## 1gnbea2021001

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### Executive summary and request
- Request: assistance under the Rapid Credit Facility (RCF) for SDR 14.2 million (50 percent of quota), to be provided as budget support in 2021.
- Purpose: help Guinea-Bissau meet urgent balance of payments and fiscal needs stemming from the COVID-19 pandemic, support increased health spending, strengthen social protection, and underpin recovery of the cashew sector and damaged infrastructure.
- Coverage of gaps in 2021:
  - RCF proposed access would cover 25 percent of the estimated BOP gap in 2021.
  - RCF proposed access would cover 27 percent of the estimated fiscal gap in 2021.
- Authorities’ commitment:
  - Transition to a Staff-Monitored Program (SMP) and then an Extended Credit Facility (ECF) arrangement.
  - Reinforce fiscal governance and transparency: publish bi-monthly reports on pandemic-related expenditures and public procurement; undertake an independent ex-post audit of crisis-mitigation spending.

### Macroeconomic impact of COVID-19 and outlook
- Growth and prices:
  - Real GDP growth: 4.5 percent in 2019; projected -2.4 percent in 2020; projected 3.0 percent in 2021; 4.0 percent in 2022; 5.0 percent 2023–2025.
  - Consumer price index (annual average): 0.3 percent in 2019; projected 1.5 percent in 2020; 2.0 percent in 2021–2025.
- External sector and BOP:
  - Staff estimates deterioration in overall balance of payments by about 8.3 percentage points of GDP in 2020 relative to pre-shock projection (after excluding additional financing).
  - Trade deficit: projected -104.1 (CFAF billion) or -11.7 percent of GDP pre-shock; -146.1 (CFAF billion) or -17.7 percent of GDP after shock (2020).
  - Current account deficit: examples include -40.4 (CFAF billion) -4.5 percent of GDP (pre-shock 2020); -90.7 (CFAF billion) -11.0 percent of GDP (after shock 2020).
  - Financing gap (2020): CFAF 61.4 billion (7.5 percent of GDP).
- 2021 needs and gaps:
  - Staff estimates external financing gap about 5.0 percent of GDP; fiscal financing gap about 4.5 percent of GDP in 2021.
  - Urgent BOP need in 2021: CFAF 44.1 billion (5 percent of GDP).
- Cashew sector (Text Table 1 memorandum):
  - Cashew nut export prices listed: 1098, 1140, 1000, 1180, 1100, 1221, 1155 (US$ per ton) across periods shown.
  - Cashew export volume (thousands of tons): 196, 208, 140, 214, 189, 221, 202 (across periods shown).

### Fiscal response, financing needs, and strategy
- Authorities’ estimated COVID-related needs:
  - CFAF 43.1 billion (5.2 percent of GDP) for 2020 for the health sector, assistance to vulnerable households, and underpinning economic recovery.
  - CFAF 13.8 billion (1.6 percent of GDP) for 2021 for similar purposes.
- 2020 fiscal implications:
  - Cash fiscal deficit projected to widen to 11.1 percent of GDP (from 5.4 percent pre-pandemic).
  - Tax revenues expected to drop to 8.1 percent of GDP (from 9.7 percent projected in January 2020).
  - COVID-19-related current expenditures estimated at 0.8 percent of GDP; COVID-19 capital expenditures estimated at 2.6 percent of GDP.
  - On-lending to support the cashew campaign increased financing needs by 1.8 percent of GDP.
- 2021 fiscal consolidation plan:
  - Fiscal cash deficit projected to fall to 7.6 percent of GDP in 2021.
  - Tax revenues expected to increase to 9.8 percent of GDP in 2021.
  - Joint fiscal consolidation measures yield CFAF 19.0 billion (2.2 percent of GDP) including revenue measures CFAF 5.0 billion (0.6 percent of GDP) and expenditure measures CFAF 14.0 billion (1.6 percent of GDP).
  - Financing gap 2021: about 4.5 percent of GDP; IMF reengagement could catalyze donor support and reduce reliance on non-concessional regional bank lending.
- Financing strategy:
  - RCF disbursement intended to help close financing gaps; other multilateral organizations and bilateral donors expected to step in.
  - RCF will reduce need for expensive regional financing; authorities may resort partly to regional market non-concessional borrowing absent sufficient donor support.

### Policy response, governance, and transparency measures
- Immediate policy actions:
  - Increased health spending and strengthened social protection for the most vulnerable.
  - Support measures for the cashew sector.
- Governance and transparency commitments linked to RCF:
  - Publish bi-monthly reports on pandemic-related expenditures.
  - Publish information on public procurement contracts, including awarded companies and beneficial owners.
  - Undertake an independent ex-post audit of crisis-mitigation spending; audit to be published within 9 months after fiscal year-end.
  - COVID-19 funds to be managed using a dedicated account at the BCEAO to facilitate traceability and accountability.
  - Emergency decree to allow for a streamlined but transparent procurement process.
  - Earmarking procedures and transparent beneficiary selection criteria for in-kind and cash transfers.
- Prior action toward IMF financing:
  - Adoption of the Ministerial Order approving the Imposto Geral sobre Vendas (IGV)’s Electronic Tax Return effective as of January 2021.

### Risks, downside scenarios, and contingency measures
- Key downside risks:
  - Pandemic persists longer than baseline (baseline assumes pandemic subsides by mid-2021).
  - Weaker-than-projected recovery of international cashew nut prices.
  - Regional spillovers causing shortages and price increases for basic goods and restricted movement of seasonal workers.
  - Domestic risks: financial stress in state-owned enterprises; banking fragilities from high NPLs and undercapitalization.
  - Social risks: increased unemployment and poverty, potential for social tensions and renewed political instability.
- Contingency measures if donor support falls short:
  - Further rationalize non-essential expenditure and delay non-urgent capital spending.
  - Implement additional actions to protect lives and livelihoods while preserving macroeconomic stability.

### Debt sustainability assessment (DSA) and projections
- Current assessment:
  - Risk of external debt distress: High (downgrade from Moderate in May 2018 DSA).
  - Overall risk of debt distress: High.
- Debt levels and trajectory:
  - Stock of public and publicly guaranteed debt (percent of GDP): 66.9 (2019), 78.4 (2020), 78.4 (2021), 76.7 (2022), 74.3 (2023), 71.9 (2024), 69.6 (2025).
  - External debt (percent of GDP): 25.3 (2019), 27.1 (2020), 27.9 (2021), 26.1 (2022), 24.2 (2023), 22.7 (2024), 21.4 (2025).
  - PV of public debt-to-GDP ratio (selected): 55.0; 65.7; 65.9; 65.2; 63.9; 62.2; 60.6; 53.5; 44.2 (series reported).
- Baseline outlook under staff scenario:
  - Total public debt projected at end-2020: 78.4 percent of GDP.
  - Projected total public debt by 2025 under staff’s baseline scenario: 69.6 percent of GDP (below 70 percent WAEMU convergence criterion by 2025), contingent on successful policy implementation.
- DSA stress tests and vulnerabilities:
  - Contingent liability shock used: 5 percent of GDP (capturing recapitalization needs of a systemic bank, EAGB losses, and larger domestic arrears).
  - Under combined contingent liability shock PV debt-to-GDP reaches 75 percent in 2021; debt service-to-revenue ratio rises to 85 percent in 2026.
- Policy implications from DSA:
  - Implement an average 1.6 percentage points of GDP adjustment in the primary fiscal balance over the next three years.
  - Reprioritize toward concessional external project financing and constrain new non-concessional loan contracting.
  - Strengthen investment planning and execution; seek debt reprofiling and lower interest rates; leverage donor re-engagement including DSSI.

### Financial sector, BCEAO measures, and bank vulnerabilities
- BCEAO regional measures:
  - Adopted full allotment strategy at a fixed rate of 2.5 percent (minimum monetary policy rate); Monetary Policy Committee cut corridor by 50 basis points to 4 and 2 percent.
  - Extended collateral framework to include bank loans to prequalified 1,700 private companies for central bank refinancing.
  - Framework to allow banks and microfinance institutions to postpone for a 3-month renewable period up to end-2020 debt service for COVID-19-affected customers without classifying postponed claims as non-performing.
  - Launched a special 3-month refinancing window for limited amounts of 3-month “COVID-19 T-Bills.”
- Guinea-Bissau specific operations:
  - Issued CFAF 15.5 billion (also cited as CFAF 15 billion in other sections) in COVID-19 T-bills at an average effective rate of 3 percent; proceeds were on-lent by domestic commercial banks to the cashew nut sector.
  - In August, repayment partially financed through a second BCEAO refinancing window (CFAF 10 billion, three-month maturity); in November refinanced with longer maturities.
- Banking sector vulnerabilities:
  - Low sector capitalization and high NPLs despite provisions; a systemically important bank remains undercapitalized despite a government recapitalization in December 2019.
  - Gross NPLs to total loans: 25.4 (2019); 20.3 (2020 June).
  - Liquid assets to total assets: 18.9 (2019); 21.6 (2020 June).
- Staff recommendation:
  - Authorities should work closely with the regional supervisor on a plan to restore the undercapitalized bank’s soundness and viability at the least possible cost to the treasury.

### Capacity to repay the Fund and IMF access
- Authorities request: SDR 14.2 million (50 percent of quota) under the RCF exogenous shock window.
- Qualifying rationale: large financing gaps causing immediate and significant economic disruption and urgent BOP need.
- Use and sequencing:
  - RCF proposed total access of 50 percent of quota is about 25 percent of the estimated BOP financing gap in 2021.
  - RCF to be disbursed to Guinea-Bissau’s Treasury account at the BCEAO and on-lent to the government for pandemic-related spending.
  - Remaining needs expected to be filled partly by donors; further policy adjustment required if donor support falls short.
- Capacity to repay:
  - With proposed RCF, outstanding PRGT credit would reach 116 percent of quota in 2021 and projected to decline thereafter.
  - Total PRGT disbursements over a twelve month-period would reach 50 percent of quota, within normal access limits.
  - Guinea-Bissau has a strong track record in meeting obligations to the Fund; servicing risks mitigated by low external indebtedness and availability of concessional financing.

### Key quantitative indicators (selected exact figures preserved)
- SDR 14.2 million (50 percent of quota) — RCF request.
- Equivalent cited: about US$20.47 million (also cited as about US$19.5 million in a section).
- Poverty: about 67 percent below US$1.90 per day.
- GDP growth: 4.5 percent in 2019; projected -2.4 percent in 2020.
- Fiscal and BOP gaps 2020: fiscal gap 8.8 percent of GDP; BOP gap 7.5 percent of GDP (CFAF 61.4 billion).
- Projected 2021 gaps: external financing gap about 5.0 percent of GDP; fiscal financing gap about 4.5 percent of GDP.
- Authorities’ COVID-related spending needs: CFAF 43.1 billion (5.2 percent of GDP) for 2020; CFAF 13.8 billion (1.6 percent of GDP) for 2021.
- BOP urgent need in 2021: CFAF 44.1 billion (5 percent of GDP).
- Cashew export prices (2017–25 series in one table): 1,950; 1,648; 1,098; 1,000; 1,100; 1,155; 1,213; 1,267; 1,324 (US$ per ton).
- Cashew export quantity (thousands of tons, 2017–25 series): 166, 149, 196, 140, 189, 202, 216, 223, 230.
- Consolidated operations (CFAF billions, selected): Revenue and grants 127.0 (2018), 130.1 (2019), 141.4 (2020), 159.3 (2021 proj.); Expenditure 168.1 (2018), 163.2 (2019), 215.5 (2020), 204.3 (2021 proj.); Overall balance including grants -41.1 (2018), -33.1 (2019), -74.1 (2020), -44.9 (2021 proj.).
- Public sector debt (percent of GDP): 59.2 (2018), 66.9 (2019), 78.4 (2020), 78.4 (2021), 76.7 (2022), 74.3 (2023), 71.9 (2024), 69.6 (2025).
- Outstanding Fund credit (SDR millions, selected): 32.80 (2021), 30.50 (2022), 26.69 (2023), 22.57 (2024), 19.16 (2025), 14.90 (2026), 10.24 (2027), 7.10 (2028), 4.26 (2029), 1.42 (2030), 0.00 (2031).

### Staff support and recommendations
- Staff supports the authorities’ request for a disbursement under the RCF in the amount of SDR 14.2 million (50 percent of quota) based on urgent BOP need and authorities’ policy commitments.
- Staff recommends:
  - Prioritize health spending and social protection; mobilize additional grants and concessional loans.
  - Implement fiscal consolidation once the crisis recedes to achieve fiscal deficit of 3 percent of GDP and debt below 70 percent of GDP over the medium-term.
  - Strengthen revenue mobilization, rationalize the wage bill, reduce transfers to SOEs, and improve debt maturity profile.
  - Maintain robust governance measures: dedicated BCEAO account for COVID-19 expenditures; publish bimonthly expense reports and procurement contracts with beneficial ownership; subject COVID-19 expenditures to an ex-post independent audit.
  - Work with regional supervisor to restore banking sector soundness and limit contingent liabilities.

*Source: 1gnbea2021001 (IMF staff report excerpt).*

### 14.2 million (about US$20.47 million, or 50 percent of quota) to help Guinea-Bissau meet

### GUINEA-BISSAU — REQUEST FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY

### Executive summary and request
- Request: assistance under the Rapid Credit Facility (RCF) for SDR 14.2 million (50 percent of quota), to be provided as budget support in 2021.
- Purpose: help Guinea-Bissau meet urgent balance of payments and fiscal needs stemming from the COVID-19 pandemic, support increased health spending, strengthen social protection, and underpin recovery of the cashew sector and damaged infrastructure.
- Proposed coverage of gaps in 2021:
  - RCF proposed access would cover 25 percent of the estimated BOP gap in 2021.
  - RCF proposed access would cover 27 percent of the estimated fiscal gap in 2021.
- Authorities’ commitment: transition to a Staff-Monitored Program (SMP) and then an Extended Credit Facility (ECF) arrangement; reinforce fiscal governance and transparency; publish bi-monthly reports on pandemic-related expenditures and public procurement; undertake an independent ex-post audit of crisis-mitigation spending.

### Context and structural vulnerabilities
- Fragility: Guinea-Bissau is described as a fragile state with a long history of political instability.
- Poverty: about 67 percent of the population living below the poverty line of US$1.90 per day.
- Economic structure: heavy reliance on production and exports of unprocessed cashew nuts; agriculture employs 70 percent of the labor force.
- Non-economic challenges: high levels of corruption, weaknesses in rule of law, judicial system, law enforcement, and presence of transnational organized crime including drug trafficking.
- Pre-pandemic projections (as of January 2020): projected recovery supported by cashew campaign; public debt projected to peak in 2020 and stabilize at about 71.5 percent of GDP before gradual decline.

### Macroeconomic impact of COVID-19 and outlook
- GDP growth:
  - Negative growth of 2.4 percent is expected in 2020 (compared to 4.5 percent expansion in 2019).
  - Text Table 1: "GDP is projected to contract by 2.4 percent in 2020, compared to 4.9 percent growth in the pre-shock scenario."
- Inflation and prices:
  - Average price inflation is projected to accelerate to 1.5 percent in 2020 from 0.3 percent in 2019.
- External sector and balance of payments (BOP):
  - In 2020, staff estimates a deterioration in the overall balance of payments position by about 8.3 percentage points of GDP relative to the pre-shock projection (after excluding additional financing in response to the pandemic).
  - Trade deficit is expected to widen to 17.7 percent of GDP in 2020 driven by a 22 percent decline in cashew nut exports.
  - Current account deficit expected to widen to 11 percent of GDP in 2020.
  - A financing gap estimated at CFAF 61.4 billion (7.5 percent of GDP) in 2020, expected to be covered by grants and loans from IFIs and additional financing from regional commercial banks.
- 2021 projected needs and gaps:
  - Staff estimates the external and fiscal financing gaps at about 5.0 and 4.5 percent of GDP respectively in 2021.
  - An urgent BOP need of CFAF 44.1 billion, 5 percent of GDP, is expected to remain in 2021.
  - Effects expected to persist in 2021 due to need to sustain imports for essential consumption (food and medicines) and for capital and intermediate goods to recover health sector capacities and infrastructure affected by flooding.

### Fiscal response and financing needs
- Authorities’ estimated needs:
  - CFAF 43.1 billion (5.2 percent of GDP) for 2020 for the health sector, assistance to vulnerable households, and underpinning economic recovery.
  - CFAF 13.8 billion (1.6 percent of GDP) for 2021 for similar purposes.
- Financing strategy:
  - RCF disbursement intended to help close financing gaps; other multilateral organizations and bilateral donors expected to step in.
  - RCF will reduce need for expensive regional financing.
  - Authorities expect to resort partly to regional market non-concessional borrowing absent sufficient donor support.
- Fiscal targets and medium-term commitments:
  - Authorities committed to gradually bring the fiscal deficit and debt ratio within the WAEMU convergence criteria: fiscal deficit of 3 percent and debt ratio below 70 of GDP over the medium-term.

### Policy response and governance measures
- Immediate policy actions taken by authorities:
  - Increased health spending.
  - Strengthened social protection measures for the most vulnerable.
  - Support measures for the cashew sector.
- Regional central bank actions:
  - The Central Bank of West African States (BCEAO) has taken preemptive steps to better satisfy banks’ demand for liquidity and mitigate the pandemic’s negative impact on economic activity.
- Governance and transparency commitments linked to RCF:
  - Publish bi-monthly reports on pandemic-related expenditures.
  - Publish information on public procurement contracts.
  - Undertake an independent ex-post audit of crisis-mitigation spending.
- Medium-term policy posture:
  - Given limited fiscal space and debt vulnerabilities, emergency assistance should be mostly grants and highly concessional loans.
  - As the pandemic eases, authorities committed to a fiscal consolidation program to ensure debt sustainability while addressing developmental needs.

### Risks and downside scenarios
- Key downside risks highlighted:
  - Pandemic persists longer than baseline (baseline assumes pandemic subsides by mid-2021); a deeper or more prolonged outbreak would severely impact the economic outlook.
  - Weaker than projected recovery of international cashew nut prices.
  - Spillovers from regional pandemic containment measures causing shortages and price increases for basic goods and restricted movement of seasonal workers.
  - Domestic risks: financial stress in state-owned enterprises; banking fragilities from high NPLs and undercapitalization leading to contingent liabilities and added fiscal pressures.
  - Social risks: increased unemployment and poverty, potential for social tensions and renewed political instability.
- Contingency measures in adverse scenario:
  - Further rationalize non-essential expenditure and delay non-urgent capital spending if donor support does not materialize.
  - Authorities committed to implement additional actions to protect lives and livelihoods while preserving macroeconomic stability if downside risks materialize.

### Key quantitative indicators (selected exact figures from the text)
- SDR 14.2 million (50 percent of quota) — RCF request.
- About US$20.47 million — equivalent cited for SDR 14.2 million.
- Poverty: about 67 percent below US$1.90 per day.
- GDP growth: 4.5 percent in 2019; projected -2.4 percent in 2020.
- Fiscal and BOP gaps 2020: fiscal gap 8.8 percent of GDP; BOP gap 7.5 percent of GDP (CFAF 61.4 billion).
- Projected 2021 gaps: external financing gap about 5.0 percent of GDP; fiscal financing gap about 4.5 percent of GDP.
- Authorities’ estimated COVID-related spending needs: CFAF 43.1 billion (5.2 percent of GDP) for 2020; CFAF 13.8 billion (1.6 percent of GDP) for 2021.
- BOP urgent need in 2021: CFAF 44.1 billion (5 percent of GDP).
- Cashew export price and volumes (Text Table 1 memorandum):
  - Cashew nut export prices listed as: 1098, 1140, 1000, 1180, 1100, 1221, 1155 (US$ per ton) across periods shown in table header.
  - Cashew export volume (thousands of tons): 196, 208, 140, 214, 189, 221, 202 (across periods shown in table header).
- Balance of payments (Text Table 2 highlights):
  - Trade balance projected -104.1 (CFAF billion) or -11.7 percent of GDP pre-shock; -146.1 (CFAF billion) or -17.7 percent of GDP after shock (2020 column).
  - Current account balance examples: -40.4 (CFAF billion) -4.5 percent of GDP (pre-shock 2020); -90.7 (CFAF billion) -11.0 percent of GDP (after shock 2020).
  - Financing gap (excess of financing -): -7.0 (CFAF billion) -0.8 percent of GDP (pre-shock); 61.4 (CFAF billion) 7.5 percent of GDP (after shock 2020).
  - Residual financing gap for 2021 current projections: 0.0 (CFAF billion) 0.0 percent of GDP for pre-shock; 10.8 (CFAF billion) 1.2 percent of GDP after shock in one projection line.
- Health and social support spending needs precisely: CFAF 43.1 billion (5.2 percent of GDP) for 2020; CFAF 13.8 billion (1.6 percent of GDP) for 2021.

*Source: GUINEA-BISSAU — REQUEST FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY (IMF staff report, January 11, 2021).*

### 8.      The authorities broadly agreed with staff’s assessment, while noting that multilateral

### 8.      The authorities broadly agreed with staff’s assessment, while noting that multilateral

### Macroeconomic outlook and authorities' stance
- Authorities expect a GDP contraction in 2020 similar to staff’s assessment and a recovery in 2021 driven by:
  - gradual recovery of the cashew international market;
  - gradual lifting of containment measures; and
  - higher public investment in critical infrastructure.
- Inflation: authorities and staff expect inflation to accelerate to 1.5 percent in 2020 due to the pandemic-induced supply shock, and to remain at that level as the economy recovers.
- External support: authorities emphasized the importance of external support, mostly in the form of grants, to deal with the emergency and sustain recovery while contributing to put the debt on a downward path together with continued fiscal efforts.
- Policy signaling: authorities intend to signal policy discipline by requesting an SMP and then an ECF arrangement; they have already officially requested an SMP.

### Fiscal impact of COVID-19 and 2020 implications
- 2020 overall budget cash deficit is projected to widen to 11.1 percent of GDP compared to 5.4 percent of GDP expected before the pandemic.
- Tax revenues are expected to drop to 8.1 percent of GDP, compared to 9.7 percent projected in January 2020, reflecting:
  - lower tax revenues from cashew nut exports (15 percent of tax revenues in 2019);
  - lower duties and sales tax on imports (32 percent); and
  - weaker tax compliance due to lockdown measures and reliance on in-person tax payments.
- Additional COVID-19-related expenditures and financing needs:
  - COVID-19-related current expenditures estimated at 0.8 percent of GDP.
  - COVID-19 capital expenditures estimated at 2.6 percent of GDP.
  - Program to support financing of the cashew nut campaign via onlending increased financing needs by 1.8 percent of GDP.

### COVID-19 expenditures and targeted support (Box 1 and Text Table 3)
- Authorities targeted additional spending needs of about CFAF 43.1 billion (5.2 percent of GDP) for health, assistance to vulnerable households, and support for the cashew nut sector.
- Health sector:
  - Upgrading hospital capacity and equipment estimated to require CFAF 21.3 billion (2.6 percent of GDP).
  - Increased compensation of hospital staff by a monthly CFAF 53 million.
  - Rehabilitation of the main hospital for CFAF 100 million.
- Assistance to households:
  - Emergency allocations: CFAF 222 million (US$ 0.4 million) for medicine, food, and medical equipment.
  - Emergency allocations: CFAF 580 million (US$ 1.0 million) to distribute 20,000 bags of rice and 10,000 bags of sugar.
  - Government increased targeted families benefiting from food supply from 3,000 to 20,000.
  - Cash transfer program contemplated for 10,000 families: single payment of CFAF 40,000 (about US$70).
  - Overall government envelope to assist households: CFAF 0.7 billion (0.1 percent of GDP).
- Support to the cashew nut sector:
  - Direct support to the agricultural campaign: CFAF 790 million.
  - BCEAO special refinancing window for "Covid-19 T-Bills": about US$27 million (CFAF 15 billion or 1.8 percent of GDP) on-lent by domestic commercial banks to the cashew nut sector, facilitating purchase and storage of about half of this year’s cashew production.
- External and domestic additional financing sources noted: World Bank, CCRT, Islamic Development Bank, West African Development Bank (BOAD) non-concessional loans, and treasury issuances placed in WAEMU commercial banks.

### 2021 fiscal consolidation plan and projections
- Fiscal cash deficit projected to fall to 7.6 percent of GDP in 2021 (based on the 2021 draft budget discussed with IMF staff).
- Key 2021 projections and measures:
  - Tax revenues expected to increase to 9.8 percent of GDP (driven by a new tax on telecommunications and enhanced tax compliance).
  - Current expenditures projected to decline to 16 percent of GDP (from 16.5 percent of GDP).
  - COVID-19-related investments in healthcare and other investments to support food security of 1.5 percent of GDP are included while protecting transfers to vulnerable families.
  - Joint fiscal consolidation from revenue measures, wage consolidation and reduced transfers to SOEs amounts to 2.2 percent of GDP.
- 2021 financing gap:
  - The 2021 deficit will create a financing gap of about 4.5 percent of GDP.
  - IMF reengagement could be catalytic to secure additional donor support and alleviate reliance on non-concessional regional bank lending.

### Fiscal measures and expected yields (Text Table 5)
- All measures: CFAF 19.0 billion (2.2 percent of GDP).
- Revenue measures total: CFAF 5.0 billion (0.6 percent of GDP).
  - Tax: CFAF 4.5 billion (0.5 percent of GDP), mostly driven by the new telecommunications tax.
  - Non-tax: CFAF 0.5 billion (0.1 percent of GDP).
- Expenditure measures total: CFAF 14.0 billion (1.6 percent of GDP).
  - Wage bill rationalization: CFAF 8.0 billion (0.9 percent of GDP) via freezing public sector salaries and new hires.
  - Reduced transfers to an SOE: CFAF 6.0 billion (0.7 percent of GDP).

### Fiscal governance, transparency, and prior actions
- Implemented and planned governance actions:
  - Reestablished the Treasury Committee to approve all expenditures, including COVID-19 related spending.
  - COVID-19 funds to be managed using a dedicated account at the BCEAO to facilitate traceability and accountability; subject to an ex-post independent audit (terms of reference to be agreed with IMF staff); audit to be published on www.govgb.gw within 9 months after the end of the fiscal year.
  - COVID-19 expenditures to be reflected in the budget submitted to Parliament; authorities will publish bimonthly reports on COVID-19 expenditures drawn from the dedicated BCEAO account.
  - Emergency decree to allow for a streamlined but transparent procurement process.
  - COVID-19 related procurement contracts to be published on the government’s website within one week of procurement with beneficiary and price details; ex-post validation of delivery reports published within three months of contract execution.
  - Earmarking procedures for dedicated funds and transparent beneficiary selection criteria for in-kind and cash transfers.
- Prior action toward IMF financing:
  - Adoption of the Ministerial Order that approves the Imposto Geral sobre Vendas (IGV)’s Electronic Tax Return, effective as of January 2021 — a prior action to the RCF request.
  - Planned submission to Parliament of a revised general tax code, revised tax penalty regime, and a modernized IGV statute.
- Additional planned measures:
  - Audit to assess the real number of public servants.
  - Freeze public sector salaries and new hires; streamline procurement; initiate debt reprofiling discussions with BOAD.

### Debt sustainability and risks
- Guinea-Bissau’s risk of external debt distress is assessed as high, a downgrade from the moderate rating in the May 2018 DSA; overall risk of debt distress remains high.
- Drivers of the deterioration: higher-than-expected fiscal deficits, increased borrowing for investment projects, and additional financing for COVID-19.
- External debt share: 27.1 percent of GDP.
- Present value (PV) of public debt relative to GDP is well above the indicative benchmark.

*Source: IMF staff and Guinea-Bissau authorities (content from the provided PDF chapter).*

### 15.      Guinea-Bissau’s debt is assessed as sustainable in a forward-looking sense based on

### 1gnbea2021001 - 15.      Guinea-Bissau’s debt is assessed as sustainable in a forward-looking sense based on

### Debt sustainability outlook and conditions
- Guinea-Bissau’s debt is assessed as sustainable in a forward-looking sense based on:
  - the authorities’ commitment to sound policies underpinned by strong multilateral donor engagement and a Fund program;
  - the country’s supportive regional context that eases medium-term rollover risks associated with domestic debt.
- Staff projects:
  - a gradual decline of the PV of public debt relative to GDP over the medium term;
  - the fiscal deficit within 3 percent of GDP;
  - debt below 70 percent of GDP WAEMU convergence criterion.
- The assessment is contingent on:
  - (i) the authorities’ commitment to an ambitious, yet feasible, fiscal adjustment post-pandemic;
  - (ii) announced grants and concessional lending;
  - (iii) current negotiations for a reprofiling of debt obligations with creditors to extend maturities and reduce interest rates.
- The authorities’ recent request, in December 15, to join the Debt Service Suspension Initiative (DSSI) is expected to enhance debt sustainability prospects.
- Major vulnerability remains: the debt outlook is sensitive to a weaker economic recovery and a lack of adherence to macroeconomic stability and prudent fiscal policies.

### Monetary policy and regional central bank measures (BCEAO)
- BCEAO actions to support liquidity and activity:
  - Adopted a full allotment strategy at a fixed rate of 2.5 percent (the minimum monetary policy rate), allowing banks to satisfy liquidity needs fully at a rate about 25 basis points lower than before the crisis.
  - In June, the Monetary Policy Committee cut by 50 basis points the ceiling and the floor of the monetary policy corridor, to 4 and 2 percent respectively.
  - Extended the collateral framework to include bank loans to prequalified 1,700 private companies for central bank refinancing.
  - Set up a framework inviting banks and microfinance institutions to postpone for a 3-month renewable period up to end-2020 debt service falling due for customers with COVID-19-related repayment difficulties without classifying such postponed claims as non-performing.
  - Introduced measures to promote the use of electronic payments.
  - Launched in April 2020 a special 3-month refinancing window for limited amounts of 3-month “COVID-19 T-Bills” to be issued by each WAEMU sovereign.
- Guinea-Bissau specific T-bill operations:
  - In May, Guinea-Bissau issued CFAF 15.5 billion in COVID-19 T-bills at an average effective rate of 3 percent. Proceeds were onlent to commercial banks to support the cashew nut sector and would be repaid as loans from IFIs are disbursed.
  - In August, the repayment was partially financed through a second refinancing window launched by the BCEAO (CFAF 10 billion, three-month maturity).
  - In November, this amount was refinanced with longer maturities.

### Banking sector vulnerabilities and supervisory actions
- The economic downturn and heightened uncertainty are expected to weigh on an already fragile banking system.
- Key vulnerabilities:
  - Low sector capitalization and high NPL level despite a high level of provisions.
  - A systemically important bank remains undercapitalized despite a government recapitalization in December 2019.
- Recent developments:
  - In 2020 the undercapitalized bank recovered part of the loan considered non-performing and reconducted its restructuring plan, prospecting potential investors with external advisory support.
  - Authorities intend to disengage from the bank within the next four years as agreed with the regional banking supervisor.
  - Credit growth remained strong in recent years but is projected to decelerate in 2020.
  - The political crisis and COVID-19 led to a sharp decline in pre-financing usually provided to producers and exporters ahead of the cashew campaign.
- Staff recommendation:
  - Authorities should work closely with the regional supervisor on a plan to restore the bank’s soundness and viability at the least possible cost to the treasury.

### Access to IMF financing and capacity to repay
- Authorities are requesting a disbursement of SDR 14.2 million (50 percent of quota) under the RCF exogenous shock window.
- Qualifying rationale:
  - Guinea-Bissau meets RCF qualification criteria due to large financing gaps that would cause immediate and significant economic disruption if unaddressed, and urgency of balance-of-payments need.
- Access and use:
  - The proposed total access of 50 percent of quota is about 25 percent of the estimated BOP financing gap in 2021.
  - The RCF will be disbursed to Guinea-Bissau’s Treasury account at the BCEAO and on-lent to the government to provide financing for pandemic-related spending.
- Contingencies and sequencing:
  - Remaining needs are expected to be filled in part by additional donors’ support; further policy adjustment would be needed if donor support falls short.
  - Authorities are committed to request an SMP to underpin debt sustainability and sustain recovery, building a track record for an UCT program.
- Capacity to repay the Fund:
  - With the proposed RCF disbursement, outstanding PRGT credit would reach 116 percent of quota in 2021 and projected to decline thereafter.
  - Total PRGT disbursements over a twelve month-period would reach 50 percent of quota, all within normal access limits.
  - Guinea-Bissau has a strong track record in meeting its obligations to the Fund; servicing risks are mitigated by low external indebtedness and availability of concessional financing.
  - Support under the CCRT will also ease the near-term burden.

### External arrears and ongoing negotiations
- External arrears on pre-HIPC debts totalling US$38 million are being addressed gradually.
- Specifics:
  - An agreement on restructuring of arrears to Brazil is pending ratification by the Brazilian Senate.
  - Negotiations with other bilateral creditors (Angola, Pakistan, and Russia) for remaining legacy arrears are ongoing.
  - More recently arrears of US$2.7 million accumulated with the Exim Bank of India, but in November 2020 the authorities signed a reprofiling agreement with Exim Bank of India rescheduling amortizations and addressing the arrears.
  - Guinea-Bissau has contacted the authorities of Libya about resolving US$ 0.8 million in external arrears which arose recently due to financial constraints associated to the COVID pandemic.

### Staff appraisal, estimated financing gaps, and policy recommendations
- Macroeconomic context:
  - First COVID-19 case registered on March 24, 2020; cases rapidly increased despite containment efforts.
  - Short-term outlook sharply deteriorated due to adverse global conditions, decline in demand for cashew nuts, domestic containment measures, and recent severe floods.
- Estimated financing gaps (staff estimates for 2021):
  - External financing gap: 5.0 percent of GDP.
  - Fiscal financing gap: 4.5 percent of GDP.
- Staff supports authorities’ priorities:
  - Mitigate pandemic impact while committing to medium-term fiscal and debt sustainability.
  - Increase health spending, assist the most vulnerable, and support the cashew nut sector.
- Policy commitments and intentions:
  - Authorities committed to reduce the fiscal deficit over time to 3 percent of GDP and debt ratios below 70 percent of GDP (WAEMU fiscal convergence criteria) once conditions normalize.
  - Intention to request an SMP and, based on satisfactory track record, an ECF arrangement to support recovery and structural reforms.
  - Implement and plan measures to strengthen revenue mobilization, rationalize the wage bill and improve the debt maturity profile.
- Governance and transparency measures (staff welcomes and recommends):
  - Establish a dedicated account at the BCEAO to manage all expenditures related to COVID-19.
  - Publish bimonthly expense reports and procurement contracts with the name of awarded companies, their beneficial owners and ex-post validation of delivery.
  - Subject COVID-19-related expenditures to an ex-post independent audit.
  - Robust governance measures, in line with Fund governance assessment recommendations, should be a critical component of Fund-supported engagement.

*Source: 1gnbea2021001 (IMF staff report excerpt).*

### 26.       Staff supports the authorities’ request for a disbursement under the RCF in the

### 26. Staff supports the authorities’ request for a disbursement under the RCF

### Disbursement request and staff assessment
- Staff supports the authorities’ request for a disbursement under the RCF in the amount of SDR 14.2 million (50 percent of quota).
- Staff’s support is based on the urgent balance of payments need arising from the severe impact of the pandemic and the authorities’ existing and prospective policies to address this external shock.
- Staff notes the authorities’ engagement with other development partners to obtain additional budget support.
- The requested level of access is adequate and consistent with the estimated external financing needs and prospective financing from donors.

### Macroeconomic impact of shocks (pandemic and floods)
- The first COVID-19 cases were reported in end-March and rapidly increased in the following weeks.
- Containment measures imposed: State of Emergency (March) and State of Calamity (September).
- Recent severe floods, combined with the pandemic, resulted in a GDP contraction projected at 2.4 percent.
- Cashew exports were affected by:
  - delayed cashew campaign (volume)
  - weaker demand from trade partners (prices)
- Cashew-related figures (from tables):
  - Cashew export quantity (thousands of tons): 166, 149, 196, 140, 189, 202, 216, 223, 230 (2017–25 series)
  - Cashew export prices (US$ per ton): 1,950; 1,648; 1,098; 1,000; 1,100; 1,155; 1,213; 1,267; 1,324 (2017–25 series)
- The terms-of-trade shock of recent years widened the current account deficit.

### Fiscal, external, and monetary developments (key findings)
- Fiscal balances are projected to further deteriorate in 2020 as weak revenues, partially compensated by increased grants, are not enough to cover increased expenditures.
- Financing includes additional external and within-region financing.
- Increased regional financing partially crowded out credit from commercial banks.
- The financing of the current account deficit shifted from investment inflows to portfolio investment (treasury securities).
- Selected fiscal and external figures (exact values preserved from tables):
  - Real GDP growth: 3.4 (2018), 4.5 (2019), -2.4 (2020), 3.0 (2021 proj.), 4.0 (2022 proj.), 5.0 (2023 proj.), 5.0 (2024 proj.), 5.0 (2025 proj.)
  - Real GDP per capita: 1.1 (2018), 2.3 (2019), -4.5 (2020), 0.8 (2021), 1.7 (2022), 2.8 (2023), 2.8 (2024), 2.9 (2025)
  - Consumer price index (annual average): 0.4 (2018), 0.3 (2019), 1.5 (2020), 2.0 (2021), 2.0 (2022), 2.0 (2023), 2.0 (2024), 2.0 (2025)
  - Current account balance (percent of GDP): 0.3 (2018), -3.6 (2019), -8.6 (2020), -10.1 (2021), -6.4 (2022), -5.4 (2023), -4.4 (2024), -4.2 (2025)
  - Overall balance (commitment basis) including grants (percent of GDP): -4.9 (2018), -3.9 (2019), -9.0 (2020), -5.1 (2021), -3.6 (2022), -3.4 (2023), -3.0 (2024), -3.0 (2025)
  - Overall balance excluding grants (commitment basis) (percent of GDP): -8.5 (2018), -6.8 (2019), -14.4 (2020), -10.3 (2021), -8.3 (2022), -7.8 (2023), -7.5 (2024), -7.4 (2025)
  - Stock of public and publicly guaranteed debt (percent of GDP): 59.2 (2018), 66.9 (2019), 78.4 (2020), 78.4 (2021), 76.7 (2022), 74.3 (2023), 71.9 (2024), 69.6 (2025)
  - Of which: external debt (percent of GDP): 21.8 (2018), 25.3 (2019), 27.1 (2020), 27.9 (2021), 26.1 (2022), 24.2 (2023), 22.7 (2024), 21.4 (2025)

### Fiscal operations and financing details
- Consolidated operations (CFAF billions, selected items):
  - Revenue and grants: 127.0 (2018), 130.1 (2019), 141.4 (2020), 159.3 (2021 proj.), 167.8 (2022 proj.), 179.3 (2023 proj.), 194.3 (2024 proj.), 210.5 (2025 proj.)
  - Tax revenue: 75.7 (2018), 79.1 (2019), 66.4 (2020), 85.9 (2021 proj.), 93.5 (2022 proj.), 101.9 (2023 proj.), 111.4 (2024 proj.), 121.3 (2025 proj.)
  - Grants: 30.3 (2018), 24.5 (2019), 44.5 (2020), 44.9 (2021 proj.), 44.5 (2022 proj.), 45.3 (2023 proj.), 48.4 (2024 proj.), 51.8 (2025 proj.)
  - Expenditure: 168.1 (2018), 163.2 (2019), 215.5 (2020), 204.3 (2021 proj.), 201.3 (2022 proj.), 213.1 (2023 proj.), 227.3 (2024 proj.), 246.2 (2025 proj.)
  - Overall balance, including grants (commitment, CFAF billions): -41.1 (2018), -33.1 (2019), -74.1 (2020), -44.9 (2021 proj.), -33.5 (2022 proj.), -33.8 (2023 proj.), -33.0 (2024 proj.), -35.7 (2025 proj.)
  - Domestic financing (net, CFAF billions): 40.1 (2018), 39.8 (2019), 71.6 (2020), 33.7 (2021 proj.), 29.1 (2022 proj.), 29.9 (2023 proj.), 26.8 (2024 proj.), 29.3 (2025 proj.)
  - Foreign financing (net, CFAF billions): 25.8 (2018), 3.7 (2019), 30.4 (2020), 5.3 (2021 proj.), 4.4 (2022 proj.), 4.0 (2023 proj.), 6.2 (2024 proj.), 6.4 (2025 proj.)
- Residual financing gap: 0.0 (2018), 0.0 (2019), 0.0 (2020), 10.8 (2021), 0.0 (2022), 0.0 (2023), 0.0 (2024), 0.0 (2025) — as reported in tables.

### Monetary and financial sector highlights
- Monetary aggregates (CFAF billions, selected):
  - Net foreign assets: 227.1 (2017), 232.6 (2018), 217.6 (2019), 268.1 (2020 proj.), 250.4 (2021 proj.)
  - Money supply (M2): 350.5 (2017), 365.0 (2018), 366.0 (2019), 393.4 (2020 proj.), 404.7 (2021 proj.)
  - Credit to the economy: 106.5 (2017), 122.0 (2018), 138.9 (2019), 138.5 (2020 proj.), 147.4 (2021 proj.)
  - Broad money (M2, annual percentage change): 4.7 (2017), 4.2 (2018), 0.3 (2019), 7.5 (2020 proj.), 2.9 (2021 proj.)
- Financial soundness indicators (selected, percent):
  - Gross NPLs to total loans: 43.4 (2014), 8.4 (2015), 11.5 (2016), 37.4 (2017), 26.3 (2018), 25.4 (2019), 20.3 (2020 June)
  - Liquid assets to total assets: 18.6 (2014), 16.6 (2015), 13.8 (2016), 15.0 (2017), 19.6 (2018), 18.9 (2019), 21.6 (2020 June)

### Capacity to repay the IMF (selected projections)
- Disbursements: 14.2 (SDR millions) in 2021; 0.0 in subsequent years as reported.
- Outstanding Fund credit (SDR millions): 32.80 (2021), 30.50 (2022), 26.69 (2023), 22.57 (2024), 19.16 (2025), 14.90 (2026), 10.24 (2027), 7.10 (2028), 4.26 (2029), 1.42 (2030), 0.00 (2031)
- Fund obligations based on existing credit (principal, SDR millions): 1.72 (2021), 2.30 (2022), 3.82 (2023), 4.12 (2024), 3.41 (2025), 2.84 (2026), 1.82 (2027), 0.30 (2028), 0.00 (2029–2031)

*Source: IMF staff report and associated tables and figures contained in the content unit.*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### External Risks
- Unexpected shift in the Covid-19 pandemic  
  - Downside scenario: disease proves harder to eradicate (e.g., difficulties in finding/distributing a vaccine), requiring more containment efforts and impacting economic activity directly and through persistent behavioral changes; insufficient monetary and fiscal policy response amid dwindling policy space and concerns about debt sustainability; financial markets reassess real economy risks leading to repricing of risk assets, unmasking of debt-related vulnerabilities, weakening banks and nonbank financial intermediaries, forcing credit reduction; financing difficulties extend to vulnerable sovereigns causing cascading debt defaults, capital outflows, depreciation pressures, and in some cases inflation; pandemic-prompted protectionist actions (e.g., export controls) disrupt trade and global value chains.  
  - Upside scenario: faster-than-expected recovery due to discovery of an effective and widely available vaccine and/or faster behavioral adjustment boosting confidence and economic activity.
  - Country-specific expected impacts if downside realized / time horizon:  
    - A prolonged outbreak would have particularly large adverse impact in Guinea-Bissau. The limited health system may not be able to avoid a high human toll of the pandemic. The economy would be hardly hit by increased disruptions in the cashew trade.  
    - The economy would benefit from the normalization of trade and revenue collection in addition to lower health expenditures.
  - Policies to mitigate:  
    - Prioritize spending towards health sector and social protection.  
    - Mobilize additional grants and concessional loans from development partners to cover more persistent external needs.  
  - Relative likelihood: High / ST  
  - Expected impact: High  
  - Policy space: Low

- Intensified geopolitical tensions and security risks  
  - Expected impacts: restrictions on movement of food and basic goods causing shortages and price increases; higher oil prices raising energy costs and worsening external position; limited financing inflows delaying investment projects.  
  - Mitigation: step up efforts to improve energy sector; improve investment planning and resource management.  
  - Relative likelihood: (implied) Medium

- Further adverse cashew nut price movements  
  - Expected impacts: pressure on private sector incomes and economic activity; diminished government revenues reducing room for priority spending.  
  - Mitigation: control public expenses to compensate for lower revenues; preserve social spending focused on the most vulnerable; step up diversification efforts.  
  - Relative likelihood: (implied) Moderate

### Domestic Risks
- Continued weaknesses in state-owned enterprises (EAGB highlighted)  
  - Expected impacts: limited and expensive electricity and water supply; contingent liabilities adding to fiscal pressures.  
  - Mitigation: implement credible strategy to improve management of public enterprises; improve governance, transparency and accountability.  
  - Relative likelihood: Moderate / ST  
  - Expected impact: Medium

- Banking instability from high NPLs and undercapitalization  
  - Expected impacts: limited credit extension hampering investment and growth; potential contingent liabilities adding to fiscal pressures.  
  - Mitigation: enhance banking supervision and enforce prudential regulations; improve processes and procedures for collection of debts and collateral.  
  - Relative likelihood: High / ST  
  - Expected impact: Medium

- Widespread social discontent and political instability  
  - Expected impacts: delayed fiscal adjustment; limited financing inflows delaying investment projects; supply disruptions and weaker confidence.  
  - Mitigation: enhance targeted social policies and strengthen social safety nets; avoid early withdrawal of fiscal and financial incentives supporting households and companies impacted by the pandemic; improve governance, transparency and accountability and fighting corruption.  
  - Relative likelihood: Medium  
  - Expected impact: High / ST

- Higher frequency and severity of natural disasters related to climate change  
  - Expected impacts: harm cashew production worsening rural livelihoods; higher recovery spending, higher financing costs, and lower revenues; supply disruptions and weaker confidence.  
  - Mitigation: address infrastructure gaps and income/developmental disparities among regions while instituting appropriate social safety nets; promote investment in climate resilient infrastructure.  
  - Relative likelihood: Medium  
  - Expected impact: High / ST, MT

### Key Overall Capacity Development (CD) Priorities Going Forward
- Revenue Administration and Tax Policy  
  - Objectives: strengthen RA management and governance arrangements; implement the 2018 tax reform plan.  
  - Challenges: ongoing capacity constraints (fragile institutions, high staff turnover, lack of basic equipment, weak institutional and policy coordination); political instability and pervasive rent seeking.

- Public Financial Management  
  - Objectives: strengthen governance, execution and control; implement a Treasury Single Account; strengthen surveillance of State-owned Enterprises (SOEs); improve public investment management.

- Debt Management  
  - Objectives: improve monitoring and reporting of domestic and external debt; support preparation of annual borrowing plans with fiscal projections and debt sustainability objectives.

- Financial Crisis Management  
  - Objectives: enforce compliance with prudential norms; support implementation of resolution frameworks.  
  - Challenges: coordination with the BCEAO and the regional Banking Commission.

- Delivery approach in FY2021: maintain remote missions during the pandemic; medium term CD delivered by long-term resident advisors fluent in Portuguese and hands-on training; prioritize coordination within the Fund and with outside partners.

### Main Risks to CD Implementation and Mitigation
- Main risks: political instability, fragile institutions, and low absorption capacity impede effective implementation of TA recommendations.  
- Mitigation: insulate economic institutions from political interference; coordinate Fund TA with assistance from other development partners to minimize duplication and cost.

### Authorities’ Views
- Authorities recognize the need to build institutional capacity and advance structural reforms and concurred with the CD priorities listed above.  
- They expressed satisfaction with IMF technical assistance and noted the challenges of low absorption capacity and high staff turnover.  
- They argued that better coordination between development partners would help mitigate these challenges.

### Select Excerpts and Key Figures from Letter of Intent (Appendix I)
- Social vulnerability: "67 percent of which live below the poverty line."  
- Containment measures: flights to Bissau stopped and international borders, schools and outdoor markets closed on March 18, 2020; state of emergency declared on March 28, 2020 which delayed the annual cashew campaign.  
- COVID-19 caseload as of December 7: "2444 confirmed cases and 44 deaths."  
- Health sector allocation: "CFAF 4.7 billion, equivalent to US$ 8.2 million."  
- Cash and in-kind food assistance to vulnerable households: "CFAF 686 million, equivalent to US$" (amount cut off in the supplied content).

*Source: IMF — Annex I. Risk Assessment Matrix (Guinea-Bissau).*

### 1.2 million). In addition, the government has prepared a response plan to contain the spread of

### Guinea-Bissau: Request for Disbursement under the Rapid Credit Facility — Debt Sustainability Analysis

### COVID-19 impact, macroeconomic outlook, and fiscal needs
- Economic activity is anticipated to contract by 2.4 percent in 2020, compared to 4.5 percent growth in 2019.
- Projected economic growth of 3 percent in 2021.
- Health-related expenses to be financed: CFAF 21.3 billion (US$37.1 million).
- Targeted number of families to benefit from food supply increased from 3,000 to 20,000.
- Cash fiscal deficit is expected to deteriorate to 10 percent of GDP in 2020.
- On-lending to support the cashew nut campaign increases financing needs by 1.8 percent of GDP.
- Estimated financing gap of about 8.8 percent of GDP (fiscal financing gap).
- Residual urgent balance of payments financing need estimated at CFAF 61.4 billion, or 7.5 percent of GDP.
- For 2021 recovery, required fiscal gap of CFAF 39.6 billion, or 4.5 percent of GDP; and balance of payment financing need of CFAF 44.1 billion, or 5 percent of GDP.

### IMF financial request and intended use
- Government requests financial assistance from the IMF under the Rapid Credit Facility (RCF) in the amount of SDR 14.2 million, corresponding to about US$19.5 million or 50 percent of the quota with the Fund.
- RCF support intended to: ease urgent balance of payment need, relieve pressure on fiscal position, provide fiscal space to fight the virus, support economic activity, and meet needs of most vulnerable.
- The RCF assistance will cover part of projected financing needs and act catalytically for other donors.
- Request to join the Debt Service Suspension Initiative (DSSI).
- Commitment to spend freed resources on COVID-related health or economic relief and monitor such spending.
- Request that IMF funds be disbursed as direct budget support to a dedicated account at the Central Bank (BCEAO).
- Commitment to publish a monthly report on all drawings from the dedicated account at the BCEAO.

### Fiscal governance, transparency, and safeguards commitments
- Commitments:
  - Disclose public sector debt as per GFSM 2014 to the IMF/WBG.
  - Fully comply with limits on non-concessional debt agreed under the IMF Debt Limit Policy (DLP) or the WBG Sustainable Development Financing Policy.
  - Adopt prior action for RCF request: Ministerial Order (Despacho n. 044/GMF/2020) approving the Imposto Geral sobre Vendas (IGV)’s Electronic Tax Return starting on January 1st, 2021.
- COVID-19 expenditure oversight and transparency measures:
  - Reestablished the Treasury Committee to approve all COVID-19 related expenditure.
  - All COVID-19 related spending managed through a dedicated BCEAO account for traceability and accountability.
  - Ex-post independent audit by a reputable third-party auditor working jointly with the audit court (Tribunal de Contas); audit to be published within 9 months after fiscal year-end (terms of reference to be agreed with IMF staff).
  - Bimonthly reports to be published on COVID-19 expenditure.
  - All COVID-19 related procurement contracts to be published on the government’s website within one week of award, including: awarded companies, names and nationalities of beneficial owners, nature of goods/services, price per unit, and overall contract amount.
  - Delivery reports for goods and services, including list of suppliers and contractors, to be published within three months of end of execution period for each contract.
  - Established reporting processes for allocation of resources on-lent to banks to support the cashew nut sector during 2020.

### Regional central bank (BCEAO) and financial sector measures
- Measures adopted to preserve financial stability and provide liquidity:
  - Introduced full allotment strategy at a fixed interest rate of 2.5 percent and subsequently 2 percent from June 24, 2020.
  - Extended collateral framework to access central bank refinancing.
  - Set up framework with banking system to support firms with COVID-19 repayment difficulties.
  - Allocated FCFA 25 billion to the trust fund of the West African Development Bank (BOAD) to increase concessional loans to eligible countries.
  - Communicated on special program for refinancing bank credits granted to SMEs.
  - Initiated negotiations with firms issuing electronic money to encourage its usage.
  - Ensured adequate provision of banknotes for satisfactory ATM operation.
  - Launched a special 3-month refinancing window for limited amounts of 3-month “COVID-19 T-Bills” to be issued by each WAEMU sovereign.
- On May 7, 2020: issued CFAF 15 billion in COVID-19 T-bills at an average effective rate of 3 percent; proceeds on-lent to commercial banks to support the cashew nut sector and to be repaid as loans from IFIs are disbursed.
- Commitment to work with the regional supervisor to restore soundness and viability of a systemically important bank that remains undercapitalized; shared the bank’s business plan and provisional 2019 financial accounts with Fund staff.

### Debt sustainability assessment and risks
- Risk of external debt: High.
- Overall risk of debt: High.
- Granularity in the risk: Sustainable.
- Application of judgment: Yes. External rating downgraded from “Moderate” to “High” to reflect vulnerabilities from high overall public debt and substantial downside risks.
- Factors behind deterioration in debt indicators:
  - Upward revision of the debt stock at end-2017 reflecting better coverage and improved data.
  - Rise in concessional lending from multilaterals for infrastructure projects.
  - Higher fiscal deficits in 2018–19.
  - Increased reliance on borrowing from regional banks.
  - Adverse impact of the COVID-19 pandemic.
- 2020 GDP expected to contract by 2.4 percent due to weaker cashew nut exports, lower foreign direct investment, and lockdown impacts on domestic activity and retail trade.
- Present value (PV) of public and publicly guaranteed (PPG) debt relative to GDP exhibits a prolonged and substantial breach of its indicative benchmark for weak debt carrying capacity LICs.
- Supporting factors for forward-looking sustainability:
  - WAEMU currency union safeguards.
  - Financial and technical support from regional debt market institutions and larger regional members.
  - PV of public debt shows a consistent downward trend from 2021 onwards under the baseline.
  - External DSA indicators for extra-regional debt consistent with sustainability over the medium-term.
- Sustainability conclusion is contingent on:
  - Authorities’ commitment to ambitious fiscal adjustment post-pandemic to meet WAEMU convergence criterion of maximum overall central government deficit of 3 percent of GDP by 2024.
  - Multilateral donor support in announced grants and concessional financing and possible debt reprofiling.
  - Adoption and strong implementation of a Fund Staff Monitored Program (SMP) followed by an Extended Credit Facility (ECF).
- Downside risks that could undermine debt outlook:
  - Weaker economic recovery.
  - Adverse terms-of-trade and export shocks.
  - Materialization of contingent liabilities (limited public debt coverage).
  - Fragile socio-political context undermining adherence to macroeconomic stability.
- Baseline could improve further with full multilateral donor re-engagement leading to: (i) significant additional scaling up of grants and highly concessional lending; and (ii) reprofiling of debt obligations to extend maturities and reduce interest rates.

### Public debt coverage and recent debt developments
- Expansion of central government debt perimeter to include external legacy arrears.
- Compared to previous DSA, end-2017 stock of external debt as percent of GDP increased by 5.9 percentage points; stock of domestic debt as percent of GDP decreased by 2.6 percentage points.
- External legacy arrears: 2.7 percent of GDP in 2019 (pre-HIPC debts being renegotiated and gradually resolved).
- Notable SOE exposure: state-owned electricity and water utility (EAGB) has debts estimated at 3 percent of GDP (limited information).
- EAGB related operations:
  - Government clearance of EAGB debt: CFAF 6.6 billion in 2017, CFAF 2.5 billion in 2018, CFAF 5.9 billion in 2019, and estimated CFAF 6 billion in 2020.
  - Government guaranteed a CFAF 5.5 billion loan to EAGB as part of an 8-years debt service restructuring agreement with a local commercial bank; guarantee included in the DSA.
  - EAGB implementing a Management Improvement Plan and a financial restructuring plan with WB support; expected more accurate debt assessment by end-2021.
- Treatment of debt in DSA:
  - DSA conducted on a currency basis; debt issued in CFAF in the regional market treated as domestic debt.
  - Stock of treasury securities at end-2019: CFAF 86.2 billion, equivalent to 24 percent of domestic debt or 10.2 percent of GDP.
  - Debt in CFAF to BOAD treated as domestic debt (15.8 percent of GDP at end-2019), although for some WAEMU countries BOAD is treated as external.
- Public debt evolution highlights (selected figures from Text Table 2):
  - Central Government Debt (Billions of CFAF): 2017 Act. 426.9; 2018 Act. 495.2; 2019 Prel. 564.7; 2020 Proj. 645.9.
  - External (Billions of CFAF): 2017 Act. 148.0; 2018 Act. 182.5; 2019 Prel. 213.2; 2020 Proj. 223.6.
  - Multilateral (Billions of CFAF): 2017 Act. 83.8; 2018 Act. 115.7; 2019 Prel. 144.8; 2020 Proj. 161.2.
  - IMF (Billions of CFAF): 2017 Act. 17.7; 2018 Act. 19.3; 2019 Prel. 18.5; 2020 Proj. 15.4.
  - IDA (Billions of CFAF): 2017 Act. 21.0; 2018 Act. 48.5; 2019 Prel. 69.1; 2020 Proj. 83.1.
  - Domestic (Billions of CFAF): 2017 Act. 278.9; 2018 Act. 312.6; 2019 Prel. 351.5; 2020 Proj. 422.3.
  - BOAD (Billions of CFAF): 2017 Act. 107.3; 2018 Act. 123.0; 2019 Prel. 133.0; 2020 Proj. 153.9.
  - Treasury Securities held by regional banks (Billions of CFAF): 2017 Act. 37.5; 2018 Act. 55.4; 2019 Prel. 73.7; 2020 Proj. 157.5.
  - Payment Arrears (Billions of CFAF): 2017 Act. 16.1; 2018 Act. 15.4; 2019 Prel. 13.1; 2020 Proj. 5.0.
- Drivers of public debt increase during 2018–19:
  - Government deficit (commitment basis) rose from 1.3 percent of GDP in 2017 to 4.9 percent of GDP in 2018 and 3.9 percent in 2019.
  - Lower real GDP growth: 3.4 percent in 2018 and 4.5 percent in 2019, down from an average 5.4 percent in 2015–2017.
  - Borrowing mostly from World Bank, multilaterals and BOAD increased by 11.2 percentage points in 2017–2019 to finance investments: energy (18 percent), other infrastructure (61 percent), and rural development (15 percent).
- External arrears details:
  - External arrears totaled USD$ 38.55 million at end-2019 to Angola, Brazil, Russia, and Pakistan.
  - Past arrears relief and restructurings noted: USD$ 43.2 million to Taiwan P.C. in 2017; Libya arrears USD$ 6.9 million restructured in 2018; Brazil restructuring USD$ 1.9 million awaiting approval; negotiations with Angola (USD$ 32.9 million), Pakistan (USD$ 2.2 million) and Russia (USD$ 1.5 million).
  - DSA includes conservative repayment assumptions pending rescheduling agreements.

*Prepared jointly by the Staffs of the International Monetary Fund and the International Development Association; January 25, 2021.*

### 4.      Non-concessional domestic borrowing has risen on the back of larger investment projects

### 4.      Non-concessional domestic borrowing has risen on the back of larger investment projects

### Domestic debt dynamics and composition
- Central government domestic currency debt amounted to 41.7 percent of GDP at end-2019, up from 32.7 percent at end-2017.
- The largest source of net borrowing was Treasury securities:
  - Stock of Treasury securities rose by 4.4 percentage points of GDP during 2018–19.
  - In 2020, the stock of securities is projected to further grow by 9.2 percentage points of GDP.
  - The bulk of securities issued were purchased by commercial banks from elsewhere in WAEMU.
- BOAD (Banque Ouest Africaine de Développement) financing:
  - Debt to BOAD rose by 3.2 percentage points of GDP between 2017 and 2019.
  - It is projected to increase by almost the same amount in 2020 mainly due to two program loans to mitigate the impact of the COVID-19 pandemic.
  - Increased BOAD financing in 2017-2019 financed a series of road, power, and rural development projects, almost all on non-concessional terms.
- Other components of domestic debt (debt to BCEAO, loans from local commercial banks, domestic payment arrears, government guarantees) are estimated to have decreased by a combined 1.2 percentage points of GDP during 2017–20.

### External borrowing and concessionality
- The stock of external debt increased to 25.3 percent of GDP at end-2019, with almost all new borrowing on concessional terms.
- The World Bank accounted for 71 percent of the increase in external debt since 2017, mainly financing regional infrastructure and energy interconnection projects.
  - This included borrowing to fund government participation in a public-private telecommunications project equivalent to 2 percent of GDP in 2018 which was not reflected in the government deficit.
- Multilaterals held 68 percent of Guinea-Bissau’s external debt at end-2019.
- Remaining external debt was bilateral, mainly to non-Paris Club creditors and including legacy arrears of 2.7 percent of GDP.
- In 2020, the stock of external debt is projected to rise by 1.8 percent of GDP, driven by project and program loans from the World Bank and the Islamic Development Bank (IDB) for COVID-19 assistance.
- Concessionality definition included in the chapter:
  - A loan is considered concessional if its grant element is at least equal to 35 percent.

### Undisbursed contracted project loans
- The stock of contracted but undisbursed debt amounted to CFAF 182 billion (22 percent of GDP) at end-2019.
  - About half of this stems from concessional loans contracted with the World Bank.
- Many projects were not reflected in the public investment plan despite loan documents assuming rapid implementation.
- Implementation delays were driven by capacity constraints and lack of budgetary allocation for government co-financing.

### Macroeconomic forecast assumptions and projections
- Baseline scenario assumes gradual economic recovery from the pandemic in 2021-22 and a significant frontloaded fiscal adjustment during 2021-25.
- GDP and growth projections:
  - GDP is expected to contract by 2.4 percent in 2020.
  - Assuming the pandemic subsides by mid-2021, growth is expected to reach 3 percent in 2021.
  - Growth converges to the 5 percent potential by 2023.
- Inflation:
  - Average price inflation is projected to accelerate to 2 percent from 0.3 percent in 2019.
- Current account and financing:
  - The non-interest current account deficit is projected to widen to 9.9 percent of GDP in 2020.
  - It is expected to be financed by grants and loans from IFIs and additional borrowing from regional commercial banks.
- Fiscal consolidation:
  - An average 1.6 percentage points of GDP adjustment in the primary fiscal balance (commitment basis) is projected over the next three years.
  - About a quarter of this consolidation would come from revenue raising measures; the remainder from measures containing the growth of current spending (including the public wage bill).
- Key table excerpts (selected lines preserved exactly as in the source):
  - Real GDP growth (percent)
    - Previous DSA: 5.9 5.3 5.2 5.0 5.0 5.0
    - Current DSA: 4.8 3.4 4.5 -2.4 3.3 5.0
  - Primary fiscal balance
    - Previous DSA: -1.0 -2.1 -2.0 -1.8 -1.8 -2.1
    - Current DSA: -0.8 -4.3 -2.8 -7.5 -2.4 -0.9
  - Non-interest current account balance
    - Previous DSA: -0.3 -3.1 -2.2 -2.0 -1.9 -2.9
    - Current DSA: 0.4 -3.3 -8.4 -9.9 -5.6 -3.1
  - External debt
    - Previous DSA: 12.4 12.0 12.2 12.8 14.6 17.9
    - Current DSA: 17.3 21.8 25.3 27.1 24.9 16.2
  - Domestic debt
    - Previous DSA: 37.7 38.3 36.6 34.5 30.7 20.5
    - Current DSA: 32.7 37.4 41.7 51.2 38.4 42.4
- Assumptions on project financing and market instruments:
  - Gross annual project disbursements from loans and grants are assumed to finance capital expenditure within 6.5 percent of GDP.
  - Project financing in the medium term expected mainly from multilateral external creditors on concessional terms.
  - Borrowing from BOAD, almost entirely non-concessional, is projected to decline significantly.
  - Residual financing needs are assumed to be filled by Treasury securities with longer maturities, with interest rates projected at 5.8 percent for 3-year bonds and 6.3 percent for 5-years bond.

### Risk assessment and uncertainty
- The macroeconomic outlook is highly uncertain and subject to significant downside risks:
  - Contingent on the pandemic subsiding globally and locally by mid-2021.
  - Downside risks include weaker cashew nut market recovery, regional pandemic spillovers, terms-of-trade shocks, climate change risks, lack of adherence to macroeconomic stability, financial stress in SOEs, banking fragilities, weak governance, and low institutional capacity.
- Guinea-Bissau is structurally vulnerable to terms-of-trade shocks and climate change risks.
- Real GDP growth is projected to rise to 5 percent consistent with a small fiscal multiplier, reflecting high import content of government spending.

### Debt carrying capacity, stress tests, and debt sustainability
- Guinea-Bissau is assessed to have weak debt carrying capacity, unchanged from the 2018 DSA.
  - The Composite Indicator (CI) score is 2.49.
- Thresholds and benchmarks were revised per the LIC-DSA Framework.
  - Example benchmark change: Present value of total public debt in percent of GDP benchmark changed from 38 to 35.
- Contingent liabilities shock:
  - This DSA uses a contingent liability shock of 5 percent of GDP (instead of the default 2 percent).
  - The shock captures potential liabilities related to recapitalization needs of a systemic bank, operational losses of the electricity utility (EAGB), and possibly larger domestic arrears (1.5 percent of GDP at end-2019).
- External debt distress rating:
  - Risk of external debt distress is high, a downgrade from the moderate rating in the 2018 DSA.
  - Share of external debt was 27.1 percent of GDP at end-2019.
  - All external debt indicators remain below indicative thresholds throughout 2020–40 under the baseline, but other vulnerabilities justify the ‘high’ external risk rating.
- Commodity price stress test:
  - A tailored adverse commodity price stress test simulates a hypothetical 15 percent fall in cashew export prices in the first year of projection.
  - Prices in the 2020 cashew campaign have fallen by an estimated 8.9 percent.
- Public debt sustainability:
  - Overall risk of debt distress is assessed as high.
  - The PV of total public debt-to-GDP ratio is above its indicative benchmark through 2040.
  - Debt service-to-revenue and grants ratio is projected to worsen from 54.8 percent in 2019 to 56.3 percent in 2020.
  - Medium-term debt service rises up to 66.7 percent of revenues in 2025 under current projections.
  - Under the combined contingent liability shock the PV of debt-to-GDP ratio reaches 75 percent in 2021 and the debt service-to-revenue ratio rises to 85 percent in 2026.

### Policy implications and recommendations (as reflected in the text)
- Implement a significant and sustained fiscal adjustment to put debt on a robust downward trajectory:
  - Average 1.6 percentage points of GDP adjustment in the primary fiscal balance over the next three years, with about a quarter from revenue measures and the remainder from containing current spending growth.
- Reprioritize financing toward concessional external project financing and constrain new loan contracting while spreading disbursements and downsizing some projects to manage public debt.
- Strengthen investment planning and execution to ensure value for money and better alignment with the budget process.
- Seek debt reprofiling and lower interest rates on new external and domestic borrowing to alleviate rising debt service burdens.
- Leverage regional institutions, concessional financing, and participation in initiatives such as the Debt Service Suspension Initiative (DSSI) as part of debt management efforts.

*Source: 1gnbea2021001 - 4.      Non-concessional domestic borrowing has risen on the back of larger investment projects*

### 19.      Under staff’s baseline scenario, Guinea Bissau’s public debt is brought back to a sustainable

### 19.      Under staff’s baseline scenario, Guinea Bissau’s public debt is brought back to a sustainable path, with overall public debt falling below 70 percent of GDP, the regional convergence criteria, by 2025.

### Baseline debt trajectory and key statistic
- Total public debt projected at end-2020: 78.4 percent of GDP.
- Projected total public debt by 2025 under staff’s baseline scenario: 69.6 percent of GDP.
- Target benchmark referenced: below 70 percent of GDP (the regional convergence criteria) by 2025.
- Assumptions for the baseline: successful execution of the policy agenda and absence of a more protracted pandemic.

### Policy actions required to achieve the baseline projection
- Fiscal consolidation and growth-oriented reforms:
  - Vigorous fiscal consolidation efforts including revenue enhancement measures.
  - Containing current spending below nominal GDP growth.
  - Continued implementation of growth-enhancing reforms.
- Borrowing and debt management:
  - Prudent borrowing policies, including avoidance of non-concessional project financing.
  - Enhanced debt management, including more rigorous compilation and monitoring of debts, upgraded procedures, and publication of regular debt reports to improve transparency.
- Project pipeline and investment prioritization:
  - Improved management of the existing loan pipeline.
  - Application of recognized assessment procedures to ensure criticality of investment projects.

### Potential improvements from full donor re-engagement
- Full donor re-engagement could further improve baseline debt dynamics through:
  - A significant scaling up of grants and concessional lending by multilateral institutions.
  - A reprofiling of selected debt obligations to extend maturities and reduce interest rates (which the authorities are actively discussing with various development partners).

### Downside risks to the baseline scenario
- Need for strong and sustained political commitment to deliver the envisaged medium-term fiscal adjustment embedded in the framework.
- High risk of a more prolonged fallout from the COVID-19 pandemic.

*Source: 1gnbea2021001 - 19. Under staff’s baseline scenario, Guinea Bissau’s public debt is brought back to a sustainable path, with overall public debt falling below 70 percent of GDP, the regional convergence criteria, by 2025.*

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

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

### Authorities' views and program intentions
- The authorities broadly concur with staff’s views on debt sustainability and the recommendations.
- They agree that debt sustainability depends crucially on sound macroeconomic policies including a strong and sustained fiscal consolidation.
- They emphasized that the pace of public investment would be determined by available external concessional resources.
- Some risks identified in this DSA may not materialize given concessional financing constraints.
- The authorities recognize the risks to the debt outlook and would like to request financial assistance from the IMF under the Rapid Credit Facility (RCF) in the amount of SDR 14.2 million.
- They intend to subsequently request a Staff-Monitored Program (SMP) to support their economic program and build a strong track record to pave the way to an arrangement under the Extended Credit Facility (ECF) as soon as conditions allow.

### Debt management capacity and technical assistance
- The authorities, with support from UNCTAD, are expected to fully deploy the new Debt Management and Financial Analysis system (DEMFAS) in 2021 to upgrade their current limited debt monitoring and reporting capacity.
- The authorities will undertake a Debt Management Performance Assessment (DEMPA) with assistance from the WB in 2021.
- Guinea-Bissau recently has and will continue to receive substantial technical assistance from the IMF and the WB to improve its reporting to the International Debt Statistics (IDS) and the Quarterly External Debt Statistics (QEDS).
- Guinea-Bissau raised CFAF 101 billion between January and September 2020, which was just 1.6 percent of total gross issuances of this market (regional financing to the 8 countries in this currency union).

### DSA projections and scenarios (selected indicators, 2020–30)
- External PPG MLT debt: baseline and stress-test scenarios presented in Figures 1–3 show multiple stress tests (commodity price, exports shock, depreciation, combination, natural disaster, combined contingent liabilities).
- Notation in stress tests:
  - "Yes" indicates any change to the size or interactions of the default settings for the stress tests.
  - "n.a." indicates that the stress test does not apply.
  - "Most extreme shock 1/": the test that yields the highest ratio in or before 2030; one-off breach treatment described in notes.
- Note: All additional financing needs generated by the shocks under the stress tests are assumed to be covered by PPG external MLT debt in the external DSA. Default terms of marginal debt are based on baseline 10-year projections.

### Selected baseline numerical projections and sustainability indicators (Table 1; percent of GDP unless otherwise indicated)
- External debt (nominal) 2017–2040 (selected years):
  - 2017: 17.3
  - 2018: 21.8
  - 2019: 25.3
  - 2020: 27.1
  - 2021: 27.9
  - 2022: 26.1
  - 2023: 24.2
  - 2024: 22.7
  - 2025: 21.4
  - 2030: 16.3
  - 2040: 13.5
- Change in external debt (selected): 2020: 1.9; 2021: 0.7; 2022: -1.7; 2023: -1.9; 2024: -1.5; 2030: -0.8; 2040: -0.1
- Identified net debt-creating flows (selected): 2020: 9.8; 2021: 4.2; 2022: 2.7; 2030: 0.4
- Non-interest current account deficit (selected):
  - 2019: 8.4
  - 2020: 9.9
  - 2021: 6.2
  - 2022: 5.3
  - 2023: 4.3
  - 2030: 2.8
- Exports (in percent of GDP; selected): 2019: 20.3; 2020: 14.4; 2021: 16.7; 2022: 17.5; 2023: 18.3; 2030: 16.3; 2040: 12.0
- Imports (in percent of GDP; selected): 2019: 34.9; 2020: 32.1; 2021: 31.5; 2022: 31.1; 2030: 27.9; 2040: 23.4
- Net current transfers (negative = inflow; selected): 2019: -3.9; 2020: -6.0; 2021: -7.1; 2022: -6.5; 2030: -5.5
- Net FDI (negative = inflow; selected): 2019: -5.0; 2020: -0.8; 2021: -1.5; 2022: -1.7; 2030: -1.7
- Endogenous debt dynamics (selected): 2019: 1.2; 2020: 0.7; 2021: -0.5; 2022: -0.9; 2030: -0.7
- Residual 3/ (selected): 2019: -1.2; 2020: -8.0; 2021: -3.4; 2022: -4.4; 2023: -3.5; 2030: -1.3
- Sustainability indicators (selected):
  - PV of PPG external debt-to-GDP ratio (selected series): 13.2; 15.2; 15.4; 14.7; 13.8; 13.0; 12.3; 9.4; 7.8
  - PV of PPG external debt-to-exports ratio (selected): 65.1; 105.7; 92.4; 84.2; 75.3; 71.4; 67.8; 57.8; 65.1
  - PPG debt service-to-exports ratio (selected): 13.9; 2.1; 2.5; 3.8; 4.1; 4.1; 4.9; 4.7; 4.7; 5.0; 4.2
  - PPG debt service-to-revenue ratio (selected): 30.2; 4.7; 4.0; 4.7; 5.2; 5.5; 6.7; 6.4; 6.3; 5.9; 3.5
- Gross external financing need (Million of U.S. dollars; selected): 2019: 57.2; 2020: 138.3; 2021: 88.3; 2022: 76.3; 2023: 67.9; 2030: 63.7; 2040: 130.5

### Key macroeconomic assumptions (Table 1 and Table 2)
- Real GDP growth (percent; selected):
  - 2017: 4.8
  - 2018: 3.4
  - 2019: 4.5
  - 2020: -2.4
  - 2021: 3.0
  - 2022: 4.0
  - 2023–2027: 5.0 each year
  - 2030: 5.0
  - 2040 (Table 1 reference): 4.0
- GDP deflator in US dollar terms (change in percent; selected): 2017: 12.7; 2018: -0.9; 2019: -8.5; 2020: 2.2; 2021: 10.8
- Effective interest rate (percent; selected): 2017: 0.7; 2018: 1.5; 2019: 0.7; 2020: 0.5; 2021: 0.7
- Growth of exports of G&S (US dollar terms, percent; selected): 2017: 20.0; 2018: 3.5; 2019: -24.8; 2020: -29.2; 2021: 32.5
- Growth of imports of G&S (US dollar terms, percent; selected): 2017: 21.0; 2018: 4.5; 2019: 7.6; 2020: -8.1; 2021: 11.9
- Grant element of new public sector borrowing (in percent; selected): 2021: 51.9; 2022: 37.6; 2023: 51.8; 2024: 51.9; 2025: 51.9; 2026: 51.8; 2027: 47.1; 2028: 51.0; 2030: 48.6
- Government revenues (excluding grants, in percent of GDP; selected): 2017: 11.8; 2018: 11.6; 2019: 12.5; 2020: 11.8; 2021: 13.1; 2022: 13.2; 2023: 13.3; 2024: 13.4; 2025: 13.5; 2030: 13.7
- Aid flows (Million of US dollars; selected): 2017: 82.8; 2018: 104.5; 2019: 51.1; 2020: 117.2; 2021: 97.9; 2025: 119.7; 2030: 185.3; 2040: 422.5
- Grant-equivalent financing (in percent of GDP; selected): 2021: 7.4; 2022: 6.4; 2023: 5.2; 2024: 4.9; 2025: 5.0; 2026: 5.0; 2027: 5.3; 2028: 5.4; 2030: 5.5
- Grant-equivalent financing (in percent of external financing; selected): 2021: 79.8; 2022: 75.0; 2023: 92.5; 2024: 92.1; 2025: 91.0; 2026: 90.6; 2027: 89.7; 2028: 89.3; 2030: 88.1
- Nominal GDP (Million of US dollars; selected): 2019: 1,440; 2020: 1,436; 2021: 1,639; 2022: 1,770; 2023: 1,920; 2024: 2,076; 2025: 2,241; 2030: 3,293; 2040: 7,110
- PV of external debt (in percent of GDP; selected): 13.2; 15.2; 15.4; 14.7; 13.8; 13.0; 12.3; 9.4; 7.8

### Public sector debt (Table 2; percent of GDP)
- Public sector debt 2017–2040 (selected):
  - 2017: 50.0
  - 2018: 59.2
  - 2019: 66.9
  - 2020: 78.4
  - 2021: 78.4
  - 2022: 76.7
  - 2023: 74.3
  - 2024: 71.9
  - 2025: 69.6
  - 2030: 60.4
  - 2040: 49.9
- Change in public sector debt (selected): 2019: 7.7; 2020: 11.4; 2021: 0.0; 2022: -1.7; 2023: -2.4; 2030: -1.6; 2040: -0.7
- Identified debt-creating flows (selected): 2020: 9.2; 2021: 0.0; 2022: -1.7; 2023: -2.4
- Primary deficit (selected): 2019: 2.8; 2020: 7.5; 2021: 2.6; 2022: 1.2; 2023: 1.0; 2030: 0.9
- Revenue and grants (percent of GDP; selected): 2017: 16.8; 2018: 15.2; 2019: 15.4; 2020: 17.2; 2021: 18.2; 2022: 18.0; 2030: 18.5
- Primary (noninterest) expenditure (percent of GDP; selected): 2017: 17.6; 2018: 19.5; 2019: 18.2; 2020: 24.6; 2021: 20.8; 2022: 19.2
- Automatic debt dynamics (selected): 2019: 0.9; 2020: 1.1; 2021: -2.6; 2022: -2.9; 2023: -3.4
- Other identified debt-creating flows (selected): 2017: -2.8; 2019: 0.4; 2020: 0.7; 2040 memorandum shows -10.0 in one cell
- Residual (selected): 2017: 4.5; 2018: 2.5; 2019: 3.6; 2020: 2.2

### Public debt sustainability indicators (selected)
- PV of public debt-to-GDP ratio (selected): 55.0; 65.7; 65.9; 65.2; 63.9; 62.2; 60.6; 53.5; 44.2
- PV of public debt-to-revenue and grants ratio (selected): 356.4; 382.7; 361.5; 363.4; 359.3; 348.4; 338.2; 289.6; 226.3
- Debt service-to-revenue and grants ratio 3/ (selected): 42.0; 35.1; 54.8; 56.3; 47.5; 42.3; 46.0; 54.0; 66.7; 47.6; 37.4
- Gross financing need 4/ (selected): 5.1; 9.4; 11.6; 17.8; 11.3; 8.8; 9.2; 10.6; 13.0; 9.7; 8.3

### Sensitivity analyses and stress tests (Tables 3 and 4; selected outcomes)
- Table 3 and Table 4 present alternative scenarios, bound tests, and tailored tests for key indicators (PV of debt-to-GDP ratio, PV of debt-to-exports ratio, debt service-to-exports ratio, debt service-to-revenue ratio, PV of debt-to-revenue ratio).
- Thresholds indicated in tables (examples): 30, 100, 140, 10, 14 (varies by indicator).
- Bold values in tables indicate breaches of thresholds or benchmarks.
- Examples of baseline and scenario values (selected excerpts):
  - Baseline PV of debt-to-GDP ratio (Table 3 projections): 2020–2030 series includes values such as 15, 15, 15, 14, 13, 12, 12, 11, 10, 10, 9 (presented as concatenated digits in the table).
  - Table 4 baseline PV of Debt-to-GDP Ratio (percent): 2020: 66; 2021: 66; 2022: 65; 2023: 64; 2024: 62; 2025: 61; 2026: 59; 2027: 58; 2028: 56; 2029: 55; 2030: 54
  - Table 4 TOTAL public debt benchmark constant series: 35 repeated across projection years.

### Relations with the IMF (as of December 31, 2020) and recent RBSA commitments
- Membership: Joined March 24, 1977; Article VIII.
- Quota: 28.40 (SDR Million), Percent Quota: 100.00.
- Fund holdings of currency (Exchange Rate): 24.38 (85.84 percent of quota).
- Reserve Tranche Position: 4.04 (14.23 percent of quota).
- SDR Department net cumulative allocation: 13.60 (100.00); holdings: 18.17 (133.52).
- Outstanding purchases and loans (SDR Million, Percent Quota):
  - RCF Loans: 2.84 (10.00)
  - ECF Arrangements: 17.48 (61.55)
- Latest financial commitments (selected):
  - ECF Jul 10, 2015 – Jul 09, 2019: Amount Approved (SDR Million) 22.72; Amount Drawn 17.04
  - ECF May 07, 2010 – May 06, 2013: 22.37 approved; 15.12 drawn
  - ECF Dec 15, 2000 – Dec 14, 2003: 14.20 approved; 5.08 drawn
  - RCF Nov 03, 2014 – Nov 12, 2014: 3.55 approved; 3.55 drawn
- Projected payments to Fund (SDR Million; forthcoming):
  - Principal: 2021: 1.72; 2022: 2.30; 2023: 3.82; 2024: 4.12; 2025: 3.41
  - Charges/Interest: 0.00 for 2021–2025 in the table
  - Total: equals Principal series above
- Implementation of HIPC Initiative (selected):
  - Decision point date: Dec 2000
  - Assistance committed by all creditors (US$ Million): 421.70
  - Of which IMF assistance (US$ million): 11.91 (SDR equivalent 9.20)
  - Completion point date: Dec 2010
  - Disbursement of IMF assistance (SDR Million) – Assistance disbursed to the member: 9.20; Interim assistance: 1.56; Completion point balance: 7.64; Additional disbursement of interest income: 0.23; Total disbursements: 9.43
- Implementation of MDRI:
  - MDRI-eligible debt (SDR Million): 0.51
- Implementation of Catastrophe Containment Relief (CCR):
  - Apr 13, 2020: Amount Committed 1.08 (SDR million); Amount Disbursed 1.08
  - Oct 02, 2020: Amount Committed 1.36; Amount Disbursed 1.36
- Safeguards assessments: BCEAO safeguards assessment finalized in April 2018; next scheduled in 2022. Financial statements prepared in accordance with IFRS and published on its website.

### Relations with other financial institutions
- World Bank: World Bank Group projects and country page referenced.
- African Development Bank: country page referenced.

### Authorities' statement (January 25, 2021) — key points
- Statement thanks staff and Board for support.
- Covid-19 pandemic severely hit Guinea-Bissau, compounding a collapse of cashew prices and recent floods; containment and mitigation measures caused a drastic fall in economic activity.
- Substantial fiscal and external financing gaps emerged; tighter global conditions and sudden drop in cashew demand weakened the outlook.
- Authorities are requesting IMF emergency assistance under the RCF in the amount of SDR 14.2 million, equivalent to 50 percent of quota, to cover urgent financing needs.
- The IMF disbursement is expected to help catalyze assistance from other development partners.
- Authorities have also requested debt service suspension from official creditors under the G-20 Debt Service Suspension Initiative (DSSI).
- Early-2020 expectations (pre-pandemic) had projected Real GDP growth to reach 4.9 percent supported by a strong cashew campaign and higher cashew nuts prices; the pandemic and shocks reversed this outlook.

*Sources: Country authorities; and staff estimates and projections.*

### 5.4 percent of GDP compared to after-shock projection of 10 percent.

### 1gnbea2021001 - 5.4 percent of GDP compared to after-shock projection of 10 percent.

### Economic impact and outlook
- The COVID-19 pandemic has severely impacted Guinea-Bissau’s economy.
- As of January 18, 2021, there were 2,510 cases in the country, with 45 confirmed deaths for a population of only 1.8 million.
- Weaker external demand for cashew nuts (which represents over 90 percent of exports) and recent floods put main crops, including rice, at risk.
- Real GDP is expected to contract by 2.4 percent in 2020 against 4.9 percent growth initially projected and 4.5 percent recorded in 2019.
- The recession has hurt fiscal revenues and, together with COVID-19 related expenditures, is widening financing needs.
- Balance of payments and fiscal gaps are expected to widen to 7.5 and 8.8 percent of GDP, respectively.
- The budget allocation to meet immediate pandemic needs is estimated to amount to 5.2 percent of GDP in 2020.

### Policy response to the pandemic — Fiscal policy
- Immediate measures implemented to:
  - Accommodate health-related expenses.
  - Provide cash support and food supply to vulnerable groups, including food supply to 20,000 families.
  - Clear arrears and support the cashew nut sector to resume the cashew campaign.
- Transparency, accountability, and controls:
  - Request that the RCF be disbursed directly to a devoted account at the Central Bank to ensure traceability and accountability.
  - Reestablished the Treasury Committee to approve all expenditures, including COVID-19 related ones.
  - Commitment to an ex-post audit of all pandemic-related spending by an independent firm with support of the National Audit Court (Tribunal de Contas); findings will be posted on the official website nine months after the fiscal year ends.
  - Commit to publish procurement contracts, information on awarded companies, amounts dispensed, and pandemic-related spending reports.
  - Implement transparent approval and reporting processes to monitor allocation of resources on-lent to banks supporting the cashew nut sector.
  - Commitment to implement recommendations in the 2020 IMF Technical Report on Governance and Anti-corruption.
- Fiscal consolidation and targets:
  - Plan to resume fiscal consolidation once the crisis recedes and bring the deficit to 3 percent of GDP in 2024, consistent with the WAEMU convergence criterion and the debt-to-GDP ratio ceiling of 70 percent by 2025.
  - 2021 budget (parliament-approved in December) aims to reduce the fiscal cash deficit to 7.6 percent of GDP and raise tax revenue to 9.8 percent of GDP, including through implementation of the Ministerial Decree that approves the Sales Tax Electronic Return starting on January 1, 2021.
  - Spending-side adjustments include ongoing reductions in the wage bill through freezing salary growth and new hires, lowering transfers to SOEs, and improving expenditure control.
  - If donor support falls short, authorities will rationalize non-priority spending and scale back non-urgent public investments.
- Debt management:
  - Authorities noted the Debt Sustainability Analysis (DSA) indicates overall risk of debt distress is high.
  - Intend to rely on grants and concessional borrowing and continue extending the debt maturity profile as part of debt management strategy.

### Policy response to the pandemic — Financial sector policies
- BCEAO measures to address liquidity pressures and preserve financial stability in the Union:
  - Introduced a full allotment strategy at a fixed interest rate of 2.5 percent.
  - Cut the policy rate and interest rate corridor to ease monetary stance further.
  - Extended the collateral framework to access central bank refinancing.
  - Launched a special 3-month "COVID-19 T-Bills" to help meet pandemic funding needs.
- Guinea-Bissau authorities issued CFAF 15 billion in COVID-19 T-bills at an average effective rate of 3 percent to support cashew sector companies via on-lending by commercial banks.
- Authorities remain mindful of vulnerabilities from undercapitalized banks and NPLs and commit to work with regional authorities and implement measures necessary for regulatory compliance.

### Program engagement and requests
- Authorities requested a Staff-Monitored Program (SMP) to support their economic program and build a track record before transitioning to an Extended Credit Facility (ECF) as soon as possible.
- SMP objectives include framing economic policy for coming years, strengthening resilience to shocks, reducing cashew dependency, diversifying the economy, and promoting strong and inclusive growth.
- Authorities emphasized the importance of international support and the Fund’s catalytic role to fill remaining financing gaps.
- Authorities seek Executive Directors’ favorable consideration of their emergency assistance request under the RCF.

*Source: 1gnbea2021001 - 5.4 percent of GDP compared to after-shock projection of 10 percent.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1gnbea2021001.pdf_