. - Net repayment to the central bank of 0.3 percent of GDP at end-June 2019; net borrowing from the central bank of 0.2 percent of GDP at end-September 2019. - Domestic arrears (on a net basis): reduced by 1.2 percent of GDP at end-June 2019; reduced by 0.4 percent of GDP at end-September 2019. - Government net borrowing from commercial banks: 0.4 percent of GDP at end-September 2019. - Banking sector and credit: - Private sector credit growth: 19.5 percent in the first half of 2019; 22.2 percent in the first three quarters of 2019 (average, y-o-y). - Commercial banks’ net lending to the government: increased by 28.1 percent in the first half of 2019; by 31.2 percent in the first three quarters of 2019 (average, y-o-y). - Deposits growth: 13.9 percent (average, y-o-y) in the first half of 2019; 15.6 percent in the first three quarters of 2019 (average, y-o-y). - Deposits in GNF: increased by 18.8 percent at end-June 2019 (average, y-o-y); 19.8 percent in the first three quarters of 2019 (average, y-o-y). - Deposits in foreign currency: increased by 3.4 percent (average, y-o-y) in the first half of 2019; 6.3 percent (average, y-o-y) in the first three quarters of 2019. - After banks’ subscription of a GNF1,302 billion three-year government bond, excess reserves in domestic currency increased to 250 billion GNF at end-September 2019. - Interbank market activity: 21 transactions at end-August 2019, compared to 27 transactions in 2018. - Compliance: All banks were in compliance with reserve requirements and with the share minimum capital adequacy requirement at end-September 2019; only one bank did not comply with the net equity capital requirement at end-June 2019 (three banks at end-2018). - Non-performing loans (NPLs): 12.2 percent at end-2018 (10.6 percent in 2017); increased to 16.6 percent in September 2019. - Provisioning for NPLs: 37.8 percent at end-2018; improved to 59.0 percent at end-June 2019; 62.4 percent at end-August 2019. *Source: 1ginea2020002 - 5. Capacity and absorption constraints might weight on IMF TA implementation.* ### 6. Generating higher and more broad-based growth and reducing poverty while ### 6. Generating higher and more broad-based growth and reducing poverty while ### Policy objectives and commitments - Preserve macroeconomic stability, build external buffers against shocks, and preserve moderate inflation. - Achieve a basic fiscal surplus to: (i) preserve medium-term debt sustainability; (ii) gradually repay government borrowing from the Central Bank and limit the Central Bank’s advances to the central government to short-term cash management and within the statutory limits indicated in the Central Bank Law; (iii) limit borrowing from the banking sector to a level which is consistent with ensuring the provision of credit to the private sector; and (iv) gradually repay all new domestic arrears accumulated in 2017 and 2018, as well as arrears to the private sector accumulated in previous fiscal years. - Added decumulation of the stock of domestic arrears (on a net basis) as an indicative target to the ECF arrangement. - Avoid accumulating domestic and external arrears and maintain financial sector stability. - Scale-up public investments in infrastructure (notably energy production, transport and 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 with mitigating measures for the most vulnerable. - Mobilize external financing while preserving medium-term debt sustainability and ensuring the risk of external debt distress does not exceed a moderate level. - Maximize concessionality of external borrowing and limit non-concessional borrowing contracted or guaranteed during the three-year ECF arrangement to a maximum of US$650 million. - Implement a domestic debt policy to support debt sustainability and gradually clear government arrears to the private sector. - Strengthen social safety nets and increase domestic budgetary resources devoted to social safety nets to reduce poverty and foster inclusion. - Strengthen public finances, public investment management, monetary policy framework, reform of the exchange market, governance, business climate, and financial inclusion. ### Macroeconomic outlook - Real growth expected at 5.6 percent (y-o-y) in 2019 and about 6 percent in 2020-21, driven by investment-boosted mining and construction activity and scaled-up electricity production. - Continued large FDI in mining and implementation of infrastructure projects to boost construction activity and private sector development. - Aim to contain inflation to single digits through prudent monetary policy. - Current account deficit expected to widen to about 22 percent in 2020, financed by FDI inflows and project loans, and gradually narrow over the medium term. - Mining exports increase by 5 percent in 2019 and 17 percent in 2020. - Imports: decline by 5 percent (y-o-y) in 2019 from 2018 level, then increase strongly in 2020 on account of large FDI (about 13 percent of GDP in 2019 and 10 percent of GDP in 2020) and project loan disbursements. - International reserves accumulation targets: 3.6 months of import coverage in 2019 and 3.8 months of import coverage in 2020. - Export growth average about 8 percent over 2021-25; import growth average about 14 percent over the medium term. - FDI averaging 8 percent of GDP over 2021–25. ### Fiscal policy stance and targets - Achieved a basic fiscal surplus of 0.8 percent of GDP at end-2018. - Committed to basic fiscal surplus of 0.5 percent of GDP in 2019 and 0.6 percent of GDP in 2020. - Objectives: recoup 2017 fiscal slippages, contain budgetary financing needs, gradually repay government borrowing from the central bank, limit commercial banks’ financing to preserve credit to private sector, and gradually repay domestic arrears. - Avoid extrabudgetary expenditures and accumulation of new domestic arrears; better align cash flows and expenditure commitment plans. - Increase capital expenditures to 6 percent of GDP in 2019 and about 7 percent in 2020 to scale-up public investments. - Mobilize additional tax revenues and contain current non-priority spending to generate needed fiscal space. ### External financing and debt management - Mobilize additional external financing for the national public investment plan while maximizing reliance on concessional borrowing to preserve medium-term debt sustainability. - Limit non-concessional external borrowing during the three-year ECF arrangement to maintain a medium risk of debt distress. - At end-2018, fully utilized the envelope of US$650 million of non-concessional loans allowed under the program; loans used for priority infrastructure (rehabilitation of the RN1 road and Conakry urban road network). - Feasibility studies for these projects finalized in March 2018. - Any external program loans and grants above budgeted levels will be directed to priority sectors (including social spending and social safety nets) in consultation with IMF staff. ### Fiscal strategy for 2019 - Target: basic fiscal surplus of 0.5 percent of GDP in 2019. - National Assembly adopted a Supplementary Budget Law (SBL) in September 2019 with fiscal adjustment measures to achieve program fiscal target. - Overall tax revenues expected at 12.8 percent of GDP in 2019, about 0.7 percent of GDP lower-than-anticipated in the 2019 SBL due to negative shock on international oil prices affecting TSPP tax revenues. - Higher-than-anticipated non-tax revenues by US$14 million from SOGEKA dividends. - Minister of Budget to adopt an expenditure commitment plan by end-November 2019 (prior action) reflecting lower tax revenues, higher non-tax revenues, and additional spending adjustment measures of 0.6 percent of GDP (re-phasing of non-priority investment projects) to achieve targeted basic fiscal balance. - Expected mining tax revenues: 2.1 percent of GDP in 2019. - Expected non-mining tax revenues: 10.7 percent of GDP in 2019. - Direct taxes: 2.2 percent of GDP in 2019. - Indirect taxes: 8.5 percent of GDP in 2019. - Taxes on goods and services: 5.9 percent of GDP in 2019. - Taxes on international trade: 2.5 percent of GDP in 2019. - Non-tax revenues expected: 1.3 percent of GDP in 2019 (including 4G license payments of US$90 million, about US$68 million disbursed to the Post and Telecommunications Regulatory Authority and transferred to the central government as of end-August 2019, and dividends from SOGEKA). - Wage bill targeted to be contained at 3.5 percent of GDP in 2019. - Spending on goods and services contained to 3.2 percent of GDP in 2019. - Electricity subsidies targeted at 1.7 percent of GDP in 2019 following an electricity tariff increase in May 2019. - Scale-up overall capital expenditures to 5.8 percent of GDP in 2019. - Domestically-financed public investment increase to 2.6 percent of GDP in 2019; 0.3 percent of GDP (15 percent of expected mining revenues) devoted to the Local Development Fund. - Foreign-financed capital expenditure increase to 3.2 percent of GDP in 2019. - Program loans expected to increase to 1.2 percent of GDP in 2019 (including anticipated World Bank budget support of US$90 million and US$60 million loan from Qatar disbursed in April 2019). - Repay on a net basis the BCRG for an amount equivalent to 0.2 percent of GDP in 2019. - Reduce domestic arrears (on a net basis) by 0.6 percent of GDP in 2019. - Contain government borrowing from commercial banks to a level consistent with banks’ provision of credit to the private sector. ### Fiscal strategy for 2020 - Target: basic fiscal surplus of 0.6 percent of GDP in 2020. - Overall tax revenues expected to increase to 13.5 percent of GDP in 2020. - Mining tax revenues expected at 2.5 percent of GDP in 2020. - Non-mining tax revenues expected to increase to 11 percent of GDP in 2020. - Direct taxes at 2.2 percent of GDP in 2020. - Indirect taxes increase to 8.8 percent of GDP in 2020. - Taxes on goods and services increase to 6 percent of GDP in 2020. - Taxes on international trade at 2.3 percent of GDP in 2020. - Wage bill contained to 3.6 percent of GDP in 2020. - Spending on goods and services contained to 3.4 percent of GDP in 2020. - Electricity subsidies contained at 1.4 percent of GDP in 2020, on the back of an electricity tariff increase and efficiency measures. - Scale-up overall capital expenditures to 7 percent of GDP in 2020. - Domestically-financed public investment scaled up to 2.3 percent of GDP in 2020; 0.4 percent of GDP (15 percent of expected mining revenues) devoted to the Local Development Fund. - Foreign-financed capital expenditure increase to 4.7 percent of GDP in 2020. - Repay on a net basis the BCRG for an amount equivalent to 0.2 percent of GDP in 2020. - Reduce domestic arrears (on a net basis) by 0.04 percent of GDP in 2020. - Contain government borrowing from commercial banks to a level consistent with banks’ provision of credit to the private sector. ### Mobilizing revenues and tax administration reforms - Create Mission for the Mobilization of Domestic Revenues (MAMRI) at the Prime Minister’s office in early 2019 to provide political impulsion to revenue mobilization (MAMRI will not have an operational role). - Strengthen existing revenue administration authorities: National Directorate of Taxes (DNI) and General Directorate for Customs (DGD). - Adopted new organizational structure of the DNI in February 2019 to separate strategic operation management functions from control functions. - Adopted procedural manual for the DNI and operationalized a reform committee within the DNI. - Fully operationalize new organizational structure of the DNI by mid-2020 with IMF technical assistance. - Ministry of Economy and Finance signed performance contracts with the DNI and the DGD in May 2019. - Established a permanent tax number for all businesses in January 2019. - Finalize online tax declaration and payment modalities: by end-April 2020 for large enterprises, by end-July 2020 for medium enterprises, and fully operationalize for all taxpayers end March 2021. - Operationalized data interconnection between the DNI and the DGD to strengthen fiscal control. - Started operationalizing the one-stop-shop for international trade in October 2019 to support revenue mobilization. - Commit to review non-tax revenues with IMF technical assistance. - Implement a package of tax policy and administration measures to mobilize additional revenues. ### Planned revenue measures and expected yields - Mobilize additional tax revenues of 0.4 percent of GDP in 2019 from programmed tax policy and administration measures. - In 2018, implemented measures mobilizing additional tax revenues of about 0.2 percent of GDP. - Rationalization of ad-hoc tax exonerations in 2019 to mobilize 0.06 percent of GDP: - Ad-hoc tax exonerations estimated at GNF 500 billion. - Time-bound action plan prepared in June 2018; mobilized GNF 89 billion (0.08 percent of GDP) in additional tax revenues in 2018 (target was GNF 40 billion). - Continued efforts to rationalize ad-hoc exonerations to mobilize additional revenues of GNF 69 billion in 2019 (0.05 percent of GDP). - At end-September 2019 mobilized GNF 39 billion (0.03 percent of GDP). - Delay in decree on mandatory subscription of insurance policies from local insurance companies prevented expected broadening of tax base on insurance contracts in 2018 (expected mobilization GNF 21 billion); expect to mobilize additional revenues of GNF 15 billion in 2019 and expect to mobilize additional revenues of GNF 20 billion by end-2019. - Tax administration measures to mobilize programmed additional revenues of 0.35 percent of GDP in 2019 (measures implemented in 2018 mobilized additional revenues; further details on specific measures follow in source text). *IMF — Guinea, Chapter 6* ### 0.13 percent of GDP in 2018, about one third of our programmed target. Notably, we made ### 1ginea2020002 - 0.13 percent of GDP in 2018, about one third of our programmed target. Notably, we made ### Revenue mobilization: 2018 outcomes and 2019 progress - 2018 overall additional revenue mobilization achieved: 0.13 percent of GDP (about one third of programmed target). - Progress in specific measures (planned and actual mobilizations in 2018): - Stepping-up general audits for large enterprises: expected GNF 180 billion (0.16 percent of GDP); mobilized GNF 59 billion (0.05 percent of GDP) due to implementation delays. - Desk audits: expected GNF 33 billion (0.03 percent of GDP); mobilized GNF 17 billion (0.02 percent of GDP). - Cross-checking companies’ import data with declared turnover: expected GNF 20 billion (0.02 percent of GDP); mobilized about GNF 4 billion in 2018. - Recovery of tax arrears: expected additional GNF 95 billion (0.09 percent of GDP) out of an identified stock of recoverable arrears of GNF 622 billion; implementation delays limited mobilization in 2018. - Single Land Contribution (CFU) geo-localization: expected GNF 32 billion (0.05 percent of GDP) in 2018; actual mobilized GNF 47 billion by end-2018 (exceeded target). - 2019 mobilization updates (as of end-September / end-August 2019 where indicated): - General audits of large enterprises: mobilized GNF 67 billion (0.05 percent of GDP) by end-September 2019. - Desk audits: mobilized GNF 25 billion (0.02 percent of GDP) by end-September 2019. - Cross-checking measure continued in 2019, expected to mobilize GNF 60 billion in 2019; at end-September 2019 not yet mobilized. - Negotiations with ten companies with outstanding arrears: aim to mobilize additional GNF 122 billion in 2019; mobilized GNF 14 billion (0.01 percent of GDP) by end-August 2019. - CFU collection: expected additional GNF 65 billion in 2019; mobilized GNF 42 billion (0.03 percent of GDP) by end-September 2019. ### Tax policy and administration measures for 2020 - Overall 2020 revenue mobilization target from programmed tax policy and administration measures: 0.4 percent of GDP. - Specific 2020 measures and expected mobilizations: - Rationalizing ad-hoc tax exonerations: expected to mobilize 0.09 percent of GDP; specifically GNF 130 billion (0.09 percent of GDP). - Broadening tax base on insurance contracts: expected GNF 229 billion in 2020 (0.16 percent of GDP). - Tax administration package expected to mobilize 0.18 percent of GDP in 2020, including: - Stepping-up general audits for large enterprises: expected GNF 91 billion (0.06 percent of GDP) in 2020. - Stepping-up desk audits: expected GNF 18 billion (0.01 percent of GDP) in 2020. - Cross-checking companies’ import data with declared turnover (2019 exercise carried into 2020): expected additional GNF 20 billion (0.01 percent of GDP). - Recovery of tax arrears: expected additional GNF 48 billion (0.03 percent of GDP) in 2020, out of identified recoverable arrears of GNF 622 billion (0.4 percent of GDP). - Strengthening controls and collection of the CFU: expected additional GNF 23 billion (0.02 percent of GDP) in 2020. - Operationalizing new organizational structure of the DNI: expected to mobilize GNF 23 billion (0.02 percent of GDP) in 2020. - Operationalizing one-stop-shop for international trade: expected to mobilize GNF 25 billion (0.02 percent of GDP) in 2020. ### Tax policy reforms and base-broadening (2018–onwards) - 2018 Budget Law measures implemented: - 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 a higher tax bracket at 20 percent for withholding on personal income from wages. - Expected revenue impact: additional 0.1 percent of GDP in 2018. - Actual 2018 outcome: revenue impact neutral due to: - Delayed implementation of the 20 percent bracket. - Low compliance and legal challenges to removal of the ceiling on minimum tax on turnovers; ceiling reintroduced in the 2019 budget law. - Ongoing policy objective: continue dialogue to eliminate the ceiling on the minimum tax on turnovers and lower the threshold of the 20 percent tax bracket to broaden the tax base. ### Petroleum products: automatic price adjustment and mitigating measures - Mid-2017 to mid-2018: taxes on petroleum products were reduced to keep retail prices unchanged amid rising international oil prices, leading to ad-hoc downward adjustments of the TSPP and custom duties, and revenue losses. - Revenue losses: custom duty adjustments led to revenue losses of about 0.6 percent of GDP in the first half of 2018. - July 1, 2018 retail price increase: retail prices increased by 25 percent, from 8,000 to 10,000 Guinean francs per liter (more than twice the programmed increase of 12 percent). - Effects of July 2018 price increase: - Mobilized additional customs duties revenues of 0.8 percent of GDP in the second half of 2018 (compared to a baseline with unchanged petroleum prices). - Contained overall revenue losses on international trade taxes due to higher international oil price to about 0.6 percent of GDP in 2018. - Narrowed gap between import and domestic retail prices, facilitating automatic price adjustment implementation. - Implementation steps and timeline: - Automatic price adjustment mechanism started in January 2019. - January 2019: reduced retail prices by 5 percent, from GNF 10,000 to GNF 9,500 per liter, due to lower international oil prices at end-2018. - A technical committee meets monthly to assess adjustments based on a rule: retail prices adjusted monthly if import prices (in local currency) are 5 percent higher or lower than previous month. - To avoid excessive price volatility given fragile social context, prices were kept constant during February–July 2019. - August 2019: retail prices increased from GNF 9,500 to GNF 10,000 per liter in response to higher import prices of fuel products. - Review of automatic price adjustment mechanism with IMF TA to assess smoothing and lag options by end-2019; adopt the most appropriate mechanism by June 2020. - Mitigating measures and outreach: - Implemented mitigating measures to protect the most vulnerable when prices increased (strengthened public transportation, increased number of public buses). - Plan to expand cash transfers and high intensity public works schemes in urban and peri-urban areas (¶22). - Communications campaign (with IMF TA and the World Bank) to build consensus on energy subsidies reform, focusing on budgetary costs, distributional impact, and fiscal gains from subsidy elimination. - Contingency: if automatic price adjustment implementation is delayed, additional tax revenue measures will be undertaken to achieve program revenue target. ### Containing current spending and electricity subsidies - Commitment: contain non-priority spending in goods and services to achieve 2019 and 2020 fiscal targets; contain spending on goods and services to 3.3 percent of GDP in 2019 and 3.4 percent of GDP in 2020 through rationalizing procurements. - Multi-pronged strategy to reduce untargeted electricity subsidies (2019–25): - Gradually increase electricity tariffs over 2019–25 to bring them to cost recovery. - Improve EDG’s efficiency: strengthen payments collection rate; reduce commercial and technical losses. - Substitute costly thermal production with cheaper hydro production. - Savings and subsidy outcomes: - Electricity subsidies reduced to 0.8 percent of GDP in 2018, generating savings of about 0.6 percent of GDP. - Measures included tariff increases (April/May 2018 and earlier increases), substitution of thermal with hydro production reducing EDG production costs by GNF 440 billion in 2018 (0.4 percent of GDP), new fuel supplier contract saving about GNF 25 billion in 2018 (0.02 percent of GDP), and regularization actions generating GNF 6 billion in 2018. - Regularization: about 82,000 industrial and domestic clients regularized at end-2018. - Meter installation: about 55 percent of domestic consumers (end-February 2019 SB) and about 65 percent of administrative buildings at end-2018 had meters. - 2019 pressures and policy response: - EDG started paying for Kaleta dam electricity in January 2019, adding about GNF 788 billion in additional costs over the year. - Planned 14 percent increase in electricity production in 2019 would raise EDG’s losses; without measures, operational subsidy needs would be GNF 2,106 billion (1.7 percent of GDP) in 2019 (against GNF 880 in the 2019 Budget Law, equivalent to 0.7 percent of GDP). - June 2019: increased electricity tariffs by 15 percent for households and 5 percent for professionals and industrials; expected savings of GNF 49 billion (0.04 percent of GDP), containing subsidies to GNF 2,057 billion (1.6 percent of GDP) in 2019. - Medium-term tariff reform (2020–25): - Adopt a multi-year tariff reform strategy by end-November 2019 to reach cost recovery by 2025. - Planned annual tariff increases during 2020–25: households by 9.2 percent and other consumers by 10 percent, while maintaining the social tariff. - Expected contribution: reduce untargeted electricity subsidies by about 0.1 percent of GDP per year during 2020–24. - 2020 subsidy containment: - Target electricity subsidies at GNF 2,401 billion in 2020 (1.7 percent of GDP, same as in 2019). - In absence of measures, EDG operational subsidy needs would reach GNF 2,505 billion (2 percent of GDP) in 2020 due to anticipated 20 percent production increase. - Package to reduce subsidies by GNF 104 billion (0.07 percent of GDP) in 2020 includes: - Increase electricity tariffs for households by 9.2 percent and for other consumers by 10 percent in June 2020 (expected savings GNF 58 billion (0.04 percent of GDP)). - Public administration to start paying based on installed meters (expected additional revenues about GNF 30 billion (0.02 percent of GDP) in 2020). - Repay previously accumulated arrears on electricity consumption of GNF 21 billion (0.014 percent of GDP). - EDG efficiency improvements: - Continue strengthening collection rate and meter installation to reach 80 percent of private consumers and all public administration by end-2019. - As at end-August 2019: consumption meters installed for 217,000 customers (75 percent of the initial target and 30 percent of the current target) and in 99 percent of administrative buildings. - Continue elimination of illegal connections, expected additional savings of about GNF 6 billion in 2019. ### Administration, civil service reform, and payroll control - Biometric census to control wage bill: covered 91,095 individuals—pensioners (56,074), civil servants (24,327), and contractual employees (10,694). - Census detected discrepancies in civil servants’ database (ghost and deceased workers) and helped clean registries. - Monitoring and anti-fraud measures: - With World Bank support, 120 machines deployed in workplaces to monitor civil servants’ work data; operation exposed about 2,800 ghost workers. - Installed 150 additional machines at end-August 2019. - Biometric cards and coverage: - Pilot launched in 2018; about 60,000 employees covered so far. - Aim to cover all civil servants by end-2019; distribution of biometric cards to start in October 2019. - Medium-term IT systems: - Plan to establish a new electronic platform to monitor and consolidate data on civil servant work activity and salaries. *IMF staff report text (excerpt).* ### 23. We are committed to stepping-up domestically-financed social safety net programs ### 23. We are committed to stepping-up domestically-financed social safety net programs ### Social protection strategy and institutional framework - Finalized first National Social Protection Policy in November 2016 with objectives to reduce poverty by: (i) strengthening social protection; (ii) providing access to employment opportunities; (iii) improving the living conditions of the poorest and most vulnerable; (iv) improving access to health and education services; (v) improving access to food and nutrition security; (vi) preventing and managing crises and disasters and building resilience; and (vii) improving access to social housing. - Created in January 2019 the National Agency for Economic and Social Inclusion (ANIES) to coordinate implementation of the inclusion strategy. - Recruiting a private to assist with the operationalization of the ANIES. - Will ensure financing and operations of the ANIES are conducted in line with the law of public finances (LORF) and the new law on governance of public entities. ### Commitment to domestically-financed safety nets and use of savings - Committed to using a share the budgetary savings from the electricity tariff reform to increase resources devoted to non-contributory and domestically-financed social safety nets programs (as defined in the TMU). - Achieved end-June program target on domestically-financed social safety nets after delays in releasing budgetary allocation in Q1 2019. ### Program financing targets and scope - Increased program indicative target on domestically-financed social safety nets—including social programs under the Social Development and Solidarity Fund (FDSS) and under the Productive Social Safety Net Program (PFSP)—to GNF 240 billion in 2019 and to GNF 300 billion in 2020. - Allocated an amount equivalent of GNF 37 billion (US$4 million) in the 2019 SBL to start providing targeted cash transfers to poor households in urban and peri-urban areas and to step up labor-intensive public works projects in urban and peri-urban areas (THIMO), notably for women and the youth. - Cash transfers were previously being delivered only in rural areas under the PFSP with World Bank financing. ### Targeting, pilots, and implementation timing - Analysis showed increase in petroleum prices affected significantly more populations living in urban and peri-urban areas. - Expansion of cash transfer and THIMO in urban and peri-urban areas delayed owing to change in institutional framework for ANIES. - Planned pilot over eight regions during December 2019–June 2020, to start once ongoing biometric census to strengthen program targeting is finalized. - Will continue financing social projects aimed at reducing gender inequality and fostering women’s integration in the labor force; and social assistance to the most vulnerable, including the elderly, the disabled, and those impacted by HIV/AIDS and the Ebola virus disease epidemic. ### Unified social register and ANIES operational targets - Will set-up a unified social register of vulnerable populations by end-2020, with support of the World Bank, to strengthen targeting of social safety nets programs. - Will establish a prototype of the unified social register of vulnerable populations by end-February 2020 (SB). - Held a workshop in March 2018 with donors and key stakeholders, with World Bank support; defined a roadmap for the unified social registry in March 2019. - ANIES has started developing a social registry with goal of registering 800,000 vulnerable households by mid-2020 to provide inputs to the unified social registry. - ANIES is developing a field survey questionnaire and will conduct required data collection by end-2019. - Started to strengthen capacities for registry work. --- ### Medium-Term Revenue Mobilization Strategy ### Overall commitment - Committed to mobilizing additional tax revenues to create fiscal space for priority expenditures. - Strategy focuses on fostering mining and non-mining tax revenues, notably direct taxes, through broadening the tax base and strengthening controls and payments. ### Tax policy measures (planned) - Continue to rationalize tax exemptions based on 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. - Revising the General Tax Code (CGI), with IMF technical assistance, to eliminate the global income tax and increase the coherence of the withholding system; completed a review of international taxation provisions. - Finalize the new CGI by end-2019. - Ministry of Mining developed a model for mining revenues projections with external experts; will finalize this model with IMF technical assistance and other partners. ### Tax administration measures (planned) - Finalize development of online tax declaration and payment modalities by end-2019. - Further advance computerization, with alternatives and replacement of the RAND project and operationalize the MERCURY project by end-2019, enabling real-time processing of tax obligations and consolidation of information and data from various tax units into a centralized network (SFIG). - Operationalize the new organizational structure and modernize management practices of the DNI by end-2019; adopted a new organizational structure of the DNI with IMF TA to separate strategic operation management functions from control functions. - Adopted the procedural manual for the DNI and operationalized a reform committee within the DNI to support the reform. - Expand cross-checking of import data with declared turnover to reduce under-declaration and increase tax control by improving tax-payer identification, supported by the interdepartmental committee on reform and modernization (CIRMDI) between Customs and the DNI. - Continue to: (i) collect tax arrears from large companies; (ii) strengthen capacity of the Directorate for Taxes and the recovery focusing on large enterprises; (iii) improve compliance of large and medium tax-payers; (iv) continue the cleansing and transferring of taxpayers files to management services; and (vi) make progress with the digitalization of customs. --- ### Mining revenues and governance ### Use of mining buoyancy to finance priorities - Committed to applying tax provisions of the new mining code to mobilize additional mining revenues on the back of buoyant mining activity. - Aim to mobilize additional revenues to finance scaling-up of investments in infrastructure to support diversification and priority social spending. ### Governance, transparency, and legal alignment - Guinea joined EITI in 2007 and was designated ‘EITI compliant’ in 2014. - Mining code of 2011 amended in 2013 with IMF TA, introducing taxation provisions in line with international standards. - With AFDB support, reviewed mining agreements and titles signed before 2011 code to bring them closer to the new code. - Modernized mining cadaster with World Bank support, including a new cadastral procedure and making the cadaster accessible online. - Set up an inter-ministerial Committee for monitoring integrated mining projects with World Bank and AfDB support to facilitate issuance of non-mining permits and authorizations. ### New agreements, ratifications, and publication - Will ensure all new and renewed expiring mining agreements, excluding those with new investments in infrastructure for multiple users/multi-usage and/or transformation in Guinea to expand domestic value-chain, will be put in line with tax provisions of the 2013 mining code and that all new agreements with new investment in mining-related infrastructure and/or domestic transformation will be presented to the National Assembly with an assessment of tax expenditures (continuous SB). - During June–December 2018, ratified: (i) a new mining convention fully in line with tax provisions of the mining code; and (ii) a new mining convention entailing new investments in multiple users/multi-usage infrastructure and domestic transformation of mining products presented to the National Assembly with an assessment of tax expenditures (continuous SB). - Both conventions will be published in the Official Journal by end-2019. - In September 2019, took opportunity of change in ownership structure of an existing mining convention for iron ore exploitation to improve expected prospects for Government revenues, notably through a non-contributive participation of the State in the company; will present it to the National Assembly for ratification by end-2019. ### International taxation and transfer pricing - Introduced in 2019 key international taxation provisions in legal framework with IMF TA, including provisions to support the ‘arm’s length principle’, adopted in the 2019 Budget Law. - Working on the Tax Base Erosion and Profit Shifting (BEPS) program in the mining industry with OECD support. - Strengthened capacity of tax and mining administration agents in transfer pricing in mining and in economic and financial modelling of mining project revenues with support from GiZ, OECD through IGF, and NRGI. - Started modeling mining revenues using the Fiscal Analysis of Resource Industries (FARI) model developed with IMF TA; Ministry of Mining and Geology prepared a projection for mining revenues over 2019–35. ### Quality assessment and export controls - National laboratory of geology rehabilitated and equipped to improve capability in assessing quality (mineral content) of exported mineral products. - Assembled a unit tasked with assessment of quality and quantity of mineral products loaded onto ships for exports with GiZ support. - Trained mining administration agents in France in mineral exports’ weighting techniques (Drift Survey). - No vessel carrying mineral products is allowed to leave Guinea’s territorial waters without quantity assessment by the unit; collected samples used to assess mineral content. - Legislation regulating this new procedure will be adopted by end-March 2020. - Conducted an audit of export pricing practices of the main bauxite producer; findings to be finalized by end-2019 and will inform measures to support tax revenue mobilization in the mining sector, including strengthening the national laboratory of geology in assessment of mineral content of exported bauxite. --- ### Fiscal Structural Reforms and Public Financial Management ### PREFIP 2019–22 and PEFA/PIMA basis - Prepared a comprehensive strategy over 2019–22 to strengthen public financial management. - Conducted the PEFA exercise in April 2018 with IMF TA. - Prepared updated action plan for reform of public finances (PREFIP) over 2019–22 based on conclusions and recommendations from 2018 PEFA and PIMA exercises (end-September 2018 SB). - 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 on December 13, 2018. - PREFIP 2019–22 articulated on ten pillars aiming 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) cash management and debt management; (v) accounting and reporting of central government operations; (vi) evaluation and monitoring of budgetary risks from public enterprises and entities, public-private partnerships, and local authorities; (vii) internal and external audits of public finances; (viii) capacity building; (ix) computerized management system of public finances; and (x) steering and monitoring of reforms. ### Budget transparency and execution improvements - Presented a medium-term budget (MTB) for first time with 2017 budget law. - Adopted new budget nomenclature for 2018 Budget Law in line with GFSM 2001; implemented for 2018 budget execution and modernized information system for budget preparation and execution. - Established a top-down budgetary approach by setting targets for medium-term budgeting in line with the ECF arrangement fiscal targets. - Enhanced budget preparation calendar; made progress in adhering to calendar for 2018 Supplementary Budget Law and 2019 and 2020 budget preparation. - Will continue to publish quarterly reports of budgetary execution. - Adopted in December 2017 the new law on financial governance of public enterprises and institutions in accordance with new legislative and regulatory framework of public finances. - Prepared budget execution procedural manuals in February 2019; validated and approved manuals on the chain of expenditures in July 2019 and will operationalize by end-2019. - Limited use of exceptional expenditure procedures during 2018 and H1 2019 to sovereignty expenditures and special funds; linked execution of all authorized expenditures to budget lines in accordance with Budget Management and Public Accountancy Decree (RGGBCP). - Ended use of payment authorization (PA) terminology not provided for in regulations and replaced with exceptional procedure terminology in compliance with RGGBPC. - Will limit exceptional procedures to execution of expenses of special funds, sovereign expenses inscribed in the budget for benefit of the President of the Republic, and expenditures of constitutional institutions, linked to appropriations available on budget lines. - Will continue to provide a quarterly report to IMF staff on use of exceptional procedures for expenditures of special funds, sovereignty expenses of the President of the Republic and other constitutional institutions, and all other expenditures submitted to these procedures, excluding payment of debt interest. ### Treasury Single Account (TSA) - Committed to establishing a Treasury Single Account (TSA) to strengthen transparency, budget monitoring and cash management. - Closed most accounts of public administration entities (EPA) held at commercial banks in perimeter of Conakry and opened a centralizing account with the Central Bank to consolidate accounts in the perimeter of the TSA. - Conducted a census of EPA accounts in Conakry and in 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 centralizing Treasury account including 8 accounts of 5 main state accountants out of the 44 State’s operational accounts in the BCRG books. - Will finalize a TSA agreement between the Ministry of Economy and Finance and the BCRG by end-2019 based on experimental functioning. - Committed to expand coverage of the TSA and consolidate all accounts of the State and of the majority of EPA in the TSA by March 2019, with exception of accounts opened for public projects and development programs financed by international donors. - Process of consolidation of the public treasury will continue in 2020, with gradual extension of the TSA to accounts of donors-financed public projects and programs, most of which are opened in commercial banks. *International Monetary Fund — Guinea: selected program commitments and reforms as presented in the source document.* ### 30. We will move ahead with improving our cash management, which would also be ### 30. We will move ahead with improving our cash management, which would also be ### Cash management and Treasury coordination - Strengthen cash management to contain budgetary financing from the BCRG. - Continue aligning expenditures commitment plans with cash flows; exercise conducted on a monthly basis since January 2018. - Hold weekly technical inter-ministerial meetings supporting the Treasury Committee, including the Central Bank. - Commit to holding Treasury Committee meetings, including the Prime Minister, on a regular monthly basis; meetings restarted in the second quarter of 2019. - Strengthen cash management forecasting in line with recent IMF TA recommendations to improve assessment of budgetary needs. - Adopted a new ministerial order establishing a unit to support the Treasury Committee and strengthen functionality. - Move toward more active cash management with reports presented every Monday morning to the Minister of Budget on revenues and expenditures, both on commitment and cash basis. - Work to make orders between the Central Bank and the Treasury electronic to harmonize commitment plans with payment orders. ### Public investment management (PIMA and related reforms) - 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 (Public Investment Management Assessment) with IMF TA in May 2018. - In line with PIMA recommendations: finalize draft decrees establishing a regulatory framework and clarifying responsibilities of major public sector actors by end 2019 (with IMF TA) and adopt them by January 2020 to regulate mechanisms, mandates, procedures and standards of public investment management. - Develop and adopt a manual for preparation, appraisal and selection of priority investment projects; require major public investment projects to be accompanied by feasibility studies following rigorous processes (end-May 2020 SB). - Establish processes for producing reports on project execution and completion. - Conducted a stock-taking exercise of all projects in progress for at least 10 years (2009-19) and assessed status; initiated termination of financing for some projects and identified those to continue in the 2020 Budget Law. - Established an electronic platform for integrated investment management with support from AfDB and UNDP; started operationalization after testing and will make it fully operational by March 2020 to improve tracking of financing and evolution of public investments. ### Public procurement reforms and transparency - Enforce provisions of the new procurement code and conduct competitive bidding for public investment projects (code adopted in 2014; competitive bidding above a threshold). - Conducted and published an audit of public contracts in 2016. - Reduced procurement turnaround times, finalized survey of providers’ prices in May 2018, and implementing a system of sanctions as specified in the public procurement code. - Prepared and published the first report on public contracts; commit to continue publishing it on a six-month basis. - Created a national agency for procurement control in early 2019 and deconcentrated procurement to ministries/contracting authorities with legal mandate for planning, programming, execution and monitoring. - Working with World Bank TA to amend related texts, simplify and streamline procedures, reduce delays, and improve transparency and monitoring of contracts, including sanctions. - Amended public procurement legislation in 2018 by: (i) removing control at Administration and Control of Major Projects and Public Procurement; (ii) abolishing the National Directorate of Public Procurement; (iii) creating a new National Directorate for Public Procurement Control and Public Service Delegation; and (iv) transferring procurement to contracting authorities with competent technical services. - Prepared two draft decrees: (i) decree creating, attributing, organizing and operating public procurement bodies and public service delegations within contracting authorities; and (ii) decree on attributions and organization of the National Directorate for Controlling Public Contracts and Public Service Delegations. Will submit these to the Council of Ministers by end-2019. - Finalize the new Public Procurement Code (validated mid-October 2019) and sign decrees relating to the code and implementing legislation by end-2019. - Activities in 2019 to be carried out: update of standard documents; update of the 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. ### Public-private partnerships (PPP) framework - Finalize PPP framework in line with best practices and consistent with the organic law on public finance (LORF). - New PPP law adopted by Parliament in July 2017 and published in the Official Gazette in June 2019. - Prepared draft implementation decrees of the 2017 PPP law with IMF TA; finalize implementation decrees by end-November 2019 and adopt by end-2019 following October 2019 consultations. - 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 analysis of fiscal risk from existing PPP commitments. - Exercise prudence in use of PPPs; ensure guarantees are well monitored, evaluated, and contained. - Establish a PPP unit at the Ministry of Economy and Finance by end-2019. ### Reform of public entities (SOEs) - Reform SOEs to strengthen governance and limit fiscal risks. - Completed a census of all public entities in 2017; submitted the 2016 SOEs’ annual financial report to Parliament in 2017 for the first time. - Revised law on governance of public enterprises and entities approved by Parliament in December 2017 to ensure consistency with LORF and decree on budget management and public accounting. - New law strengthens governance and monitoring by: (i) applying tax provisions of common law; (ii) strengthening obligation to pay dividends; (iii) clarifying granting of subsidies; and (iv) strengthening control of fiscal risks. - Draft implementation decree of the new SOEs’ law discussed at Council of Ministers and approved in September 2018 (end-September 2018 SB). - Progress made to harmonize texts by end-2020; reviewed regulations of eleven entities and brought them in line with new legislation. - Prepared annual financial report for public entities for 2017 and submitted it to Parliament as an Annex of the 2019 budget law; committed to prepare and submit annual reports going forward (2018 report prepared and to be submitted with the 2020 budget law). - Working on medium-term strategy to improve financial conditions of loss-making enterprises with World Bank support; started establishing Boards of Directors. - Identified loss-making enterprises and recruiting an audit firm to elaborate economic and financial diagnosis to inform restructuring or recapitalization decisions. ### Debt policy and management: preservation of sustainability - Commit to preserve medium-term debt sustainability and ensure Guinea does not exceed a moderate level of risk of external and overall public debt distress. - Continue prudent external borrowing to finance planned increase in public investments and contain debt vulnerabilities. - Note: US$1.2 billion non-concessional loan signed in September, 2018 to finance Souapiti dam project (about 11 percent of GDP). - Commit to maximize concessional element of new external borrowing and limit additional non-concessional debt contracted or guaranteed to program ceiling to preserve medium-term debt sustainability. - Limit non-concessional debt contracted or guaranteed during three years of the ECF arrangement to a maximum of US$650 million to finance key growth-supporting infrastructure projects so risk does not exceed a moderate level. - Within this envelope, signed two loans in September 2018 for rehabilitation of RN1 road and Conakry urban road network for an overall amount of US$598; these loans were collateralized by future streams of mining revenues. - Signed end-November a US$60 million non-concessional loan for budget support disbursed in April 2019; re-opened negotiations to achieve concessional terms and committed to earmark it to key infrastructure projects as specified in the TMU (¶15). - Implement a prudent domestic borrowing strategy in view of vulnerabilities: issued a GNF 1,302 billion three years bond in the domestic market in June 2019. - Reduce planned issuance of treasury bills by 90 percent of that amount to contain increase in overall stock of domestic debt. ### Domestic and external arrears strategy - Gradually repay domestic arrears accumulated in previous fiscal years; audit of domestic arrears over 1982-2013 completed in 2016. - Adopted in December 2017 a strategy for clearance of longstanding domestic arrears aiming at clearing small creditors (80 percent of number of creditors and 20 percent of nominal value of audited and validated arrears). - Repayments: GNF 43 billion in 2017; GNF 181 billion in 2018; will repay GNF 208 billion in 2019. - Plan to repay remaining amounts over a seven-year period through issuance of securities and direct payments. - Start in June 2020 the second phase of the external audit to continue negotiations with creditors and finalize memoranda of understanding for audited and validated amounts. - Launch a public tender to recruit an independent auditor to review domestic arrears up to 2018 yet to be audited. - Commit to avoid accumulation of new domestic arrears to support the private sector. - Continue efforts to resolve long-standing external arrears; initiated discussions to resolve pre-HIPC external arrears to Non-Paris Club and commercial creditors. - Re-sent letters to creditors and advance discussions by end-2019. - Ensure not to accumulate new external arrears, including through improving debt management. ### Strengthening the debt management framework and tools - Progress in strengthening debt management with support from IMF, U.S. Treasury, AFD and other partners. - 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 Treasury bonds issuance on Ministry website in April 2018 to support transparency and improve cash management. - Set up in 2018 a computerized tracking system for live monitoring of Treasury Bills auction. - Conducted DEMPA (Debt Management Performance Assessment) in May 2018 with World Bank support; finalized in March 2019 a time-bound action plan to strengthen debt management for 2019–20 based on DEMPA findings. - Action Plan includes improving legal and regulatory framework, better coordination with fiscal and monetary policy, clearer communication on debt strategy, and improved recording and management of debt data. - Prepared draft update of medium-term debt management strategy (MDTS) in November 2018 with IMF TA; finalized in February 2019. - Operationalized National Working Group on the Management of Public Debt in February 2019, updated MDTS and conducted sustainability analysis of debt and impact of potential new loans on a regular basis. - Published first report on public debt in June 2018 and continued quarterly publication; published a fully-fledged statistical bulletin on Ministry website in July 2019 and will publish quarterly; adopt a manual for preparation of the bulletin by end-2019. - Operationalized the National Debt Committee in September 2019 and will request assistance from technical and financial partners; adopt a manual for operation of the National Debt Committee by March 2020 to specify timing for meetings and clarify modalities to advise on borrowing plans. - Strengthen debt service forecasting and actual debt service by building forecasts of new disbursements indicated in the budget and taking into account all debt instruments falling due during the budget cycle. - Started updating the T-bills calendar on a weekly basis according to forecast needs. - To reduce refinancing risk, plan to facilitate bond issuance with IMF support: finalized logistical setting and successfully tested bid processing tools; conducted a pilot test with banks in June 2019 and investor communication in September 2019. - Adopted a procedure to coordinate auction process steps given current institutional setting where DNTCP oversees T-bills and DNDAPD oversees bond issuance. - Aim to issue treasury bonds on a regular basis starting prudently with small amounts of GNF 150 billion to GNF 200 billion of a maturity of 2 years by June 2020 to create the market and gradually develop a yield curve. - Strengthen public debt recording system by acquiring and adopting the Debt Management and Financial Analysis System (DMFAS/SYGADE) Program by March 2020, train staff by end-June 2020 and operationalize the system by August 2020. - Carry out a diagnostic of the institutional framework and adopt a reorganization scheme by June 2020 to reduce the number of entities involved in debt management and enhance efficiency and coordination; in particular merge issuance of Treasury bonds and bills under a unique institution. ### Monetary and exchange rate policies — reserves and FX operations - Continue to strengthen BCRG’s international reserves to bolster external buffers against shocks. - International reserves reached about US$1 billion at end-September 2019, corresponding to 3.7 months of imports coverage. - Aim to reach the ARA-CC metric reserve adequacy estimate of 3.8 months of imports by 2020. - BCRG will limit interventions in the foreign exchange market and implement a more active strategy to accumulate reserves. - Set up unilateral and competitive auctions to conduct purchases of foreign exchange; conducted a communication campaign to banks to limit market risks. - Started unilateral auctions in September 2018 and purchased 22.23 million dollars during September 2018–September 2019. - Unilateral auctions: open to all Guinean banks and foreign non-bank entities operating in the MEBD, target small and regular purchases to preserve MEBD stability, conducted all business days of the week excluding MEBD days. - Finalized a weekly foreign exchange liquidity forecast in December 2018 to improve predictability of market supply and demand conditions. *Source: 1ginea2020002* ### 40. We are committed to finalize our foreign exchange market reform to strengthen the ### 40. We are committed to finalize our foreign exchange market reform to strengthen the ### Foreign exchange market reform and MEBD operations - Replaced the foreign exchange allocation system with a bilateral foreign exchange market (MEBD) in early 2016 to allow greater exchange rate flexibility and reduce the differential between the official rate and the rate of the foreign exchange bureaus. - Issued an instruction in early 2016 detailing MEBD and auction organization; auctions held twice a week (on Tuesday and Friday) and preceded by a communiqué the day before. - Discontinued fixing the official exchange rate one day after receiving banks’ FX transaction reports; the reference rate is published before 9 a.m. on a daily basis. - May 2018: BCRG signed an instruction clarifying the methodology for the calculation of the daily reference exchange rate; communicated to banks. - June 2018: BCRG issued an instruction clarifying the rules for banks’ participation in the MEBD. - Strengthened MEBD reporting and analysis by preparing a quarterly report to support market discussions since 2018. - Gradual elimination of auction allocation limits to single participants: - Increased to 40 percent in September 2018 (from 20 percent). - Increased to 60 percent in December 2018. - Fully eliminated in June 2019. - Commitment to establish an electronic platform to make MEBD operations more efficient by end-June 2020. - Finalizing a rule-based intervention strategy to limit BCRG’s discretion in the MEBD and support greater exchange rate flexibility; implementation targeted by end-June 2020 once the electronic platform is in place (with IMF TA). - Operational objective: ensure the premium between the official exchange rate (reference rate) and commercial banks’ purchase and sales rate does not exceed 2 percent on a given day. ### Monetary policy stance and inflation objectives - BCRG will aim at maintaining inflation within single digits. - BCRG will target base money in line with program objectives to moderate inflation. - Reserve money growth: - 6.3 percent in 2018 (y-o-y). - 13.6 percent at end-August 2019 compared to 11.6 percent (y-o-y) at end-June 2019. - For 2019, the BCRG targeted monetary base to expand at about 6.8 percent (y-o-y), consistent with: - an average inflation rate at 8.9 percent, and - growth of credit to the private sector at 9 percent (in percent of broad money). - BCRG will maintain prudent policy and stand ready to tighten to maintain a positive real interest rate. - Will keep BCRG’s net credit to the government in line with program objectives and use active liquidity management (including issuance of TRM if needed). ### Government borrowing from the BCRG and related limits - May 2018: Memorandum of Understanding (MoU) between the BCRG and the Ministry of Economy and Finance limits BCRG advances to government to statutory limits in the Central Bank Law (prior action; first ECF review): no more than 5 percent of the average fiscal revenues of the last three years to be repaid within a period of 92 days. - In the first eight months of 2019, central bank advances to the government were contained within statutory limits. - Net borrowing from the central bank: - Declined by 6.7 percent (y-o-y) in the first half of 2019. - Declined by 21.1 percent at end-August 2019. - BCRG holds weekly Executive Committee to strengthen monitoring of credit provision to the government and prepares periodic reports to the BCRG’s Board. ### Liquidity management and monetary framework enhancements - Re-introduced monetary regulation instruments (short-term securities) to absorb excess liquidity and refinancing windows to meet liquidity needs, creating an interest rate mechanism. - Improved liquidity monitoring: - Daily monitoring liquidity table and weekly liquidity report prepared. - New liquidity forecasting regime established in August 2018 with a liquidity committee and a forecasting team. - Publishing results of monetary policy operations shortly after execution. - Internal coordination: - Internal monetary committee meets monthly to decide policy direction. - Operational unit of liquidity committee calibrates liquidity operations based on the new forecasting framework. - In September 2019, liquidity committee requested Research Department to prepare analysis of the optimal level of liquidity. - Institutional changes: - Create a Monetary Policy Committee by early 2020 to decide on policy direction at the beginning of each quarter. - Electronic platform for interbank transactions in domestic and foreign currencies set up since March 2016. - Initial legal basis of an emergency liquidity assistance framework completed in February 2019; further reforms to operationalize framework include adopting a transparent collateral framework, setting minimum credit risk level for eligible assets, adopting risk control measures, and proposing alternative models for government guarantees (with IMF TA). ### BCRG autonomy, recapitalization, and financial reporting - 2017: Amended published version of the new BCRG Law (approved by Parliament in November 2016) to strengthen autonomy; law prohibits issuance of guarantees by the BCRG to the private sector. - May 2018 MoU specifies modalities and timeline for recapitalization of the BCRG (about U$300 million). - October 2018: Letter signed to kick-start recapitalization implementation. - BCRG recapitalized in 2018 through issuance of marketable government securities (about $300 million), restoring operational and financial autonomy. - Commit to timely issue government securities to the BCRG on related interest payments: - Issue securities for interests falling due in December 2019 in the last quarter of 2019. - Issue securities for interests falling due in 2020 in June 2020. - Safeguards and audit enhancements: - Adopted and started implementing IFRS; published IFRS-compliant financial statements for 2017 in November 2018 (end-September 2018 SB). - Will publish IFRS-compliant financial statements for 2018 by end-2019 and continue publishing IFRS-compliant statements moving forward. - Improved Audit Committee oversight: improved technical presentation of audit files, adopted principle of annual assessment of auditors, recruited an IT audit firm in March 2019. - Board approved action plan to enhance IT audit capacity in Internal Audit Department in June 2019; recruitment of three technicians to be finalized by end-2019. - Developed internal information-sharing platform and held personalized training for committee members in September 2019. - Producing quarterly reports for the Audit Committee focusing on high-risk areas and set up capacity building program including digital audit personnel, with IMF TA. - BCRG to provide further improvements to the central bank law by end-2020, notably clarifying roles of the Monetary Policy Committee and the Board of Directors regarding foreign exchange operations and explicitly assigning a supervisory role to the Board. - Internal compliance processes set up with semi-annual reporting to the Board in September 2018. - Will review internal audit practices and assess measures to implement the International Professional Practices Framework (IPPF) with IMF TA; actions include enhancing risk maps, developing a central database of incidents, and strengthening off-site surveillance by establishing an internal control charter. - Prepare an action plan to conduct a peer-review of currency operations by June 2020. - Investment Committee amended policy in May 2019 to diversify counterparties and specify proportion of monetary gold to be held in foreign assets; regular review of investment policy to continue. - Reorganize structure to create a middle office function in foreign exchange operations and make it operational once the trading room is in place (support from AfDB). - External audit of monetary data: - Completed external audit of end-December 2018 monetary data in September 2019. - Will complete external audit of monetary data at end-June 2019 by mid-December 2019. - Will complete external audit of end-December 2019 monetary data by mid-June 2020. ### Banking sector stability and supervision - April 2019: BCRG signed instruction to adopt new chart of accounts. - May 2019: Instruction to adopt updated accounting and financial reporting for banks was issued. - Adopted a new risk-based rating methodology for banks to improve off-site examination and collection of additional data on governance, risk management, internal control, and AML-CFT. - Implemented the banking law with remaining texts and procedures, including instructions on banks’ internal controls and corporate governance, use of external auditors, and conditions for appointment of a second accounts auditor. - Gradual implementation of new chart of accounts and updated accounting and reporting system for banks to be fully implemented by June 2020. - New bank rating methodology operationalized; banks' ratings on statements at end-2018 underway. - Improve cross-border supervision after cooperation agreements with WAMU Banking Commission and Central Bank of Nigeria; Joint Inspection Missions begun for Nigerian bank subsidiaries. - Strengthen banking supervision by implementing the bulk of Basel II/III provisions by end-2020 with IMF TA. - Adopt IFRS standards for banks from the 2020 financial statements with IMF and other partners' assistance. - Strengthen human resources allocated to banking supervision by recruiting and/or redeploying around ten people by end-March 2020. - Create a small dedicated unit to express resource needs for an expanded financial stability function by June 2020. - Credit information system: - New system set up at end-2017 and fully operational. - Aim to complete automation of data sharing between banks and the BCRG and convert credit information into a credit bureau with World Bank support by end-March 2019. - Insurance Code adopted in July 2017. - Set up a banking resolution framework by June 2020 with IMF TA; requires recovery and resolution plans for all banks and subsidiaries. - Deposit Guarantee Fund: - Legal framework finalized in December 2018 through Decision of the Approval Committee. - Board of Directors set up to administer the Fund; first contributions from banks paid in October 2019. - Operationalization steps: set the ceiling for compensation of depositors and the 2020 annual contribution rates by December-2019. - Finalize operationalization of the deposit guarantee scheme by June 2020 with IMF TA. - Compliance and enforcement: - Only one bank did not meet net equity requirement at end-June 2019; placed under stricter supervision, prohibited from dividend distribution, and requested to present a timetable for improving minimum capital by end-October 2019. - BCRG will ensure all banks comply with the reserve requirement. ### National Investment Bank of Guinea (NIBG) and fiscal risk containment - New development bank established early 2019 to support credit to SMEs and investments, notably in agriculture. - NIBG started operations in October 2019 with initial capital of GNF 100 billion, with investments in agriculture, including fishery and livestock. - Measures to contain fiscal risks: - NIBG will not be allowed to collect any retail deposits, including short and long-term ones. - Ensure transparency of funding through dedicated budgetary allocations. - Establish a monitoring structure of NIBG operations by March 2020. - Central bank currently a stakeholder in NIBG and aims to disinvest shares gradually to interested investors; discussions underway with potential shareholders, including multilateral donors. - Will amend the banking law to introduce specific licensing provisions for development banks and define their operational framework by end-2020, with IMF TA. *International Monetary Fund — Guinea, selected sections on foreign exchange, monetary policy, banking supervision, and financial sector reforms.* ### 48. We are committed to move ahead with the implementation of key structural reforms ### 48. We are committed to move ahead with the implementation of key structural reforms ### Structural reform objectives - Support higher and more inclusive growth by developing the private sector to generate job-creation and reduce poverty. - Target reforms at improving the business climate, strengthening governance, and strengthening financial inclusion over the program period. ### Improving the business climate — progress and measures - Guinea improved its ranking in the World Business Indicators by gaining 27 places between 2013 and 2018 (152 out of 190 countries). - Action plan developed in March 2018 defining 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 the public-private dialogue. - Business creation and registration: - One-stop-shop computerization and online business creation platform SyNERGUI operationalized; allows a new business to be created in less than 72 hours. - From January to end-august 2019, 7 322 businesses were created through the one-stop shop, of which half were created within 72 hours and 28 percent were created in less than 24 hours. - Tax administration and interoperability: - Permanent tax identification number finalized; over 2,000 private sector operators have the new tax identification number since March 2019. - Interconnection between the Agency for the promotion of private investment (APIP) and the National Tax Directorate created in January 2019 and operational since March 2019; work underway to improve transmission of data to DNI. - System to declare and pay taxes on-line being established and to be finalized by end-2019 to enhance transparency and governance. - Land registration and contract enforcement: - Progress on a one-stop shop for land registration with World Bank support; office spaces identified and equipment/financial resources to operationalize by end-2019. - Specialized Commerce Court in Conakry set up in October 2018; decree nominating President and a judge signed August 2018; headquarters inaugurated March 2019; Consular Judges selected; first court cases started at end-April 2019; GNF 1 billion provided to fund the budget of the Commerce Court in August 2019. - Cross-border trade facilitation: - One-stop shop for foreign trade: operator selected and operationalization planned by end-2019. - General Director nominated; specifications for operationalization being elaborated. - Equipment for online issuance of descriptive import and export declaration forms (DDI/DDE) acquired in October 2019; related module to be operationalized by end-2019 and extended to other trade documents by February 2020. - Second stage of operationalization to start April 2020, rolling out at the Port of Conakry, the Gbessia International Airport and gradually to land borders. - Credit information: - Credit information system established at the Central Bank; banks and microfinance institutions interconnected and debtors of each bank declared on the platform. - Public-private dialogue: - Commitment to strengthen the public-private consultative platform by re-activating the Guinean business forum (GBF) launched in 2017 and organizing workshops. - Executive secretary for the GBF selected; commitment to ensure inclusiveness of private sector representation. ### Strengthening governance and anti-corruption - Legislative and institutional reforms: - Parliament adopted the anti-corruption law in July 2017. - Anti-corruption strategy adopted in October 2018. - Decree on organization and operation of the National Agency for the Fight Against Corruption (NAFC) adopted in October 2018. - Commitment to improve NAFC’s capacity, independence and financial autonomy. - Adoption of implementation decrees for the asset declaration regime and whistle blowers and victims’ protection targeted by end 2019. - Review of criminalization of acts of corruption with IMF TA to ensure consistency with United Nations Convention against Corruption (UNCAC). - UNCAC review process: - Second review cycle launched with UNODC assistance; workshop on Guinea's self-assessment conducted in October 2019. - Self-assessment control workshop in Conakry to be held by end-November 2019. - Submission timeline for finalizing the process: - By June 2020: submit the report of the Guinea self-assessment workshop to UNODC followed by a self-assessment monitoring workshop in Guinea; and submit the final report of the self-assessment of Guinea to the two States reviewers of Guinea. - Country visits by experts of two Reviewing States and UNODC to take place by end-September 2020. - Asset declaration regime: - Implementation decree being finalized with IMF TA and to be adopted by end-March 2020 (end-September 2019 SB). - Regime covers high-level officials, their family members and close associates; requires declaration of all assets held domestically and abroad, directly and beneficially; establishes dissuasive sanctions and publication of declarations. - Resources for Audit Court to manage declarations to be allocated in the 2020 Budget Law. - Decree on the asset declaration form to be adopted end-June 2020 (SB). - First declarations expected to be filled in early 2020 and subsequently published in the Official Gazette as required by the Constitution. - Strengthening AML/CFT regime: - Commitment to revise legislation in line with the 2012 Financial Action Task Force standard; new AML/CFT draft law being finalized with IMF technical assistance. - Consultations at inter-governmental level and with private sector underway; Council of Ministers to approve by end 2019 and presentation to the National Assembly by March 2020. - Development of tools for risk-based AML/CFT supervision of the banking sector operationalized in October 2019; tools include continuous updating of reporting system, identification forms for BCRG clients, analysis of foreign exchange flows, and mapping of risks and vulnerabilities. - Strengthening of the National financial information processing unit (CENTIF) with IMF TA: improving institutional framework, capacity building, and developing operational processes and strategies. - Developed monitoring manual, scoring methodology, and Excel database for risk scoring and controls for use by the supervision department in AML/CFT tasks. - New form for cross-border declaration of foreign currency designed and submitted for approval; scheduled use end-December 2019. - Since 2017, five workshops organized to train human resources working on AML/CFT with IMF and UNODC support. - Inter-ministerial AML/CFT committee set up with World Bank and GIABA support; AML/CFT National Risk Assessment underway. - With IMF TA, internal risk-based AML/CFT controls and procedures for the BCRG developed; dedicated policy adopted early this year; risk matrix developed; AML/CFT risk management procedures rolled out in September 2019; commitment to continue staff capacity strengthening. ### Financial inclusion measures and targets - Financial Inclusion Law adopted in July 2017 to provide a framework for microfinance institutions and to support increased credit access for SMEs, women and youth. - Implementation decrees adopted in 2018. - Fourteen draft instructions prepared with World Bank support, transmitted to stakeholders; workshop held April 2018 to discuss observations and comments. - Diagnostic on financial inclusion conducted November 2018 with World Bank support. - National Strategy on Financial Inclusion being finalized with World Bank support; to be adopted by end-2019. - Objectives and measures: - Develop digital finance supported by payment systems, physical infrastructure, appropriate regulations, and consumer protection safeguards. - Provide financial education programs targeting depositors' rights, savings and e-money accounts; by end-2020 conduct a demand survey covering financial education and protection aspects targeting small and medium firms, rural populations and women. - Reduce constraints on access to financial services by strengthening regulatory and supervisory frameworks, developing payment infrastructures, and encouraging “bank-to-wallet” integration and innovative products (microinsurance, savings plan). - Strengthen consumer protection and financial education. - Establish an electronic safeguards registry to make verification and security clearance transparent and effective to support SME financing. - Develop a strategy for financing the agricultural sector. - International engagement: - Member of the Alliance for Financial Inclusion (AFI); actively engaged in African Financial Inclusion Policy Initiative (AfPI). Governor of the BCRG is the current Chair. ### Program monitoring and statistical strengthening - Program monitoring: - Program to be monitored on a semi-annual basis through quantitative performance criteria and indicative targets and structural benchmarks. - Quantitative targets set for end-December 2019 and end-June 2020 are performance criteria; those for end-March 2020 and end-September 2020 are indicative targets. - The fifth review should be completed on or after June 11, 2020, and the sixth review on or after November 26, 2020. - Evaluation through Economic Coordination and Reform Council (CCER) and Technical Unit for Program Monitoring (CTSP). - Strengthening the statistical system: - Commitment to provide adequate resources to the national statistical institute (INS) via the 2020 Budget Law. - Methodology for national accounts strengthened in March 2017 adopting the 1993 SNA with IMF TA. - Migration from SNA 1993 to SNA 2008 targeted by end-2020 with IMF TA. - Steering bodies of the national statistical system in place; operationalization of the macroeconomic framework committee to harmonize data. - Household survey to update living conditions assessment: data collection completed; compiling data with World Bank support; results expected by end-2019. - Strengthening CPI methodology and publication of new series by end-2020. *Source: Guinean authorities; and IMF staff estimates and projections (excerpt).* ### 2018. The adjustment ### 1ginea2020002 - 2018. The adjustment ### Price adjustment events - The adjustment mechanism was applied in January 2019, leading to a 5 percent reduction in prices. - Retail prices were maintained constant during the first seven months of 2019. - The adjustment mechanism was applied in August 2019, leading to a 5 percent increase in prices. ### Fiscal policy — prior actions, benchmarks, and outcomes - Finalization of feasibility studies for public investment projects financed by non-concessional borrowing. - Date: End Mar-18 — Status: Met. - Objective: Protect budget revenues; Ensuring efficiency and good management of public investments. - Submission to the Parliament of the 2016 SOEs annual financial reports by the Ministry of Finance. - Date: End Dec-17 — Status: Met. - Objective: Improve transparency and governance. - Integrate the PEFA recommendations in the action plan to reform public finances. - Date: End Sep-18 — Status: Met. A new 2019–22 action plan to reform public finances, incorporating the PEFA and PIMA recommendations, was prepared and validated. - Objective: Strengthen public financial management. - Submit to the National Assembly a Supplementary Budget Law for 2018 in line with agreed corrective measures and revised program fiscal target. - Date: End Sep-18 — Status: Not met. A Supplementary Budget Law in line with program fiscal target was submitted in August 2018; composition revised and a revised budgetary framework for 2018 was adopted by the Council of Ministers as a prior action. - Objective: Strengthen macroeconomic stability. - EDG electricity meters installation (multiple phases): - Install meters in premises of the Prime Minister and fifteen Ministries and provide report on installation for rest of consumers. Date: End Jun-18 — Status: Met. Objective: Increase revenues of the public electricity utility to reduce budgetary transfers to the company. - Complete installation in all Ministries and 80 percent of rest of consumers. Date: End Feb-19 — Status: Not met. Installed in all Ministries by end-February 2019; installation for rest reached 70 percent at end-August 2019. Expected completion with delay by end-2019. Objective: Increase revenues of the public electricity utility to reduce budgetary transfers to the company. - Submit to the National Assembly a Supplementary Budget Law for 2019 in line with agreed budgetary measures and program fiscal target. - Date: End Sept-19 — Status: Met. Draft submitted mid-August 2019 and adopted in September 2019. Objective: Ensure macroeconomic stability. - The Minister of Economy and Finance and the Minister of Energy to sign a ministerial order to increase electricity tariffs by specified percentages in 2020. - Date: June 1, 2020 — Status: To be assessed. Details: increase by 9 percent electricity tariffs for households and by 10 percent electricity tariffs for professionals and industrials in 2020, in line with the electricity tariffs reform strategy 2019-25. Objective: Reduce electricity subsidies. - Establish a prototype for the unified social register of vulnerable populations by the Ministry of Social Affairs. - Date: End Feb 20 — Status: Met. A presidential decree in November 2019 created the unified social registry under the Ministry of Social Affairs; a roadmap for setting-up the social register was finalized by ANIES. Objective: Improve targeting of social protection programs. - Prepare and adopt a manual for preparation, appraisal and selection of investment projects requiring feasibility studies for major public investment projects. - Date: End May-20 — Status: To be assessed. FAD technical assistance expected to support authorities. Objective: Strengthen public investment management. ### Mining sector and revenue mobilization - 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, to be in line with the tax provisions of the mining code; agreements with new investments in infrastructure and/or transformation to be submitted to the National Assembly with an assessment of tax expenditures. - Statuses and examples: - End Nov-18 — Met. Since June 2018, a new bauxite extraction contract ratified and put fully in line with the tax provisions of the mining code; another contract with infrastructure was submitted to the National Assembly with an assessment of tax expenditures. Objective: Mobilize additional mining revenues and foster governance and transparency. - Continuous (Third Review) — Met. A new mining agreement signed in November 2018, ratified and published in Q1 2019, entailed new investments in infrastructure and local transformation and was submitted to the National Assembly with an assessment of tax expenditures. - Continuous (Fourth Review) — Met. A new agreement for iron ore extraction was ratified in December 2019; submitted to the National Assembly with an assessment of tax expenditures. Objective: Mobilize additional mining revenues and foster governance and transparency. - Continuous status under later reviews: In progress (Fifth Review); objective sustained. ### Monetary and foreign exchange policy actions and outcomes - Signing a Memorandum of Understanding between the BCRG and the Ministry of Economy and Finance with modalities and timeline for the recapitalization of the BCRG. - Date: End Feb-18 — Status: Not met. The Memorandum of Understanding was signed with a delay in May 2018 as a prior action. Objective: Ensure the operational autonomy of the BCRG. - BCRG to establish a liquidity forecasting framework. - Date: End Mar-18 — Status: Met. Objective: Strengthen monetary policy framework and improve liquidity management. - BCRG to publish IFRS-compliant financial statements for 2017. - Date: End Sep-18 — Status: Not met. Completed with delay; 2017 financial statements published on November 28, 2018. Objective: Strengthen the BCRG financial accountability. - BCRG to establish internal compliance processes to review adherence with legislation and provide semi-annual reporting to the Board. - Date: End Sep-18 — Status: Met. A compliance committee was set up covering internal compliance and AML/CFT issues; a compliance officer appointed; BCRG’s legal department is member. Objective: Strengthen internal audits and control functions. - BCRG to establish unilateral and competitive auctions to conduct regular and small purchases of foreign exchange. - Date: End Sep-18 — Status: Met. An instruction formalizing the setting-up of the unilateral and competitive auctions signed by the Governor. Objective: Conduct an active strategy to accumulate international reserves. - BCRG to establish an emergency liquidity assistance framework for illiquid but solvent banks. - Date: End Feb-19 — Status: Met. An instruction for liquidity was signed by the Governor. Objective: Strengthening the monetary framework. - Elaborate a rule-based intervention strategy for the BCRG in the foreign exchange market. - Date: End May-19 — Status: Not met. Completed with a delay in October 2019 when a rule-based intervention strategy in line with IMF technical assistance recommendations was finalized. Objective: Limit discretion in interventions and increase foreign exchange market transparency. ### Structural reforms, governance, and legal measures - Adoption of the implementation decree of the 2017 law on governance of public entities. - Date: End Sep-18 — Status: Met. Implementing decree signed in September 2018. Objective: Improve transparency and governance and reduce fiscal risks. - Establish a specialized Commerce Court in Conakry. - Date: End Oct-18 — Status: Met. Presidential decree nominated President and judges; administrative buildings identified; process to acquire equipment and train staff ongoing. Objective: Improve the business climate. - Adoption of the implementation decree on the organization and operation of the National Agency for the Fight Against Corruption. - Date: End Oct-18 — Status: Met. Implementing decree signed by the President. Objective: Strengthen governance. - Adoption of implementation decrees of the 2017 corruption law on the asset declaration regime and whistle blowers and victims’ protection. - Date: End Sept-19 — Status: Not met. Expected to be completed with a delay by end-March 2020. Draft decree on asset declaration finalized (with LEG technical assistance); draft decree on the content of an asset declaration form developed. Objective: Strengthen governance. - Develop and publish an asset declaration form in line with the decree on the asset declaration regime. - Date: End June 20 — Status: To be assessed. A draft decree on the content of an asset declaration form has been developed. Objective: Strengthen governance. ### Program definitions, performance criteria, and memorandum items (selected) - Quantitative performance criteria and indicative benchmarks specified in Table 1 of the MEFP include: - 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. - Central government definition: all ministries and agencies subject to central budgetary administration per the organic law on public finances; excludes local governments, the BCRG, and public entities with autonomous legal personality unless otherwise indicated. - Basic fiscal balance definition: total tax and non-tax revenue (excluding grants and proceeds of privatizations) minus total expenditure plus net lending, excluding interest on external debt and externally financed capital expenditures; expenditures defined as payment orders issued and approved by accountants. - Net Domestic Assets (NDA) of the BCRG: difference between reserve money and net foreign assets (NFA), both at the program exchange rate. NFA = gross foreign assets minus gross foreign liabilities, with detailed inclusions and treatments specified (e.g., encumbered reserves, assets via short currency swaps, claims on residents). - Reserve money components: (i) local banks’ deposits and other private sector deposits with the BCRG (including bank reserve requirements) in GNF and foreign currencies; and (ii) Guinean francs in circulation and in bank vaults. Foreign currency amounts converted at program exchange rate. ### Program exchange rates and gold valuation (as specified for program purposes) - 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 - Notes: Rates and prices as of end-December 2016. Gold holdings of the BCRG valued at US$1159.10 per oz. SDR to US$ exchange rate based on WEO projections. LBM connotes London Bullion Market. *Source: IMF staff report content in the provided PDF chapter.* ### 10. Net borrowing of the central government from the Central Bank is defined as BCRG ### 10. Net borrowing of the central government from the Central Bank is defined as BCRG ### Definition of Net Borrowing from the Central Bank (BCRG) - Net borrowing of the central government from the Central Bank is defined as BCRG claims on the central government minus the total of all government deposits at the BCRG and amounts related to the recapitalization of the central bank, which includes the 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 from the BCRG is defined as loans, advances, arrears, and purchases of government securities and treasury bills by the BCRG. - Monitoring of this indicator will be based on the central government’s net position at the BCRG. ### Floor on the Net International Reserves (NIR) of the Central Bank - Net international reserves (NIR) of the BCRG are, by definition, equal to the difference between the gross reserve assets of the BCRG and the gross foreign exchange liabilities of the BCRG. ### Gross Reserve Assets (included / excluded) - Gross reserve assets of the BCRG 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 of such transfers soon after those dates; - (v) assets obtained through currency swaps of less than three months duration; and - (vi) gross reserves that are in any way encumbered or pledged, including, but not limited to: - (a) assets blocked when used as collateral for third party loans and third-party payments, or pledged to investors as a condition for investing in domestic securities; - (b) assets lent by BCRG to third parties that are not available before maturity, and are not marketable; and - (c) foreign reserves blocked for letters of credit. ### Gross Foreign Exchange Liabilities (definition and exclusions) - Gross foreign exchange liabilities are defined as the 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 an original maturity of 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; and - (iv) any outstanding central bank guarantees in foreign currency. - SDR allocations are excluded from gross foreign exchange liabilities of the BCRG. ### Ceiling on New Non-Concessional External Debt Contracted or Guaranteed by the Central Government or the Central Bank - Definition of non-concessional external debt: - For program purposes, debt is non-concessional if it includes a grant element of less than 35 percent, as indicated in the IMF Executive Board Decision No. 11248–(96/38), April 15, 1996. - The grant element is the difference between the nominal value of the loan and its present value, expressed as a percentage of its nominal value. The present value of the debt is calculated on the date on which it is contracted by discounting the future stream of payments of debt service due on this debt. - The grant element is calculated using a discount rate of 5 percent. - Ceiling on non-concessional debt: - The total amount of non-concessional debt allowed to be contracted or guaranteed during the arrangement is limited to a ceiling of US$650 million on a cumulative basis from the start of the arrangement, to be used to finance the following priority infrastructure projects, as specified in the relevant loan documents: the Rehabilitation of the RN1 national road; the rehabilitation of the road system in Conakry; the construction of the Linsan-Fomi-Kankan electricity transmission line; and university rehabilitation. - The ceiling applies to the contracting and guaranteeing of debt with nonresidents by the central government and the BCRG. - This performance criterion is monitored on a continuous basis. - The ceiling is measured from the start of the arrangement. - For program monitoring purposes, non-concessional external debt is deemed to be contracted or guaranteed at the date of its signature. ### Exclusions from the Non-Concessional Debt Limit - Excluded from the limit on non-concessional external debt: - (i) the 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 that is non-concessional upon signature but later cancelled or renegotiated to be made concessional, once such cancellation or renegotiation becomes effective in accordance with the terms of the relevant contract and as determined by the law applicable to such contract; and - (v) any Guinean francs denominated government security holdings by non-residents. ### Ceiling on New External Arrears of the Central Government and Central Bank - New external arrears: - Debt is considered external when contracted with a non-resident. - For the PC on the non-accumulation of new external payment arrears, arrears are 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 the relevant contractual terms (taking into account any contractual grace periods). - This PC excludes arrears on external financial obligations of the government subject to rescheduling. ### Floor on Tax Revenues Collected - The floor on total domestic central government tax revenue is defined as total central government revenue, as presented in the central government financial operations table (TOFE), excluding external grants and non-tax revenue, defined as such in the TOFE. ### Domestically-financed Social Safety Nets Programs (definition) - Domestically-financed social safety nets programs are defined as the domestically-financed spending, which is disbursed to support the implementation of: - (i) all domestically-financed non-contributory social programs under the Programmes Filets Sociaux Productifs (PFSP); - (ii) the budgetary allocation to 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 the activities of National Fund for Youth Placement (FONIJ, of the 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) scholarship to students to improve living conditions. ### New Domestic Arrears Accumulated by the Central Government (Net) - Domestic arrears are defined as spending that have been recorded by the public accountants of the Treasury as due by the central government and which have not been paid, including checks that were issued but not yet cashed. ### New Concessional External Debt Contracted or Guaranteed by the Central Government or Central Bank (Cumulative) - Definition of concessional external debt: - For program purposes a debt is considered to be concessional if it includes a grant element of at least 35 percent. - The memorandum item on new concessional external debt is defined as new concessional loans contracted or guaranteed by the central government or the central bank from the start of the arrangement, recorded on a cumulative basis. - For program monitoring purposes, concessional external debt is deemed to be contracted or guaranteed at the date of its signature. ### Adjustment Factors for Program Performance Criteria - Adjustor for Basic Fiscal Balance: - The floor for the basic fiscal balance of the central government will be adjusted: - upward by an amount equal to 40 percent of the shortfall of external program loans and external program grants compared to programmed amounts, as specified in Table 1 (requiring a fiscal adjustment equivalent of 40 percent of the shortfall in program loans and program grants); - downward by an amount equal to 40 percent of the surplus of external program loans and external program grants compared to programmed amounts, as specified in Table 1 (allowing 40 percent of the surplus in program loans and program grants to be used for supplementary expenditures). - Adjustor for Net International Reserves: - The floor on net international reserves will be adjusted: - downward by an amount equal to 60 percent of the U.S. dollar equivalent of the cumulative shortfall of external program loans and external program grants of the central government as specified in Table 1; - upward by an amount equal to 60 percent of the U.S. dollar equivalent of the cumulative surplus of external program loans and external program grants of the central government as specified in Table 1. - Adjustor for Net Domestic Assets of the Central Bank: - The ceiling on net domestic assets will be adjusted: - upward by an amount equal to 60 percent of the Guinean Franc equivalent (calculated at the program exchange rate) of the cumulative shortfall in external program loans and external program grants compared to programmed amounts as specified in Table 1; - downward by an amount equal to 60 percent of the Guinean Franc equivalent (calculated at the program exchange rate) of the cumulative surplus of external program loans and program grants compared to programmed amounts as specified in Table 1. - Adjustor for Net Government Budgetary Borrowing from the Central Bank: - The ceiling on net government budgetary borrowing from the Central Bank will be adjusted: - upward by an amount equal to 60 percent of the Guinean Franc equivalent (calculated at the program exchange rate) of the cumulative shortfall in external program loans and external program grants compared to programmed amounts as specified in Table 1; - downward by an amount equal to 60 percent of the Guinean Franc equivalent (calculated at the program exchange rate) of the cumulative surplus of external program loans and program grants compared to programmed amounts as specified in Table 1. ### Monitoring and Reporting Requirements - Performance under the program will be monitored from data supplied to the IMF by the Guinean authorities as outlined in the reporting table. - The authorities will transmit promptly to IMF staff any data revisions, as well as other information necessary to monitor the arrangement with the IMF. - Selected reporting requirements and deadlines (as specified): - Central bank balance sheet, consolidated commercial bank balance sheet, monetary survey (at the current exchange rate, as well as at the program exchange rate): Monthly, 30th of the month for the previous month. - Detailed net treasury position (NTP) and net government position (NGP): Monthly, 30th of the month for the previous month. - Interest rates and stock of government and central bank securities (BDT and TRM): Monthly, 30th of the month for the previous month. - Prudential indicators for commercial banks: Quarterly, One month after the end of the quarter. - Foreign exchange budget: Monthly, 30th of the month for the previous month. - Central Bank net advances to the Treasury above the statutory limit and advance amounts not paid within 92 days: Monthly, 30th of the month for the previous month. - Status report, including a detailed statement of revenue, expenditure, and cash-flow operations: Monthly, 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: Quarterly, One month after the end of each quarter. - General Treasury balances (TOFE): Monthly, 30th of the month for the previous month. - Cash-flow plan: Monthly, 30th of the month for the previous month. - Government fiscal reporting table (TOFE): Monthly, 30th of the month for the previous month. - New mining contracts and revised expiring contracts, including annexes with tax provisions: Quarterly, One month after the end of each quarter. - Stock of VAT credits to be refunded, and domestic debt arrears: Monthly, 30th of the month for the previous month. - Domestically-financed social safety nets program: Monthly, 30th of the month for the previous month. - Consumer price index, Conakry: Monthly, 30th of the month for previous month’s data. - National accounts: Annual, Summary estimates: nine months after the end of the year. - Imports by use and exports by major products, trade balance: Quarterly, Three months after the end of the quarter. - Price and volume indices of imports and exports: Quarterly, Three months after the end of the quarter. - Consolidated balance of payments estimates: Annual, Summary estimates: six months after the end of the year. - Debt service due: Monthly, 30th of the month for previous month’s data. - Debt service paid: Monthly, 30th of the month for previous month’s data. - Debt service reconciliation table: Monthly, 30th of the month for previous month’s data. - End-of-month outstanding debt and stock of daily debt service outstanding and unpaid, stock of arrears according to the program definition: Monthly, 30th of the month for previous month’s data. - New signed loans and drawings on new loans: Monthly, 30th of the month for previous month’s data. - External grants and loans disbursements: Quarterly, Quarterly. 30th of the last month of the quarter for previous quarter’s data. ### Debt Sustainability Analysis (summary points) - Guinea is at moderate risk of external debt distress with some space to absorb shocks. - All external debt burden indicators under the baseline scenario lie below their policy-dependent thresholds. - Stress tests suggest that debt vulnerabilities will increase if adverse shocks materialize. - Under the most extreme stress tests, all solvency and liquidity indicators breach their thresholds for prolonged periods. - The overall risk of public debt distress is also assessed to be moderate, with the application of judgement regarding a brief and marginal breach for the PV of total-public-debt-to-GDP ratio over 2020–21, reflecting the one-off impact of the recapitalization of the central bank. - Guinea’s external and public debt dynamics position are broadly unchanged compared to the July 2019 DSA update, and space for additional borrowing beyond what is included in the baseline scenario remains limited, notably in the near term. - Policy guidance noted: - 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. *Source: IMF staff report text (excerpt).* ### 1. The definition of public debt used in this DSA covers central government debt, central ### The definition of public debt used in this DSA covers central government debt, central government-guaranteed debt, and central bank debt contracted on behalf of the government (Table 1). ### Coverage and definitions - Definition of public and publicly guaranteed debt (PPG) used in the DSA includes the loan for the Souapiti dam (US$1.2 billion, about 10 percent of 2018 GDP) signed on September 4, 2018. - Government is assumed to be responsible for servicing the Souapiti loan in the DSA. - Exclusions and limitations: - PPG external debt excludes French claims under C2D debt-for-development swaps (payments included in fiscal baseline debt service). - Other elements not included due to data constraints: non-guaranteed debt of state-owned enterprises and social security funds (assessed as not relevant). - Information on non-residents’ holding of local currency debt is not available (potential underestimation of external debt on a residency basis). - Arrears treatment: - Audited and validated arrears to suppliers over 1982–2013, domestic arrears accumulated in 2017-18 and decumulated in 2019 are included in the baseline. - Domestic arrears stock at about 2.5 percent of GDP at end-2019 (preliminary estimate) has been included. - Staff actions: - A contingent liability stress test is performed to enhance robustness. - Staff continue to work with authorities to broaden coverage and improve capacity to address debt data weaknesses. - Table 1 baseline coverage (explicitly used for analysis): Central government, guarantees, central bank (borrowed on behalf of the government) — marked as covered. ### Contingent liability stress test design and default shock assumptions - Default/tailored shock components and default values used in stress test (Table 1 and notes): - Other elements of general government not captured: 0.0 percent of GDP - SoE's debt (guaranteed and not guaranteed by the government): 2.0 percent of GDP (default shock of 2% of GDP; may be reduced to 0% if already captured) - PPP: 1.3 percent of GDP (35 percent of PPP stock) - Financial market (default value minimum): 5.0 percent of GDP - Total (2+3+4+5): 8.3 percent of GDP - Notes on Souapiti loan structure and grant element: - Grant element of Souapiti loan estimated at 29 percent. - Loan will be transferred to an 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 be responsible for servicing it. - Souapiti dam loan not included in central government public investment (SPV not considered part of central government). ### Recent debt developments (end-2018 to end-2019) - Aggregate public debt: - Total public debt at end-2019: US$4.7 billion (34.2 percent of GDP). - Total public debt at end-2018: US$4.6 billion (37.4 percent of GDP). - External public debt: - External public debt as percent of GDP: 19.5 percent in 2019, 18.9 percent in 2018. - Stock of external debt: US$2.6 billion at end-2019 versus US$2.3 billion in 2018. - Domestic public debt: - Domestic debt as percent of GDP: 14.7 percent in 2019, 18.5 percent in 2018. - Domestic debt stock: US$2.0 billion in 2019 versus US$2.2 billion in 2018. - Decline driven by decumulation of domestic arrears of about 1.0 percent of GDP at end-2019 and large amortization, partly offset by issuance of a GNF 1,3 billion three-year domestic bond. ### Underlying macroeconomic assumptions (consistency with Staff Report for Fourth Review under ECF) - Growth: - Real GDP growth: 5.6 percent in 2019; 5.8 percent in 2020; 6.2 percent in 2021. - Convergence to long-run rate of 5 percent by 2024. - Inflation: - 9.1 percent (y-o-y) at end-2019. - Expected to moderate to around 8.1 percent (y-o-y) in 2020 and gradually decrease to 7.8 percent over the medium term. - Fiscal balances and public investment: - Primary fiscal balance recorded a deficit of 0.3 percent of GDP in 2018; virtually eliminated in 2019. - Primary deficit expected to average 1.9 percent of GDP over 2020–25. - Additional tax revenues expected: about 2.0 percent of GDP mobilized over 2020–25 (compared to end-2019). - Continued revenue mobilization expected to gradually increase tax revenue by 2.9 percent of GDP over 2021–30. - Capital expenditures: from 4.0 percent of GDP in 2019 to 7.9 percent in 2025; expected to remain high at 8.4 percent of GDP on average over 2025–30. - Grants: fell to 0.5 percent of GDP in 2019; expected to remain at 1.0 percent of GDP on average over 2020–22. - Basic fiscal balance (program anchor): - Basic fiscal surplus projected to improve from 0.6 percent of GDP in 2019 to an average of 0.8 percent of GDP during 2020–25. - Current account: - Current account (including transfers) recorded a deficit of 13.7 percent of GDP in 2019; expected to rise to 21.9 percent of GDP in 2020. - Expected medium-term average (2021–25): 11.8 percent of GDP. ### External financing mix and borrowing assumptions - New external borrowing: - 4.9 percent of GDP in 2019. - 10.9 percent of GDP in 2020. - Average 5.7 percent of GDP over 2021–22. - Baseline long run: average about 3.6 percent of GDP per year over 2021–29 and 2.4 percent of GDP per year over 2030–39. - Grant element of new borrowing: - Expected to remain about 31.7 percent in 2020 with large non-concessional project loans, return to about 42 percent in 2022, and gradually reduce to 22 percent by 2040. - Non-concessional borrowing specifics: - One-off impact from Souapiti dam (signed September 2018), expected disbursements over 2020–21. - DSA incorporates non-concessional borrowing of US$658 million (5 percent of 2018 GDP) to finance priority infrastructure projects and budget support, to be disbursed over 2019–23. - Out of US$658 million, US$598 million were signed in September 2018 (rehabilitation of RN1 national road and Conakry urban road network), to be disbursed over 2019–22. - Non-concessional loan of US$60 million (0.4 percent of 2019 GDP) from Qatar signed in November 2018 and disbursed April 2019. - Additional non-concessional borrowing of about US$220 million assumed signed in 2021–22 and disbursed during 2023–24. - For Souapiti loan disbursement timing: US$925 million in 2020 and US$250 million in 2021. - For the US$598 million envelope: US$39 million disbursed in 2019; US$172 million expected in each of 2020 and 2021; remaining amounts in 2022 and 2023. - Concessional borrowing: - World Bank concessional budget support loans: US$91.5 million in 2019; expected US$40 million per year over 2020–25. - Concessional project loans assumed to total US$2.5 billion over 2020–24; about US$700 million from the World Bank over 2020–24. - Domestic borrowing: - Net government domestic financing expected negative throughout 2019–25: -1.1 percent of GDP in 2019, -0.7 percent of GDP in 2020, averaging -0.4 percent of GDP for 2021–25. - Negative net domestic financing driven by repayment of past borrowings from BCRG, domestic arrears clearance, and validated 1982–2013 private sector arrears in line with clearance strategy (approved December 2017). - Net domestic borrowing expected to turn positive in the long term. ### Realism of assumptions, country classification, and stress testing - Realism and risks: - Growth projections at about 6.0 percent in 2020–21 are predicated on conservative assumptions given weak historical growth outturns. - Risks to growth outlook tilted to the downside: socio-political tensions in run-up to elections and delays in projects and reform implementation. - Upside potential: mining production capacity could come on stream faster than expected. - Historically, higher-than-projected primary fiscal deficits were largest contributor to unexpected debt accumulation over past five years. - Composite Indicator (CI) and classification: - Composite Indicator for Guinea: 2.51 (based on October 2019 WEO vintage and 2018 CPIA update) — classifies Guinea at weak debt-carrying capacity. - Triggered tailored stress tests: - Contingent liabilities stress test capturing combined shock from SOEs’ external debt default, PPPs distress and/or cancellations, and financial market vulnerabilities totaling 8.3 percent of GDP. - Commodity prices stress test applied (mining exports constitute more than 80 percent of total exports). - Two fully customized scenarios performed: (i) weak policy scenario; and (ii) higher non-concessional borrowing. - Model signals and risk rating for external debt: - Guinea assessed at moderate risk of external debt distress. - Under baseline, all external debt ratios remain below policy-dependent thresholds. - PV of external debt-to-GDP expected to peak at 23.5 percent of GDP in 2023, then decline. - Liquidity ratios expected to remain well below policy-dependent thresholds under baseline; under most extreme stress tests all indicators breach thresholds. - Historical and extreme stress test context: - Most extreme stress tests based on historical growth and export averages reflecting adverse conditions (Ebola crisis, commodity price shocks in 2014–15, civil unrest). - Under historical scenario debt service to exports and revenue ratios remain within thresholds while PV of debt-to-GDP and debt-to-exports breach thresholds. - Under two more plausible country-specific scenarios (weak policy implementation; higher non-concessional loans) all indicators remain within thresholds. *Source: IMF staff report excerpts from the Guinea DSA chapter contained in the provided PDF content.* ### 6. Guinea’s overall risk of debt distress is assessed to be moderate, with the application of staff ### 6. Guinea’s overall risk of debt distress is assessed to be moderate, with the application of staff judgement ### Assessment and key metrics - Overall risk of debt distress: moderate (staff judgement applied). - PV of total public debt-to-GDP: - Peaks in 2020 at 35.7 percent of GDP (benchmark: 35 percent of GDP). - Projected at 35.5 percent of GDP in 2021. - Breach of the PV of total public debt-to-GDP benchmark occurs for two years under the baseline scenario. - The PV of the total debt-to-GDP ratio exceeds the benchmark in the medium term under the most extreme shock. ### Drivers of the peak and breach timing - Recapitalization of the BCRG in 2018, a key reform to enhance central bank independence, increased the PV of overall public debt-to-GDP. - Anticipated disbursement of non-concessional loans for priority infrastructure projects increases PPG external debt in the short run, notably: - Souapiti dam loan: US$1.2 billion signed on September 4, 2018. - A revised disbursement schedule for the Souapiti loan delayed the timing of the breach to 2020–21 relative to the July 2019 DSA update. ### Staff judgement and rationale for moderate rating - Staff applied judgement citing two factors: - The magnitude of the breach is marginal, and the length is temporary (just two years). - The recapitalization will affect only one debt burden indicator (the PV of overall public debt to GDP). - Characteristics of the 2018 recapitalization that mitigate near-term debt service pressure: - Recapitalization conducted by issuing 30-year bonds for the overall recapitalization needs. - Additional securities are expected to be issued in lieu of interest payments. - No payment is expected to be made until 2046. ### Risks and vulnerabilities - Space for additional borrowing beyond the baseline is limited, notably in the near term. - Developments that could worsen total public debt dynamics include: - Delays in repaying domestic arrears or debt owed to the BCRG. - Higher-than-anticipated government domestic and external borrowing. - New audits of domestic arrears. - An audit of domestic arrears covering the period of 2014-18 is being planned. ### Alternative scenarios and shocks - Weak policy 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, reflecting slower revenue collection. - Higher non-concessional loans scenario: - Assumes an additional non-concessional borrowing of US$350 million, to be disbursed during 2021–23, on top of the non-concessional loan envelope included in the baseline. - For PV of debt-to-GDP and debt service-to-revenue, the most extreme shocks are a combination of all shocks and a non-debt creating flow shock, respectively. - In Table 6 (not reproduced here), the large residual for 2019 and 2020 reflects that these non-concessional project loans are not included in the primary balance. *Source: IMF staff assessment as presented in the cited chapter.* ### 7. The authorities broadly agreed with the conclusions of the DSA. They underscored their ### 1ginea2020002 - 7. The authorities broadly agreed with the conclusions of the DSA. They underscored their ### Authorities' position and policy commitments - The authorities broadly agreed with the conclusions of the DSA. - Commitments emphasized: - Maintaining a sustainable level of debt that does not exceed a moderate risk of debt distress. - Maximizing concessional borrowing where possible, while noting concessional financing is not available at the scale needed for large infrastructure needs. - Continuing to implement the strategy to gradually clear domestic arrears to the private sector. - Strengthening debt management. ### External Debt Sustainability Framework — Baseline projections (selected indicators) - External debt (nominal) (Percent of GDP): - 2017: 19.3 - 2018: 18.9 - 2019: 19.5 - 2020: 28.5 - 2021: 32.4 - 2022: 33.6 - 2023: 33.9 - 2024: 33.7 - 2025: 33.7 - 2030: 31.4 - 2040: 24.2 - Change in external debt: - 2017: -2.5 - 2018: -0.4 - 2019: 0.5 - 2020: 9.0 - 2021: 3.9 - 2022: 1.2 - 2023: 0.3 - 2024: -0.3 - 2025: 0.0 - 2030: -0.7 - 2040: -0.2 - Identified net debt-creating flows: - 2017: -9.3 - 2018: 3.1 - 2019: -1.3 - 2020: 10.9 - 2021: 4.9 - 2022: 2.0 - 2023: 1.3 - 2024: 0.8 - 2025: 1.2 - 2030: -1.9 - 2040: -9.1 - Non-interest current account deficit (Percent of GDP): - 2017: 6.8 - 2018: 18.7 - 2019: 13.8 - 2020: 21.8 - 2021: 14.9 - 2022: 12.8 - 2023: 10.4 - 2024: 9.5 - 2025: 9.3 - 2030: 6.2 - 2040: -1.3 - Exports and imports (Percent of GDP): - Exports: - 2017: 39.9 - 2018: 32.9 - 2019: 30.5 - 2020: 32.2 - 2021: 32.4 - 2022: 32.0 - 2023: 33.1 - 2024: 33.4 - 2025: 32.3 - 2030: 32.1 - 2040: 33.7 - Imports: - 2017: 47.3 - 2018: 46.8 - 2019: 39.4 - 2020: 48.5 - 2021: 42.3 - 2022: 40.2 - 2023: 39.3 - 2024: 38.3 - 2025: 37.7 - 2030: 34.0 - 2040: 29.7 - Net FDI (negative = inflow) (Percent of GDP): - 2017: -12.6 - 2018: -12.9 - 2019: -12.9 - 2020: -10.1 - 2021: -8.8 - 2022: -9.5 - 2023: -7.9 - 2024: -7.5 - 2025: -7.0 - 2030: -7.0 - 2040: -7.0 - Endogenous debt dynamics (contribution, Percent of GDP): - 2017: -3.5 - 2018: -2.6 - 2019: -2.1 - 2020: -0.8 - 2021: -1.3 - 2022: -1.2 - 2023: -1.2 - 2024: -1.1 - 2025: -1.1 - 2030: -1.1 - Sustainability indicators (selected): - PV of PPG external debt-to-GDP ratio (Percent): - 2020: 14.6 - 2021: 20.5 - 2022: 22.8 - 2023: 23.3 - 2024: 23.5 - 2025: 23.3 - 2030: 23.4 - 2040: 22.0 - PV of PPG external debt-to-exports ratio (Percent): - 2020: 47.6 - 2021: 63.5 - 2022: 70.4 - 2023: 72.9 - 2024: 71.1 - 2025: 69.9 - 2030: 72.6 - 2040: 68.4 - PPG debt service-to-exports ratio (Percent): - 2017: 1.4 - 2018: 1.7 - 2019: 1.6 - 2020: 2.7 - 2021: 3.6 - 2022: 4.6 - 2023: 4.2 - 2024: 4.2 - 2025: 4.0 - 2030: 5.2 - 2040: 4.7 - PPG debt service-to-revenue ratio (Percent): - 2017: 4.1 - 2018: 4.2 - 2019: 3.5 - 2020: 6.1 - 2021: 8.0 - 2022: 9.6 - 2023: 8.9 - 2024: 8.5 - 2025: 7.9 - 2030: 9.7 - 2040: 9.3 - Gross external financing need (Billion of U.S. dollars): - 2017: -0.5 - 2018: 0.8 - 2019: 0.2 - 2020: 1.9 - 2021: 1.2 - 2022: 0.8 - 2023: 0.7 - 2024: 0.7 - 2025: 0.8 - 2030: 0.2 - 2040: -4.0 ### Public Sector Debt Sustainability Framework — Baseline projections (selected indicators) - Public sector debt (Percent of GDP): - 2017: 39.5 - 2018: 37.4 - 2019: 34.2 - 2020: 43.1 - 2021: 44.4 - 2022: 44.3 - 2023: 43.3 - 2024: 42.0 - 2025: 41.2 - 2030: 36.2 - 2040: 26.0 - Change in public sector debt: - 2017: -3.0 - 2018: -2.1 - 2019: -3.2 - 2020: 8.9 - 2021: 1.3 - 2022: -0.1 - 2023: -1.0 - 2024: -1.3 - 2025: -0.8 - 2030: -1.2 - 2040: -1.0 - Identified debt-creating flows (Percent of GDP): - 2017: -6.0 - 2018: -4.5 - 2019: -4.0 - 2020: -0.1 - 2021: 0.2 - 2022: -0.2 - 2023: -0.7 - 2024: -1.1 - 2025: -0.9 - 2030: -0.9 - 2040: -1.0 - Primary deficit (Percent of GDP): - 2017: 1.1 - 2018: 0.3 - 2019: 0.0 - 2020: 2.4 - 2021: 3.1 - 2022: 2.4 - 2023: 1.6 - 2024: 1.1 - 2025: 1.1 - 2030: 0.7 - 2040: -0.1 - Revenue and grants (Percent of GDP): - 2017: 15.2 - 2018: 14.3 - 2019: 14.0 - 2020: 15.1 - 2021: 15.6 - 2022: 16.0 - 2023: 16.6 - 2024: 17.2 - 2025: 17.3 - 2030: 18.2 - 2040: 18.0 - Primary (noninterest) expenditure (Percent of GDP): - 2017: 16.3 - 2018: 14.5 - 2019: 14.0 - 2020: 17.4 - 2021: 18.6 - 2022: 18.4 - 2023: 18.2 - 2024: 18.3 - 2025: 18.4 - 2030: 18.8 - 2040: 17.9 - Automatic debt dynamics (Percent of GDP): - 2017: -7.1 - 2018: -4.7 - 2019: -4.0 - 2020: -2.4 - 2021: -2.8 - 2022: -2.5 - 2023: -2.3 - 2024: -2.1 - 2025: -2.0 - 2030: -1.6 - 2040: -0.9 - Sustainability indicators (selected): - PV of public debt-to-GDP ratio: - 2020: 29.6 - 2021: 35.7 - 2022: 35.5 - 2023: 34.7 - 2024: 33.5 - 2025: 32.2 - 2030: 31.5 - 2040: 27.4 - PV of public debt-to-revenue and grants ratio: - 2020: 212.0 - 2021: 237.1 - 2022: 228.2 - 2023: 216.3 - 2024: 201.7 - 2025: 187.4 - 2030: 182.4 - 2040: 151.0 - Debt service-to-revenue and grants ratio: - 2017: 8.5 - 2018: 5.4 - 2019: 9.9 - 2020: 21.7 - 2021: 18.6 - 2022: 18.2 - 2023: 15.2 - 2024: 14.4 - 2025: 13.2 - 2030: 13.6 - 2040: 12.9 - Gross financing need: - 2017: 1.5 - 2018: 0.2 - 2019: 1.4 - 2020: 5.8 - 2021: 6.1 - 2022: 5.4 - 2023: 4.1 - 2024: 3.6 - 2025: 3.4 - 2030: 3.1 ### Key macroeconomic and fiscal assumptions (selected) - Real GDP growth (in percent): - 2017: 10.3 - 2018: 6.2 - 2019: 5.6 - 2020: 5.8 - 2021: 6.2 - 2022: 5.6 - 2023: 5.1 - 2024: 5.0 - 2025: 5.0 - 2030: 5.0 - 2040: 6.0 (external DSA table lists 6.0 for 2030 then 5.2; be guided by the tabular layout) - Another projection row lists 5.2 (contextual within the source) - GDP deflator in US dollar terms (change in percent): - 2017: 8.9 - 2018: 11.0 - 2019: 7.2 - 2020: 2.5 - 2021: 1.8 - 2022: 1.8 - 2023: 1.8 - 2024: 1.9 - 2025: 2.0 - 2030: 2.0 - 2040: 2.0 - Effective interest rate (percent): - 2017: 1.1 - 2018: 1.8 - 2019: 0.9 - 2020: 1.1 - 2021: 1.4 - 2022: 1.4 - 2023: 1.4 - 2024: 1.4 - 2025: 1.4 - 2030: 1.3 - 2040: 1.1 - Growth of exports of G&S (US dollar terms, in percent): - 2017: 66.9 - 2018: -3.0 - 2019: 5.3 - 2020: 14.3 - 2021: 8.8 - 2022: 6.0 - 2023: 10.7 - 2024: 7.9 - 2025: 3.5 - 2030: 7.6 - 2040: 7.6 - Growth of imports of G&S (US dollar terms, in percent): - 2017: -4.8 - 2018: 16.4 - 2019: -4.6 - 2020: 33.6 - 2021: -5.8 - 2022: 2.2 - 2023: 4.6 - 2024: 4.5 - 2025: 5.1 - 2030: 5.6 - 2040: 5.6 - Grant element of new public sector borrowing (in percent) (selected): - 2021: 31.7 - 2022: 36.8 - 2023: 41.8 - 2024: 39.1 - 2025: 40.2 - 2030: 39.8 - 2040: 38.2 - Government revenues (excluding grants, in percent of GDP): - 2017: 13.7 - 2018: 13.1 - 2019: 13.7 - 2020: 14.1 - 2021: 14.7 - 2022: 15.2 - 2023: 15.7 - 2024: 16.3 - 2025: 16.4 - 2030: 17.2 - 2040: 17.1 ### Stress tests, alternative scenarios, and sensitivity analyses — key points - Stress tests and tailored scenarios assessed include: - Historical scenario, commodity price shocks, natural disasters, market financing shocks, combined contingent liabilities, weak policy scenario, and higher non-concessional borrowing. - Country-specific alternative scenarios highlighted in Figure 3: - Weak policy scenario: real GDP growth assumed 1 percentage point below baseline over 2019-38; basic fiscal balance is 0.5 percent of GDP in 2019-20. - Higher non-concessional loans scenario: assumes additional non-concessional borrowing of US$350 million disbursed during 2021-23 on top of baseline. - Sensitivity analysis (Table 7 and Table 8) shows multiple indicators under alternative scenarios and bound/tailored tests; bold values indicate breaches of thresholds in the tables. ### Key analytical findings in DSA visuals and tables - The public and external debt profiles rise in 2020 and peak in the near term (2020–2025) before moderate declines toward 2030 and 2040 under the baseline. - Debt service and PV-to-exports ratios increase notably in the short term (2020–2023) reflecting pandemic and borrowing patterns, then stabilize under projections. - Grant-equivalent financing as a share of external financing and of GDP is substantial in near-term years (e.g., grant-equivalent financing in percent of external financing: 37.0, 44.0, 50.7, 51.6, 54.2, 53.9, 54.1 for selected projection years shown). - The most extreme stress test for many indicators is typically the exports shock (Figures and captions indicate "Most extreme shock is Exports"). ### Policy implications (as reflected in source text) - Maintain focus on sustainable debt levels consistent with a moderate risk of debt distress. - Continue to prioritize concessional financing where feasible, recognizing concessional flows are insufficient to meet large infrastructure financing needs. - Gradually clear domestic arrears to the private sector. - Strengthen debt management to mitigate risks from non-concessional borrowing and to manage financing composition and terms. *Sources: Country authorities; and staff estimates and projections.* ### 1. This supplement provides an update on political and COVID-19 related ### 1ginea2020002 - 1. This supplement provides an update on political and COVID-19 related ### Overview - Update based on developments and additional information received from the authorities since the issuance of the staff report on March 18, 2020. This does not change the thrust of the staff appraisal. - Staff supports completion of the fourth review under the ECF arrangement given satisfactory program performance and progress in reforms. - Statement dated April 1, 2020 by Guinean Executive Director and representatives accompanies the supplement. ### Political developments - Legislative elections and a constitutional referendum were held on March 22, 2020. - Large scale protests and episodes of social unrest marked the elections, with several casualties reported. - Preliminary results not yet available. The ruling party is expected to maintain a majority of seats at the National Assembly as opposition parties decided not to participate in the legislative elections. ### COVID-19 developments and response measures - Four cases of coronavirus have been confirmed in Guinea since the issuance of the staff report. - The authorities finalized a National Emergency Preparedness and Response Plan and a COVID-19 Emergency Plan with technical support from WHO, the World Bank, and other development partners. Key measures include: - strengthening surveillance at ports of entry; - reinforcing capacity for COVID-19 detection; - increasing the number of quarantine centers; - expanding treatment facilities and acquiring medical equipment; - conducting a communication campaign. - Non-pharmaceutical containment measures: - Large public gatherings banned; - The international airport closed to non-essential flights. - COVID-19 Emergency Plan implementation cost currently estimated at US$47 million (0.4 percent of GDP). - External financing and donor support: - World Bank expected to provide additional US$13 million through the ongoing regional health project (IPF – REDISSE Project). - WHO expected to provide technical assistance. - Discussions ongoing with other multilateral and bilateral partners for additional financing. - Re-allocating non-priority budgeted spending towards health-related expenditures could support implementation. ### Financing and program support - Staff considers including the COVID-19 Emergency Plan in the program remains achievable and Guinea’s debt remains at a moderate risk of external and overall public debt distress. - Firm financing assurances in place until the end of the arrangement, including budget support expected to be catalyzed by the program: - World Bank: US$40 million (budget support); - European Union: EUR18 million (budget support). - If urgent balance of payments needs arise that cannot be met under the program due to review schedule, the authorities could consider requesting Rapid Credit Facility. - Should needs evolve, staff supports adjusting program targets and, if necessary, considering an augmentation of access at the next review. ### Recent economic developments and program performance - Growth and sectoral drivers: - Growth slowed to 5.6 percent in 2019 from 6.2 percent in 2018 due to severe weather conditions in Q2 2019 (heavy rainfalls and floods) that disrupted bauxite production and agriculture. - Growth momentum supported by buoyant mining and construction activities. - Fiscal and inflation indicators: - Basic fiscal balance registered a surplus of 0.6 percent of GDP. - Overall tax revenues at end-2019 fell below projections. - Headline inflation: 9.1 percent in December 2019 from 9.9 percent a year before. - Core inflation: 3.7 percent in December 2019. - External sector and reserves: - Current account deficit narrowed in 2019 compared with 2018 and is expected to continue narrowing over the medium-term. - International reserves stood at USD 1.3 billion at year-end to cover 4.2 months of imports. - Banking and credit: - Banking system remains stable. - Credit to the private sector grew by 22.2 percent in the first three quarters in 2019. - Net lending to the government by banks increased by 31.2 percent. - Program performance: - All end-June 2019 performance criteria realized (basic fiscal balance, net government borrowing from the central bank, net domestic assets, international reserves). - Indicative targets on domestically-financed social safety nets and new domestic arrears met. - Authorities implemented measures to correct fiscal slippages; program performance at end-December 2019 broadly satisfactory based on preliminary data. - Continued progress on reforms to enhance macroeconomic stability, reduce energy subsidies, improve public financial and debt management, reinforce anti-corruption framework, and ameliorate business environment. ### Economic outlook and risks - Baseline growth projections: - Growth projected to reach 5.8 percent in 2020 and 6.2 percent in 2021. - COVID-19 risks: - The impact of the coronavirus pandemic introduces uncertainty; a full assessment could show significant weakening of growth and elevated budgetary, inflationary, and external pressures. - Authorities closed borders, suspended traffic, and shut down schools as part of response. - Early March response plan estimated to cost USD 13 million and includes enhancing public health measures and expenditure, minimizing reduction of domestic revenues, and containing losses in economic activities. - Other risk factors: - Deteriorating global conditions, political and social instability, and a local COVID-19 outbreak would negatively affect growth outlook and weaken export and tax revenues. - Decline in international oil prices would improve Guinea’s external position. ### Policies and reforms for 2020 - Fiscal policy - Objective: preserve fiscal and debt sustainability and build fiscal space for public investments and social spending. - 2020 draft budget law targets a basic fiscal surplus of 0.6 percent of GDP while making room for priority expenditure in infrastructure and social sectors. - Revenue measures: - continue rationalizing tax exemptions and streamlining excises; - review the property tax regime; - develop a strategy to reduce the stock of VAT credit arrears; - strengthen tax payment and collection through operationalization of the new structure of Direction Nationale des Impôts (DNI) and digitalization of customs. - strengthen compliance with tax provisions in the new mining code to increase mining revenues. - Other fiscal measures: - implement automatic petroleum price adjustment mechanism with mitigating measures to protect vulnerable populations; - strengthen public financial management through a 2019-22 action plan, enhance treasury single account, improve transparency in budget execution and monitoring, and reinforce cash management to contain central bank budgetary financing; - enforce provisions of the new procurement code and finalize public-private partnership framework; - advance SOE reform to strengthen governance and reduce fiscal risks. - Social safety nets - Progress: By September 2019, spending of domestically financed programs exceeded the target set for 2019. - Authorities will continue financing social programs, including cash transfers to poor households and labor-intensive public works. - Funding strategy includes reducing electricity subsidies under a multi-year tariff reform. - Debt management and policy - Authorities commit to preserving medium-term debt sustainability and managing external borrowing cautiously to maintain the moderate risk level of debt distress. - Implement prudent domestic borrowing strategy and plan to reduce the stock of domestic arrears. - Strengthen debt management framework and capacities with external assistance; National Committee and Technical working group for debt management operationalized. - Monetary and exchange rate policies - Monetary policy geared at containing inflation within single digit; central bank (BCRG) will target base money in line with program objectives. - Central bank ready to tighten policy stance to maintain positive real interest rates and pursue active liquidity management. - Efforts to increase external reserves and finalize foreign exchange market reform to promote competition, transparency, and greater flexibility in daily exchange rate determination. - Authorities committed to strengthening central bank autonomy and limiting monetary financing of fiscal deficit within BCRG Law; implement remaining recommendations of the 2018 safeguard assessment. - Financial sector stability - Continue measures to maintain financial sector stability and strengthen banking supervision per June 2019 Financial Sector Stability Review. - Adopt updated accounting and financial reporting and a new risk-based methodology for banks. - Implement bulk of Basle II/III provisions in 2020. - Increase financial inclusion through promotion of digital banking. - Operationalize liquidity assistance framework, deposit guarantee, and establish a banking resolution framework with Fund technical assistance. - Structural reforms - Accelerate implementation of the March 2018 action plan to improve business climate and promote private sector development. - Revamp public-private dialogue under the Guinean Business Forum to address bottlenecks. - Implement second stage of one-stop shop operationalization starting in April 2020 after inauguration of the Commerce Court and selection of consular judges. - Governance - Reinforce legal and institutional anti-corruption framework. - Submit by end-June 2020 a report of Guinea self-assessment under the United Nations Convention against Corruption (UNCC). - Adopt decree executing the asset declaration regime as soon as possible. - Strengthen AML-CFT framework. ### Conclusion and requests - Authorities acknowledge daunting development challenges compounded by COVID-19 but remain determined to implement the ECF-supported program. - Based on satisfactory program performance in 2019, authorities request the Executive Board’s approval of the completion of the Fourth Review under the ECF arrangement. *Source: Supplement to the staff report and Statement by Guinean authorities (April 1, 2020).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1ginea2020002.pdf_