## 1gnbea2021002 ## Source details **Canonical URL:** [1gnbea2021002](https://www.imf.org/-/media/files/publications/cr/2021/english/1gnbea2021002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1gnbea2021002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1gnbea2021002.pdf.json) --- ### Executive summary — context, outlook, and financing - Guinea-Bissau is a fragile state with considerable needs to fight the COVID-19 pandemic and address developmental challenges. - Economic performance and outlook: - Estimated GDP contraction in 2020: 1.4 percent. - Projected GDP growth for 2021: about 3.3 percent. - 2022 projections: 5.0 percent. - Outlook subject to considerable uncertainty and significant downside risks. - Financing and external support: - RCF disbursement: SDR 14.2 million (50 percent of quota), approved in January (covers 35 percent of the external gap in 2021). - Debt service relief under the CCRT and participation in the DSSI expected to provide fiscal space. - Socioeconomic context: - About 67 percent of the population living below the poverty line of US$1.90 per day. - UN Human Development Index rank: 175 out of 189 (2020). - Economy highly reliant on unprocessed cashew nuts; 70 percent of the labor force in agriculture. ### Program design, objectives, and modalities - Program anchor and objectives: - SMP anchored on securing debt sustainability. - SMP objectives: securing debt sustainability, supporting credible fiscal consolidation, improving governance and transparency. - Duration and review schedule: - Nine-month Staff-Monitored Program (SMP), June 2021–March 2022. - Quarterly reviews: first (end-June targets) to be completed by end-September 2021; second (end-September) by end-December 2021; third (end-December) by end-March 2022. - Quantitative targets (cumulative from beginning of calendar year): - Floor on total tax revenues. - Zero ceiling on new non-concessional external debt. - Zero ceiling on new domestic arrears. - Zero ceiling on new external payments arrears of the central government. - Floor on priority spending. - Floor on domestic primary balance. - Zero ceiling on non-regularized expenditures (DNTs). - Structural benchmarks: - 11 structural benchmarks focusing on PFM, tax and customs reforms, governance and anticorruption, and financial stability. - Selected SB timelines: End-July 2021, End-September 2021, End-December 2021. ### Fiscal policy stance, consolidation, and public finances - Fiscal impact of the COVID-19 shock (2020): - Overall budget cash deficit widened to 10.6 percent of GDP in 2020 (vs 5.4 percent pre-pandemic expectation). - Tax revenues dropped to 8.2 percent of GDP (2020) from 9.7 percent projected in January 2020. - Additional COVID-19-related current expenditures: 0.8 percent of GDP. - COVID-19-related capital expenditures: 2.6 percent of GDP. - Onlending to banks to support cashew campaign increased financing needs by 1.8 percent of GDP. - Debt increased by an estimated 13.4 percentage points of GDP in 2020. - Debt service to revenue excluding grants increased from 67.4 percent in 2019 to 75.9 percent in 2020. - External arrears incurred: US$1.8 million (mostly resolved Q1 2021); domestic arrears: CFAF 5.8 billion. - Guinea-Bissau assessed at high risk of debt distress. - Fiscal consolidation targets/strategy: - Authorities committed to bring fiscal deficit and debt ratio within 3 percent and 70 percent of GDP, respectively, by 2025 and 2026 (WAEMU criteria). - Consolidation measures: wage-bill rationalization, tax and non-tax measures, reductions in transfers to SOEs and non-essential transfers. - Estimated fiscal yields from tax and non-tax measures in 2021: 0.6 percent of GDP. - Social and priority spending floor protected; vaccination costs and health prioritized. - Key fiscal numbers (commitment basis, percent of GDP): - Overall balance including grants: 2019 -3.9; 2020 pre-shock -9.5; 2021 -5.0; 2022 -4.6; 2025 -3.0; 2026 -3.0. - Excluding grants: 2019 -6.8; 2020 pre-shock -13.7; 2021 -10.4; 2022 -9.5; 2026 -7.4. - Domestic primary balance (memorandum): 2019 -1.4; 2020 -4.1; 2021 -1.8; 2022 -1.2; 2025 0.6; 2026 0.5. ### Debt sustainability assessment (DSA) and debt management - DSA findings and baseline: - Public debt rose to 79.3 percent of GDP in 2020 (increase of 13.4 percentage points). - Staff projects a gradual decline of PV of public debt relative to GDP, targeting about 70 percent by end-2026 under the baseline with credible policies and donor engagement. - Risk of external debt distress: High. - Overall risk of public debt distress: High. - Debt assessed as sustainable in a forward-looking sense conditional on: ambitious fiscal adjustment; prudent borrowing (avoid non-concessional project financing); enhanced debt management; cautious pipeline management. - Debt composition and key figures: - Total public debt (percent of GDP): 2019 65.9; 2020 pre-shock 71.5; 2020 after shock 79.3; 2021 pre-shock 71.1; 2021 after shock 78.4; 2022 71.1. - Central government debt (CFAF billion): 2018 Act. 494.6 (59.2 percent of GDP); 2019 Act. 555.6 (65.9 percent); 2020 Prel. 653.4 (79.3 percent); 2021 Proj. 685.2 (78.4 percent). - External debt (percent of GDP): 2018 21.8; 2019 24.2; 2020 25.4; 2021 26.7. - Domestic debt (percent of GDP): 2018 37.3; 2019 41.7; 2020 53.9; 2021 51.7. - Stock of contracted but undisbursed debt (end-2020): CFAF 175 billion (21 percent of GDP). - Share of external debt: 32 percent of total debt (25.4 percent of GDP at end-2020). - Stress tests and capacity: - Composite Indicator (CI) score: 2.54 (weak debt-carrying capacity). - Combined contingent liabilities shock used: 6.5 percent of GDP (increased from default 2 percent). - Tailored commodity price shock: hypothetical 15 percent fall in cashew export prices in first year. - Under adverse shocks PV of debt-to-GDP and debt-service indicators breach benchmarks; staff judgement supports a ‘high’ external risk rating despite some mechanical indicators. - Debt management reforms and commitments: - Seek long-term TA to improve debt recording, monitoring and debt management. - Publish annual debt reports covering service, disbursements and agreements; first report covering 2019–2020 published in June 2021. - Create National Committee of Debt Policy; organize and operationalize Direção Geral da Dívida Publica. - Contract future debt only on highly concessional terms; rank investments by cost-benefit and macro impact. - Start quarterly PIU meetings and prepare quarterly PIP execution reports; design a three-year PIP integrated with the MTEF. ### External sector, balance of payments, and financing gap - External sector developments (selected): - Trade deficit widened to 16.3 percent of GDP in 2020 driven by a 15.5 percent decline in cashew nut exports. - Current account deficit excluding COVID-related grants deteriorated to 8.8 percent of GDP in 2020. - Overall BOP position in 2020 deteriorated by 8.6 percentage points of GDP relative to pre-shock projection (excluding COVID-related financing). - Selected external sector projections (CFAF billion and percent of GDP): - Current Account Balance: 2019 -40.4 (-4.5 percent of GDP); 2020 -72.1 (-8.8 percent); 2021 -88.4 (-10.1 percent). - Trade balance: 2019 -104.1 (-11.7 percent); 2020 -134.5 (-16.3 percent); 2021 -140.2 (-16.0 percent). - Exports of goods and services: 2019 171.4 (19.2 percent); 2020 125.3 (15.2 percent); 2021 144.8 (16.6 percent). - Cashew nuts exports: 2019 138.8 (15.5 percent); 2020 110.4 (13.4 percent); 2021 120.6 (13.8 percent). - Financing gap (excess of financing -): 2019 -7.0 (-0.8 percent); 2020 64.1 (7.8 percent); 2021 31.4 (3.6 percent). - Financing sources and composition (2020–21): - Net foreign assets, grants and loans from IFIs, additional financing from regional commercial banks. - Recent RCF disbursement should finance about 35 percent of the projected BOP gap of CFAF 31.4 billion (3.6 percent of GDP) in 2021. - Other multilateral and bilateral concessional financing expected to reduce recourse to expensive regional financing. ### COVID-19 response, vaccination, and health spending - Containment measures implemented: school closures (March–October 2020; January–February 2021), mandatory negative PCR test for travelers within 72 hours, prohibition of social gatherings, mandatory masks and physical distancing. - Vaccination planning: - About 144,000 doses (AstraZeneca/SII) planned to be delivered by end-September (year implied in source). - Planned initial coverage: 20 percent in the first phase. - Authorities plan to vaccinate 1.4 million people by end-first quarter of 2022. - Vaccination campaign estimated cost: around CFAF 9 billion (1 percent of GDP), planned to be foreign financed by grants. - COVID-related fiscal spending (CFAF billion and percent of GDP): - Current expenditures total: 2020 6.8 (0.8 percent of GDP); 2021 4.0 (0.5 percent). - Health sector (current): 2020 4.7 (0.6 percent); 2021 3.0 (0.3 percent). - Transfers to vulnerable families: 2020 0.7 (0.1 percent); 2021 0.5 (0.1 percent). - Capital expenditures: 2020 21.3 (2.6 percent); 2021 22.9 (2.6 percent). - Equipment, infrastructure and foreign-financed vaccine costs: 2020 21.3 (2.6 percent); 2021 19.4 (2.2 percent). - Total expenditures: 2020 28.1 (3.4 percent); 2021 26.9 (3.1 percent). - Onlending to banks: 2020 15.0 (1.8 percent); 2021 0.0 (0.0 percent). - Total Expenditure and Support to Sectors: 2020 43.1 (5.2 percent); 2021 26.9 (3.1 percent). ### Financial sector vulnerabilities and stability measures - Banking sector developments: - Systemically important bank remained undercapitalized despite a government recapitalization in December 2019; undercapitalized bank recovered part of NPLs in 2020 and resumed restructuring with investor outreach. - Negative capital level of banking system driven by the undercapitalized systemic bank; other local banks have adequate capital levels. - Credit to the economy increased modestly in 2020; BCEAO liquidity provision avoided a credit crunch. - Political crisis and COVID-19 led to sharp decline in pre-financing to farmers and exporters ahead of the cashew campaign. - Financial soundness indicators (selected, percent): - Gross NPLs to total loans (selected years): 43.4; 8.4; 11.5; 37.4; 26.3; 25.4; 20.3. - Provisions to gross NPLs (selected years): 46.2; 46.7; 45.0; 64.8; 67.3; 65.3; 65.7. - Total loans to total deposits (selected years): 82.8; 93.6; 92.0; 89.1; 102.5; 106.5; 94.8. - Financial sector policy commitments: - Government will refrain from allocating additional public resources to the large bank where it became a major shareholder. - Prepare a viable strategy to disengage from the bank by 2024 as agreed with the regional Banking Commission (SB end-December 2021). - Full operationalization of a WAEMU-wide bank resolution framework expected in 2021–2022. ### Risks, scenarios, and Risk Assessment Matrix (RAM) - Baseline assumption: pandemic subsides globally and local effects moderate after mid-2021. - Key downside risks (selected): - Failure to contain the disease; deeper or prolonged pandemic. - Disruption of cashew trade and weaker international cashew nut prices. - Renewed political uncertainties and social tensions. - Severe climate change-related natural disasters. - Financial stress in SOEs and banking fragilities (high NPLs and undercapitalization). - RAM probabilities and impacts (examples): - Uncontrolled Covid-19 local outbreaks: Medium likelihood; High / ST expected impact. - Further adverse cashew nut price movements: High likelihood; Medium expected impact. - Social discontent and political instability: High likelihood; High / ST expected impact. - Mitigating policies: - Prioritize health and social protection spending. - Mobilize additional grants and concessional financing. - Control public expenditures and preserve priority social spending. - Implement credible SOE and banking sector reforms; enhance supervision and contingency planning. - Stress-test design: - Combined contingent liabilities shock: 6.5 percent of GDP (includes potential bank recapitalization, EAGB operational losses, guarantees, possible larger domestic arrears). - Tailored commodity price shock: 15 percent fall in cashew export prices in first year. ### Governance, PFM, anticorruption and structural reforms - PFM and governance priorities: - Strengthen cash management and expenditure control; reestablish and maintain weekly Treasury Committee meetings. - Advance Treasury single account implementation: appoint team; require Minister of Finance prior authorization for opening public bank accounts; identify all public bank accounts. - Amend legal procurement framework to enable collection and publication of beneficial ownership information (threshold to be defined). - Issue executive order to end hiring without contract; enforce financial controller control over all public salaries; reconcile personnel and payroll records. - Finalize governance safeguards for COVID spending by end of the third quarter of 2021; crisis funds managed in a dedicated BCEAO account and subject to ex-post independent audit. - Revenue mobilization and digitalization: - Submit revised general tax code and revised tax penalty regime (SB end-July 2021); submit new VAT bill (SB end-December 2021). - Implement Kontaktu electronic tax returns and payments: pilot phase (SB end-July 2021); full implementation (SB end-September 2021). - Create Gabinete de Política Fiscal to direct tax reform legislative proposals (end-July 2021). - SOE governance: - Steps to strengthen management of EAGB; EAGB non-publicly guaranteed debt estimated at 2.5 percent of GDP. - Publish follow-up report on Tribunal de Contas audit recommendations for EAGB. ### Program monitoring, TMU definitions, and reporting - Technical Memorandum of Understanding (TMU): - Program exchange rate for 2021: CFAF 538.36/US$. - Definitions provided for tax revenue, new non-concessional external debt, new external payment arrears, new domestic arrears, social and priority spending, domestic primary balance, NCG, etc. - Government reporting commitments: report new external borrowing within two weeks; report non-regularized expenditures within one week. - Quantitative tests and memorandum items (selected cumulative targets, CFAF billion or US$): - Total domestic tax revenue (floor): 67.8 (Mar.); 15.9 (Jun.); 38.2 (Sep.); 62.8 (Dec. Est.); 87.9 (Est./end). - Ceiling on new non-concessional external debt (US$ millions): 0.0 (continuous). - New external payment arrears (US$ millions, ceiling): 1.8 (Mar.), 0.0 (continuous). - New domestic arrears (ceiling): 5.8 (Mar.), 0.0 (continuous). - Social and priority spending (floor): 64.2 (Mar.); 15.8 (Jun.); 27.2 (Sep.); 38.7 (Dec. Est.); 50.1 (Est./end). - Domestic primary balance (commitment basis, floor): -33.5 (Mar.); -15.0 (Jun.); -16.4 (Sep.); -23.4 (Dec. Est.); -15.4 (Est./end). - Memorandum: External budgetary assistance (US$ millions): 0.0; 0.0; 1.8; 1.8; 6.9 (quarterly series). - Reporting timetable highlights: - Fiscal sector: monthly, 30 days after month end. - Debt sector: monthly, 30 days after month end. - Monetary/financial sector: monthly, 45 days after month end. ### Staff appraisal, capacity development, and recommended priorities - Staff appraisal and outlook: - After contraction of 1.4 percent in 2020, modest recovery of about 3.3 percent projected for 2021 (below pre-COVID forecast of 5 percent). - Macroeconomic stability and debt sustainability hinge on fiscal consolidation and prudent debt management. - Staff strongly recommends preparing a viable strategy to disengage from the undercapitalized systemic bank by 2024. - Timely implementation of governance, PFM, tax and customs reforms, anticorruption measures and SOE risk mitigation will be key to SMP success. - Capacity development and TA: - Authorities committed to leverage TA; progress noticeable in revenue, customs administration, tax policy and PFM since 2020. - IMF to provide tailored TA across SMP policy areas to mitigate capacity constraints. - Implementation risks: - Significant given fragility, political risks, weak capacity, exposure to commodity price volatility, tensions over new taxes, and public sector capacity constraints. - Authorities committed to further rationalize expenditures should downside risks materialize. *IMF Country Report: Guinea-Bissau — Staff-Monitored Program and Debt Sustainability Analysis (content unit 1gnbea2021002).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context - Guinea-Bissau is a fragile state with considerable needs to fight the COVID-19 pandemic and address developmental challenges. - Economic performance and outlook: - Estimated GDP contraction in 2020: 1.4 percent. - Projected GDP growth for 2021: about 3.3 percent, supported by higher cashew exports, gradual lifting of COVID containment measures, and a more stable political situation. - Outlook subject to considerable uncertainty. - Financing and external support: - An RCF disbursement of SDR 14.2 million (50 percent of quota) was approved in January to provide urgent financing (35 percent of the external gap in 2021) to support critical spending in health and catalyze additional donor resources. - Debt service relief under the CCRT has provided some fiscal space; participation in the DSSI should help mobilize additional resources. - Fiscal and debt objectives: - After the 2021 budget approval within statutory deadlines, significant and sustained reforms are required to meet the WAEMU 3 percent of GDP overall balance criteria by 2025 and bring public debt-to-GDP ratio within 70 percent by end-2026. - Socioeconomic context: - About 67 percent of the population living below the poverty line of US$1.90 per day. - Country ranks 175 out of 189 on the UN Human Development Index (2020). - Economy highly reliant on unprocessed cashew nuts; 70 percent of the labor force in agriculture. ### Policies in the program - Program anchor: - The program is anchored on securing debt sustainability. - Debt sustainability measures: - Undertake an ambitious fiscal adjustment. - Rely on grants and concessional lending. - Prioritize undisbursed committed project loans, pacing disbursements according to public investment returns and absorption capacity. - Continue debt rescheduling/reprofiling negotiations with bilateral and multilateral lenders. - Mitigate contingent liabilities by formulating a plan for disengaging from an undercapitalized bank by 2024 and strengthening the financial viability of the electricity utility company. - Fiscal space and social/public investment: - Reduce the overall fiscal balance (in large part unwinding one-off pandemic implications) based on the 2021 budget while avoiding arrears accumulation and expensive non-concessional borrowing. - Strengthen revenue mobilization and expenditure containment, including in the wage bill, to create fiscal space to increase social spending in education, health, and pandemic-related expenditures and to undertake key infrastructure investments. - Authorities committed to bring the fiscal deficit and debt ratio within 3 percent and 70 percent of GDP, respectively, by 2025 and 2026 in line with WAEMU convergence criteria. - Governance, anticorruption, and PFM reforms under the SMP: - Strengthen cash management and expenditure control. - Advance implementation of the Treasury single account. - Improve tax and custom frameworks. - Amend the legal procurement framework to enable the collection and publication of beneficial ownership information. - Review the asset declaration regime with IMF technical assistance during the SMP. - Finalize implementation of governance safeguards for COVID spending by end of the third quarter of 2021. ### Program modalities and targets - Duration and review schedule: - Nine-month Staff-Monitored Program (SMP) with quarterly reviews, from June 2021–March 2022. - First review: based on end-June targets/benchmarks, to be completed by end-September 2021. - Second review: based on end-September targets/benchmarks, to be completed by end-December 2021. - Third review: based on end-December targets/benchmarks, to be completed by end-March 2022. - Quantitative targets comprise: - (i) a floor on total tax revenues; - (ii) a zero ceiling on new non-concessional external debt; - (iii) a zero ceiling on new domestic arrears; - (iv) a zero ceiling on new external payments arrears of the central government; - (v) a floor on priority spending; - (vi) a floor on domestic primary balance; - (vii) a zero ceiling on non-regularized expenditures. - Structural benchmarks: - There are 11 structural benchmarks focusing on public financial management (PFM), tax and custom framework reforms, governance and anticorruption efforts, and financial stability. ### Recent economic developments and outlook - 2020 outcome and drivers: - Real GDP estimated to have contracted by 1.4 percent in 2020. - Containment and lockdown measures weighed on employment, consumption, and investment. - Delayed cashew campaign and severe floods in September 2020 disrupted activity. - Average price inflation accelerated to 1.5 percent from 0.3 percent in 2019. - External sector and financing gap: - In 2020, excluding COVID-related additional financing, overall BOP position deteriorated by 8.6 percentage points of GDP relative to pre-shock projection. - Trade deficit estimated to have widened to 16.3 percent of GDP driven by a 15.5 percent decline in cashew nut exports. - Current account deficit excluding COVID-related grants deteriorated to 8.8 percent of GDP. - Estimated financing gap of CFAF 64.1 billion (7.8 percent of GDP) was covered by net foreign assets, grants and loans from IFIs, and additional financing from regional commercial banks. Key figures from the revised macroframework (as presented) - Real GDP (percent change): - 2019: 4.5 - Pre-shock (proj. January 2020) for 2020: 4.9 - 2020 estimates: -1.4 - 2021 projections: 3.3 - 2022 projections: 5.0 - CPI inflation, average (percent): - 2019: 0.3 - 2020: 1.5 - 2021: 1.5 - 2022: 1.8 - Current account (percent of GDP): - 2019: -8.8 - 2020 pre-shock: -4.5 - 2020 after shock: -8.3 - 2021 after shock: -8.5 - Overall fiscal balance, cash basis incl. grants (percent of GDP): - 2019: -4.9 - 2020 pre-shock: -5.4 - 2020 after shock: -9.4 - 2021 pre-shock: -5.3 - 2021 after shock: -6.6 - 2022 projections: -5.2 - Total public debt (percent of GDP): - 2019: 65.9 - 2020 pre-shock: 71.5 - 2020 after shock: 79.3 - 2021 pre-shock: 71.1 - 2021 after shock: 78.4 - 2022 projections: 71.1 Selected external sector projections (Text Table 2 highlights) - Current Account Balance: - 2019: -40.4 (CFAF billion) -4.5 percent of GDP - 2020 estimates: -72.1 (CFAF billion) -8.8 percent of GDP - 2021 projections: -88.4 (CFAF billion) -10.1 percent of GDP - Trade balance: - 2019: -104.1 (CFAF billion) -11.7 percent of GDP - 2020: -134.5 (CFAF billion) -16.3 percent of GDP - 2021: -140.2 (CFAF billion) -16.0 percent of GDP - Exports of goods and services: - 2019: 171.4 (CFAF billion) 19.2 percent of GDP - 2020: 125.3 (CFAF billion) 15.2 percent of GDP - 2021: 144.8 (CFAF billion) 16.6 percent of GDP - Cashew nuts exports (component of exports): - 2019: 138.8 (CFAF billion) 15.5 percent of GDP - 2020: 110.4 (CFAF billion) 13.4 percent of GDP - 2021: 120.6 (CFAF billion) 13.8 percent of GDP - Financing gap (excess of financing -): - 2019: -7.0 (CFAF billion) -0.8 percent of GDP - 2020: 64.1 (CFAF billion) 7.8 percent of GDP - 2021: 31.4 (CFAF billion) 3.6 percent of GDP - Additional financing sources in 2020–21 included disbursements and grants from IMF (RCF), World Bank, BOAD, AfDB, IDB, other IFIs, and other grants as detailed in the table. COVID-19 response measures and spending (Box 1 summary) - Health and containment measures included school closures (March-October 2020, and again in January-February 2021), mandatory negative PCR test for travelers (within 72 hours), prohibition of social gatherings, and mandatory use of masks and physical distancing. - Vaccination planning: - About 144,000 doses (AstraZeneca/SII) planned to be delivered by end-September (year implied in source). - Planned initial coverage: 20 percent in the first phase (Box 1). - Authorities plan to vaccinate 1.4 million people by the end-first quarter of 2022. - Fiscal COVID-related expenditures and support (selected figures): - Current expenditures total (2020): 6.8 (CFAF billion) 0.8 percent of GDP; (2021): 4.0 (CFAF billion) 0.5 percent of GDP. - Health sector (current) (2020): 4.7 (CFAF billion) 0.6 percent of GDP; (2021): 3.0 (CFAF billion) 0.3 percent of GDP. - Transfers to vulnerable families (2020): 0.7 (CFAF billion) 0.1 percent of GDP; (2021): 0.5 (CFAF billion) 0.1 percent of GDP. - Capital expenditures (2020): 21.3 (CFAF billion) 2.6 percent of GDP; (2021): 22.9 (CFAF billion) 2.6 percent of GDP. - Equipment, infrastructure and foreign-financed vaccine related costs (2020): 21.3 (CFAF billion) 2.6 percent of GDP; (2021): 19.4 (CFAF billion) 2.2 percent of GDP. - Total expenditures (2020): 28.1 (CFAF billion) 3.4 percent of GDP; (2021): 26.9 (CFAF billion) 3.1 percent of GDP. - Onlending to banks (2020): 15.0 (CFAF billion) 1.8 percent of GDP; (2021): 0.0 (CFAF billion) 0.0 percent of GDP. - Total Expenditure and Support to Sectors (2020): 43.1 (CFAF billion) 5.2 percent of GDP; (2021): 26.9 (CFAF billion) 3.1 percent of GDP. ### Risks - The outlook is subject to significant downside risks. - Baseline projections assume the pandemic subsides globally and its effects moderate locally after mid-2021. - A deeper or more prolonged global or domestic pandemic would severely impact the economic outlook, increase social tensions, and could trigger renewed political instability. *IMF Executive Summary for Guinea-Bissau (SMP/RCF context), July 19, 2021.* ### 3.9 percent of GDP in 2019 (Table 3b). Excluding additional financing (Text Table 3) the overall ### 1gnbea2021002 - 3.9 percent of GDP in 2019 (Table 3b). Excluding additional financing (Text Table 3) the overall ### Fiscal impact of the COVID-19 shock (2020) - Overall budget cash deficit widened to 10.6 percent of GDP in 2020, compared to 5.4 percent of GDP expected before the pandemic. - Tax revenues dropped to 8.2 percent of GDP, compared to 9.7 percent projected in January 2020. - Declines driven by lower tax revenues from cashew nut exports (15 percent of tax revenues in 2019), duties and sales tax on imports (32 percent), and weaker tax compliance. - Additional COVID-19-related current expenditures amounted to 0.8 percent of GDP (healthcare, vulnerable families support and other current expenditures). - COVID-19-related capital expenditures estimated at 2.6 percent of GDP. - Program to support financing of the cashew nut campaign by onlending through the banking sector increased financing needs by 1.8 percent of GDP. - Additional financing provided by international donors and regional instruments included World Bank, IMF’s CCRT, Islamic Development Bank, West African Development Bank (BOAD), and Treasury issuances placed with WAEMU commercial banks. - As a result, in 2020 debt increased by an estimated 13.4 percentage points of GDP. - Debt service burden increased: the ratio of debt service to revenue excluding grants increased from 67.4 percent in 2019 to 75.9 percent in 2020. - Given tight fiscal position, Guinea-Bissau incurred US$1.8 million external (mostly resolved in the first quarter of 2021) and CFAF 5.8 billion domestic debt service arrears. - Guinea-Bissau is assessed at high risk of debt distress (Paragraph 17). ### Financial sector developments - Economic downturn and heightened uncertainty weigh on an already fragile banking system. - Liquidity supported by accommodative stance of the BCEAO. - A systemically important bank remained undercapitalized despite a government recapitalization in December 2019. - The negative capital level of the banking system is caused by the undercapitalized systemic bank; other local banks have adequate capital levels (Table 5). - In 2020 the undercapitalized bank recovered part of loans considered non-performing and resumed its restructuring plan, prospecting potential investors with support from an external M&A consultant. - Government settled litigation with another local bank in December 2020 by settling cross liabilities with the bank’s debtors, reducing that bank’s NPLs. - Credit to the economy increased modestly in 2020 after strong growth in recent years, indicating BCEAO liquidity provision avoided a credit crunch and allowed local banks to accumulate net foreign assets by acquiring sovereign bonds in the regional market. - Political crisis and COVID-19 led to a sharp decline in pre-financing usually provided to farmers and exporters ahead of the cashew campaign. ### 2021 outlook and macro projections - Growth: - GDP is projected to grow by 3.3 percent in 2021, supported by gradual lifting of COVID containment measures and higher cashew export prices and volumes. - Inflation: - Inflation is expected to increase to 1.9 percent in 2021, from 1.5 percent in 2020. - External sector and balance of payments: - Exports value expected to grow by 9.4 percent in 2021, contributing about one percentage point of GDP to the current account. - Net foreign assets of commercial banks expected to remain stable in 2021. - Recent RCF disbursement should finance about 35 percent of the projected BOP gap of CFAF 31.4 billion (3.6 percent of GDP). - Other multilateral and bilateral concessional financing expected to reduce recourse to expensive regional financing. - Uncertainty and risks: - Outlook highly uncertain and risks are tilted to the downside (RAM, Annex I). - Key downside risks: failure to contain the disease, disruption of cashew trade, renewed political uncertainties, severe climate change-related natural disasters, financial stress in SOEs and banking fragilities (high NPLs and undercapitalization), weaker than projected recovery in international cashew nut prices. - Upside: faster containment of the pandemic would accelerate normalization of trade and revenue collection and lower health expenditures. ### Program objectives and policy recommendations (SMP focus) - SMP objectives: - Securing debt sustainability. - Supporting credible fiscal consolidation. - Improving governance and transparency. - Fiscal consolidation targets and strategy: - Based on the 2021 budget, overall fiscal deficit including grants on a commitment basis forecast to fall to 5 percent of GDP (from 9.6 percent of GDP), reducing the stock of public and publicly guaranteed debt to 79.3 percent of GDP. - Staff supports authorities’ commitment to bring fiscal deficit and debt ratio within 3 percent and 70 percent of GDP, respectively, by 2025 and 2026 (WAEMU convergence criteria). - Consolidation measures to be supported by wage-bill rationalization, tax and non-tax measures, and reductions in transfers to SOEs and other non-essential transfers. - If tax revenues disappoint, authorities should undertake additional rationalization of non-grant financed expenditures. - Revenue mobilization measures: - Estimated fiscal yields from tax and non-tax measures in 2021 amount to 0.6 percent of GDP. - Measures include new tax on telecommunications and other revenue-enhancing measures (MEFP ¶11). - Authorities expected to launch a website for electronic tax returns in 2021 and allow electronic tax returns filing and payment; staff advised full implementation and leveraging digitalization for tax collection supported by FAD TA. - Expenditure control and wage bill: - Wage bill accounted for about 80 percent of tax revenues in 2020, far exceeding peer countries and the WAEMU convergence criteria of 35 percent wages-to-tax revenues ratio. - Authorities initiated freezing of public sector salaries and rationalized incentives in 2020 (incentives reduced from 26 percent of wages and salaries in 2019 to 13 percent in 2020). - Need to strengthen control of public salaries and incentives, reconcile personnel and payroll records, including deployment of a blockchain technology-based project supported by the IMF. - Treasury Committee reestablished to improve expenditure control. - State-Owned Enterprises: - Authorities took steps to strengthen management of EAGB (electricity company), including changing top management and reviewing operational strategy. - EAGB has non-publicly guaranteed debts estimated at 2.5 percent of GDP. - Priority spending and vaccination: - Authorities plan to vaccinate 1.4 million people out of about 2 million by end of the first quarter of 2022. - Vaccination campaign is planned to be foreign financed by grants and currently estimated at cost around CFAF 9 billion (1 percent of GDP). - Authorities are prepared to further support health sector and vulnerable families by prioritizing expenditures if needed. - Investment plans: - COVID-19 related investments in health care and other investments supporting food security amount to 1.6 percent of GDP in 2021. - Government undertaking investment plans to strengthen health, education and transport infrastructure (roads severely affected by September 2020 flooding). - Financing strategy and debt management: - About 90 percent of the overall fiscal balance cash basis excluding COVID-related grants is expected to be financed with Treasury issuances placed with WAEMU commercial banks, the IMF emergency facility and CCRT, and concessional loans from multilateral institutions including the World Bank. - Recent RCF and the SMP should help catalyze additional donor support to cover the residual financing gap of 1.3 percent of GDP, and alleviate reliance on non-concessional lending from BOAD and Treasury issuances. - Authorities have joined the Debt Service Suspension Initiative (DSSI) and taken steps toward solving legacy external arrears. - Authorities intend to explore debt reprofiling/restructuring from development partners in context of downside risks from COVID-19. - Debt vulnerabilities: - Guinea-Bissau at high risk of external and overall debt distress. - Share of external debt 32 percent of total debt, or 25.4 percent of GDP at end-2020. - PV of public debt relative to GDP remains well above its indicative benchmark throughout projection period (see Debt Sustainability Analysis). *Sources: Ministry of Finance; and IMF staff calculations.* ### 18. Guinea-Bissau’s debt is assessed as sustainable in a forward-looking sense based on ### 18. Guinea-Bissau’s debt is assessed as sustainable in a forward-looking sense based on ### Debt sustainability assessment and baseline projections - Debt assessed as sustainable in a forward-looking sense based on the authorities’ commitment to sound policies supported by strong donor engagement and an SMP. - Staff projects a gradual decline of the PV of public debt relative to GDP over the medium term, with the fiscal deficit within 3 percent of GDP and debt at about 70 percent of GDP in line with WAEMU convergence criteria. - Assessment is contingent on the authorities’ commitment to: - (i) an ambitious fiscal adjustment strategy; - (ii) prudent borrowing policies, including avoiding of non-concessional project financing; - (iii) enhanced debt management; and - (iv) cautious management of the existing loan pipeline and application of assessment procedures based on best international practices to ensure criticality of investment projects. - The baseline debt dynamics could further improve with: - full donor re-engagement leading to a significant scaling up of grants by multilateral institutions; and - rescheduling of selected debt obligations to extend maturities and reduce interest rates. - The authorities’ request to join the DSSI in December 2020 and its extension through end-2021 is expected to enhance debt sustainability prospects. - The debt outlook remains vulnerable to a weaker economic recovery and a lack of authorities’ adherence to macroeconomic stability and prudent fiscal policies. ### Strengthening debt and investment management (findings and commitments) - Government will seek long-term technical assistance from international partners to improve capacity for debt recording, monitoring and overall debt management. - Government will start publishing annual reports on debt covering debt service, disbursements and agreements; reporting to international debt statistics databases will continue. - The first report covering 2019-2020 was published in June 2021 in the Ministry of Finance webpage (footnote in source). - Government will: - carefully plan new investments and contract future debt only on highly concessional terms; - rank investments based on cost-benefit analysis, including social considerations and impact on macroeconomic stability; - work in consultation with the IMF regarding the evaluation of the financial terms of new proposed loans; - start quarterly meetings with all Project Implementation Units (PIUs) to review project implementation and discuss challenges; - prepare quarterly reports on Public Investment Plan (PIP) execution; and - design a three-year PIP fully integrated with the medium-term expenditure framework in the medium term. ### Fiscal governance, transparency, and structural benchmarks - Authorities have taken initial steps to strengthen fiscal governance and procurement transparency in the context of the COVID-19 response; crisis-related funds are managed using a dedicated account at the BCEAO and will be subject to an ex-post independent audit (audit process and TORs pending as of source text). - Commitments and structural benchmarks include (selected): - Re-establish and continue weekly Treasury Committee meetings; set clear prioritization criteria of payments by expenditure category. - Progressive steps towards a Treasury Single Account (TSA): appoint an implementation team; require Minister of Finance prior authorization for opening public bank accounts; identify all public bank accounts. - Amend legal procurement framework to enable collection and publication of beneficial ownership information above a threshold to be defined based on IMF TA. - Issue executive order to end hiring of employees without contract; enforce control by the financial controller over all public salaries including employment incentives and National Assembly salaries; reconcile personnel and payroll records. - Submit to parliament a revised general tax code and a revised tax penalty regime; submit a modernized statute of the VAT. - Finalize review of the customs code and submit it to parliament, including deterrent penalties. - Implement the Kontaktu system for tax returns filing and electronic payments through e-banking and mobile money (Kontaktu webpage has been launched as an initial step). - Debt management governance strengthened by Council of Ministers approval of decrees related to: - creation of a National Committee of Debt Policy; - organization and functioning of the Direção Geral da Dívida Publica; and - issuance of debt and debt management. ### Financial sector stability measures - Government will refrain from allocating additional public resources to a large bank of which it became one of the major shareholders after a 2019 recapitalization agreement. - Authorities will prepare a viable strategy to disengage from the bank by 2024 as agreed with the regional Banking Commission (MEFP ¶20). - Full operationalization of a WAEMU-wide bank resolution framework expected in 2021-2022 would provide critical tools for improving financial sector stability in Guinea-Bissau. ### Program modalities, monitoring, and timelines - Staff supports authorities’ request for a nine-month SMP covering the period June 2021 – March 2022. - Program performance will be monitored through quarterly reviews of quantitative targets and structural benchmarks: - The program has seven quantitative targets and 11 structural benchmarks. - Technical Memorandum of Understanding (TMU) contains definitions, one memorandum item, and data requirements. - First test date: June 30, 2021; review expected completed by end-September 2021. - Second test date: September 30, 2021; review expected completed by end-2021. - Third test date: December 31, 2021; completion of the third review by end-March 2022 could be combined with request for an ECF arrangement conditional on a successful track record. - Country’s substantial development gaps and fragility generate protracted BOP needs requiring support from a medium-term economic program to promote sustainable macroeconomic position and inclusive growth and to catalyze additional donor support. ### Risks, scenarios, and safeguards assessment - Downside risks include: - political risks and weak capacity; - volatile global prices for imported rice and exported cashew nuts; - potential public labor conflict related to salaries; - tensions associated with new taxes, governance and corruption vulnerabilities; - high levels of poverty and weak public service delivery; - limited public sector capacities and potential coordination failures across ministries and institutions. - Authorities committed, should downside risks materialize, to further rationalize expenditures, in particular domestically financed investment and non-priority spending. - Upside risks: - faster recovery than baseline underpinned by stronger cashew sector performance; - containment of the pandemic; - accelerating trade normalization; - faster dividends than expected from political stability crowding in private sector activity and donor grants. - Safeguards assessment: - The BCEAO has only one recommendation outstanding from the 2018 safeguards assessment relating to strengthening the risk management function, which is in process. - The assessment found that overall the central bank has maintained a strong control culture. ### Capacity development and TA - Authorities committed to leverage policy implementation and reforms with technical assistance. - Since 2020, increased political stability has opened a window for enhancing traction; progress in adoption of TA recommendations was noticeable in revenue and customs administration, tax policy and PFM. - Capacity development will support policy formulation, program implementation and improved governance during the SMP; increased coordination within the Fund and with other TA providers is expected to improve CD effectiveness. ### Staff appraisal and macroeconomic outlook - COVID-19 continues to have a severe impact; after the economy contracted by 1.4 percent in 2020, a modest recovery by about 3.3 percent is projected for 2021, still short of the pre-COVID forecast of 5 percent growth. - Partial rebound expected to be driven by recovery of cashew exports, increased consumption from gradual lifting of containment measures, and a more stable political situation. - Macroeconomic stability and debt sustainability hinge on fiscal consolidation and prudent debt management. - Authorities envisage a substantial fiscal adjustment in 2021—avoiding arrears accumulation and expensive non-concessional borrowing, pledging grants and concessional lending, and continuing negotiations for possible rescheduling of debt obligations to extend maturities and reduce interest rates. - Over the medium term, staff supports authorities’ commitment to bring the fiscal deficit and debt ratio within 3 percent and 70 percent of GDP by 2025 and 2026 respectively, in line with WAEMU convergence criteria. - For financial stability, staff strongly recommends preparation of a viable strategy to disengage from the bank by 2024 as agreed with the regional Banking Commission. - Timely implementation of governance and transparency reforms—PFM strategy, expenditure control, tax and customs frameworks, fight against corruption, mitigation of SOEs’ risks—will be key for SMP success. - Reform implementation risks are significant given fragility, political risks, weak capacity, exposure to commodity price volatility, tensions over new taxes, and public sector capacity constraints; potential pay-off from reform and careful policy management is significant. *Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1gnbea2021002.pdf* ### 34. Staff supports the authorities’ request for a nine-month SMP. Steadfast and successful ### 34. Staff supports the authorities’ request for a nine-month SMP. Steadfast and successful ### Program support and implementation - Staff supports the authorities’ request for a nine-month SMP. - Steadfast and successful implementation of the SMP is key to establishing a reliable track record of performance. - To mitigate potential risks from capacity constraints, the IMF will support the authorities’ efforts in all policy areas covered by the SMP through tailored technical assistance. ### Macroeconomic context and COVID-19 impact - The first COVID-19 cases were reported in end-March 2020 and rapidly increased in the following weeks; containment measures included a State of Emergency (March) and a State of Calamity (September). - The effect of recent severe floods added to the pandemic, resulting in a GDP contraction estimated at -1.4 percent. - COVID-19 and floods contributed to a pickup in inflation, with food prices reflecting disruptions in international trade. - Cashew sector shocks: - Cashew export quantity (memorandum): 149, 196, 155, 180, 194, 202, 208, 214, 219 (thousands of tons). - Cashew export prices (US$ per ton): 1,648; 1,098; 1,000; 1,100; 1,144; 1,190; 1,237; 1,274; 1,313. ### Growth and living standards (selected indicators) - Human Development Index (index value) plotted for 2011–2018 (Guinea-Bissau vs Rest of WAEMU vs Rest of SSA). - Life expectancy at birth (years) series shown for 1990–2018 (Guinea-Bissau below SSA Average). - Mortality rate, under-5 (deaths per 1,000 live births) series for 1990–2018 (Guinea-Bissau above SSA peers). - Real GDP growth (percent) series for 2011–2020 showing volatile growth relative to peers. ### Fiscal, external and monetary developments (key findings) - Fiscal balances further deteriorated in 2020 as weak revenues were partly compensated by increased grants, but not enough to cover increased expenditures, resulting in additional financing needs. - Financing shift: financing of the current account deficit shifted from investment inflows to portfolio investment (Treasury securities). - Increased regional financing partially crowded out domestic bank loans. - Real GDP at market prices (annual percent change, Table 1 projections): - 2020 Prel.: -1.4 - 2021: 3.3 - 2022: 4.0 - 2023: 5.0 - 2024: 5.0 - 2025: 5.0 - 2026: 5.0 - Consumer price index (annual average, Table 1): - 2020 Prel.: 0.3 - 2021: 1.5 - 2022: 1.9 - 2023–2026: 2.0 (annual average) - External current account (percent of GDP, Table 1 projections): - 2019: -8.8 - 2020 Prel.: -8.3 - 2021: -8.5 - 2022: -5.5 - 2023: -4.8 - 2024: -4.8 - 2025: -4.5 - 2026: -4.4 - Stock of public and publicly guaranteed debt (percent of GDP, Table 1): - 2019: 65.9 - 2020 Prel.: 79.3 - 2021: 78.4 - 2022: 77.5 - 2023: 75.7 - 2024: 73.6 - 2025: 71.1 - 2026: 68.8 ### Key fiscal figures (Table 3a and 3b highlights) - Revenue and grants (CFAF billions, Table 3a projections): - 2019: 130.1 - 2020 Prel.: 134.7 - 2021: 162.0 - 2022: 173.6 - 2023: 190.9 - 2024: 202.6 - 2025: 219.8 - 2026: 236.6 - Expenditure (CFAF billions, Table 3a projections): - 2019: 163.2 - 2020 Prel.: 212.9 - 2021: 206.1 - 2022: 217.1 - 2023: 233.1 - 2024: 241.8 - 2025: 255.2 - 2026: 274.9 - Overall balance (commitment basis, percent of GDP, Table 3b): - Including grants: 2019 -3.9; 2020 Prel. -9.5; 2021 -5.0; 2022 -4.6; 2023 -4.2; 2024 -3.6; 2025 -3.0; 2026 -3.0 - Excluding grants: 2019 -6.8; 2020 Prel. -13.7; 2021 -10.4; 2022 -9.5; 2023 -9.1; 2024 -8.1; 2025 -7.4; 2026 -7.4 - Domestic primary balance (commitment basis, percent of GDP, memorandum): 2019 -1.4; 2020 Prel. -4.1; 2021 -1.8; 2022 -1.2; 2023 -0.7; 2024 0.1; 2025 0.6; 2026 0.5 ### Balance of payments and financing (Table 2 highlights) - Current Account Balance (CFAF billions, Table 2): - 2018: -30.1 - 2019: -74.4 - 2020 Prel.: -68.2 - 2021: -74.6 - 2022: -51.5 - 2023: -48.7 - 2024: -52.3 - 2025: -52.8 - 2026: -55.4 - Goods and services (CFAF billions, Table 2): -43.7; -123.3; -134.5; -140.2; -127.2; -129.4; -133.3; -138.3; -146.1 (2018–2026 series) - Exports, f.o.b (CFAF billions, Table 2 series): 188.6; 145.7; 115.0; 125.8; 134.5; 143.6; 152.6; 161.0; 168.6 - Imports, f.o.b. (CFAF billions, Table 2 series): -162.9; -196.4; -180.0; -189.9; -183.3; -191.1; -200.6; -210.4; -222.2 - Current transfers (net, CFAF billions, Table 2 series): 42.1; 33.1; 57.7; 57.8; 65.0; 68.4; 67.2; 70.3; 74.0 - Financial account (CFAF billions, Table 2): -6.3; -75.8; -19.2; -44.3; -36.8; -32.5; -32.7; -31.5; -28.6 - Treasury bills (regional financing, Table 2): -17.9; -18.3; -48.7; -54.6; -41.7; -44.8; -42.6; -40.1; -39.7 (2018–2026 series) ### Monetary and financial sector indicators - Monetary Survey (CFAF billions, Table 4 end-of-period): - Net foreign assets: 232.6; 217.7; 271.5; 265.5; 262.7 (2018–2022 series) - Net domestic assets: 132.5; 148.3; 127.7; 137.4; 166.1 - Money supply (M2): 365.0; 366.0; 399.2; 402.9; 428.7 - Base money (M0): 248.2; 258.7; 274.7; 284.8; 303.1 - Financial soundness indicators (Table 5 highlights, percent): - Gross NPLs to total loans (selected years): 43.4; 8.4; 11.5; 37.4; 26.3; 25.4; 20.3 - Provisions to gross NPLs (selected years): 46.2; 46.7; 45.0; 64.8; 67.3; 65.3; 65.7 - Total loans to total deposits (selected years): 82.8; 93.6; 92.0; 89.1; 102.5; 106.5; 94.8 ### Program targets and conditionality (Table 6 and Table 7) - Quantitative targets under the Staff-Monitored Program (Table 6, cumulative from beginning of calendar year): - Total domestic tax revenue (floor) (CFAF billions): 67.8 (Mar.), 15.9 (Jun.), 38.2 (Sep.), 62.8 (Dec. Est.), 87.9 (Est./end) - Ceiling on new non-concessional external debt contracted or guaranteed by the central government (US$ millions): 0.0 (continuous) - New external payment arrears (US$ millions, ceiling): 1.8 (Mar.), 0.0 (continuous) - New domestic arrears (ceiling): 5.8 (Mar.), 0.0 (continuous) - Social and priority spending (floor) (CFAF billions): 64.2 (Mar.); 15.8 (Jun.); 27.2 (Sep.); 38.7 (Dec. Est.); 50.1 (Est./end) - Domestic primary balance (commitment basis, floor): -33.5 (Mar.); -15.0 (Jun.); -16.4 (Sep.); -23.4 (Dec. Est.); -15.4 (Est./end) - Structural benchmarks (Table 7): - Public Financial Management / Expenditure control: - Continue weekly Treasury Committee meetings without interruptions (Continuous). - Issue ministerial order defining criteria for prioritization of cash payments by expenditure category to avoid arrears (End-July 2021). - Appoint a team to implement the TSA at DGTCP; make Minister of Finance prior authorization compulsory for opening public bank accounts; identify all public bank accounts (End-September 2021). - Expenditure control/Anti-corruption: - Amend legal procurement framework to enable collection and publication of beneficial ownership information for contracts above a threshold to be defined (End-December 2021). - Wage bill control: - Issue executive order to end hiring of irregular employees and enforce financial controller control over all public salaries, including National Assembly salaries (End-December 2021). - Revenue mobilization / Tax framework: - Approve by Council of Ministers and submit to parliament: (i) the revised general tax code and the revised tax penalty regime (End-July 2021); (ii) the new VAT bill (End-December 2021). - Implement the Kontaktu system for tax returns filing and electronic payments through e-banking and mobile money: pilot phase for a small number of large taxpayers (End-July 2021) and full implementation (End-September 2021). - Approve by Council of Ministers and submit to parliament a reviewed customs code (End-September 2021). - Financial sector: - Prepare a report with the exit strategy from the undercapitalized systemic bank, including a full financial assessment (End-December 2021). ### Risks and risk assessment - The Risk Assessment Matrix (RAM) highlights events that could materially alter the baseline path; staff classifies relative likelihood as "low" (probability below 10 percent), "medium" (between 10 and 30 percent), and "high" (between 30 and 50 percent). - RAM distinguishes conjunctural shocks and scenarios (12–18 months horizon) from structural risks (longer horizon); risks may interact and materialize jointly. *Source: IMF staff and Guinea-Bissau authorities (from the IMF country document).* ### Annex I. Risk Assessment Matrix ### Annex I. Risk Assessment Matrix ### External Risks - Nature/Sources of Risk: - Uncontrolled Covid-19 local outbreaks and subpar/volatile growth in affected countries. Outbreaks in slow-to-vaccinate countries force new lockdowns. For many Emerging Markets and Low-Income Countries, policy response to cushion the economic impact is constrained by lack of policy space, with some market access countries facing additional financial tightening as a reassessment of growth prospects triggers capital outflows, depreciations, and debt defaults. - Global resurgence of the Covid-19 pandemic (possibly due to vaccine-resistant variants) requiring costly containment efforts and prompting persistent behavioral changes rendering many activities unviable. - Further adverse cashew nut price movements. A weaker than projected price recovery of the dominant export product would hamper economic recovery. - Relative Likelihood and Expected Impact / Time Horizon: - Uncontrolled Covid-19 local outbreaks: Medium likelihood; High / ST expected impact. - Further adverse cashew nut price movements: High likelihood; Medium expected impact. - Expected Impact If Realized (country-specific): - Outbreaks would have particularly large adverse impact in Guinea-Bissau as the weak health system would 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 and business in general. - Private sector incomes come under pressure, denting economic activity. - Government revenues further diminish, leaving less room for priority spending. - Policies to Mitigate Risks: - Prioritize spending towards health sector and social protection. - Mobilize additional grants and concessional loans from development partners to cover more persistent external needs. - Control public expenses to compensate for lower revenues. - Preserve social spending focused on the most vulnerable. - Step up diversification efforts. ### Domestic Risks - Nature/Sources of Risk: - Continued weaknesses in state-owned enterprises (example: the public electricity and water utility EAGB). - Banking instability, arising from high NPLs, and bank’s undercapitalization. - Widespread social discontent and political instability as withdrawal of pandemic-related policy support results in unemployment and, amid increasing prices of essentials, hurts vulnerable groups. - Higher frequency and severity of natural disasters related to climate change causing severe economic damage and accelerating emigration. - Relative Likelihood and Expected Impact / Time Horizon: - Continued SOE weaknesses: Medium likelihood; Moderate / ST expected impact. - Banking instability: Medium likelihood; High / MT expected impact. - Social discontent and political instability: High likelihood; High / ST expected impact. - Climate-related disasters: Medium likelihood; High / ST, MT expected impact. - Expected Impact If Realized: - Limited and expensive electricity and water supply; contingent liabilities adding to fiscal pressures. - Limited credit extension hampers investment and growth; potential contingent liabilities adding to fiscal pressures. - Delayed fiscal adjustment; limited financing inflows delay investment projects; supply disruptions and weaker confidence. - Harm to cashew production worsening livelihoods in rural areas and exacerbating extreme poverty and inequalities; higher recovery spending, higher financing costs, and lower revenues; supply disruptions and weaker confidence. - Policies to Mitigate Risks: - Implement credible strategy to improve management of public enterprises. - Improve governance, transparency and accountability for SOEs. - Enhance banking supervision and enforce prudential regulations. - Improve processes and procedures for collection of debts and collateral. - 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. - Address infrastructure gaps and income/developmental disparities among regions; promote investment in climate resilient infrastructure. *Source: 1gnbea2021002 - Annex I. Risk Assessment Matrix (IMF).* ### 2. We are seeking international donor support for vaccination. In coordination with donors, ### We are seeking international donor support for vaccination. In coordination with donors, ### Vaccination and health-sector preparedness - Guinea-Bissau has continued to strengthen the health sector, protect the most vulnerable, and is preparing a plan for the vaccine rollout. - About 144,000 doses (AstraZeneca/SII) planned to be delivered by end-September, but adequate conditions for reception, storage and distribution are still being prepared. - The first batch is being financed by COVAX, covering 20 percent of the population; other sources of financing will be needed to expand coverage. - The government plans to vaccinate 1.4 million people by the end-first quarter of2022. ### Recent economic developments and COVID-19 impact - The pandemic interrupted the expected recovery from a severe terms-of-trade shock; the economy is structurally fragile and highly dependent on raw cashew nut exports. - As of July 5 there were 3,881 confirmed cases and 69 deaths. - Severe flooding in September 2020 disrupted economic activity and delayed the launch of the 2020 cashew campaign. - Estimated economic contraction in 2020: 1.4 percent, compared to 4.5 percent growth in 2019. - Average price inflation accelerated to 1.5 percent from 0.3 percent in 2019. ### Fiscal and balance-of-payments (BOP) developments in 2020 - Trade deficit estimated to have widened to 16.3 percent of GDP, driven by a 15.5 percent decline in cashew nut exports. - Current account deficit in 2020: 8.3 percent of GDP. - Overall budget deficit on a commitment basis widened to 9.5 percent of GDP. - Tax revenues dropped to 8.2 percent of GDP, compared to 9.4 percent of GDP in 2019. - Cashew nut exports accounted for 15 percent of tax revenues in 2019. - Duties and sales tax on imports accounted for 32 percent. - Additional COVID-19-related current expenditures in healthcare, vulnerable families support and other current expenditures: 0.8 percent of GDP. - COVID-19 capital expenditures: 2.6 percent of GDP. - Program to support financing of the cashew campaign by onlending resources through the banking sector increased financing needs by 1.8 percent of GDP. ### Banking sector vulnerabilities - Banking system liquidity supported by the accommodative stance of the BCEAO. - Low capitalization of one bank and its high NPL level represent an important vulnerability despite a high level of provisions. - In December 2020, the BCEAO encouraged WAEMU banks to refrain from distributing dividends to strengthen capital buffers. - A systemically important bank remained undercapitalized despite a government recapitalization in December 2019; in 2020 it recovered part of NPLs and reconducted a restructuring plan. - Government ended litigation with another local bank in December 2020 by settling cross liabilities, reducing that bank’s NPLs. - Credit to the economy dropped in 2020; decline in pre-financing to producers/exporters ahead of the cashew campaign. ### Outlook for 2021 - GDP growth forecasted at about 3.3 percent in 2021, supported by higher cashew export prices and volumes. - Export value expected to grow by 9.4 percent year on year resulting in a broadly stable current account. - Growth will also be supported by higher public investment in critical infrastructure externally financed, gradual lifting of containment measures and a more stable political situation. - Adverse fiscal and external effects of the pandemic and September 2020 flooding expected to persist in 2021. - Government fiscal consolidation efforts: 2.3 percent of GDP reduction in the domestic primary balance. - External and fiscal deficits on a commitment basis estimated at 8.5 and 5 and percent of GDP, respectively. [text preserved as in source] - Total public debt increased to 79.3 per cent of GDP in 2020 and is expected to fall to 78.4 percent of GDP in 2021. - Projected RCF disbursement in the beginning of 2021 to contribute 1.3 percent of GDP towards covering financing needs. - CCRT third tranche of debt service relief expected to contribute 0.1 percent of GDP. - Other multilateral organizations and bilateral donors are expected to step in along with IMF support to reduce the need for non-concessional regional financing. ### Overall strategy for 2021 - Aim to support fiscal discipline and preserve debt sustainability by executing fiscal adjustment based on the 2021 budget without arrears accumulation and avoiding expensive non-concessional borrowing. - Two pillars: - (i) Stronger revenue mobilization and expenditure containment, including in the wage bill, to generate fiscal space to protect social spending and undertake key infrastructure investments. - (ii) Seeking additional grants and highly concessional financing from development partners in the context of the COVID-19 pandemic. - Government intends to submit to Parliament in 2021 the 2022 budget with a spending envelope reflecting available resources without recourse to non-concessional financing. - Medium-term targets: bring the fiscal deficit within 3 percent of GDP by 2025 and the debt ratio to 70 percent of GDP by 2026, in line with WAEMU convergence criteria. ### Governance, public financial management, and anti-corruption commitments - Publish the 2019 IMF Report on Governance and Anti-corruption and implement several recommendations. - Sequence Fund-supported arrangement with multilateral and bilateral TA to improve governance, control expenditures, moderate SOE risks, enforce tax and customs framework and mitigate corruption risks. - Develop a strategy to prevent arrears accumulation and clear the stock of audited and approved domestic expenditure arrears. - Reform asset declaration regime with IMF TA and considering GIABA evaluation to: - Cover all politically exposed persons (PEPs) and family members/close associates. - Cover assets and interests owned, including beneficially owned, domestically and abroad. - Ensure declarations are publicly available online. - Allow imposition of targeted, proportionate, and dissuasive sanctions for failure or false declarations. ### Measures to address fiscal consolidation (selected measures and commitments) - Tax and non-tax measures: - New tax on telecommunications and a new tax on labor income. - Measures to enhance tax compliance, including new decrees and ministerial orders to strengthen internal control procedures of the customs and tax directorate. - Increases in the cost of fishing licenses. - Launch with IMF TA of a website for electronic tax returns in 2021, allowing electronic tax returns filing and payment. - Wage bill and expenditure control: - Freeze of public sector salaries and new hires to begin converging over the medium term to WAEMU convergence criteria of total salaires not exceeding 35 percent of tax revenues. - Rationalized incentives in 2020 (from 26 percent of wages and salaries in 2019 to 13 percent in 2020). - Work with IMF support towards using blockchain technology to assist in reconciling personnel and payroll records. - Reestablished the Treasury Committee to improve expenditure control. - Steps to strengthen management of the largest SOE, Electricidade e Aguas da Guinea-Bissau (EAGB). - Commitment to safeguard priority spending on health, education and the social sector. - Commitment not to use irregular and improperly documented expenditure (DNTs) for emergency cases. - Investment plans: - Budget included COVID-19 related investments in health care and other investments supporting food security (1.6 percent of GDP). - Undertake investment plans to strengthen health, education and transport infrastructure severely affected by 2020 flooding. - Seek external grants to finance specific investment projects. ### Measures to enhance expenditure control (Structural Benchmarks) - Ensure the recently re-established Treasury Committee continues weekly meetings (SB, continuous) and set clear prioritization criteria of payments by expenditure category (SB, end-July 2021). - Progressive steps towards a Treasury Single Account (TSA): - Appoint a team in charge of implementing the TSA (under the SMP). - Prior authorization from the Minister of Finance for any opening of a public bank account. - Identify all public bank accounts (SB, end-September 2021). - Amend legal procurement framework to enable collection and publication of beneficial ownership information above a certain threshold, to be defined based on IMF TA (SB, end-December 2021). - Issue an executive order to end the hiring of employees without contract (SB, end-September 2021), enforce control by the financial controller over all public salaries including employment incentives and National Assembly salaries, and reconcile personnel and payroll records (SB end-December 2021). - Decrees approved in June to strengthen debt management, including creation of a National Committee of Debt Policy and organization and functioning of the Direção Geral da Dívida Publica. ### Additional expenditure control measures - Enforce normal expenditure execution procedure by requiring that goods and services are certified before payment; issue a ministerial order mandating spending units to adopt and implement the “Manual for procedures on public expenditures” and pilot in at least five selected line ministries. - Publish a follow-up report on previous Tribunal de Contas audit reports’ recommendations on EAGB to strengthen management and transparency of the SOE. ### Measures to strengthen revenue mobilization (Structural Benchmarks) - Submit to parliament: - A revised general tax code and a revised tax penalty regime (SB, end-July 2021). - A modernized statute of the VAT to broaden the sales tax base (SB, end-December 2021). - Finalize the review of the customs code and submit it to parliament, including deterrent penalties (SB, end-August 2021). - Implement the Kontaktu system for tax returns filing and electronic payments via e-banking and mobile money: - Initial pilot for a small number of large taxpayers (SB, end-July 2021). - Full implementation (SB, end-September 2021). - The Kontaktu webpage has been launched. ### Additional revenue measures and institutional reforms - Ensure information exchange between DGCI, DGA, Treasury and the National Institute of Social Security to increase transparency and tax revenue mobilization by end-August 2021. - Create a small unit within the Ministry of Finance (Gabinete de Política Fiscal) to direct development of legislative proposals for tax reform by end-July 2021. ### Governance of COVID-19 spending and transparency - Manage COVID-19 related funds using a dedicated account at the BCEAO. - Allocation of funds subject to an ex-post independent audit by a reputable third-party auditor working jointly with the audit court, planned to start in July 2021; Terms of Reference developed in consultation with the Fund. - Crisis-related spending integrated into the State Budget; reports published in the budget execution report to the National Assembly. - High Commissioner for COVID-19 published key information on all crisis-related contracts for 2020. - Government will publish full contract texts and ex-post validation of delivery and start to disclose beneficial ownership information of companies awarded COVID-19 related contracts as soon as legal procurement framework is amended (by end of the third quarter of 2021). ### Measures to mitigate debt vulnerabilities and arrears - Commit to clear part of outstanding domestic expenditure arrears and avoid accumulating new domestic arrears. - Will pay about a third (CFAF 4.7 billion) of the remaining stock of domestic arrears accumulated between 1974 and 1999 amounting to CFAF 14.1 billion. - By end-2021, with external technical support, intend to: - Determine the true amount of any outstanding arrears through further auditing and verifications. - Verify full tax compliance of all creditors. - Determine net government arrears after correcting for any tax obligations. - Decide on a strategy towards clearing all outstanding domestic arrears over the medium term. - Commitment to solve all legacy external arrears and avoid further accumulation: - Agreement or settlement reached with Libya, Taiwan Province of China, Russia and Brazil; progress made towards resolving remaining external arrears. - Joined the Debt Service Suspension Initiative (DSSI) and intend to explore debt reprofiling/restructuring with development partners. *IMF Country Report content unit 1gnbea2021002* ### 20. The government will strengthen debt management. It will seek long-term technical ### 1gnbea2021002 - 20. The government will strengthen debt management. It will seek long-term technical ### Debt management reforms and transparency - The government will seek long-term technical assistance from international partners to improve capacity for debt recording, monitoring and overall debt management. - The government will start publishing annual reports on debt (both external and domestic) covering debt service, disbursements and agreements, and will continue reporting to international debt statistics databases. - The government will hold bi-weekly meetings of the National Committee of Public Debt after the approval of the decrees by the Council of Ministers (para. 12 bullet 4). ### Investment planning and borrowing policy - The government will carefully plan new investments and contract future debt only on highly concessional terms. - Investments will be ranked based on cost-benefit analysis, including social considerations and impact on macroeconomic stability. - The government will work in consultation with the IMF regarding the evaluation of the financial terms of new proposed loans. - The government is committed not to rely on non-concessional loans. - The Government will start quarterly meetings with all Project Implementation Units (PIUs) to take stock of the rate of project implementation and discuss challenges. - The government will prepare quarterly reports on Public Investment Plan (PIP) execution. - In the medium term, the government will design a three-year PIP, fully integrated with the medium-term expenditure framework. ### Financial sector measures - The government will refrain from allocating additional public resources to a large bank where it has a participation. - Authorities will prepare a viable disengagement strategy by 2024 as agreed with the regional Banking Commission (SB, end-December 2021). ### Program monitoring and timeline - The nine-month program will be subject to quarterly reviews and quarterly quantitative targets and structural benchmarks as set out in Tables 1 and 2 and the Technical Memorandum of Understanding (TMU). - Review schedule under the SMP: - First review: based on quantitative targets at end-June 2021; review expected to be completed by end-September 2021. - Second review: based on quantitative targets at end-September 2021; review expected to be completed by end-December 2021. - Third review: based on quantitative targets at end-December 2021; review expected to be completed by end-March 2022. - Commitment to provide detailed statistical information as specified in the TMU. ### Quantitative targets and selected figures (as presented) - Table 1: Quantitative Targets (Cumulative from beginning of calendar year to end of month indicated, CFAF billion) - Total domestic tax revenue (floor): 67.8 15.9 38.2 62.8 87.9 - Ceiling on new non-concessional external debt contracted or guaranteed by the central government (US$ millions): 0.0 0.0 0.0 0.0 0.0 - New external payment arrears (US$ millions, ceiling): 1.8 0.0 0.0 0.0 0.0 - New domestic arrears (ceiling): 5.8 0.0 0.0 0.0 0.0 - Social and priority spending (floor): 64.2 15.8 27.2 38.7 50.1 - Domestic primary balance (commitment basis, floor): -33.5 -15.0 -16.4 -23.4 -15.4 - Non regularized expenditures (DNTs, ceiling): 0.0 0.0 0.0 0.0 0.0 - Memorandum items: - External budgetary assistance (US$ millions): 0.0 0.0 1.8 1.8 6.9 - Net domestic bank credit to the central government: 57.7 12.4 23.4 53.6 42.2 - Concessional project loans (US$ millions): 49.6 5.0 9.9 14.9 19.9 - Outstanding stock of government guarantees: 10.6 10.1 10.1 23.1 23.1 ### Structural benchmarks (selected) - Public Financial Management / Expenditure control: - Continue weekly Treasury Committee meetings without interruptions: Continuous. - Issue ministerial order defining criteria for prioritization of cash payments to avoid arrears: End-July 2021. - Appoint a team for implementing the TSA at the General Directorate of Treasury and Public Accounting; make prior authorization of the Minister of Finance compulsory for opening public bank accounts; identify all public bank accounts: End-September 2021. - Amend legal procurement framework to enable collection and publication of beneficial ownership information for contracts above a threshold to be defined: End-December 2021. - Issue executive order to end hiring of irregular employees and enforce control by the financial controller over all public salaries: End-December 2021. - Revenue Mobilization: - Approve by Council of Ministers, submit to parliament: (i) the revised general tax code and the revised tax penalty regime: End-July 2021; (ii) the new VAT bill: End-December 2021. - Implement the Kontaktu system for tax returns filing and electronic payments: pilot phase End-July 2021; full implementation End-September 2021. - Approve by Council of Ministers, submit to parliament a reviewed customs code: End-September 2021. - Financial Sector: - Prepare a report with the exit strategy from the undercapitalized systemic bank, including a full financial assessment: End-December 2021. ### Technical Memorandum of Understanding — definitions and reporting - Program exchange rate for 2021: CFAF 538.36/US$ (and cross rates as of end-December 2020). - Key definitions: - Tax revenue: includes direct and indirect taxes as presented in the central government financial operations table. - New non-concessional external debt contracted or guaranteed by the central government: includes all forms of new non-CFAF denominated debt contracted or guaranteed by the central government, excludes normal trade credit for imports and debt denominated in CFAF, includes domestically held foreign exchange (non-CFAF) debts, excludes disbursements from the IMF and debts subject to rescheduling or with verbal agreement; applies on a continuous basis. - New external payment arrears: debt service payments unpaid on due dates and remaining unpaid 30 days after due dates; excludes arrears on legacy HIPC external debt with pre-existing requests for rescheduling/restructuring or amounts subject to litigation; applies on a continuous basis effective on the date of approval of the SMP. - New domestic arrears: CFAF-denominated accounts payable accumulated during the year and still unpaid by one month after the quarter for wages and salaries (including pensions), and three months for goods, services and transfers; includes CFAF-denominated debt service payments unpaid 30 days after due dates. - Social and Priority spending: spending in the Ministries of Health, Education and the Ministry of Women, Family and Social Cohesion, and the High Commissioner for COVID-19. - Domestic primary balance (commitment basis): difference between government revenue (all tax and nontax receipts, excludes external grants) and domestic primary expenditure on commitment basis (current expenditure plus domestically financed capital expenditure, excluding interest and capital expenditure financed by project loans or grants). - Net Domestic Bank Credit to the Central Government (NCG): defined as the sum of (a) net government position with the BCEAO (treasury bills and bonds excluding on-lent IMF credit) less central government deposits (excluding project-related deposits); (b) net government position with commercial banks (treasury bills, treasury bearer bonds, loans and advances) less central government deposits (excluding project-related deposits); (c) any other CFAF-denominated commercial credit, including net disbursement of project loans by BOAD (excluding concessional loans with a grant element of at least 35 percent). Any domestic loan guarantees issued by the government are included in the net position. - Reporting requirements: - The government will report any new external borrowing and its terms to Fund staff as soon as external debt is contracted or guaranteed, but no later than within two weeks of such external debt being contracted or guaranteed. - The government will report any non-regularized expenditures on a continuous basis within one week of realization. - Data sources: monetary survey and the net position of the government (Position Nette du Tresor, PNT) table, submitted monthly to IMF staff by the Ministry of Finance. - Program monitoring test dates: - June 30, 2021 (review expected completed by end-September 2021). - September 30, 2021 (review expected completed by end-2021). - December 31, 2021 (review expected completed by end-March 2022). ### Reporting timetable (selected items and deadlines) - Fiscal sector: central government budget and outturn: Monthly, 30 days after the end of the month, DGPS/MF. - Debt sector: external and domestic debt and guaranteed debt by creditor, disbursements, amortization, interest payments, stock of external debt, stock of domestic debt, arrears on interest and principal, exceptional domestic financing: Monthly, 30 days after the end of the month, Debt Directorate. - Monetary/Financial sector: detailed central bank balance sheet, detailed bank-by-bank balance sheets, detailed consolidated balance sheet of commercial banks, monetary survey, detailed net position of central government (PNG/PNT), financial soundness indicators, interest rates, deposit rates, lending rates: Monthly, 45 days after the end of the month, BCEAO/MF. ### Debt sustainability analysis and outlook (selected findings) - Risk of external debt distress: High. - Overall risk of debt distress: High. - Granularity in the risk rating: Sustainable. - Application of judgment: Yes. The external rating has been downgraded from “Moderate” to “High” to reflect vulnerabilities from high overall public debt and substantial downside risks to the baseline scenario. - Context and dynamics: - Real GDP contracted by an estimated 1.4 percent in 2020. - The ratio of public debt to GDP increased by 13.4 percentage points in 2020. - The PV of public and publicly guaranteed (PPG) debt relative to GDP exhibits a prolonged and substantial breach of its indicative benchmark, but (i) WAEMU currency union safeguards provide financial and technical support, (ii) PV of public debt shows a consistent downward trend from 2021 onwards under the baseline scenario, and (iii) external DSA indicators for extra-regional debt are consistent with sustainability. - Conditional assessment: - Public debt is assessed as sustainable on a forward-looking basis, contingent on strong commitment to an ambitious fiscal adjustment aiming to bring the fiscal deficit within the 3 percent of GDP WAEMU convergence criterion by 2025, supported by a Fund Staff Monitored Program (SMP) possibly followed by an Extended Credit Facility (ECF) in the first half of 2022, together with multilateral grants and concessional financing. - The baseline debt indicators would further improve with full multilateral donor re-engagement and a reprofiling of debt obligations to highly concessional terms. - Downside risks: - The debt outlook is highly vulnerable to a weaker economic recovery, adverse terms-of-trade and export shocks, and the materialization of contingent liabilities. - A relapse into socio-political turmoil could undermine adherence to macroeconomic stability and prudent fiscal policies and could lead to higher external and public debt indicators, putting into question debt sustainability. *Source: Guinea-Bissau — IMF staff-monitored program documentation (excerpts).* ### 1. The perimeter of public debt is limited to the central government, the central bank and ### 1gnbea2021002 - 1. The perimeter of public debt is limited to the central government, the central bank and ### Debt perimeter and coverage - The perimeter of public debt is limited to the central government, the central bank and government-guaranteed debt, and excludes state-owned enterprises (SOEs) due to data limitations. - Non-publicly guaranteed SOE debt is generally not considered a major contingent public liability, with a notable exception: - Electricity and water utility (EAGB) has non-publicly guaranteed debts estimated at 2.5 percent of GDP. - Government clearance of EAGB debt: CFAF 6.6 billion in 2017, CFAF 2.5 billion in 2018, CFAF 5.9 billion in 2019, and an estimated CFAF 3.6 billion in 2020. - In 2020 the government guaranteed a CFAF 5.8 billion loan to EAGB as part of an 8-years debt service restructuring agreement; this guarantee is included in the DSA. - EAGB, with WB support, is implementing a Management Improvement Plan and a financial restructuring plan expected to yield by end-2021 a more accurate assessment of the utility’s stock of debt. - The DSA is conducted on a currency basis. In line with past Guinea-Bissau DSAs and most WAEMU countries, debt in domestic currency is treated as domestic debt for this DSA. This includes debt issued in CFAF in the regional market. - Stock of treasury securities (held by local and regional banks) at end-2020: CFAF 140.1 billion, equivalent to 31.5 percent of domestic debt or 17 percent of GDP. - Debt in CFAF to the West African Bank for Development (BOAD) is treated as domestic debt: 18.6 percent of GDP at end-2020. ### Debt developments (key statistics and composition) - Public debt burden: - Public debt rose to 79.3 percent of GDP in 2020, an increase of 13.4 percentage points from 2019. - Drivers: borrowing to address the deterioration of the government deficit (commitment basis from 3.9 percent of GDP in 2019 to 9.5 percent in 2020) and negative real GDP growth (estimated at -1.4 percent in 2020). - Central Government Debt (Billions of CFAF and percent of GDP, selected years from Text Table 1): - Central Government Debt (2018 Act.): 494.6 (59.2 percent of GDP) - Central Government Debt (2019 Act.): 555.6 (65.9 percent of GDP) - Central Government Debt (2020 Prel.): 653.4 (79.3 percent of GDP) - Central Government Debt (2021 Proj.): 685.2 (78.4 percent of GDP) - External debt (selected components, Billions of CFAF; percent of GDP): - External (2018 Act.): 182.5 (21.8 percent of GDP) - External (2019 Act.): 204.2 (24.2 percent of GDP) - External (2020 Prel.): 209.2 (25.4 percent of GDP) - External (2021 Proj.): 233.2 (26.7 percent of GDP) - Multilateral (2020 Prel.): 147.0 (17.8 percent of GDP) - IMF (2020 Prel.): 15.8 (1.9 percent of GDP) - IDA (2020 Prel.): 79.6 (9.7 percent of GDP) - AfDB (2020 Prel.): 23.8 (2.9 percent of GDP) - Others (IDB, BADEA, IFAD, etc.) (2020 Prel.): 27.8 (3.4 percent of GDP) - Bilateral (2020 Prel.): 62.2 (7.5 percent of GDP) - Legacy arrears (2020 Prel.): 20.8 (2.5 percent of GDP) - Domestic debt (selected components, Billions of CFAF; percent of GDP): - Domestic (2018 Act.): 312.1 (37.3 percent of GDP) - Domestic (2019 Act.): 351.4 (41.7 percent of GDP) - Domestic (2020 Prel.): 444.3 (53.9 percent of GDP) - Domestic (2021 Proj.): 452.0 (51.7 percent of GDP) - BOAD (2020 Prel.): 153.4 (18.6 percent of GDP) - Local Banking System (2020 Prel.): 145.6 (17.7 percent of GDP) - BCEAO (2020 Prel.): 94.6 (11.5 percent of GDP) - Treasury Securities held by regional banks (2020 Prel.): 122.4 (14.9 percent of GDP) - Guarantees (2020 Prel.): 10.6 (1.3 percent of GDP) - 2020 developments and drivers: - Central government domestic currency debt amounted to 53.9 percent of GDP at end-2020, up from 41.7 percent at end-2019. - Largest source of net borrowing: Treasury securities, whose stock rose by 6.8 percentage points of GDP, with the bulk purchased by commercial banks from elsewhere in the WAEMU region. - Debt to BOAD rose by 2.9 percentage points of GDP in 2020 due to two COVID-related program loans. - External debt stock increased by 1.2 percentage points to 25.4 percent of GDP at end-2020, with all new borrowing on concessional terms. - Multilaterals held 70 percent of Guinea-Bissau’s external debt at end-2020. - Legacy external arrears equal 2.5 percent of GDP at end-2020. - Undisbursed contracted project loans: - Stock of contracted but undisbursed debt at end-2020: CFAF 175 billion (21 percent of GDP). - About half stems from concessional loans contracted with the World Bank; a quarter from non-concessional BOAD loans. - Debt service: - Ratio of debt service to revenue excluding grants: 67.4 percent in 2019 and 75.9 percent in 2020. - BOAD provided a 2020 program loan equivalent to 7 percent of revenues. - IMF granted debt service relief through the Catastrophe Containment and Relief Trust (CCRT) amounting to 2 percent of revenues. - Guinea-Bissau requested to join the Debt Service Suspension Initiative (DSSI) by end-2020 and again in 2021; the impact of the DSSI on 2021 projections was not included in the DSA baseline because authorities declined to suspend the small debt service involved (0.7 percent of revenues) and some creditors did not respond. - Guinea-Bissau accumulated debt service arrears in 2020, mostly resolved in Q1 2021. ### Macroeconomic forecasts and baseline scenario - GDP and growth: - Real GDP contracted by 1.4 percent in 2020. - GDP growth expected to reach 3.3 percent in 2021 (assuming phasing out of containment measures and recovery of the international cashew market). - Growth converges to the 5 percent potential by 2023. - Inflation and current account: - Average price inflation projected to accelerate to 1.9 percent in 2021 from 1.5 percent in 2020. - Non-interest current account deficit projected to widen slightly to 7.4 percent of GDP in 2021. - Fiscal consolidation: - An annual average of 1.1 percentage points of GDP adjustment in the domestic primary balance (commitment basis) is projected over three years, largely unwinding pandemic one-offs. - About one third of consolidation from revenue-raising measures (including new taxes on telecommunications and enhanced tax administration/compliance). - Authorities committed to a spending floor safeguarding priority spending of health, education and other social sectors amounting to 5.7 percent of GDP. - Public debt projections and financing composition (2021 specifics): - Public debt expected to decline in 2021 with lower net domestic borrowing. - Stock of securities (held by local and regional commercial banks) projected to grow by 5.3 percentage points of GDP. - Stock of other domestic debt sources expected to fall in 2021. - Debt with BOAD projected to decrease by 1.2 percentage points of GDP with lower project disbursements. - Debt to BCEAO, loans from local commercial banks and domestic payment arrears projected to jointly drop by 6.2 percentage points of GDP. - Stock of external debt projected to rise by 1.3 percentage points of GDP driven by additional emergency assistance, including the IMF’s Rapid Credit Facility disbursed in January. - Medium-term investment financing: - Gross annual project disbursements from loans and grants assumed to finance 80 percent of capital expenditure. - Capital expenditure expected to average 7.8 percent of GDP given low absorption capacity. - Project financing in the medium term expected to be provided mainly by multilateral external creditors on grant or concessional terms. - Borrowing from BOAD, almost entirely non-concessional, is projected to decline significantly. - Treasury securities with longer maturities projected: interest rates at 5.8 percent for 3-year bonds and 6.3 percent for 5-year bonds. - Key macro projections table (selected entries, percent of GDP): - Real GDP growth (Current DSA): 2019: 4.5; 2020: -1.4; 2021 Prel./Proj.: 3.3; Medium term (first 5 years): 4.8; Long term: 5.0. - Primary fiscal balance (Current DSA): 2019: -2.8; 2020: -7.8; 2021 Prel./Proj.: -3.4; Medium term: -1.7; Long term: -0.8. - Non-interest current account balance (Current DSA): 2019: -8.4; 2020: -7.2; 2021 Prel./Proj.: -7.4; Medium term: -3.6; Long term: -3.1. - External debt (Current DSA): 2019: 24.2; 2020: 25.4; 2021 Prel./Proj.: 26.7; Medium term: 21.9; Long term: 14.1. - Domestic debt (Current DSA): 2019: 41.7; 2020: 53.9; 2021 Prel./Proj.: 51.7; Medium term: 51.7; Long term: 42.6. ### Risks, uncertainty, and stress factors - Downside risks are significant and include: - Global pandemic persistence or resurgence delaying recovery. - Disruption of cashew trade and domestic business activity if containment fails. - Social tensions and renewed political uncertainty. - Financial stress in SOEs and banking fragilities (high non-performing loans; undercapitalization of one systemically important bank) that could generate contingent liabilities. - Weaker-than-projected recovery of international cashew nut prices hampering growth and revenues. - Upside scenarios: - Faster containment of the pandemic would accelerate normalization of trade and revenue collection and reduce health expenditures. - Scenario realism and drivers: - The macroeconomic scenario is broadly realistic; non-interest current account deficits in 2021-26 are projected to contribute to external debt accumulation as in the past five years. - Offsetting factors include sustained growth, reliance on already committed grants, and more favorable price developments. - Total public debt dynamics are dominated by the primary fiscal balance and real GDP growth; projected 3-year adjustment in the primary deficit is larger than historical averages for LICs with Fund-supported programs, but largely reflects unwinding of the 2020 pandemic shock (77 percent of the adjustment is projected for 2021). ### Policy implications and priorities (implicit in DSA) - Fiscal consolidation path: - Implement an annual average of 1.1 percentage points of GDP adjustment in the domestic primary balance over three years, with revenue measures and containment of current spending growth. - Maintain a spending floor safeguarding priority social sectors amounting to 5.7 percent of GDP. - Debt management and financing strategy: - Prioritize concessional external financing and grants for investment-related borrowing. - Constrain contracting of new non-concessional loans and spread disbursements of the large undisbursed project pipeline over the next nine years, with potential downsizing of some projects. - Continue to seek longer-maturity treasury securities to meet non-investment financing needs while monitoring interest rates (assumed 5.8 percent for 3-year and 6.3 percent for 5-year bonds). - Institutional and implementation reforms: - Strengthen public investment management to address weaknesses from project identification to integration into annual and medium-term budgets. - Advance governance and fiscal reforms to improve debt-containment prospects and support private activity. *Source: Guinea-Bissau authorities and IMF Staff estimates and projections as presented in the DSA content unit.* ### 14. Guinea-Bissau is assessed to have weak debt carrying capacity, unchanged from the ### 14. Guinea-Bissau is assessed to have weak debt carrying capacity, unchanged from the ### Debt-carrying capacity assessment - Composite Indicator (CI) score for Guinea-Bissau: 2.54. - Assessment basis: macroeconomic indicators from the April 2021 WEO and the 2019 Country Policy and Institutional Assessment (CPIA) of the World Bank. - Conclusion: CI score points to a weak debt-carrying capacity. ### Combined contingent liabilities shock (stress test design and rationale) - Shock magnitude used in this DSA: 6.5 percent of GDP (increased from the default value of 2 percent of GDP). - Shock components and rationale: - Potential recapitalization needs of a systemic bank that does not meet WAEMU minimum capital requirements. - Potential fiscal costs of operational losses of the electricity utility (EAGB). - Contingent liabilities linked with increased public guarantees. - Possibility that domestic arrears are larger than the amount already included in the debt stock (1.5 percent of GDP at end-2020). This estimate builds on an audit that still needs to be validated by the authorities. - Text Table 4 summary (coverage components contributing to combined shock, in percent of GDP): - Other elements of the general government not captured: 1.0 percent of GDP. - SoE's debt (guaranteed and not guaranteed by the government) 1/: 0.0 percent of GDP. - PPP stock: 0.0 percent of PPP stock. - Financial market (default minimum): 5 percent of GDP. - Total (2+3+4+5): 11.5 percent of GDP. - Reason for deviation from default settings: Increased from 2 to 6.5 to reflect potential liabilities linked to public guarantees, bank recapitalisation needs, EAGB debt and domestic arrears. ### External Debt Sustainability Analysis (A) - Risk of external debt distress: remains high, in line with the February 2021 DSA. - Share of external debt: 25.4 percent of GDP at end-2020. - All external debt indicators remain below the relevant indicative thresholds throughout the projection period (2021–41) under the baseline scenario. - Most extreme shock (temporary adverse export shock) outcomes: - Two debt burden indicators breach indicative thresholds: - PV of debt-to-export ratio breaches for three years. - Debt-service-to-exports ratio breaches for two years. - Mechanical rating implied by these breaches: ‘moderate’. - Staff judgment: nevertheless a ‘high’ external risk rating is justified due to additional vulnerabilities not captured mechanically, including: - Large downside risks to the macro baseline. - High public debt, a large share of which is held by non-residents but denominated in CFAF and not captured in the external DSA conducted on a currency basis. - Structural vulnerabilities in the political domain. - Exclusion of private debt from the external DSA. - Tailored commodity price stress test (cashew price shock): - Scenario: hypothetical 15 percent fall in cashew export prices in the first year of projection. - Context: Cashew prices fell by 33 percent amid the global slowdown in 2020. ### Public Debt Sustainability Analysis (B) - Overall risk of debt distress (public): assessed as high. - PV of total public debt-to-GDP ratio: - Above its indicative benchmark (35 percent) through 2041 — characterized as a substantial and prolonged breach. - Debt service dynamics: - Debt service up to 79 percent of revenues and grants in 2026 from 56.2 percent in 2020, despite projected increases in revenues. - Commodity price shock effects (public DSA): - PV of debt-to-GDP ratio reaches 85 percent in 2027. - Debt service-to-revenue ratio rises to 104 percent in 2026. ### Baseline outlook, conditional sustainability, and required policy actions - Without significant and sustained fiscal adjustment and external support, debt is set to remain elevated and constrain development prospects. - 2020 shocks and financing mix: - Pandemic effects in 2020: sharp decline in exports and foreign direct investment, heavy weight on domestic activity. - Response required increased health and social spending and sustained recovery measures. - Financing needs in 2020 were mainly addressed by increased recourse to non-concessional domestic borrowing. - Debt dynamics and projection: - Baseline projection: total public debt estimated at 79.3 percent of GDP at end-2020. - Under staff’s baseline scenario, overall public debt falls to 70 percent of GDP (regional convergence criteria) by 2026. - Specific baseline path: total public debt declines from 79.3 percent of GDP at end-2020 to 68.8 percent of GDP by 2026, conditional on policy execution and barring a more protracted pandemic. - Conditions for sustainability: - Public debt is considered sustainable on a forward-looking basis given support from regional institutions with strong capacity to manage debt and the WAEMU context, contingent on: - Authorities’ commitments in engagement with the Fund and other development partners. - Policies that would put debt on a robust downward trajectory. - Key policy actions required to achieve the baseline: - (i) Vigorous fiscal consolidation efforts including revenue enhancement measures, containing current spending below nominal GDP growth, and continued implementation of growth-enhancing reforms. - (ii) Prudent borrowing policies, including avoidance of non-concessional project financing, in line with the DSSI commitments. - (iii) Enhanced debt management: more rigorous compilation and monitoring of debts, upgraded procedures, and publication of regular debt reports to improve transparency. - (iv) Improved management of the existing loan pipeline and application of recognized assessment procedures to ensure criticality of investment projects. - Potential improvements to baseline with donor engagement: - (i) Significant scaling up of grants by multilateral institutions. - (ii) Reprofiling of selected debt obligations to extend maturities and reduce interest rates. ### Risks and vulnerabilities - Significant downside risks to the baseline scenario; strong and sustained political commitment needed to deliver the envisaged medium-term fiscal adjustment. - Specific vulnerabilities and risks: - Weaker economic recovery. - Adverse terms-of-trade and export shocks. - Materialization of contingent liabilities (coverage of public debt is limited). - Relapse into socio-political turmoil. - Possible consequences if downside risks materialize: - Higher external and public debt burden indicators. - Increased risk of accumulation of arrears. ### Role of WAEMU and regional support - WAEMU currency union regional institutions manage: - Debt issued by Guinea-Bissau in the regional sovereign treasury securities market (UMOA-titres). - Debt held by the central bank (BCEAO). - These two components account for 52 percent of Guinea-Bissau’s domestic debt at end-2020. - Guinea-Bissau’s borrowing through WAEMU sovereign securities market is expected to account for an insignificant share of available regional financing to the 8 countries in this currency union. - Implication: supportive WAEMU context bolsters capacity to carry domestic/regional debt beyond what is captured by the standard composite indicator. ### Debt management and capacity-building actions underway or planned - Expected deployment timeline and actions: - Full deployment of the new Debt Management and Financial Analysis system (DEMFAS) in 2021 to upgrade limited debt monitoring and reporting capacity and publish a comprehensive debt report every year. - Approval by the Council of Ministers of decrees related to: - Creation of a National Committee of Debt Policy. - Organization and functioning of the Debt Directorate. - Issuance of debt and debt management rules. - A Debt Management Performance Assessment (DEMPA) with assistance from the World Bank in 2021. - Continued substantial technical assistance from the IMF and the WB to improve reporting to International Debt Statistics (IDS) and Quarterly External Debt Statistics (QEDS). ### Authorities’ views - Authorities broadly concur with staff’s views and recommendations on debt sustainability. - Authorities’ emphasis and commitments: - Commitment to a sustained fiscal consolidation path and to limit non-concessional borrowing. - Pace of public investment to be determined by careful consideration of project contribution to growth and alignment with the budget process. - Improved coordination among agencies through a Debt Committee. - Request by authorities: - Requested a Staff-Monitored Program (SMP) to build a strong track record of policy implementation to pave the way to an arrangement under the Extended Credit Facility (ECF) as soon as conditions allow. *Source: IMF staff Debt Sustainability Analysis for Guinea-Bissau (excerpts).* ### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the percent of sample is fou ### Guinea-Bissau: External Debt Sustainability Framework, Baseline Scenario, 2018–41 ### 3-Year Adjustment in Primary Balance (Figure) - The figure title: "3-Year Adjustment in Primary Balance (Percentage points of GDP)". - Distribution note: "3-year PB adjustment greater than 2.5 percentage points of GDP in approx. top quartile." - Axis labels and ranges as shown: - Horizontal axis: "The size of 3-year adjustment from program inception" with tick marks at 0,2,4,6,8,10,12,14. - Vertical axis: "the percent of sample" with values shown in the chart range (e.g., -4.5 to 8.0 in 0.5 increments visible). - Projection lines referenced: Baseline; Multiplier = 0.2; Multiplier = 0.4; Multiplier = 0.6; Multiplier = 0.8. - Historical and projected series labeled: Historical; Projected (Prev. DSA); Projected (Curr. DSA). ### Table 1 — External Debt Dynamics (Key figures, percent of GDP unless otherwise indicated) - External debt (nominal) / PPG (percent of GDP) - 2018: 21.8 - 2019: 24.2 - 2020: 25.4 - 2021: 26.7 - 2022: 24.9 - 2023: 23.1 - 2024: 21.7 - 2025: 20.4 - 2026: 19.4 - 2031: 14.6 - 2041: 11.9 - Change in external debt - 2018: 4.5 - 2019: 2.4 - 2020: 1.2 - 2021: 1.3 - 2022: -1.8 - 2023: -1.8 - 2024: -1.4 - 2025: -1.3 - 2026: -1.0 - 2031: -0.7 - 2041: -0.2 - Identified net debt-creating flows - 2018: 1.8 - 2019: 4.6 - 2020: 6.6 - 2021: 4.6 - 2022: 1.8 - 2023: 0.9 - 2024: 1.0 - 2025: 0.8 - 2026: 0.7 - 2031: 0.9 - 2041: 0.5 - Non-interest current account deficit - 2018: 3.3 - 2019: 8.4 - 2020: 7.2 - 2021: 7.4 - 2022: 4.3 - 2023: 3.6 - 2024: 3.6 - 2025: 3.4 - 2026: 3.2 - 2031: 3.2 - 2041: 2.6 - Deficit in balance of goods and services - 2018: 5.2 - 2019: 14.6 - 2020: 16.3 - 2021: 16.0 - 2022: 13.6 - 2023: 12.8 - 2024: 12.2 - 2025: 11.8 - 2026: 11.5 - 2031: 11.1 - 2041: 8.9 - Exports and Imports (percent of GDP) - Exports: 2018: 25.8; 2019: 20.3; 2020: 15.2; 2021: 16.6; 2022: 16.6; 2023: 16.4; 2024: 16.2; 2025: 15.9; 2026: 15.5; 2031: 13.7; 2041: 10.0 - Imports: 2018: 31.0; 2019: 34.9; 2020: 31.5; 2021: 32.6; 2022: 30.2; 2023: 29.2; 2024: 28.4; 2025: 27.6; 2026: 27.0; 2031: 24.8; 2041: 18.9 - Net current transfers (negative = inflow) - 2018: -5.0; 2019: -3.9; 2020: -7.0; 2021: -6.6; 2022: -7.0; 2023: -6.8; 2024: -6.2; 2025: -6.0; 2026: -5.8; 2031: -5.3; 2041: -4.1 - Of which: official: 2018: -1.2; 2019: -1.2; 2020: -1.4; 2021: -2.9; 2022: -3.1; 2023: -3.1; 2024: -2.7; 2025: -2.6; 2026: -2.6; 2031: -2.7; 2041: -2.4 - Net FDI (negative = inflow) - 2018: -1.4; 2019: -5.0; 2020: -0.8; 2021: -2.3; 2022: -1.7; 2023: -1.7; 2024: -1.7; 2025: -1.7; 2026: -1.7; 2031: -1.7; 2041: -1.7 - Endogenous debt dynamics (contributions) - 2018: -0.2; 2019: 1.2; 2020: 0.3; 2021: -0.5; 2022: -0.9; 2023: -1.0; 2024: -1.0; 2025: -0.9; 2026: -0.8; 2031: -0.6; 2041: -0.5 - Contribution from nominal interest rate (example): 2018: 0.3; 2019: 0.2; 2020: 0.2; 2021: 0.2; 2022: 0.1 - Contribution from real GDP growth (example): 2018: -0.6; 2019: -1.0; 2020: 0.3; 2021: -0.7; 2022: -1.0 - Residual - 2018: 2.7; 2019: -2.2; 2020: -5.5; 2021: -3.3; 2022: -3.5; 2023: -2.7; 2024: -2.4; 2025: -2.1; 2026: -1.7; 2031: -1.6; 2041: -0.7 - Of which: exceptional financing: values largely 0.0 except 2020: -0.2; 2021: -0.1 - Sustainability indicators (selected) - PV of PPG external debt-to-GDP ratio (projections show values): 2031: 8.7; 2041: 7.2 (earlier years ellipses in table) - PV of PPG external debt-to-exports ratio (examples): 2031: 63.3; 2041: 72.0 (earlier years shown: 103.3, 96.8, 91.4, 86.2, 82.4, 79.2, 77.3) - PPG debt service-to-exports ratio: 2018: 2.1; 2019: 2.4; 2020: 4.6; 2021: 4.5; 2022: 4.3; 2023: 5.4; 2024: 5.2; 2025: 5.5; 2026: 5.1; 2031: 5.9; 2041: 4.6 - PPG debt service-to-revenue ratio: 2018: 4.7; 2019: 3.9; 2020: 5.7; 2021: 5.7; 2022: 5.1; 2023: 6.3; 2024: 6.0; 2025: 6.1; 2026: 5.5; 2031: 5.4; 2041: 2.9 - Gross external financing need (Million of U.S. dollars) - 2018: 37.7; 2019: 56.4; 2020: 101.2; 2021: 94.8; 2022: 58.9; 2023: 54.5; 2024: 59.6; 2025: 59.1; 2026: 58.2; 2031: 85.2; 2041: 109.6 ### Key macroeconomic assumptions (Table 1) - Real GDP growth (percent) - 2018: 3.4; 2019: 4.5; 2020: -1.4; 2021: 3.3; 2022: 4.0; 2023–2026: 5.0 each year; 2031: 5.0; 2041: 3.3 - Actual / Average / Projections also list 4.8 in one cell. - GDP deflator in US dollar terms (change in percent) - 2018: -0.9; 2019: -8.5; 2020: 1.0; 2021: 9.4; 2022: 5.2; 2023: 4.2; 2024: 3.7; 2025: 3.4; 2026: 3.3; 2031: 2.9; 2041: 2.9 - Effective interest rate (percent) - 2018: 1.5; 2019: 0.7; 2020: 0.7; 2021: 1.0; 2022: 0.5; 2023: 0.5; 2024: 0.5; 2025: 0.5; 2026: 0.6; 2031: 0.8; 2041: 1.0 - Growth of exports of G&S (US$ terms, percent) - 2018: 3.5; 2019: -24.8; 2020: -25.3; 2021: 23.2; 2022: 9.4; 2023: 8.4; 2024: 7.4; 2025: 6.5; 2026: 5.6; 2031: 4.8; 2041: 3.6 - Growth of imports of G&S (US$ terms, percent) - 2018: 4.5; 2019: 7.6; 2020: -10.0; 2021: 16.9; 2022: 1.3; 2023: 6.0; 2024: 5.9; 2025: 5.6; 2026: 5.9; 2031: 5.8; 2041: 3.5 - Grant element of new public sector borrowing (percent) — projections show values such as 38.6; 54.3; 54.4; 54.0; 54.2; 54.2; 48.7; 45.8; 50.6 (some earlier years ellipses). - Government revenues (excluding grants, percent of GDP) - 2018: 11.6; 2019: 12.5; 2020: 12.1; 2021: 13.1; 2022: 13.7; 2023: 14.0; 2024: 14.2; 2025: 14.3; 2026: 14.2; 2031: 14.8; 2041: 15.9 - Aid flows (Million of US$) - 2018: 104.5; 2019: 51.1; 2020: 103.0; 2021: 102.5; 2022: 102.6; 2023: 115.5; 2024: 117.2; 2025: 128.4; 2026: 141.0; 2031: 197.4; 2041: 402.2 - Grant-equivalent financing (percent of GDP) — selected projection values: 6.8; 5.4; 5.5; 5.1; 5.1; 5.1; 5.1; 5.0; average 5.3 - Nominal GDP (Million of US$) — selected years: - 2018: 1,506; 2020: 1,440; 2021: 1,434; 2022: 1,621; 2023: 1,773; 2024: 1,940; 2025: 2,113; 2026: 2,295; 2031: 2,489; 2041: 3,657; another later cell: 7,897 - Nominal dollar GDP growth (percent) - 2018: 2.5; 2019: -4.4; 2020: -0.4; 2021: 13.0; 2022: 9.4; 2023: 9.4; 2024: 8.9; 2025: 8.6; 2026: 8.4; 2031: 8.0; 2041: 8.0; averages include 4.7 and 8.9 in other cells. ### Table 2 — Public Sector Debt Dynamics (selected items, percent of GDP) - Public sector debt (percent of GDP) - 2018: 59.2 - 2019: 65.9 - 2020: 79.3 - 2021: 78.4 - 2022: 77.5 - 2023: 75.7 - 2024: 73.6 - 2025: 71.1 - 2026: 68.8 - 2031: 59.7 - 2041: 49.5 - Change in public sector debt - 2018: 9.1 - 2019: 6.7 - 2020: 13.4 - 2021: -0.9 - 2022: -0.9 - 2023: -1.8 - 2024: -2.1 - 2025: -2.5 - 2026: -2.3 - 2031: -1.6 - 2041: -0.7 - Identified debt-creating flows - 2018: 6.7; 2019: 4.1; 2020: 9.6; 2021: 0.4; 2022: -0.9; 2023: -1.8; 2024: -2.1; 2025: -2.5; 2026: -2.3; 2031: -1.6; 2041: -0.7 - Primary deficit - 2018: 4.3; 2019: 2.8; 2020: 7.8; 2021: 3.4; 2022: 2.7; 2023: 2.1; 2024: 1.6; 2025: 1.0; 2026: 0.9; 2031: 0.7; 2041: 0.9 - Revenue and grants (percent of GDP) - 2018: 15.2; 2019: 15.4; 2020: 16.4; 2021: 18.5; 2022: 18.6; 2023: 18.9; 2024: 18.6; 2025: 18.7; 2026: 18.7; 2031: 19.4; 2041: 20.4 - Of which: grants: 2018: 3.6; 2019: 2.9; 2020: 4.2; 2021: 5.4; 2022: 4.9; 2023: 4.9; 2024: 4.4; 2025: 4.4; 2026: 4.4; 2031: 4.6; 2041: 4.5 - Primary (noninterest) expenditure - 2018: 19.5; 2019: 18.2; 2020: 24.2; 2021: 22.0; 2022: 21.3; 2023: 21.1; 2024: 20.2; 2025: 19.7; 2026: 19.6; 2031: 20.1; 2041: 21.3 - Automatic debt dynamics - 2018: 2.6; 2019: 0.9; 2020: 1.0; 2021: -3.1; 2022: -3.5; 2023: -3.9; 2024: -3.7; 2025: -3.5; 2026: -3.2; 2031: -2.3; 2041: -1.6 - Contribution from interest rate/growth differential example: 2018: 0.6; 2019: -0.7; 2020: 2.6; 2021: -2.9; 2022: -3.1 - Other identified debt-creating flows - Examples: Recognition of contingent liabilities (e.g., bank recapitalization): 2018: -0.2; 2019: 0.0; 2020: 0.8 - Residual - 2018: 2.5; 2019: 2.6; 2020: 3.8; 2021: -1.3; subsequent projection residuals generally 0.0 in many years; memorandum 1.3 and -0.3 in specified cells. - Sustainability indicators (selected) - PV of public debt-to-GDP ratio (projections): values shown such as 2031: 53.8; 2041: 44.8 (earlier years ellipses then 68.6, 67.5, 67.6, 66.7, 65.2, 63.2, 61.3) - PV of public debt-to-revenue and grants ratio: example projection values include 419.7; 364.6; 364.1; 352.4; 350.4; 337.9; 328.7; 277.2; 219.3 - Debt service-to-revenue and grants ratio: 2018: 35.1; 2019: 54.7; 2020: 56.2; 2021: 69.5; 2022: 43.0; 2023: 48.5; 2024: 50.9; 2025: 64.2; 2026: 79.0; 2031: 48.4; 2041: 37.1 - Gross financing need (percent of GDP) - 2018: 9.4; 2019: 11.6; 2020: 17.8; 2021: 16.3; 2022: 10.7; 2023: 11.3; 2024: 11.0; 2025: 13.0; 2026: 15.7; 2031: 10.1; 2041: 8.5 ### Tables 3 & 4 — Sensitivity Analyses (2021–31) - Table 3: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt (PV of debt-to-GDP, debt service-to-exports, debt service-to-revenue) - Baseline and scenarios reported for each year 2021–2031. - A. Alternative Scenarios: A1. Key variables at their historical averages in 2021–2031. - B. Bound Tests: B1. Real GDP growth; B2. Primary balance; B3. Exports; B4. Other flows; B5. Depreciation; B6. Combination of B1–B5. - C. Tailored Tests: C1. Combined contingent liabilities; C2. Natural disaster (n.a.); C3. Commodity price; C4. Market Financing (n.a.). - Example baseline PV of debt-to-GDP ratio time series (selected): Baseline column headline shows sequence "16 15 14 13 13 12 11 10 10 9 8" corresponding to 2021–2031 in the table formatting. - Thresholds: shown as "30 30 30..." for certain indicators; bold values indicate breaches. - Table 4: Sensitivity Analysis for Key Indicators of Public Debt (2021–31) - Similar scenario and bound tests structure as Table 3. - Baseline PV of debt-to-GDP ratio sequence (selected): "68 68 67 65 63 61 60 58 56 55 54" for 2021–2031. - TOTAL public debt benchmark and alternative scenario outcomes shown (examples include baseline and scenario numeric sequences). - PV of Debt-to-Revenue Ratio and Debt Service-to-Revenue Ratio reported under baseline and scenarios; TOTAL public debt benchmark value: "35 35 35 35 35 35 35 35 35 35 35" (repeated). ### Key quantitative takeaways (from tables and figures) - Public sector debt peaked in 2020 at 79.3 percent of GDP and is projected to decline to 49.5 percent of GDP by 2041. - External (PPG) debt rose to 26.7 percent of GDP in 2021 and is projected to decline to 11.9 percent of GDP by 2041. - Gross external financing needs spiked to 101.2 million US$ in 2020 and are projected at 109.6 million US$ in 2041, with a mid-projection trough around 54.5–59.6 million US$ in 2023–2025. - Aid flows (Million of US$) are projected to grow substantially: 2021: 102.5; 2026: 141.0; 2031: 197.4; 2041: 402.2. - Revenue (excluding grants) steadily increases from 11.6 percent of GDP in 2018 to projected 15.9 percent in 2041. - Several stress-test scenarios show thresholds and benchmark breaches under adverse combinations (e.g., primary balance, exports, depreciation, and combined contingent liabilities). *Source: IMF staff estimates and projections as presented in the Guinea-Bissau DSA tables and figures.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1gnbea2021002.pdf_