## 1gnbea2020001 ## Source details **Canonical URL:** [1gnbea2020001](https://www.imf.org/-/media/files/publications/cr/2020/english/1gnbea2020001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2020/english/1gnbea2020001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2020/english/1gnbea2020001.pdf.json) --- ### Preface — mission and scope - IMF Fiscal Affairs and Legal Departments team visited Bissau from September 18 to October 1, 2019, to conduct a diagnostic of macro‑critical weaknesses in fiscal governance, rule of law, market regulation, anti‑money laundering (AML), and anti‑corruption. - Assessment carried out under the IMF’s Framework for Enhanced Fund Engagement on Governance Issues (Board, April 2018). - Mission team: Ms. Concepcion Verdugo‑Yepes (Head), Mr. David Baar, Mr. Paulo Silva, Mr. Jean Pierre Nguenang (Fiscal Affairs); Ms. Ioana Luca and Mr. Maksym Markevych (Legal). - Principal government interlocutors: Prime Minister Mr. Aristides Gomes; Minister of Economy and Finance Mr. Geraldo Martins; special advisor to the Prime Minister Mr. Rui Duarte; advisors to the Minister Mr. Carlos Andrade and Mr. Jeremias Pereira; Director General of Budget Mr. Elisio Gomes‑Sa. ### Executive summary — political context and overall findings - Political instability: six changes of government between the 2014 and 2019 parliamentary elections; limited institutional capacity. - Authorities acknowledge corruption vulnerabilities but Guinea‑Bissau lacks a comprehensive national anti‑corruption strategy. - Political instability contributes to deep‑rooted corruption, entrenched rent‑seeking, impunity, and placement of unqualified individuals in public jobs. - Ongoing revenue mobilization and expenditure control efforts are welcome but further actions required. ### Executive summary — Public Financial Management (PFM) — substantive weaknesses - Budget use and approval: - The MEF budget often not approved annually by the National Assembly and is used very limitedly to guide expenditures. - Expenditure decision‑making and controls: - Spending decisions made by an in‑house committee (COTADO) led by MEF in a discretionary way because Treasury Committee meetings were discontinued. - Internal controls inadequate to ensure payments only after certification of delivery and direct payment to beneficiaries. - Recommendation: enforce sound practices and strengthen controls at each phase of the expenditure chain (commitment, liquidation, payment order, and payment); comply with contractual provisions, especially payment deadlines and penalties. - Cash management and accounts: - Cash‑rationing system partly due to absence of a treasury single account. - No comprehensive inventory of government bank accounts. - Exceptions to co‑signature arrangement for National Assembly, Presidency, and several extrabudgetary autonomous entities. - Cash rationing has not prevented new expenditure arrears; stock of arrears unknown due to recording deficiencies. - SOEs and extrabudgetary operations: - Limited institutional oversight and paucity of financial information on SOEs. - Numerous extrabudgetary entities/operations and an unspecified expenditure category equal to 2 percent of GDP in 2018. - Internal and external audit: - IGF exercises very limited internal controls due to institutional and operational weaknesses. - Tribunal de Contas limited by de facto lack of financial and administrative autonomy; issued nine reports, most on SOEs, identifying critical weaknesses without follow‑up information. - Donor‑financed investment projects: - No central unit in MEF to appraise donor‑funded projects. - Externally financed projects represented on average 95 percent of total public investment during 2011–18. ### Executive summary — public sector wage bill and administration - Legal hiring framework exists but not consistently applied due to political interference; cronyism and nepotism common. - Reconciliation shortcomings: - No regular reconciliation between personnel records and payroll; IGF estimated 2,800 ghost workers (June 2018). - Controls and absenteeism: - Overpayments estimated at FCFA 1.2 billion, or 0.1 percent of GDP (IGF, 2018 Audit Summary Report). - Incentives about 22 percent of total wages in 2018. - National Assembly salaries FCFA 3.6 billion in 2018, or 0.4 percent of GDP, with inadequate controls. ### Executive summary — tax policy and revenue administration - Tax system characterized by antiquated and inconsistent legislation, large compliance burden, and pervasive administrative discretion. - Widespread discretionary tax exemptions and numerous fees and charges collected by many entities produce nontransparent, costly revenue collection and promote tax evasion. - DGCI and DGA face political interference in hiring, high turnover, unqualified staff, outdated IT systems, and lack of results‑based management in the fight against corruption. ### Executive summary — anti‑corruption and AML - Significant and systemic corruption risks from misuse of public resources and involvement of foreign drug traffickers. - Judicial Police achieved some investigative successes but prosecutors and courts provide limited credible follow‑up. - Asset declaration regime not operational; preventive measures on conflicts of interest weak. - Strengthened AML measures regarding domestic PEPs would support anti‑corruption efforts. ### Executive summary — rule of law and market regulation - Courts and legal framework: - Laws not regularly disseminated; court decisions not published; court fees prohibitive; delays common. - Property registration costly and paper based; reported conflicts over property rights. - Market regulation and business environment: - Complexity and opacity create incentives for corruption and hinder private business. - One‑stop shop for registering companies is positive; recommended upgrade by digitizing and integrating into OHADA registries. ### Executive summary — key recommendations and next steps - Political ownership required; reforms must be owned by Guinea‑Bissau authorities. - Immediate procedural step: - Convene a technical committee on governance in February 2020; comments due to IMF staff by February 20, 2020. - Committee should include representatives from President, Prime Minister, Minister of Economy and Finance, Minister of Justice, Minister of Public Function, Attorney General, Anti‑Corruption Commission, Tribunal de Contas, and civil society. - Medium‑term planning: - Technical committee to develop a comprehensive medium‑term anti‑corruption strategy. - Selected short/medium term recommendations (selection from Table 1): - Reestablish a smaller and focused Treasury Committee by Executive Order; issue prioritization criteria and actions to prevent accumulation of payments arrears (Short Term). - Enforce certification before payment and proper recording of expenditure phases in SIGFiP (Short Term). - Progressively consolidate government cash in a treasury single account (Short to Medium Terms). - Enforce control over all public salaries, including employment incentives (Short Term). - Regularly reconcile personnel and payroll files; conduct biometric census (Short Term). - Repeal the 2015 Budget Law amendments to the IGV and the Investment Code (Short Term). - Hire from 6 to 10 information technology development experts under a public contest and train new staff (Short Term). - Publish laws and judicial decisions; establish government and judiciary websites; publish court statistics and case numbers (Short Term). - Reform asset declarations and strengthen AML/CFT supervision of PEP measures (Short Term). *This overlay summarizes the Preface and Executive Summary of the governance diagnostic mission report for Guinea‑Bissau.* --- ### Macroeconomic and fiscal overview (Technical Report excerpt) - Domestic revenue: around 12.5 percent of GDP (2019 estimate: 12.5 percent of GDP; 2020 projection: 9.7 percent). - Up to end‑August 2019 domestic revenue flat in nominal terms vs. same period in 2018; DGCI showed some improvement offset by customs and non‑tax revenue weaknesses. - Current expenditures more than 20 percent higher than 2018 due to 2018 pay increase and transfers to Electricidade e Aguas da Guinea‑Bissau (EAGB). - Public debt projected to surpass 65 percent of GDP in 2019. - Reducing deficit to within the 3 percent of GDP WAEMU criterion would put debt‑to‑GDP on a downward trajectory. ### Governance, corruption risks, and priority reform areas (Technical Report) - Revenues generated outside central government not accounted for in the budget; internal and external PFM controls insufficient. - Critical reform areas: PFM, tax administration and policy, legal and institutional frameworks. - Diagnostic framework based on 2019 Fiscal Monitor, tailored to Guinea‑Bissau. ### Key PFM weaknesses and institutional constraints - Six 2009 WAEMU PFM directives transposed into national laws/decrees with delays; many guidance texts and manuals not followed or not developed (e.g., treasury single account agreement, manuals for budget execution, financial controls). - Since 2016 National Assembly approved only the 2018 budget; execution under provisional twelfth practice. - Little information on SOE and autonomous entity financial performance; public investment almost entirely donor‑funded with no domestic appraisal/prioritization systems. - Recommendation: strengthen basic PFM systems before implementing advanced WAEMU systems. ### Treasury systems — findings and recommendations Findings: - Treasury Committee Order 88/2016 created a Treasury Committee; spending decisions made via DG Budget proposals through COTADO in a cash‑rationing system. - Treasury Committee meetings discontinued due to unwieldy composition (24 entities, >40 representatives). - Government cash fragmented across several bank accounts; no treasury single account at the Central Bank. - Monthly cash plans not updated regularly and show significant deviations. Short‑Term Recommendations: - Reestablish a smaller, focused Treasury Committee by Executive Order; define clear criteria to prioritize cash payments and avoid restos a pagar. - Conduct comprehensive census of central government bank accounts; reduce number of government bank accounts and streamline management. - Improve capacity to prepare and update reliable monthly and quarterly cash plans by analyzing budget outturns and harmonizing with commitments from line ministries. Medium‑Term Recommendations: - Progressively establish a treasury single account at the Central Bank pursuant to an agreement between the Treasury and the Central Bank. - Assess impact on banking system liquidity of transferring central government account balances from commercial banks to the treasury single account and implement mitigating measures. ### Non‑salary expenditure execution — vulnerabilities and recommendations Findings: - Spending process does not reliably follow commitment, verification, payment order, payment stages; payments issued without certification that service delivered. - COTADO (Order 25/2017) consists of 11 MEF directorates; during Treasury Committee suspension decides ceilings and priorities every two weeks; line ministries do not prepare commitment plans. - Cash‑rationing leads to expenditure arrears; arrears estimated using a 90‑day rule after payment order issuance, but some payments may not be due if delivery not certified. - No accurate information on arrears: audit 2001–2008 found FCFA 86 billion (audit not conclusive); SIGFiP shows FCFA 1.6 billion (1.5 percent of expenditures committed at end‑2018) due to recording deficiencies. Short‑Term Recommendations: - Comply with contractual provisions, especially payment deadlines and penalties; MEF to organize meeting with private sector and banks to agree on modalities. - Finalize, adopt, disseminate, and enforce draft manual of procedures for expenditure execution (May 2019) and update manual for financial control. Medium‑Term Recommendations: - Conduct comprehensive stock‑taking, validate certification of accumulated arrears (restos a pagar), and prepare settlement plan for certified arrears. ### Public sector wage bill management — findings and risks Findings and figures: - Total wages = FCFA 38.5 billion (4.5 percent of GDP). - Total civil servants approximately 24,000 in June 2019; workforce could be larger due to unofficial employees. - Bonuses (incentivos) to MEF staff reached 22.8 percent of total wages in 2018. - June 2018 IGF audit: ghost workers = 2,847 (>10 percent of total civil servants); savings = FCFA 746 million (0.1 percent of GDP); undue payments discontinued = FCFA 1.185 billion (0.1 percent of GDP); adjustment to actual FCFA 184,000 (0.02 percent of GDP). - National Assembly wages = FCFA 3.6 billion in 2018 (0.4 percent of GDP). Short‑Term Recommendations: - Enforce control over all salaries including employment incentives and National Assembly salaries; conduct regular in‑year (quarterly) reconciliations between personnel and payroll records. Medium‑Term Recommendations: - Complete public sector organigram, undertake full biometric census of civil servants, and prepare multi‑annual staffing plans. ### Public Investment Management — capacity and risks Findings: - Very limited capacity to appraise, select, implement, and monitor public investment projects. - Over 95 percent, on average, of the capital budget externally financed during 2016–18. - No central MEF unit appraising donor‑funded projects; in 2018 only FCFA 6.672 billion, or about 10 percent, went through national procurement system. - 2019 annual investment plan: 188 projects (136 donor financed including 19 with small government counterpart; 52 financed entirely by government). - Total FCFA 2 billion (about 0.2 percent of GDP) equally distributed among 52 domestically funded projects; each project receives about FCFA 40 million. Short‑Term Recommendations: - Centralize information collection on externally funded projects under a high‑level MEF committee; organize annual donor conference in April; validate periodic reports and update public debt figures. - Start reviewing appraisals of major capital projects; update project files (Ficha de Projecto) and create Excel‑based medium‑term PIP database. - Strengthen budget preparation via single negotiation for current and investment budgets and revise budget calendar. Medium‑Term Recommendations: - Analyze fiscal impact of new loan agreements before signing; establish stringent regulatory framework defining accountability and responsibilities in appraisal, allocation, and implementation phases. ### State‑Owned Enterprises (SOEs), autonomous entities, and guarantees Findings: - Weak governance and financial oversight of SOEs; MEF departmental oversight under DGTCP has no staff. - About 120 government entities have revenues/expenditures not fully covered in state budget and lack financial oversight; accounting on cash basis only. - Tribunal de Contas audits found noncompliance with rules, irregular hiring, social security contributions deducted but not transferred, lending without repayment schedules, unclear identification of guarantees; some guarantees signed without Council of Ministers approval or Parliament ratification. - Guaranteed loans as of June 2019 = FCFA 6.2 billion (0.7 percent of GDP), of which FCFA 800 million for a private corporation. Short‑Term Recommendations: - Reestablish a permanent unit within MEF for financial supervision of SOEs/autonomous bodies with required resources and authority. - Carry out financial supervision with prioritized list of SOEs and enforce controls in loan guarantee management. Medium‑Term Recommendations: - Prioritize financial supervision activities: controlling debt; overseeing business plans and accounts; improving governance; promoting transparency; managing supervised portfolio. - Prepare and publish yearly SOE supervision reports. ### Internal and external controls — weaknesses and recommendations Findings: - IGF and Inspecções Gerais don't coordinate; IGF audits cover <20 percent of central government expenditure/revenue. - IGF effectiveness undermined by inaccessible financial data including SIGFiP; perception of impunity. - Tribunal de Contas lacks financial/administrative autonomy under 1992 law; planned 19 audits in 2019, completing 8 audits, examining 36 accounts and 40 investigations. - Tribunal de Contas less active in finalizing consolidated financial statements for 2011–2016; 2009 consolidated statement most recent audited. Short‑Term Recommendations: - Approve IGF annual work program, staffing, resources; approve IGF pending regulation; continue IGF–Tribunal cooperation. - Provide more financial autonomy and finance Tribunal de Contas; approve updated law. - Progressively audit and publish pending consolidated financial statements for 2017 and 2018. - Follow up on previous audit recommendations. ### Fiscal transparency and extrabudgetary operations Findings and figures: - “Other current expenditure” unspecified category ≈ 2 percent of GDP (≈ 7–8 percent of total expenditure in 2018). - SIGFiP developed in French and not translated into Portuguese; underutilized; does not include expenditure ceilings. - About 120 extrabudgetary funds/units identified; many revenues collected and spent without parliamentary authorization via commercial bank accounts. - Consolidated financial statements for 2017 and 2018 still being finalized by MEF. Short‑Term Recommendations: - Implement new 2016 budget classification to remove unspecified category. - Finalize quarterly budget execution reports, make available to National Assembly, and publish on MEF website. - Undertake comprehensive inventory of extrabudgetary funds/units/operations. Medium‑Term Recommendations: - Finalize state consolidated financial statements for 2017 and 2018 and submit to Tribunal de Contas. - Improve SIGFiP functionalities and appropriately record all expenditure phases. --- ### Tax system: weaknesses, exemptions, fees, and reform priorities Overview: - Antiquated and inconsistent legislation, large compliance burden, and pervasive administrative discretion. - Widespread discretionary exemptions and numerous fees/charges collected by many entities create duplicated revenue streams and nontransparent collection. A. Tax exemptions Findings: - Broad exemptions for NGOs, religious organizations, magistrates, former combatants; ministers can authorize discretionary exemptions. - 2015 Budget Law amendments to IGV and Código de Investimento reduced IGV base, added rates, eliminated zero rate for exports, and allowed proliferation of tax benefits; since 2015 exemptions can be granted at discretion of Minister of Economy and Finance. Recommendations: - Short Term: Repeal the 2015 Budget Law amendments to the IGV and the Investment Code. - Medium Term: Rationalize tax exemptions and incentives; consolidate remaining exemptions in a tax statute, Investment Code, or Regime Geral das Isenções. - Legislative changes to Regime Geral das Isenções (1995): prohibit contractual provision of exemptions except as authorized; establish limited list of entities for preferential treatment; narrow taxes/activities eligible; require publication of all exemption authorizations on MEF website. B. Fees and charges Findings: - Numerous fees/charges assessed/collected by ministries/agencies/private entities without comprehensive listing or valuation; most revenues retained by collecting entity rather than deposited into central treasury. Recommendation (Medium Term): - Introduce legislation to revoke all existing fees and charges; define scope, nature, magnitude, and process for imposing any fee or charge; include general revocation clause and require economic memoranda attesting cost recovery. C. Improving fiscal governance to increase tax revenue collection — key statistics (preserve numeric values exactly) - DGCI tax revenue collection: around 4.35 (as a percent of GDP) for the past three years. - DGA tax revenues estimated between the 4.85 and 6.09 (as a percent of GDP). - Total tax revenue: around 10 percent, which is the second‑lowest performance among the ECOWAS countries. - ECOWAS average tax revenue‑to‑GDP rate: 13.5 as a percent of GDP. Findings: - Low collection linked to poor governance at DGCI and DGA: complex/discretionary processes, lack of training, weak IT, low professionalism. D. Reform and modernization of core processes — DGCI and DGA Domestic Tax Collection (DGCI): - Progress: segregation between audit case selection and execution; electronic tax returns reduced contact points; IT network extension increased transparency. - Gaps: Large Taxpayer Office monitoring and arrears enforcement need rebuilding; multiple specific laws increase complexity; General Tax Code and Tax Penalties Regime approved by Parliament last December but not signed by President. - Integrity risk example: use of bank payments and Safin inspection point in 2019 yielded tax revenue equivalent to sum of past three years. Customs (DGA): - Private sector criticizes bureaucracy and slow clearance. - 2017 order simplified import clearance from 24 to 9 steps, yet unnecessary paper tasks remain. - Manual tasks create contact points; migration to ASYCUDA World should be considered. Short‑Term Recommendations: - Promulgate Lei Geral Tributária and Regime Geral das Infracções Tributárias approved by National Assembly in 2018. - Implement simplified customs transit control from border to Safin and physical structure for inspection of land‑imported goods. E. Professionalization of human resources Findings: - Nepotism persisted; after 2014 legal hiring procedure irregular appointments increased DGCI staff (462 employees Jan 2018; 513 in July 2019) without tender. - DGA refusing non‑regular employees; DGCI should refuse non‑regular employees with Ministerial support. - Suggested directions: reinforce merit‑based hiring, strengthen training and oversight, deploy IT solutions. Selected timeframes from Appendix I (examples, preserve as listed): - DGCI — Human resources and IT: Create and apply a career plan — January 2018 — 9 months. - Launch public contest to hire from 6 to 10 information technology development experts — January 2019; April 2019 — 9 months. - DGA — Migrate to ASYCUDA World — September 2018 — 2 years. --- ### Salaries, governance, and DGCI/DGA operational issues - Salaries paid one or two months after due dates since last year. - Less than 20 percent of DGCI employees were hired under a public tender. - No career and promotion plans, duties, and rights for DGCI employees; proposed law needed to specify duties/responsibilities/rights. - High turnover among senior staff; example: three Directors General in less than one year. - Short‑Term Recommendation: Apply a career plan based on transparent, merit‑based hiring and remuneration procedures. DGCI transparency and IT: - DGCI IT strategic plan to modernize infrastructure; need to hire 6 to 10 specialized IT professionals under public tender. - Electronic tax filing success should be extended to all tax returns. - Promote exchange of information between DGCI and DGA, Treasury, and INSS. DGA organization and integrity: - Reports of DGA officials charging for procedures with no legal basis; irregular employees paid in cash by customs brokers. - Fiscal Action Brigade (BAF) part of National Guard (Ministry of Interior) responsible for customs surveillance but not under Director General of Customs; separation leads to lack of coordination. - Recommendations: unify controls on goods not submitted to Customs under DGA management; review DGA remuneration system to promote modernization; ensure DGA uses IT system in all units, eliminating manual procedures. Transparency, prevention, and sanctions: - DGCI and DGA internal audit directorates lack support, training, and coordination with IGF; Code of Ethics drafting incomplete. - Few disciplinary/investigative cases have been opened or completed in recent years. --- ### Rule of law, property rights, and business environment - 2019 World Bank Doing Business Report: Guinea‑Bissau at 158 and 175 of 190 economies for ease of starting a business and ease of doing business, respectively. - One‑stop shop for company registration (CFE) created in 2011 reduced registration time from 200 days to one day; registry not fully electronic. - Non‑registration ratio for property ≈ 90 percent; registration fees reported up to 50 percent of value; registry manual (books). - Short‑Term Recommendations: - Post laws/regulations online; develop plain language guides; digitize CFE records and integrate with OHADA; publish organizational charts and fees; post judicial decisions online. - Medium‑Term Recommendation: - Establish a one‑stop shop for cashew exports and digitize the property registry for national coverage. --- ### Corruption risks, drug trafficking, AML/CFT, and justice sector Drug trafficking and seizures: - Guinea‑Bissau’s geography and weak border controls attract cocaine transit. - Seizures: - March 9, 2019: 789 kg of cocaine seized. - September 2, 2019: 1,947 kg of cocaine seized. - High‑level officials pleaded guilty in US courts to conspiring to import drugs into the US in 2014 and 2016. Criminalization gaps (selected): - Offering of a bribe not criminalized; indirect giving/receiving require high proof standards; “public official” undefined; abuse of functions criminalized only for holders of “political functions”; giving bribe to foreign public officials not criminalized. Investigative and prosecutorial capacity: - Judicial Police specialized anti‑corruption brigade of 10 investigators intends to expand to around 40; severe resource constraints (no permanent premises or operational budget). - Prosecutor’s Office: 87 prosecutors; number of corruption prosecutions low; need prosecutorial guidelines on timelines, grounds for taking cases, evidence standards, and feedback on CENTIF reports. Sanctions and asset recovery: - Sanctions in corruption cases not dissuasive; rare imprisonment; conditional release does not consider gravity; confiscations not achieved due to few convictions and limited financial investigation capacity. - Legal framework limits confiscation; asset recovery should be an explicit policy objective. AML/CFT findings: - Risk of laundering corruption proceeds high; methods include real estate purchases, bank cash deposits, trade‑based laundering via cashew exports. - Preventive measures for PEPs weak: - AML/CFT law (2018) does not require PEP preventive measures to apply to family/close associates of domestic PEPs. - Financial institutions not required to consider a person a PEP until after one year in significant public office. - Reporting by banks low; reporting mainly from subsidiaries of international banks. - CENTIF increased suspicious transaction reports but numbers still low; disseminations to Prosecutor’s Office not used for investigations. - Supervision: Banking Commission of BCEAO supervises banks; thematic AML/CFT on‑site inspections rare; supervision of DNFBPs/non‑bank financial institutions not started. Short‑Term Recommendations (selected): - Reform asset declaration regime to: - (1) cover all PEPs as defined by FATF and their family members; - (2) cover assets owned beneficially and abroad; - (3) be publicly available online; - (4) allow dissuasive sanctions for failure or false declarations. - Grant necessary resources and sufficient budget to law enforcement agencies, notably Judicial Police. - Strengthen budgetary autonomy of Judicial Police and Prosecutor’s Office. - Develop prosecutorial guidelines. - Design comprehensive national anti‑corruption strategy. Medium‑Term Recommendations (selected): - Safeguard operational independence of investigative, prosecutorial bodies, and courts. - Create national system of crime statistics. - Address gaps in criminal legislation per UNCAC recommendations, notably on criminalization of corruption offenses. - Supervise compliance of non‑bank financial institutions and DNFBPs with AML/CFT obligations. - Support CENTIF’s efforts to join Egmont Group. - Establish witness and whistleblower protection measures. *Source: IMF staff (Preface, Executive Summary, and Technical Report excerpts from the governance diagnostic mission report for Guinea‑Bissau).* ### PREFACE _________________________________________________________________________________________ 5 ### PREFACE ### Mission and scope - IMF Fiscal Affairs and Legal Departments team visited Bissau from September 18 to October 1, 2019, to conduct a diagnostic of macro-critical weaknesses in fiscal governance, rule of law, market regulation, anti-money laundering (AML), and anti-corruption. - The governance assessment was carried out according to the IMF’s Framework for Enhanced Fund Engagement on Governance Issues approved by the Board in April 2018. - Mission team: Ms. Concepcion Verdugo-Yepes (Head), Mr. David Baar, Mr. Paulo Silva, Mr. Jean Pierre Nguenang (all Fiscal Affairs); Ms. Ioana Luca and Mr. Maksym Markevych (both Legal). - Principal government interlocutors acknowledged: Prime Minister Mr. Aristides Gomes; Minister of Economy and Finance Mr. Geraldo Martins; special advisor to the Prime Minister Mr. Rui Duarte; advisors to the Minister of Economy and Finance Mr. Carlos Andrade and Mr. Jeremias Pereira; Director General of Budget Mr. Elisio Gomes-Sa. - Support from IMF mission chiefs and resident representatives: Mr. Tobias Rasmussen, Mr. Max Alier, Mr. Patrick Gitton, Mr. Oscar Melhado, and Mr. Romao Lopes Varela. ### EXECUTIVE SUMMARY ### Political context and overall findings - Political instability has limited the development of Guinea-Bissau’s institutional capacity; tensions between the President and the leadership of the country’s largest political party led to six changes of government between the 2014 and 2019 parliamentary elections. - Prior IMF capacity development reports, ECF program reviews staff reports, World Bank, and European Union diagnoses have highlighted structural governance weaknesses and proposed corrective measures; traction has been limited. - Authorities generally understand corruption vulnerabilities and their materiality, and express willingness to act, but Guinea-Bissau lacks a comprehensive national anti-corruption strategy. - Political instability contributes to deep-rooted corruption, entrenched rent-seeking, predatory behavior, impunity of officials, and placement of unqualified individuals in public sector jobs. - Ongoing efforts to mobilize revenues and control expenditures are welcome, but further actions are required. ### Public Financial Management (PFM) — substantive weaknesses - Budget use and approval: - The budget prepared by the Ministry of Economy and Finance (MEF) is often not approved by the National Assembly on an annual basis and is used in a very limited way to guide expenditures. - Expenditure decision-making and controls: - Spending decisions are made by an in-house committee in charge of expenditure execution (COTADO), led by the MEF in a discretionary way because Treasury Committee meetings have been discontinued due to the Committee’s large size and composition. - Internal controls are inadequate to ensure payments are only made after certification that goods and services have been delivered and that payments are made directly to beneficiaries. - Recommendation: enforce sound practices and strengthen controls at each phase of the expenditure chain (commitment, liquidation, payment order, and payment); comply with contractual provisions, especially payment deadlines and penalties. - Cash management and accounts: - Existing cash-rationing system is, in part, due to the absence of a treasury single account. - Government has not prepared an inventory of government entities’ bank accounts. - Line ministries’ bank accounts are opened in commercial banks following agreement by the Treasury, with a co-signature arrangement, but exceptions exist (no co-signature for the National Assembly, the Presidency, and several extrabudgetary autonomous entities). - Current cash rationing has not prevented new expenditure arrears; the stock of arrears is unknown due to recording deficiencies. - State-Owned Enterprises (SOEs) and extrabudgetary operations: - Limited institutional oversight and paucity of financial information on SOEs. - Numerous extrabudgetary entities/operations and a sizeable unspecified expenditure category equal to 2 percent of GDP in 2018. - Internal and external audit functions: - Inspectorate General of Finance (IGF) exercises very limited internal controls due to institutional and operational weaknesses. - Tribunal de Contas has limitations in performing external audits mainly due to de facto lack of financial and administrative autonomy. - Tribunal de Contas issued nine reports, most on SOEs, identifying critical weaknesses; tribunal is not provided with follow-up information about implementation of recommendations. - Donor-financed investment projects: - No central unit within the MEF tasked with appraisal of donor-funded projects. - Authorities need capacity to control planning, allocation, and implementation of externally financed investment projects; externally financed projects represented on average 95 percent of total public investment during 2011–18. - Risks: overestimation of total cost of investment projects (including associated loans), cost overruns, long implementation delays, negative fiscal implications. ### Public sector wage bill and administration - Legal hiring framework based on merit and public tender exists but is not consistently applied due to political interference; hiring typically based on cronyism and nepotism with senior staff appointed without required technical capacity. - Reconciliation shortcomings: - Government does not conduct regular reconciliation between personnel records and the payroll file, resulting in a considerable number of ghost workers. - IGF audit of personnel in June 2018 estimated 2,800 ghost workers. - Controls and absenteeism: - Lack of financial and operational controls on the wage bill, including on workers’ presence at their offices, leads to overpayments and excessive absenteeism. - Overpayments are estimated at FCFA 1.2 billion, or 0.1 percent of GDP (IGF, 2018 Audit Summary Report). - Extensive use and absence of controls on the payment of incentives (about 22 percent of total wages in 2018). - Lack of adequate control over salaries paid to the members and employees of the National Assembly (FCFA 3.6 billion in 2018, or 0.4 percent of GDP). ### Tax policy and revenue administration - Tax policy environment: - Tax system characterized by antiquated and inconsistent legislation, large compliance burden, and pervasive administrative discretion. - Widespread availability of tax exemptions operates in tandem with numerous fees and charges assessed and collected by a wide range of entities, producing a nontransparent and costly approach to revenue collection that promotes tax evasion and burdens business activity. - Tax and Customs administrations: - Complexity and opacity of the tax system normalize discretionary administration by the Directorate-General for Taxes and Duties (DGCI) and the Directorate-General for Customs (DGA). - Absence of a results-based management strategy and guidance in the fight against corruption. - Political interference in hiring, high turnover, and unqualified staff increase vulnerability to corruption. - Outdated information technology systems hamper tax compliance, create high operational costs, and increase difficulty of effective verification of taxpayers and oversight of employees. ### Anti-Corruption and Anti-Money Laundering (AML) - Significant and systemic corruption risks arise from misuse of public resources and involvement of foreign drug traffickers seeking assistance of country officials. - Judicial Police has achieved some investigative successes, including in corruption investigations, but credible follow-up by prosecutors and courts is lacking. - Criminal justice system resources and independence require enhancement. - Asset declaration regime is not operational; legislative and institutional frameworks should be reformed and strengthened by publication of declarations. - Preventive anti-corruption measures, notably on conflicts of interest, should be developed. - Effective implementation of AML measures regarding domestic politically exposed persons would support anti-corruption efforts. ### Rule of law and market regulation - Courts and legal framework: - Market participants are generally distrustful of the court system. - Laws are not publicly disseminated with regularity, nor explained to private sector or law-applying officials. - Court decisions are not published and are not easily accessible to legal professionals. - Court fees are prohibitive; delays in proceedings are common due to limited number of judges and apparent lack of productivity control. - Registration of property is costly and paper based, leading to reported conflicts related to property rights. - Market regulation and business environment: - Complexity and opacity of regulatory environment, including trade, create incentives for corruption and hinder private business. - Multitude of charges and fees applied by public entities to business transactions are usually not transparent and not consistently applied. - One-stop shop for registering companies is a positive step; recommendation: upgrade by digitizing and integrating into OHADA registries. ### Key recommendations and next steps - Political ownership and sequencing: - Reforms must be owned by Guinea-Bissau authorities; further engagement will be worthwhile only with strong political support. - Immediate procedural step: - Convene a technical committee on governance in February 2020, with comments due to IMF staff by February 20, 2020. - Technical committee should include representatives from: President, Prime Minister, Minister of Economy and Finance, Minister of Justice, Minister of Public Function, Attorney General, Anti-Corruption Commission, Tribunal de Contas, and civil society. - Medium-term planning: - Government technical committee should develop a comprehensive medium-term anti-corruption strategy. - Mission’s wrap-up presentation included in Appendix 2; Table 1 lists key final recommendations for the short and medium-terms, as agreed with authorities. ### Selected items from Table 1 — Key Recommendations for the Short and Medium Terms (selection) - Public Financial Management: - Reestablish a smaller and focused Treasury Committee by Executive Order; issue prioritization criteria and actions to prevent further accumulation of payments arrears (restos a pagar) and to clear the existing stock of arrears. — Short Term - Enforce the normal expenditure execution procedure: certification before payment. Enforce proper recording of expenditure phases in the SIGFiP (commitment, verification, payment order, and payments). — Short Term - Progressively consolidate government cash in a treasury single account. — Short to Medium Terms - Enforce control over all public salaries, including employment incentives. — Short Term - Regularly reconcile the personnel record file and the payroll file. Conduct a biometric census of all public employees and retirees. — Short Term - Enforce the 2016 budget classification to exclude the unspecified expenditure category. — Short Term - Undertake a comprehensive inventory of extrabudgetary operations. — Short Term - Approve the annual work program of the Inspector General for Finance; increase staffing and financial resources. — Short Term - Progressively audit and publish all pending consolidated financial statements. — Short to Medium Terms - Tax Policy and Revenue Administration: - Repeal the 2015 Budget Law amendments to the General Tax on Sales and Services (Imposto Geral sobre Vendas e Serviços (IGV)) and the Investment Code (Código de Investimento). — Short Term - Rationalize tax exemptions and incentives, and consolidate those that remain in a tax statute, the Investment Code (Código de Investimento), or the General exemptions regime (Regime Geral das Isenções). — Medium Term - Apply a career plan, based on transparent merit-based hiring and remuneration procedures at DGCI. — Short Term - Promote exchange of information among DGCI and DGA, Treasury, and INSS. — Short Term - Hire from 6 to 10 information technology development experts, under a public contest, and train the new staff. — Short Term - Build a new website for DGCI including services to taxpayers, accountability, and transparency. — Short Term - Promulgate the new general taxation law (Lei Geral Tributária) and the new general taxation infringements law (Regime Geral das Infracções Tributárias). — Short Term - Unify all controls on goods not submitted to Customs under DGA management. — Short Term - Ensure use of information technology system in all Customs units, eliminating manual procedures. — Short Term - Implement a simplified Customs transit control from the border to Safin, and a physical structure for inspection of goods imported across the land borders. — Short Term - Rule of Law, Market Regulation, Anti-Corruption and AML: - Submit proposal to revise legislation to set court fees at a level that allows effective access to justice; ensure fees are transparently posted in courts. — Short Term - Publish laws as soon as promulgated and communicate key elements to a broader audience; publish final judicial decisions. — Short Term - Establish a government website, properly organized and structured, with public access ensured. — Short Term - Establish a judiciary website, properly organized by courts, with public access ensured. — Short Term - Publish for each court the number of serving judges and staff, and for each prosecution unit the number of prosecutors and staff; publish number of vacant positions. — Short Term - Publish for each court the number of corruption cases; AML/CFT cases; insolvency cases; foreclosure cases; and land cases for 2016, 2017, and 2018; specify pending and closed. — Short Term - Land registry fees should be uniform, accessible, and publicly posted. — Short Term - Post all legislation online and develop plain language guides describing tax, licensing, and other regulatory obligations. — Short to Medium Term - Publish organizational charts for each public entity charging fees; ensure fees are transparently posted and online. — Short Term - Reform legislative and institutional frameworks on asset declarations and fully implement, including online publication. — Short Term - Strengthen supervision of preventive AML/CFT measures related to politically exposed persons (CENTIF, Banking Commission of the BCEAO). — Short Term - Safeguard operational independence of investigative, prosecutorial bodies, and courts from political interference; grant necessary resources and appropriate budgetary autonomy to law enforcement agencies, notably the Judicial Police. — Short to Medium Terms - Address gaps in Bissau-Guinean criminal legislation in line with recommendations of United Nations Convention against Corruption review, notably on criminalization of corruption offenses. — Short Term _This overlay summarizes the Preface and Executive Summary of the governance diagnostic mission report for Guinea-Bissau._ ### 1. In Guinea-Bissau, the fiscal position is increasingly strained. The domestic revenue in ### Guinea-Bissau: Fiscal position and public financial management (Technical Report excerpt) ### Macroeconomic and fiscal overview - Domestic revenue is the lowest in the region, around 12.5 percent of GDP. - The estimated value of domestic revenue for 2019 was 12.5 percent of GDP. For 2020, the projection is 9.7 percent. The drop is due to the ongoing COVID-19 crisis. - Up to end-August 2019, domestic revenue was flat in nominal terms compared to the same period in 2018. DGCI showed some improvement, but this was offset by weaknesses in customs and in non-tax revenue. - Current expenditures were more than 20 percent higher than 2018, reflecting significant increases in the wage bill following 2018’s pay increase and transfers to Electricidade e Aguas da Guinea-Bissau (EAGB) to cover previously incurred liabilities. - Public debt projected to surpass 65 percent of GDP 2019 leaves no room to maneuver. Reducing the deficit to within the 3 percent of GDP West African Economic and Monetary Union (WAEMU) criterion would put the debt-to-GDP ratio on a downward trajectory. - The new government’s program outlines a vision for inclusive economic development based on boosting wealth-creating sectors and improving institutional governance; it still needs National Assembly approval. ### Governance, corruption risks, and priority reform areas - Governance reforms could improve domestic revenue and expenditure management; revenues generated outside the central government are not accounted for in the budget, and internal and external PFM controls are insufficient to ensure transparency and accountability. - Critical reform areas: public financial management (PFM), tax administration and policy, legal and institutional frameworks. - The Technical Report follows a diagnostic framework suggested by the 2019 Fiscal Monitor, tailored to Guinea-Bissau. ### Key PFM weaknesses and institutional constraints - Guinea-Bissau transposed the six 2009 WAEMU PFM directives into national laws and decrees, albeit with delays; many guidance texts and manuals are not followed and revised ones remain to be developed (for example, a treasury single account agreement with the Central Bank; manuals for budget execution, financial controls, accounting of revenues and expenditure). - Political instability has constrained PFM systems: since 2016 the National Assembly has only approved the 2018 budget, leading to execution under provisional twelfth practice and undermining transparency and effectiveness. Annual budget is executed under provisional practice and the MEF budget is used very limitedly to guide expenditure priorities. - Little information exists on SOE and autonomous entity financial performance, contingent liabilities, and transfers. Public investment is almost entirely donor-funded with no domestic systems to appraise and prioritize investments consistently. - With limited institutional capacity, basic PFM systems should be strengthened before implementing advanced WAEMU-provided systems. ### Treasury systems — findings and recommendations Findings - Treasury Committee Order 88/2016 (Prime Minister, December 2016) created a Treasury Committee that made spending decisions via DG Budget proposals through the COTADO Committee in a cash‑rationing system. - Challenges identified: - Treasury Committee meetings discontinued due to unwieldy composition (24 entities, >40 representatives including donors and civil society). - Government cash resources fragmented across several bank accounts, especially commercial banks; no treasury single account at the Central Bank as stipulated by the Organic Law on public finance. - Monthly cash plans are not updated regularly and show significant monthly payment deviations; they do not provide accurate estimates or forecasts of amounts remaining to be paid. Short-Term Recommendations - Reestablish a smaller and focused Treasury Committee by Executive Order; define clear criteria for prioritization of cash payments by expenditure category to avoid arrears (restos a pagar) after their due date. - Conduct a comprehensive census of all central government bank accounts; reduce the number of government bank accounts, and streamline their management to ease daily reporting and centralization of all their balances. - Improve the capacity to prepare and update reliable in-year (monthly and quarterly) cash plans by carrying out analysis of budget outturns, and by harmonizing them with commitments/spending plans submitted by line ministries and revenue forecasts. Medium-Term Recommendations - Progressively establish a treasury single account at the Central Bank pursuant to a treasury single account agreement between the Treasury and the Central Bank. - Assess the impact on banking system liquidity of the transfer of central government accounts balances from commercial banks to the treasury single account at the Central Bank, and implement measures to mitigate the impact. ### Non-salary expenditure execution — vulnerabilities and recommendations Findings - The spending decision process does not reliably follow the four key stages of the expenditure chain (commitment, verification, payment order, payment); payments are made without certification that the service is rendered, leading to risks of undelivered, low-quality, or undervalued goods and services. - The COTADO committee (Order 25/2017 of January 31) consists of 11 MEF directorates and during Treasury Committee suspension decides on spending ceilings and priorities every two weeks; spending requests by line ministries are not constrained by cash availability and line ministries do not prepare commitment plans needed for credible cash planning. - The cash‑rationing system leads to expenditure payment arrears. Expenditure arrears are estimated using a 90-day rule after payment order issuance, but part of these payments may not be due because related goods or services have not been certified as delivered. - No accurate information on expenditure payment arrears exists; audit covering 2001–2008 found a total stock of expenditure arrears of FCFA 86 billion (audit not conclusive, no settlement plan approved). The expenditure chain IT system indicates FCFA 1.6 billion (1.5 percent of expenditures committed at end-2018) due to recording deficiencies. - Strengthened expenditure controls are critical; payment orders should only be made after certification that goods and services have been delivered in accordance with required specifications and quality. Short-Term Recommendations - Comply with all contractual provisions, especially the payment deadlines and associated penalties in cases of delays. The MEF should organize a meeting with the private sector (for example, Chamber of Commerce) and commercial banks to agree on the modalities of compliance with the contractual provisions. - Finalize, adopt, disseminate, and enforce the draft manual of procedures for expenditure execution, developed in May 2019 with AFRITAC West assistance, and update the manual for financial control. Medium-Term Recommendations - Conduct a comprehensive stock-taking, validate the certification of accumulated arrears (restos a pagar) after their due date, and prepare a comprehensive settlement plan for expenditure arrears that are certified and validated. ### Public sector wage bill management — findings and risks Findings - Total wages = FCFA 38.5 billion (4.5 percent of GDP). - Many unofficial employees continue to be paid with budgetary resources. Total civil servants approximately 24,000 in June 2019; actual public sector workforce could be substantially larger due to unofficial employees paid from budgetary or ministry revenues. Salaries of dismissed workers may continue to be paid but classified under transfers and not appear on the official wage bill. - Official figures omit several compensation items (pensions, bonuses, salary top-ups, health benefits, salaries of autonomous state institution staff); when included, total government employee compensation is nearly double the official wage bill. - Bonuses paid to MEF staff to incentivize tax collection (incentivos) reached 22.8 percent of total wages in 2018; their contribution to raising tax revenues is questionable because they are not linked to individual performance. Specific risk areas and figures - Wage bill overpayments; no consistent control by financial control officers on salaries; some line ministries bypass normal wage bill procedures to send adjustments directly to the MEF; reconciliation between payroll and personnel records is delayed (latest conducted in 2018); no biometric census since 2009–10; weak control of absentees. - In June 2018: number of ghost workers = 2,847 (more than 10 percent of total civil servants); savings = FCFA 746 million (0.1 percent of GDP); undue payments discontinued = FCFA 1.185 billion (0.1 percent of GDP); adjustment to actual FCFA 184,000 (0.02 percent of GDP). - National Assembly wages = FCFA 3.6 billion in 2018 (0.4 percent of GDP); no control on National Assembly salaries: transfer of a lump sum to its commercial bank account. ### Expenditure categories and associated PFM weaknesses (selected figures) - Goods and services spending = FCFA 21 billion (2.4 percent of GDP): some goods and services not delivered; non-certification of delivery; payment orders issued based on invoices and sometimes paid from ministries’ commercial bank accounts rather than to suppliers. - Other goods and services at risk = FCFA 16.9 billion (2 percent of GDP): lack of financial control and lack of transparency. - Investment spending in 2018 = FCFA 2.1 billion (0.2 percent of GDP): some disbursements on domestic investment not directed to intended purposes; lack of proper ex-ante financial control during procurement; some payments made in ministries’ bank accounts rather than to contractors’ bank accounts. - Total transfers for 2018 = FCFA 21.6 billion (2.5 percent of GDP): some transfers to SOEs at risk; little oversight of SOEs through a recently established Coordinating Committee; no financial statements of SOEs. - Guaranteed loans as of June 2019 = FCFA 6.2 billion (0.7 percent of GDP), of which FCFA 800 million is for a private corporation; some payments on guaranteed loans not justified; three guarantees signed to SOEs (one with a private company) without prior approval by the Council of Ministers and ratification by Parliament; no tracking of loan repayments by primary debtor corporates in advance of the materialization of loan guarantees. *Source: IMF staff (Technical Report excerpt).* ### 16. The lack of defined career paths with predefined and functioning promotion ### 16. The lack of defined career paths with predefined and functioning promotion ### Career progression, wages, and promotion issues - Salary tables were changed in 2018, with upward adjustments for all of the grades. - The average wage in the defense sector has grown 40 percent in nominal terms as the structure has become increasingly top-heavy. - Wage level adjustments only slightly reduced wage disparity between the top grades and the rest, which continue to be significant. - There has been a lack of promotion opportunities for civil servants. - Most low-skilled civil servants have been replaced by those in professional categories. ### Box 2. Wage Bill Current Procedures (roles and control coverage) - The Director General of Budget oversees salaries. - Recruitment of personnel is controlled through multiple levels: the Ministry of Public Function, the Director General of Financial Control, and the Tribunal de Contas. - The Director General of Financial Control checks the budget line and other supporting documents required by the civil service statutes; it also checks promotions and pensions. It has no mechanism to control ghost workers. - Upon the death of employees, families are eligible to apply to the MEF for six-month lump sum payments; families that do not notify the MEF may be able to continue collecting salaries. - The Director General of Budget reconciles the payroll file against the personnel records maintained by the Ministry of Public Function twice a year. - Control coverage table (functions = Yes/No): - Hiring process: Public Function Yes; DG Financial Control Yes; DG Budget Yes; Tribunal de Contas Yes - Civil service pensions: Public Function Yes; DG Financial Control Yes; DG Budget Yes; Tribunal de Contas Yes - Autonomous services wages (transfers): Public Function No; DG Financial Control Yes; DG Budget Yes; Tribunal de Contas No - Private individuals (transfers): Public Function No; DG Financial Control Yes; DG Budget Yes; Tribunal de Contas No - National assembly wages (transfers): Public Function No; DG Financial Control No; DG Budget No; Tribunal de Contas No - Tax collection incentives (other current expenditure): Public Function No; DG Financial Control No; DG Budget No; Tribunal de Contas No - Medical benefits (other current expenditure): Public Function No; DG Financial Control No; DG Budget No; Tribunal de Contas No - Travel expenses (goods and services): Public Function No; DG Financial Control Yes; DG Budget Yes; Tribunal de Contas No - Salary top-ups (goods and services): Public Function No; DG Financial Control No; DG Budget Yes; Tribunal de Contas No - Ghost workers: Public Function Yes; DG Financial Control Yes; DG Budget Yes; Tribunal de Contas No ### Persistent weaknesses in payroll and personnel controls (paragraph 17) - Absence of control over the salaries of the National Assembly because a lump sum is transferred to its account. - Existence of ghost workers in payroll records (representing more than 10 percent of total civil servants in June 2018), partly due to the long delay in reconciling them with personnel records. - The normal procedure for salary adjustments is bypassed, with changes introduced directly through the payroll record. - No census of civil service personnel completed in the past decade (the latest was done in 2009-10). A control on personnel records took place in 2017 with a European Union consultant. ### Strengthening payroll controls — objectives and short/medium-term recommendations - Objective: prevent overpayments and limit discretion by reestablishing the normal procedure governing payments of public sector salaries; improve internal controls; complete public sector organigram; prepare multi-annual staffing plans. Short-Term Recommendations - Enforce control over all salaries, including employment incentives, and the National Assembly salaries, which should be incorporated in the payroll records. - Conduct regular in-year (quarterly) reconciliations between the personnel and the payroll records. Medium-Term Recommendations - Complete the public sector organigram, undertake a full biometric census of civil servants, and prepare multi-annual staffing plans. ### Public Investment Management — capacity and risks (paras 19–21) - Guinea-Bissau has very limited capacity to appraise, select, implement, and monitor public investment projects. - Over 95 percent, on average, of the capital budget was externally financed during 2016–18. - No central unit within the MEF is tasked with appraisal of donor-funded projects. - Limited control over planning, allocation, and implementation of externally financed investment projects; most do not follow the national procurement system. In 2018, only FCFA 6.672 billion, or about 10 percent, went through the national procurement system. - No internal controls by the IGF and no ex-post evaluation have occurred on public investment projects. - Domestically financed projects may be misclassified as investment projects while mainly providing recurrent expenditures. - 2019 annual investment plan includes 188 projects: 136 financed by donor resources (including 19 with small counterpart funds from government), and 52 financed entirely by government resources. - Total amount of FCFA 2 billion (about 0.2 percent of GDP) is equally distributed among the 52 domestically funded projects; each project receives about FCFA 40 million. - Misclassification explained by absence of rigorous process for investment expenditure decisions and current expenditure ceiling constraints. Short-Term Recommendations - Centralize information collection by the MEF on externally funded projects under a high-level committee in the Ministry, headed by the Minister and including an advisor to the Prime Minister. The committee should: - Organize an annual conference with donors and lenders in April, prior to initiating the budget preparation process; - Centralize collection of information from line ministries and financing institutions; - Validate periodic reports on investment projects’ execution and disbursements, and corresponding updates to public debt figures and the time profile of debt service. - Start reviewing appraisals of major capital projects to ensure value for money. - Update the project file (Ficha de Projecto) by collecting basic quantitative information on the annual cost of each project and relevant data to support planning and budgeting. - Create an Excel-based medium-term PIP database centralizing all quantitative information included in the Fichas de Projecto for preparing an improved PIP consistent with the medium-term fiscal strategy and the annual budget. - Strengthen the budget preparation process through a single budget negotiation for current and investment budgets; revise the budget calendar. Medium-Term Recommendations - Analyze the fiscal impact of any new loan agreement before it is signed to ensure its medium- to long-term fiscal and debt sustainability. - Establish a stringent regulatory framework defining accountability and responsibilities of each actor in the three phases of public investment management (appraisal, allocation, and implementation). ### State-Owned Enterprises, autonomous entities, and guarantees (paras 22–24) - Governance of SOEs and autonomous entities is weak. - The MEF has not conducted financial oversight of SOEs in recent years; SOE performance has been weak; staffing has been discretionary. - A 2018 ministerial committee oversees financial performance of SOEs and autonomous entities but has focused more on operations than strategic issues. - The MEF department under the Director General of Treasury and Public Accounting (DGTCP) that should oversee SOEs has no staff due to lack of political support and management commitment. - About 120 government entities have revenues and expenditures not fully covered in the state budget and lack financial oversight; most lack internal controls or adequate accounting (which is done only on a cash basis) and do not report to the MEF. Audit findings by the Tribunal de Contas identified critical governance weaknesses: - Noncompliance with internal rules and procedures. - Irregularities in hiring based more on political connections than qualifications. - Social security contributions are deducted from salaries but not transferred to the social security administration. - Lending by SOEs to other entities and individuals without repayment schedules or evidence of repayment. - No clear identification of loans that have government guarantees. - A few loan guarantees have materialized without any control mechanism at the MEF to ascertain and validate them prior to any Treasury payments to service guaranteed debt. - Key fiscal risks include debt service defaults from operations backed by sovereign guarantees; oversight of SOEs and autonomous entities should be strengthened. Short-Term Recommendations - Reestablish a permanent unit within the MEF for financial supervision of SOEs and autonomous bodies, and provide it with required resources and authority. - Carry out financial supervision with a prioritized list of SOEs and autonomous entities. - Enforce controls throughout the full process of managing loan guarantees. Medium-Term Recommendations - Undertake financial supervision activities prioritizing five areas: controlling debt; overseeing business plans and accounts; improving governance by addressing the irregularities identified by the Tribunal de Contas; promoting transparency; and managing the portfolio of supervised entities. - Prepare and publish yearly reports on SOE supervision, beginning with the most relevant and extending to others over time. ### Internal and external controls — weaknesses and recommendations (paras 25–26) - The IGF and separate Inspecções Gerais in line ministries carry out internal financial audit functions but do not coordinate. - The IGF’s annual audit activities cover less than 20 percent of the central government’s expenditure and revenue. - IGF effectiveness undermined by institutional and operational weaknesses: nonexistent or inaccessible financial data including SIGFiP (Sistema Integrado de Gestão das Finanças Públicas), and a perception of impunity since executive and judiciary branches do not impose sanctions due to lack of resources. - In 2011–17, three major inspections of active personnel against Ministry of Public Function records led to payroll savings. - In 2017, the IGF contributed to a first-time eight audits of SOEs and military spending by the Tribunal de Contas. - Under a 1992 law, the Tribunal de Contas lacks financial and administrative autonomy. It recently conducted several audits highlighting material issues and systemic/control risks of SOEs. - The Tribunal de Contas has planned 19 audits in 2019; it is completing 8 audits, examining 36 accounts and conducting 40 investigations, including public schools. Audits will be repeated in 2020 where risks are anticipated. Audits have been requested for the Ministry of Agriculture on infrastructure, resources, and financial. - The Tribunal de Contas has been less active in finalizing audit reports of the state consolidated financial statements of the central government for 2011 to 2016. The 2009 state consolidated financial statement was the most recent one audited by the Tribunal de Contas. - The National Assembly has been inactive in recent years; draft annual budgets have not been approved, leading to execution based on provisional twelfth practice. - Critical audit findings were not followed up by the executive or audited entity. Short-Term Recommendations - Approve the IGF’s annual work program, staffing, and appropriate financial resources; approve its pending regulation; and continue collaboration between the IGF and Tribunal de Contas. - Provide more financial autonomy to the Tribunal de Contas and appropriately finance its annual work program; approve the Tribunal de Contas updated law. - Progressively audit and publish all pending state consolidated financial statements. - Follow-up on previous audit recommendations. ### Fiscal transparency and extrabudgetary operations (paras 27–28) - A substantial share of expenditures is in the unspecified category “other current expenditure,” representing about 2 percent of GDP, or about 7 percent to 8 percent of total expenditure in 2018. - IMF’s Selected Issues Paper notes the category includes bonuses paid to public employees and purchases of goods and services; these should be classified under compensations and goods and services respectively. - An appropriate amount to cover unforeseen expenditures (or dotação provisional) should be budgeted and allocated during execution to recipient budget lines and reflected in budget execution reports. Best practice suggests this allocation should not exceed 2 percent of total expenditure. - Fiscal reporting is weak: budget execution reports are prepared but not published. - The 2016 consolidated financial statements were finalized with assistance of a European Union consultant and submitted to the Tribunal de Contas. Consolidated financial statements for 2017 and 2018 are still being finalized by the MEF. - Public access to fiscal information is limited: the MEF’s website (www.mef.gw) lacks updates on pertinent accounting documents and reports; the Tribunal de Contas’ website contains limited and outdated information. - Many extrabudgetary funds and units exist; about 120 have been identified to date, and their operations are only partially reported in fiscal documents. Unreported operations include: - A significant fraction of revenues collected (mainly taxes and fees) and spent without parliamentary authorization by most line ministries (for example, Fisheries, Education, Justice, and Health) through commercial bank accounts under a co-signature system with the Treasury for a very few of them; - Some underbudgeted donor-funded projects due to lack of coordination among involved entities; - Others unknown due to absence of a comprehensive inventory of extrabudgetary funds and units. - SIGFiP was developed in French and not translated into Portuguese; it is underutilized. It covers budget preparation, execution, and accounting, but some financial operations are undertaken outside the system, undermining control and reporting. Stages of expenditure recorded in the system do not accurately reflect when these occurred. SIGFiP does not include expenditure ceilings to allow enforcement during budget execution. Short-Term Recommendations - Implement the new budget classification adopted in 2016 to remove the currently unspecified expenditure category. - Finalize the quarterly budget execution reports, make them available to the National Assembly, and publish them on the MEF website. - Undertake a comprehensive inventory of extrabudgetary funds/units/operations, and streamline them. Medium-Term Recommendations - Finalize the state consolidated financial statements for 2017 and 2018, and submit them to the Tribunal de Contas. - Continue improving functionalities of the SIGFiP system, and appropriately record all expenditure phases in the system. *Source: IMF country report content (paragraphs 16–III).* ### 29. The tax system in Guinea-Bissau is characterized by antiquated and inconsistent ### 29. The tax system in Guinea-Bissau is characterized by antiquated and inconsistent ### Overview: systemic weaknesses and objectives - Antiquated and inconsistent legislation, large compliance burden, and pervasive administrative discretion create a nontransparent and costly revenue collection system that promotes tax evasion and inhibits business activity. - Widespread availability of tax exemptions operates alongside numerous fees and charges assessed and collected by many entities, producing duplicated and poorly integrated revenue streams. - Key legal and administrative challenge: develop a modern, rules-based framework with simplicity and clarity to minimize opportunities for discretion. - Overarching tax-policy priorities: horizontal equity and simplification, with emphasis on simplicity given low private-sector literacy and limited administrative capacity. ### Findings: practical manifestations of the weaknesses - Neither taxpayers nor tax administrators have easy access to legislative and interpretation materials; poor communication when taxes change creates confusion between legitimate change and extortion. - Multiple taxes can apply to the same income or goods; some taxes in effect are not collected. - Fees and charges with tax-like effects are assessed by ministries, public entities, or private entities; these often are not properly remitted to the MEF’s Treasury and are frequently not integrated into the government budget. - Discretionary exemptions by ministers and tax administrators create uncertainty, rent-seeking, corruption, tax avoidance, and greater complexity. - Estimates of the fiscal cost of tax exemptions are not available. - Extensive and diverse fees and charges increase collection costs, impose substantial compliance burdens, and decouple expenditure priorities from revenue allocation. - Legal basis for many fees and charges appears questionable or unclear. ### A. Tax exemptions — analysis and recommendations Findings: - Broad exemptions exist for entities (e.g., nongovernmental organizations, religious organizations, magistrates, former combatants) and ministers can authorize discretionary exemptions to individuals or entities. - The 2015 Budget Law amendments to the Imposto Geral sobre Vendas e Serviços (IGV) and the Código de Investimento created important exemptions, reduced the IGV base, added two positive rates to the single rate that previously existed, eliminated the zero rate for exports, and allowed proliferation of tax benefits. Since the 2015 law took effect, exemptions of any type can be granted at the discretion of the Minister of Economy and Finance. Policy recommendations (short- and medium-term): - Short-Term Recommendation: - Repeal the 2015 Budget Law amendments to the IGV and the Investment Code (Código de Investimento), as contemplated in the 2019 budget proposal. - Medium-Term Recommendations: - Rationalize tax exemptions and incentives, and consolidate those that remain in a tax statute, the Investment Code (Código de Investimento), or the General Exemptions Regime (Regime Geral das Isenções). - Promulgate a modernized statute for the General Tax on Sales and Services (Imposto Geral sobre Vendas e Serviços), with a more limited and better-defined set of exemptions. - Legislative changes recommended for the Regime Geral das Isenções (1995): - Prohibit contractual provision of tax exemptions by any government agent except as authorized under the Regime Geral das Isenções or the Código de Investimento. - Establish a more limited list of entities eligible for preferential treatment. - Narrow the range of taxes and activities eligible for exemption. - Require that all authorizations of an exemption be published on the website of the MEF. ### B. Fees and charges — analysis and recommendations Findings: - Numerous fees and charges are assessed and collected by many ministries, agencies, or private entities without a comprehensive listing or consolidated valuation. - Consequences: higher collection costs due to duplication; substantial compliance burden from idiosyncratic rules; and government spending priorities not reflected in revenue allocation. - Most revenues from these fees and charges are retained by the collecting ministry/entity rather than deposited into the central treasury. Medium-Term Recommendation: - Introduce legislation to revoke all existing fees and charges; define the scope, nature, magnitude, and process for imposing any fee or charge. The legislation should include a general revocation clause and require economic memoranda attesting to recovery of cost. Legislative objectives for fees and charges: - Limit scope and nature of fees and charges levied by public bodies. - Restrict number of public bodies that may benefit from earmarked fees and charges. - Subordinate fees and charges to strict principle of recovery of cost. - Prohibit imposition of fees and charges without an economic memorandum attesting to recovery of cost. - Revoke all existing fees and charges (general revocation clause) and manage transition for legally re-establishing fees consistent with the new framework. ### C. Improving fiscal governance to increase tax revenue collection — performance and diagnosis Key statistics (preserve numeric values exactly): - DGCI tax revenue collection: around 4.35 (as a percent of GDP) for the past three years. - DGA tax revenues estimated between the 4.85 and 6.09 (as a percent of GDP). - Total tax revenue: around 10 percent, which is the second-lowest performance among the ECOWAS countries. - ECOWAS average tax revenue-to-GDP rate: 13.5 as a percent of GDP. Findings: - Low revenue collection linked to poor governance at DGCI and DGA: complex and discretionary processes, lack of training, weak IT systems, and low professionalism. - Need to build strong fiscal governance, reduce corruption vulnerabilities, simplify core processes, professionalize public servants, deploy IT solutions, and enforce effective internal controls and sanctions. - Intensifying accountability and fiscal transparency, with internal and external controls, will strengthen tax and customs administration processes. ### D. Reform and modernization of core processes Domestic Tax Collection (DGCI): Findings and progress: - DGCI has made progress: segregation between audit case selection and audit execution adheres to international standards; electronic tax returns reduced contact points; IT network extension increased transparency. Gaps and recommendations: - Large Taxpayer Office monitoring and tax-arrears enforcement need rebuilding, investment, and support; reactive behavior and ineffective monitoring despite technical assistance recommendations. - Tax arrears collection lacks enforcement resources; outdated frameworks and procedures can be modernized. - Multiple specific laws (one per tax) increase complexity; a new General Tax Code and a new Tax Penalties Regime were approved by Parliament last December but were not signed by the President of the Republic. - DGCI not applying income-tax-code rule to publish value due by taxpayer group; tax inspectors establish amounts without uniform criteria, generating conflicts and corruption opportunities. - All audits must follow the national audit plan and the General Director must ensure full compliance. Integrity risk example: - Collecting taxes outside the banking system (e.g., cash payments during cashew harvest) is a vulnerability. In 2019, requiring bank payments and creating an inspection point in Safin yielded tax revenue equivalent to the sum of the past three years; the use of the bank system and the Safin inspection point contributed to that improvement. Customs (DGA): Findings: - Private sector criticizes Customs for bureaucracy and slow clearance. - 2017 executive order simplified import clearance from 24 steps to 9 steps, but unnecessary tasks remain (e.g., paper copies of Cargo Manifestos, legalization of Bill of Lading). - Manual tasks create unnecessary contact points and can be replaced by IT-enabled procedures (Cargo Manifestos canvass, surpluses/shortages, warehouse management). - Goods from non-African countries arrive via Senegal and Gambia due to weak land border controls and lower costs; Customs clearance of land-transported goods should match port procedures. Short-Term Recommendations: - Promulgate the Lei Geral Tributária and the Regime Geral das Infracções Tributárias approved by the National Assembly in 2018. - Implement a simplified customs transit control from the border to Safin and a physical structure for inspection of goods imported via land borders. ### E. Professionalization of human resources Findings: - Absence of a clear top-level message promoting ethical behavior has enabled wrongdoing; higher levels have supported or tolerated nepotism in DGCI. - After a legal hiring procedure started in 2014, the number of public employees at DGCI increased through irregular appointments: 462 employees being paid in January 2018 and 513 in July 2019, but no tender was performed. - DGA is refusing to receive non-regular employees; DGCI should continue to refuse such non-regular employees and the Minister of Economy and Finance should send a clear message of support to DGCI. - Although the law requires public tender for civil service appointments, hiring practices do not follow the law; new employees are selected by influential people and hired through opaque, indefinite transitory arrangements. - Irregular employees are sometimes paid incentives but not salaries to hide illegal hiring; people who do not receive salaries should not receive incentives. - Personnel numbers are sufficient but qualifications are lacking; the last concluded public competition was in 2014, after which successive governments reverted to hiring low-qualified personnel via nepotism and cronyism. Suggested directions: - Reinforce merit-based hiring through public tenders and full compliance with the legal hiring framework. - Strengthen training, professionalization, and oversight to reduce discretionary behavior and corruption risks. - Continue to enforce banking-system tax payments and deployment of IT solutions to reduce contact points and improve transparency. *Source: IMF staff analysis in the provided chapter text.* ### 52. Salaries have not been paid on time, enhancing vulnerability to corruption. Salaries ### 1gnbea2020001 - 52. Salaries have not been paid on time, enhancing vulnerability to corruption. Salaries ### Salaries, human resources, and governance at DGCI - Salaries have been paid one or two months after their due dates since last year. - Less than 20 percent of the DGCI’s employees were hired under a public tender. - There are no career and promotion plans, duties, and rights for DGCI’s employees. - A specific law needs to be developed that specifies the duties, responsibilities, and rights for each position at DGCI. - High turnover among senior staff destabilizes governance; example: three Directors General in less than one year. - Short-Term Recommendations: - Apply a career plan, based on transparent, merit-based hiring and remuneration procedures. ### Senior staff, competencies, and managerial appointments - Senior staff should be hired by technical criteria, be committed to reforms, and serve as agents of change. - Some chiefs at DGCI were hired without application of competencies and skills criteria and have limited capacity to interpret the law, resulting in inconsistency between the legal framework and practice. ### Customs (DGA): fees, payments, and organizational alignment - According to private sector representatives, DGA officials charge for several procedures with no clearly defined legal basis and do not account for these fees. - A previous FAD report clarified that some irregular employees (who do not receive salaries) have been paid in cash directly by Customs brokers for each task performed; the more procedures required, the more payment employees receive. - Compensations and individual payments by task should be replaced by a sufficient and transparent salary, which may have a reasonable incentive component paid by the government to encourage modernization. - All personnel performing customs missions and tasks, including Ministry of Interior officers responsible for customs surveillance and anti-smuggling, should report to the Director General of Customs. - Fiscal Action Brigade (BAF) is part of the National Guard of the Ministry of Interior and is responsible for customs surveillance, border guard, and detection of smuggling; however, a Fiscal Action Brigade is not under the authority of the Director General of Customs. - DGA and Fiscal Action Brigade agents have different statutes, rights, obligations, and administrative powers; the separation results in lack of coordination, duplication, and negative effects on availability and motivation of staff. - A procedure for identifying real needs in terms of BAF personnel and selecting skilled BAF employees is detailed in a previous HQ report. - Short-Term Recommendations: - Unify all controls on goods not submitted to Customs under DGA management. - Review the DGA’s remuneration system to promote the modernization of Customs rather than the status quo or bad practices. ### Training, procedures, and capacity at DGA - There are no training programs through the institution, either for new or old employees; consequently, best practices standards are not being observed. - DGA is not applying modern customs principles; absence of procedure manuals and lack of standardized work procedures hamper reforms implementation, particularly in controls. - Lack of customs training results in lack of standardized procedures and inefficient controls. ### Intensive use of information technology solutions — DGCI - The DGCI’s information technology strategic plan implementation should be prioritized to improve governance arrangements. - DGCI, with FAD/IMF, developed a long-term vision including investments in information technology infrastructure and a roadmap to improve the information technology system. - The information technology strategic plan is a guideline to modernize the information technology system, bringing control over employee actions and offering traceability of procedures; the information technology department needs to follow up with the plan and update it monthly, under the direct and effective supervision of the Director General. - Electronic tax filing is a notable success and should be expanded to include all tax returns. - The information technology system must be able to transfer tax return information automatically to a centralized storage database. - The architecture used for the current withholding tax returns and the income tax return (in Excel spreadsheets) should be extended to other taxes and replace manual data capture. - The government needs to ensure efficient exchange of information between DGCI and DGA, Treasury, and the Social Security Agency; agreements exist but exchange has not started due to challenges in establishing administrative and financial responsibilities. - DGCI needs to develop staff capacity in software development to ensure autonomy: only three of the 13 information technology employees at the information technology department can work in software development. - Between 6 to 10 specialized information technology professionals need to be hired, under a public tender, to develop a modernized information technology system in a sustainable way; the other information technology staff should receive training as well. - Short-Term Recommendations: - Promote the exchange of information between DGCI and DGA, Treasury, and INSS. - DGCI should hire from six to 10 information technology development experts, under a public contest, and should train these staff. ### Intensive use of information technology solutions — DGA - Progress in improving the information technology network has been achieved outside of Bissau, but use is limited due to lack of training. - Customs operations must be fully automated to reduce face-to-face interactions and ensure the integrity of decisions; this requires employee use of computerized systems and elimination of manual routines that duplicate procedures. - The information technology system already allows a simplified procedure to clear and keep electronic records on goods of lower prices—under a small threshold—but an outdated paper book solution remains in place for Customs clearance of those goods. - Migration from the Automated System for Customs Data (ASYCUDA) to ASYCUDA World should be considered; exporters and importers have complained that current processes are obsolete, costly, non-transparent, and slow. ASYCUDA World supports more timely and accurate solutions, especially digitalization. - Short-Term Recommendations: - DGA should ensure the use of the information technology system in all units, eliminating manual procedures. ### Transparency, prevention, and sanctions — DGCI - DGCI plans lack transparency: information on strategic and operational plans, indicators, targets, and results are delivered only to the Minister of Economy and Finance. - A DGCI website was developed in 2015, but its most recent information is from July 2016. - The Internal Audit Directorate is composed of 11 employees who reported constraints, lack of support, and absence of training; specific audit reports were supposed to be delivered to the Director General, but senior staff from audited areas did not receive reports for comments or implementation. - Neither the 2019 internal audit plan nor the execution report from previous years were provided to the mission. - The Internal Audit Directorate’s team does not work closely with the IGF; the team could not provide information on when the latest interaction with the Tribunal de Contas occurred. - Guidelines for integrity are unclear, and the system to detect and punish wrongdoing is rarely applied: no rules for the declaration of assets, no conflict of interest guidelines, and no mandatory reporting of gifts are in place. - A draft of a Code of Ethics is being developed and needs further discussion and approval. - In the past four years, only two cases were opened to investigate and impose penalties on public servants for possible wrongdoing; only one of those cases was concluded. - Short-Term Recommendations: - Both DGCI and DGA should build new websites that include services to taxpayers; services for importers and exporters; accountability mechanisms; and improved transparency through the posting of fees, laws, and judicial decisions. ### Transparency, prevention, and sanctions — DGA - DGA strategic plan developed for 2014 to 2017 was extended to 2020 but was sent only to the Ministry of Finance; there is no formal approval by the Minister, who is only notified. - DGA does not have a website to provide information to civil society, the media, and others who perform oversight. - The Internal Audit Directorate reportedly lacks knowledge, material conditions, and support; a new team composed of technicians did not receive training. - The 2019 internal audit plan was not delivered to the mission. - The Internal Audit Directorate’s team does not work closely with the IGF. The Tribunal de Contas is only interested in the financial aspects of Customs administration; last visit from the Tribunal de Contas was in 2015 and examined records of Customs operations in 2011 and 2012. - No Code of Ethics is in place, but an Ethics Code is being developed. - In the past six years, 11 cases were opened to investigate and apply penalties on public servants for possible wrongdoing; all of them were confirmed. Two cases were sent to the Public Prosecutor’s Office to initiate criminal proceedings. ### Legal and regulatory framework — courts, transparency, and property rights - Court costs are described as prohibitive and limit access to justice; they are charged in proportion to the value of the dispute. - Court processing is manual, which can result in misplaced files and delays. - A commercial court of first instance was introduced in 2010; three magistrates allocated here and one at the appeals level. With OHADA procedural rules, processing of commercial cases reportedly improved, but delays persist. - Publication and dissemination of laws, orders, and judicial decisions are inadequate: laws and decisions are not routinely published either in hard copy or online; laws are published in the Official Gazette once a year, and sometimes more often as Ministry supplements (costs borne by issuing Ministry). - Market participants and public servants often do not know the applicable law or interpretation of applicable provisions. - Court decisions are not widely disseminated and there is no accessible database of laws and decisions. - Registration of property rights is limited: a property cannot be transferred or used as collateral if not registered; very few people are aware of registration requirements, resulting in a non-registration ratio of about 90 percent. - Registration fees are prohibitive and highly discretionary; fees of up to 50 percent of value were reported. - The registry is manual (books); digitization of the land registry with electronic registration and fee reduction to marginal cost is a priority. - Short-Term Recommendations: - Revise legislation to set court fees at a level that allows effective access to justice. - Ensure that fees are transparently posted in courts, with notaries, and at the Land Registry. - Publish laws as they are adopted and disseminate key elements online. - Publish final judicial decisions online. - Establish websites for government entities and for courts, with up-to-date information. - Publish information on each court website on the number of staff, number of vacant positions, and number of cases (corruption AML/CFT cases; insolvency cases; foreclosure cases; land cases for 2016, 2017, and 2018 and onward. Specify how many are pending, and how many are closed). - Ensure that property registration fees are uniform, accessible, and public. - Medium-Term Recommendations: - Digitize the property registry, and ensure national coverage. ### Anti-corruption and anti-money laundering — corruption risks - Widespread governance vulnerabilities, particularly in the fiscal area, create significant vulnerabilities to embezzlement of state resources, abuse of office, and tax evasion facilitated by corrupt officials. - Discretion in levying numerous and non-transparent fees (for example, exporting cashews requires the payment of more than a dozen fees) and in granting tax exemptions is vulnerable to abuse of office and bribery. - Corruption is widespread in the provision of basic public services, most critically in the administration of justice. - Guinea-Bissau suffers from environmental crimes, such as illegal fishing, logging, and cashew harvesting; criminals seek to corrupt officials in relevant control bodies, such as Customs. - Weaknesses in preventive and repressive corruption controls are unable to limit corruption stemming from these governance vulnerabilities and crimes. *Source: 1gnbea2020001 - 52. Salaries have not been paid on time, enhancing vulnerability to corruption. Salaries* ### 75. Foreign drug trafficking activity also poses significant corruption risks in Guinea- ### Foreign drug trafficking activity also poses significant corruption risks in Guinea-Bissau ### Corruption risks and drug trafficking - Location in West Africa; weaknesses in the border controls, including in the port of Bissau; and 87 mostly uninhabited coastal islands make Guinea-Bissau attractive as a transit hub for cocaine trafficking from South America to Europe. - Details of foreign prosecutions suggest traffickers seek assistance of the country’s officials. - Recent seizures indicate substantial amounts crossing Guinea-Bissau: - On March 9, 2019, the government of Guinea-Bissau seized 789 kg of cocaine. - On September 2, 2019, the government seized 1,947 kg of cocaine. - High-level officials pleaded guilty in the US courts to conspiring to import drugs into the US in 2014 and 2016. ### Anti-corruption legal and institutional framework - Existing legislative elements: Criminal Code, Criminal Procedure Code, Uniform Law on Money-Laundering (adopted in 2018), and Law 14/97 on Political Functions. - Criminal investigations of corruption: led by the Prosecutor’s Office and largely conducted by the Judicial Police; corruption cases adjudicated by courts of general jurisdiction. - Supreme Anti-Corruption Inspectorate: tasked with receiving asset declarations from high-level officials, but it is not operational. - National Financial Intelligence Processing Unit (CENTIF): coordinates anti-money-laundering activities and gathers, analyzes, and disseminates financial intelligence. ### Selected gaps in the criminalization of corruption offenses (Box 3) - Unlike the promise or giving of a bribe, the offering of a bribe is not criminalized. - For the indirect giving of a bribe, it needs to be proven that the official gave the approval and was aware of the benefit given. - For the indirect receiving of the bribe, it needs to be proven that the official was aware of the specific actions of his intermediary; the official is not punished when, prior to committing the act, he or she voluntarily repudiates the promise or returns the goods. - Both the Criminal Code and the Criminal Procedure Code use the term “public official” in corruption offenses, but it is not defined. - Abuse of functions is criminalized only if committed by holders of “political functions,” and abuse of functions by any other public official is not criminalized. - Giving a bribe to foreign public officials and officials of public international organizations is not criminalized. ### Obstruction of justice, witness and whistleblower protection - Threats against judges are criminalized only when made by persons vested with political, public, military, or police authority; recommendation to broaden to include threats made by any person. - Recommend criminalizing use of intimidation to interfere with the exercise of official duties of judges or law enforcement officials. - Recommend criminalizing obstruction of the giving of testimony or production of evidence. - Guinea-Bissau should develop measures to protect witnesses, whistleblowers, and offenders who cooperate with the authorities. ### Preventive measures and conflicts of interest - Authorities have a general understanding of corruption risks but lack a comprehensive national anti-corruption strategy. - Need to develop a comprehensive framework for the prevention of conflicts of interest, prioritizing high-risk areas such as granting of tax exemptions by the exemptions committee. - Codes of conduct for integrity, including for members of the judiciary and prosecution, should be developed. - Transparency measures in preceding sections should become part of the preventive system. ### Asset declaration framework - Supreme Anti-Corruption Inspectorate authorized to receive asset declarations but lacks resources and enforcement powers. - Asset declaration regime should be reformed to: - Cover all politically exposed persons (PEPs), as defined by the Financial Action Task Force standards, and assets owned beneficially and abroad. - Be reinforced by online publication of declarations. - Allow imposition of effective and dissuasive sanctions for failure of submission or submission of false declarations. ### Implementation and enforcement: Judicial Police and Prosecutor’s Office - Judicial Police: - Anti-corruption is one of three main priorities (with drug trafficking and organized crime). - Specialized anti-corruption brigade composed of 10 investigators; intends to expand to around 40 investigators as a more specialized independent unit. - Faces severe resource constraints: no permanent premises or budget for operational activity. - To receive financing for specific operations, Judicial Police and Prosecutor’s Office must disclose operation details to the Ministry of Finance, negatively impacting operational independence. - Prosecutor’s Office: - Comprises 87 prosecutors, all of whom can conduct investigations; in most cases prosecutors take on Judicial Police investigations. - Number of corruption cases prosecuted is low and may indicate insufficient follow-up. - Need to strengthen operational cooperation between Judicial Police and Prosecutor’s Office and ensure timely follow-up. - Recommend developing prosecutorial guidelines covering: timeline for consideration of law enforcement’s authorization requests to prosecutors; grounds for taking on a case; amount of evidence required to prosecute; follow-up on financial intelligence reports from CENTIF; feedback on case status. ### Sanctions, confiscation, and asset recovery - Sanctions applied in corruption cases do not seem dissuasive: - Rare sentences usually do not lead to imprisonment; acquittals on health grounds have occurred. - Conditional release (parole) is possible and granting does not take into account gravity of the offense. - Disciplinary Statute exists but is rarely used to address corruption concerns. - Procedures for dismissal, suspension, and disqualification of public officials convicted of corruption should be developed. - Confiscations of proceeds of corruption have not been achieved: - Reasons: low number of convictions; low rate of application of provisional measures; insufficient capacity for financial investigations; negligible amount of financial intelligence available for corruption investigations. - Legal framework limits confiscation: allows confiscation of property and instrumentalities used for corruption only in certain circumstances; does not allow confiscation of proceeds intermingled with legitimately acquired property. - Asset recovery should become a policy objective in a comprehensive anti-corruption strategy. ### Anti-Money Laundering (AML/CFT) - Authorities consider risk of laundering proceeds of corruption to be high; indicate significant share of domestic corruption proceeds laundered abroad, including in Portugal and other Western European countries. - Main money laundering methods mentioned: purchase of real estate, deposits of cash in banks, trade-based money laundering using cashew exports. - Preventive measures regarding PEPs face challenges: - Extensive shadow economy and widespread cash use hinder banks’ PEP-related preventive measures. - Enhanced due diligence (source of wealth and source of funds checks) impeded by inability to distinguish legitimate proceeds from proceeds of corruption. - Level of reporting by banks is low. - AML/CFT legislation amended in 2018 does not require preventive measures regarding PEPs to apply to family members and close associates of domestic PEPs. - Financial institutions are not required to consider a person a PEP until he or she has held a significant public office for at least one year. - Preventive measures regarding PEPs are virtually absent in non-bank sectors such as non-bank financial institutions and real estate agents. - CENTIF and financial intelligence use: - Number of suspicious transaction reports received has increased in recent years but is still low, particularly regarding PEPs, and submitted only by banks, mostly by subsidiaries of international banks. - CENTIF has disseminated reports to the Prosecutor’s Office, which were not used for investigations. - CENTIF has strengthened its capacity to collect and analyze reports and seeks membership in the Egmont Group of Financial Intelligence Units. - Supervision: - Banking Commission of BCEAO is in charge of AML/CFT supervision of banks in Guinea-Bissau. - Thematic AML/CFT on-site inspections of banks are rare; some on-site inspections have an AML/CFT component. - AML/CFT supervision of designated non-financial businesses and professions (DNFBP) and non-bank financial institutions has not started; it is in domestic authorities’ remit. - Legal entities and beneficial ownership: - Center for Formalization of Enterprises holds a company register collecting legal ownership information, but no requirement to report beneficial ownership information. - Legal ownership information available to law enforcement on request; banks show low cooperation. - Ambiguous legal requirement to identify beneficial owner “where appropriate,” not in line with international standards. - No legal requirement for financial institutions to understand nature of ownership and control structure of customers’ legal persons. ### Short-term recommendations - Reform the asset declaration regime, which should: - (1) cover all PEPs, as defined by the Financial Action Task Force standards and their family members; - (2) cover assets owned beneficially and abroad; - (3) be publicly available online; - (4) allow the imposition of dissuasive sanctions for failure of submission or submission of false declaration. - Grant necessary resources, including a sufficient budget for operations, to law enforcement agencies, notably, the Judicial Police. - Strengthen the budgetary autonomy of the Judicial Police and the Prosecutor’s Office. - Develop prosecutorial guidelines to ensure that the prosecutors’ discretionary powers are exercised to maximize the effectiveness of law enforcement. - Design a comprehensive national anti-corruption strategy to address corruption risks in Guinea-Bissau. ### Medium-term recommendations - Safeguard the operational independence of investigative, prosecutorial bodies, and courts from political interference and undue influence in investigation, prosecution, and adjudication of corruption and laundering of its proceeds. - Create a national system of crime statistics. - Address gaps in criminal legislation in line with the recommendations of United Nations Convention against Corruption review, notably, on the criminalization of corruption offenses. - Encourage and monitor efforts of the Banking Commission of the BCEAO to strengthen supervision of Bissau-Guinean banks’ compliance with their AML/CFT obligations, including those that are PEP-related. - Supervise compliance of non-bank financial institutions and DNFBPs with their AML/CFT obligations, including those that are PEP-related. - Support CENTIF’s efforts to join the Egmont Group of Financial Intelligence Units. - Establish witness and whistleblower protection measures. *Source: IMF staff report content (excerpts).* ### 93. The 2019 World Bank Doing Business Report places Guinea-Bissau at 158 and 175 of ### 1gnbea2020001 - 93. The 2019 World Bank Doing Business Report places Guinea-Bissau at 158 and 175 of ### Business environment rankings and implications - The 2019 World Bank Doing Business Report places Guinea-Bissau at 158 and 175 of 190 economies for ease of starting a business and ease of doing business, respectively. - These results indicate that much more needs to be done to improve the business environment to foster private sector development. ### One-stop shop for company registration (CFE) - The one-stop shop for registering companies (CFE) was created in 2011. - Before the creation of the CFE in 2011, it took 200 days to register a company; now it reportedly takes one day. - The CFE has representatives on site from all relevant ministries and agencies (including the Ministry of Finance, Commerce, Immigration, Tourism, Industry, and the local council). - The CFE keeps a portion of the fees to cover its costs; the rest goes to the relevant entities. - The tax numbers are integrated with the DGCI database. - The risk of bribery is minimized by having fee charts posted online. - Current limitations and planned improvements: - The company registry is not fully electronic and is not easily accessible. - The authorities plan to digitize the registry to provide easier access by government agencies and the public. - Improved access will allow better cross-checking by law enforcement and tax authorities, as well as by civil society organizations, to monitor possible conflicts of interest and corruption vulnerabilities. - Ultimately, this database can be integrated with other national databases, as well as with the regional OHADA database. - As detailed in the section on AML/CFT, efforts should be made to incorporate beneficial ownership information. - The CFE can provide services online after digitization and integration. ### Regulatory opacity, administrative discretion, and sector-specific suggestions - The opaque and discretionary regulatory environment discourages entrepreneurial activity and virtually precludes any significant private sector development. - Much of the labor force is employed in the public sector or the informal economy. - Running a business is complicated by the lack of clear information—both for business people and public officials. - Different officials often require different documentation and different fees that are not transparently levied. - Recommended simplifications and tools: - Simplify the fee-charging regime. - Develop tools to clearly explain to the market the regulatory requirements for all major commercial activities (for example, cashew export, fishing licensing, selling rice, and eventually, mining and tourism). - Maintain a public repository of legal instruments in force to ensure a level playing field, recognizing that laws may be written in a language that is not accessible to all stakeholders. - Transform the cashew export counter into a one-stop shop to facilitate the issuance of export licenses, streamline required steps, and add transparency to required fees; such an export counter could be extended to other basic goods. ### Short-Term and Medium-Term Recommendations - Short-Term Recommendations - Post all legislation, decrees, and regulations online. - Develop plain language guides describing tax, licensing, and other regulatory obligations. - Publish organizational charts for each public entity charging fees in relevant entities and online. - Ensure that fees are transparently posted in relevant entities and online. - Digitize the records of CFE in a searchable, public database. - Integrate the CFE database with OHADA. - Provide CFE services online. - Medium-Term Recommendations - Establish a one-stop shop for cashew exports. ### Selected recommendations from Appendix I — DGCI and DGA (areas, specific actions, and timeframes) - DGCI — Core processes - Implementation of the large taxpayers monitoring strategy supported by IMF — January 2018; April 2018; January 2019; May 2019 — 9 months - Promulgation of the new General Tax Code and the new Tax Penalties Regime — April 2018 (TP report) — 9 months - Implementation of the income tax rule, which determines prefixing the due amount for Group B taxpayers by DGCI — August 2018; January 2019 — 9 months - Implementation of a banking system as the main way of collecting tax revenue — June 2019 (Staff visit) — 2 years - DGCI — Human resources and IT - Create and apply a career plan, with requirements that honor meritocracy and schooling, based on transparent, merit-based hiring and remuneration procedures — January 2018 — 9 months - Review payment of benefits only to people in the career plan — January 2018 — 2 years - Refuse, with Ministerial support, to hire non-regular employees — January 2018 — immediate - Establish in the law a criminal penalty for the inclusion, consent, or maintenance of irregular or ghost employees — - — 1 year - Require a university degree and specified knowledge for appointment as director of service — - — 9 months - Follow the information technology strategic planning — January 2016; January 2018; January 2019 — immediate - Extend the electronic tax returns for all taxes under its administration — January 2018 — 2 years - Promote the exchange of information among DGCI and DGA, Treasury, and Social Security Agency — January 2018; January 2019 — 6 months - Launch a public contest to hire from 6 to 10 information technology development experts — January 2019; April 2019 — 9 months - Require DGCI to support the internal audit team — Immediate - Promote capacity building — January 2019 — 1 year - Update the website, including services to the taxpayers — 9 months - DGA — Core processes and IT - Apply the reviewed procedure approved in 2017 — September 2018 — 2 years - Implement a structure for physical verification in Safin — September 2018 — 6 months - Deploy a simplified custom transit control from the border to Safin — September 2018 — 6 months - Review the remuneration system to promote the modernization of Customs — September 2018 — 6 months - Unify all controls on goods not submitted to Customs under DGA management — September 2018 — 9 months - Promote capacity building for technicians working in core processes with information technology supported tools — September 2018 — 1 year - Migrate to ASYCUDA World — September 2018 — 2 years - Require DGA to support the internal audit team — September 2018 — immediate - Update the website, including services to the economic operators — September 2018 — 9 months *Source: IMF country report content (1gnbea2020001).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1gnbea2020001.pdf_