## 1gnbea2021003 - 2021. The improvement in business confidence associated with a more stable political

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### Context
- Political stability: After two years of protracted political turmoil, Guinea-Bissau experienced a period of relative political stability in 2021; President Embaló appointed a new government in late February 2020, described as the first peaceful transition of power in Guinea-Bissau’s history.
- COVID-19 impact and response:
  - By end-October, there were 6,134 confirmed cases and 141 deaths.
  - A state of calamity was declared to prevent the spread of a third wave.
- Vaccination progress and targets:
  - National vaccine program launched in April 2021 using AstraZeneca.
  - By end-October, a total of 139,369 vaccine doses have been administered covering about 17 percent of the target population (about 700,000 people).
  - 882,970 doses have been delivered to date (AstraZeneca, Johnson & Johnson, and Pfizer).
  - 200,000 Sinopharm doses are expected from China.
  - Vaccination campaign aims to reach 50 percent of the target population by end-December.
- Program support:
  - Authorities pursuing macroeconomic stability, social protection, and governance reforms supported by a 9-month Staff-Monitored Program (SMP) approved in late July 2021.

### Recent economic developments and outlook
- Growth and activity:
  - 2020 growth revised upwards to 1.5 percent.
  - 2021 projected to accelerate to 3¾ percent.
  - Cashew nut production in 2021 expected to reach historical record levels; Guinea-Bissau exports expected to grow by 34.5 percent year on year.
  - Cashew nut exports contributed extra income to at least 500,000 households.
- Prices and external balance:
  - Average price inflation projected to accelerate to 2.4 percent in 2021.
  - Current account deficit projected to drop from 8.1 percent in 2020 to 4.3 percent of GDP in 2021.
- Fiscal and debt projections (selected exact figures):
  - Overall fiscal balance (commitment basis incl. grants): -9.2 percent of GDP in 2020 → -5.2 percent of GDP in 2021.
  - Total public debt: 71.1 percent of GDP in 2020 → 77.0 percent of GDP in 2021.
  - Nominal GDP (CFAF billion): 2020 = 848; 2021 = 972; 2022 proj. = 903.
  - Cashew nut export prices (US$ per ton): 2019 = 1098; 2020 = 1140; 2021 = 1000; 2022 = 1180; 2023 = 1148.
  - Cashew export volume (thousands of tons): 2019 = 196; 2020 = 208; 2021 = 155; 2022 = 214; 2023 = 225.

### Fiscal performance in 2021 H1 (January–June, cumulative — selected figures)
- Revenue and grants: CFAF 71.5 billion; 7.9 percent of GDP.
- Revenue: CFAF 48.5 billion; 5.5 percent of GDP.
- Tax revenue: CFAF 38.2 billion; 4.2 percent of GDP.
- Grants: CFAF 23.0 billion; 2.5 percent of GDP.
- Expenditure (total): CFAF 102.5 billion; 11.3 percent of GDP.
- Wages and salaries: CFAF 29.3 billion; 3.2 percent of GDP.
- Net acquisition of nonfinancial assets: CFAF 35.9 billion; 4.0 percent of GDP.
- Overall balance, including grants (commitment): CFAF -30.9 billion; -3.4 percent of GDP.
- Overall balance, including grants (cash): CFAF -38.0 billion; -4.2 percent of GDP.
- Domestic primary balance (commitment): CFAF -16.4 billion; -1.8 percent of GDP.
- Domestic primary balance (commitment, adjusted): CFAF -17.8 billion; -2.0 percent of GDP.

### Financing and external support (selected)
- January 2021 Rapid Credit Facility (RCF) disbursement: SDR 14.2 million (50 percent of quota).
- Recent SDR allocation: SDR 27.2 million (96 percent of quota).
- RCF disbursement contributed to cover 1.1 percent of GDP of financing needs; CCRT debt service relief an additional 0.1 percent of GDP; recent SDR allocation 2.4 percent of GDP.

### Program performance and SMP review
- SMP objectives: stabilize the economy, strengthen governance, and build track record towards an ECF.
- Review findings and compliance:
  - Program performance at end-June 2021 was satisfactory.
  - Five out of seven quantitative targets (QTs) were met.
  - All structural benchmarks (SBs) were met for end-July; all but one for end-September and one for end-December were met.
  - Domestic primary balance ceiling was missed: exceeded QT by CFAF 1.4 billion or 0.2 percent of GDP mainly due to higher COVID-related expenditures and spending to improve health and education service delivery.
  - US$0.5 million external payments arrears were incurred for technical reasons; authorities are taking actions to resolve.
  - BOP and fiscal gaps for 2021 identified at SMP approval are estimated to have been closed because of the SDR allocation.
- Program fiscal outlook:
  - Fiscal deficit expected to be contained to about 5¼ percent of GDP in 2021.
  - Government adopted expenditure containment measures to keep end-December domestic primary deficit at 2.1 percent of GDP (about 0.4 percentage points above SMP target), representing a fiscal consolidation effort of 1.9 percent of GDP in 2021.
  - Note: The domestic primary balance in 2021 could reach around -1.9 percent of GDP after adjusting for the domestically financed vaccination costs.

### Quantitative targets and selected program numbers (exact figures preserved)
- Total domestic tax revenue (floor): Target 38.2 (Jun) | Actual 41.7 (Jun) — status: met.
- Domestic primary balance (commitment basis, floor): Target -16.4 (Jun) | Actual -17.8 (Jun) — status: not met.
- Social and priority spending (floor): Target 27.2 (Jun) | Actual 27.6 (Jun) — status: met.
- New external payment arrears (US$ millions, ceiling): Target 0.0 | Actual 0.5 — status: not met.
- Selected fiscal projections (CFAF billions series from MEFP): Revenue and grants: 130.1, 134.7, 162.0, 168.8, 177.0, 195.0, 208.9, 226.8, 243.5; Tax revenue: 79.1, 67.8, 87.9, 93.5, 101.6, 113.6, 126.0, 137.8, 148.1; Expenditure: 163.2, 212.9, 206.1, 215.5, 219.5, 238.2, 249.9, 263.0, 282.8.

### Banking sector and financial soundness
- Credit to the economy slowed in 2020 but is expected to accelerate in 2021 due to BCEAO accommodative stance.
- Excluding a systemic undercapitalized bank, the banking sector situation is adequate based on end-2020 financial soundness indicators.
- One systemic undercapitalized bank:
  - Holds about 40 percent of deposits.
  - Has the largest number of branches.
  - Had about 10 percent of its total NPLs recovered.
  - Is seeking strategic investors with external consultant support.
- BCEAO encouraged WAEMU banks in December 2020 to refrain from distributing dividends to strengthen capital buffers.

### Risks, scenarios, and mitigation policies
- Baseline outlook:
  - Growth about 3¾ percent in 2021, supported by consumption and cashew nut exports.
  - Medium-term convergence: inflation below 3 percent regional convergence criterion; current account to converge to about 4 percent.
- Downside risks (tilted to the downside):
  - Political risks, weak capacity, volatile global food and oil prices, and cashew export volatility.
  - Negative food price shock could exacerbate debt vulnerabilities.
  - Political risks include conflict related to public sector salaries, tensions from new taxes, weak governance and corruption, high poverty, and weak public service delivery.
  - Limited public sector capacity and ineffective coordination may hinder reform implementation.
- Upside scenario:
  - Stronger cashew sector performance and successful vaccination campaign could underpin faster recovery.
  - Greater political stability could crowd in private sector activity and donor support.
- Risk mitigation policies (selected):
  - Prioritize spending towards health sector and social protection; mobilize additional grants and concessional loans.
  - Control public expenses; preserve social spending focused on the most vulnerable; step up diversification efforts.
  - Enhance banking supervision and enforce prudential regulations; improve processes for debt collection and collateral.
  - Strengthen governance, transparency and fight corruption to reduce political and fiscal risks.

### Governance, transparency, and structural reforms (priority actions)
- Expenditure control:
  - Treasury Committee continued weekly meetings; ministerial order issued defining prioritization criteria to avoid arrears.
  - Team appointed to spearhead implementation of the Treasury Single Account (TSA); mandatory prior authorization by the Minister of Finance for opening public bank accounts; all public sector bank accounts identified.
  - Two additional expenditure control measures: require certification of goods and services delivery before payment; ministerial order mandating implementation of the “Manual for procedures on public expenditures” starting with a pilot of at least five line ministries.
- Tax and customs reforms:
  - Council of Ministers approved and submitted to Parliament: revised general tax code, tax penalty regime, revised customs code, and new VAT law.
  - Kontaktu system for electronic filing of tax returns and payments operational in pilot phase; rephased full implementation from end-September to end-December to ensure smooth transition.
  - Customs management improvements with IMF TA: modern clearance procedure, control of import values, fight against smuggling and abuse of exemptions.
- Anti-corruption and asset declarations:
  - Plan to reform asset declaration regime with IMF TA to cover all PEPs per FATF standards, include beneficial ownership, ensure public online availability, and allow sanctions for non-compliance.
- SOE and payroll controls:
  - Steps to strengthen EAGB management; EAGB has non-publicly guaranteed debts estimated at 2.5 percent of GDP.
  - Executive order to end hiring of employees without contract (SB, end-September 2021); preparation of executive order to enforce financial controller over all public salaries and reconcile personnel and payroll records (SB end-December 2021) supported by blockchain project.

### Priority spending, vaccination, and social protection
- Priority spending in 2021 focuses on vaccination, and health and social spending.
- Vaccination campaign:
  - National vaccination campaign aims to vaccinate 700,000 people by early 2022 with a cost of around CFAF 9 billion (1 percent of GDP).
  - Operational cost borne by government except US$1 million granted by GAVI; funding gap of US$5.5 million requires additional donor support.
  - In Annex reporting as of end-September: [94,715] vaccine doses administered covering about - 13.5 percent of the target population; 676,650 doses delivered to date; 200,000 Sinopharm doses expected from China.
  - Government target: vaccinate 50 percent of the target population by end-December.
- 2021 projected health expenditure: 2.4 percent of GDP (about 1 percentage point of GDP above pre-COVID projections).
- Social spending increased as share of GDP compared to pre-COVID projections, largely due to additional transfers to vulnerable families.
- Government launched program in 2020 to support financing of cashew nut campaign by on-lending resources (1.8 percent of GDP) through banking sector.

### 2022 budget and medium-term fiscal plans
- Draft 2022 budget to be submitted to Parliament by mid-November is in line with SMP targets:
  - Overall deficit: -4.4 percent of GDP.
  - Domestic primary deficit: -1.2 percent of GDP.
- Planned adjustments:
  - Current expenditure (excluding interest) projected to fall by 1.5 percentage points of GDP.
  - Domestically financed capital expenditure projected to increase by 0.8 percentage points of GDP.
  - Revenue mobilization improvement of 0.2 percentage points of GDP expected.
  - Reallocation of resources from wages and salaries to priority spending and capital expenditure; rationalization of goods and services.
- Authorities will exercise strict control on budgetary execution, avoid accumulation of arrears, and authorize external borrowing consistent with debt sustainability.

### Financing, SDR allocation treatment, and debt management
- Use and terms of SDR allocation:
  - Guinea-Bissau received an allocation of SDR 27.2 million (CFAF 21.6 billion), or 96 percent of quota.
  - The SDR allocation was transferred by the BCEAO as a currency repo operation of CFAF 21.6 billion with 20-year maturity and a single bullet payment at end-period; interest rate fixed at 0.05 percent; operation equivalent to a loan with a grant element of 62 percent.
  - Authorities plan to use SDR allocation to reduce financing costs by amortizing expensive debt and close the 2021 financing gap associated with emergency response to the pandemic; repay BOAD amortization due in 2021 and 2022.
  - Staff estimates the debt management operation could save up to CFAF 3.4 billion (0.4 percent of 2021 GDP) on interest payments up to 2026.
- Financing gaps and priorities:
  - Authorities’ policies to support fiscal consolidation and preserve debt sustainability could still require additional financing needs of 2.1 percent of GDP in 2022-24.
  - Staff estimates a financing gap of CFAF 7.4 billion each year, about 0.7 percent of GDP.
  - Covering this gap with concessional loans will decrease recourse to regional commercial bank financing, reducing interest expenses by an average of 0.1 percent of GDP over 2022-26.
- Debt assessment and outlook:
  - Assessment: Guinea-Bissau is at high risk of external and overall debt distress, but debt was assessed as sustainable in a forward-looking sense hinging on the authorities’ commitment to: (i) an ambitious fiscal adjustment strategy; (ii) prudent borrowing policies, including avoiding non-concessional project financing; (iii) enhanced debt management; and (iv) cautious management of the existing loan pipeline.
  - Projection: Staff projects a gradual decline of the PV of public debt relative to GDP over the medium term, with the fiscal deficit and public debt meeting WAEMU convergence criteria in 2025.
  - Debt stock and composition (selected exact figures, end-period 2020):
    - Total public debt: 1,212,212,426 (In US$); 100.0 percent of total debt; 77.1 percent of GDP.
    - Total debt service: 130,918,373 (2020); 215,051,858 (2021); 93,461,664 (2022).
    - External debt: 388,105,448 (In US$); 32.0 percent of total debt; 24.7 percent of GDP.
    - Domestic debt: 824,106,978 (In US$); 68.0 percent of total debt; 52.4 percent of GDP.
    - BOAD: 284,620,264 (In US$); 23.5 percent of total debt; 18.1 percent of GDP.
    - BCEAO: 175,568,676 (In US$); 14.5 percent of total debt; 11.2 percent of GDP.
    - IMF: 29,222,503 (In US$); 2.4 percent of total debt; 1.9 percent of GDP.
    - World Bank: 147,765,418 (In US$); 12.2 percent of total debt; 9.4 percent of GDP.
    - Payment arrears: 22,832,747 (In US$); 1.9 percent of total debt; 1.5 percent of GDP.
    - Contingent liabilities / Public guarantees: 19,578,219 (In US$); 1.6 percent of total debt; 1.2 percent of GDP.
    - Nominal GDP (reported): 1,474,656,307 (In US$) for 2020.

### Staff recommendations and policy stance
- Staff supports completing the first review of the SMP based on policies in the Memorandum of Economic and Financial Policies.
- Policy recommendations (selected):
  - Further rationalize non-priority spending if downside risks materialize.
  - Strengthen expenditure control, tax and customs frameworks, and fight against corruption.
  - Mitigate SOE risks and amend legal procurement framework and asset declaration regime.
  - Use SDR allocation prudently to repay non-concessional debt and finance critical spending while transparently recording spending per the IMF's Fiscal Transparency Code.
  - Continue IMF-provided capacity development and TA in coordination with international partners.
- Contingency planning:
  - If downside risks materialize, authorities committed to further rationalize expenditures, particularly domestically financed investment and non-priority spending.

*Source: Guinea-Bissau authorities and IMF staff (1gnbea2021003).*

### 2021. The improvement in business confidence associated with a more stable political

### 1gnbea2021003 - 2021. The improvement in business confidence associated with a more stable political

### Context
- Political stability: After two years of protracted political turmoil, Guinea-Bissau experienced a period of relative political stability in 2021; President Embaló appointed a new government in late February 2020, described as the first peaceful transition of power in Guinea-Bissau’s history.
- COVID-19 impact and response:
  - By end-October, there were 6,134 confirmed cases and 141 deaths.
  - A state of calamity was declared to prevent the spread of a third wave.
- Vaccination progress:
  - National vaccine program launched in April 2021 using AstraZeneca.
  - By end-October, a total of 139,369 vaccine doses have been administered covering about 17 percent of the target population (about 700,000 people).
  - 882,970 doses have been delivered to date (AstraZeneca, Johnson & Johnson, and Pfizer).
  - 200,000 Sinopharm doses are expected from China.
  - Vaccination campaign aims to reach 50 percent of the target population by end-December.
- Reform agenda: Authorities pursuing macroeconomic stability, social protection, and governance reforms supported by a 9-month Staff-Monitored Program (SMP) approved in late July 2021 to stabilize the economy and build a track record towards an Extended Credit Facility (ECF) arrangement.

### Recent economic developments and outlook
- Growth and activity:
  - 2020 growth revised upwards to 1.5 percent.
  - 2021 projected to accelerate to 3¾ percent.
  - Cashew nut production in 2021 expected to reach historical record levels; Guinea-Bissau exports expected to grow by 34.5 percent year on year.
  - Cashew nut exports contributed extra income to at least 500,000 households.
- Prices and external balance:
  - Average price inflation projected to accelerate to 2.4 percent in 2021.
  - Current account deficit projected to drop from 8.1 percent in 2020 to 4.3 percent of GDP in 2021.
- Fiscal and debt projections:
  - Overall fiscal balance (commitment basis incl. grants) moves from -9.2 percent of GDP in 2020 to -5.2 percent of GDP in 2021.
  - Total public debt projected at 77.0 percent of GDP in 2021 (from 71.1 percent in 2020).
  - Nominal GDP (CFAF billion): 2020 = 848; 2021 = 972; 2022 proj. = 903 (Memorandum items listed).
  - Cashew nut export prices (US$ per ton): 2019 = 1098; 2020 = 1140; 2021 = 1000; 2022 = 1180; 2023 = 1148.
  - Cashew export volume (thousands of tons): 2019 = 196; 2020 = 208; 2021 = 155; 2022 = 214; 2023 = 225.
- Fiscal performance in 2021 H1 (January–June, cumulative) — selected figures:
  - Revenue and grants: CFAF 71.5 billion; 7.9 percent of GDP (estimates/projections presented in table).
  - Revenue: CFAF 48.5 billion; 5.5 percent of GDP.
  - Tax revenue: CFAF 38.2 billion; 4.2 percent of GDP.
  - Grants: CFAF 23.0 billion; 2.5 percent of GDP.
  - Expenditure (total): CFAF 102.5 billion; 11.3 percent of GDP.
  - Wages and salaries: CFAF 29.3 billion; 3.2 percent of GDP.
  - Net acquisition of nonfinancial assets: CFAF 35.9 billion; 4.0 percent of GDP.
  - Overall balance, including grants (commitment): CFAF -30.9 billion; -3.4 percent of GDP.
  - Overall balance, including grants (cash): CFAF -38.0 billion; -4.2 percent of GDP.
  - Domestic primary balance (commitment): CFAF -16.4 billion; -1.8 percent of GDP.
  - Domestic primary balance (commitment, adjusted): CFAF -17.8 billion; -2.0 percent of GDP.
- Financing and support:
  - January 2021 Rapid Credit Facility (RCF) disbursement: SDR 14.2 million (50 percent of quota) provided urgent financing for health and to catalyze donor resources.
  - Recent SDR allocation: SDR 27.2 million (96 percent of quota).
  - RCF disbursement contributed to cover 1.1 percent of GDP of financing needs; CCRT debt service relief an additional 0.1 percent of GDP; recent SDR allocation 2.4 percent of GDP.

### Program performance and SMP review
- SMP objectives: stabilize the economy, strengthen governance, and build track record towards an ECF.
- Review findings:
  - Program performance at end-June 2021 was satisfactory.
  - All but two end-June quantitative targets (QTs) were met.
  - Domestic primary balance ceiling was missed due to higher COVID-related expenditures and spending to improve health and education service delivery.
  - There was a small accumulation of external arrears; authorities have taken steps to meet all end-year proposed targets and clear all external arrears.
  - All structural benchmarks (SBs) were met.
  - BOP and fiscal gaps for 2021 identified at SMP approval are estimated to have been closed because of the SDR allocation.
- Program fiscal outlook:
  - Fiscal deficit expected to be contained to about 5¼ percent of GDP in 2021, representing substantial fiscal adjustment in line with program objectives.
  - Stronger revenue mobilization and expenditure containment, including in the wage bill, expected to create fiscal space and crowd-in donor support to protect social spending in education, health, pandemic-related expenditures, and to initiate key infrastructure investments.

### Banking sector and financial soundness
- Banking sector:
  - Credit to the economy slowed in 2020 but is expected to accelerate in 2021 due to BCEAO accommodative stance.
  - Excluding a systemic undercapitalized bank, the banking sector situation is adequate based on end-2020 financial soundness indicators.
  - One systemic undercapitalized bank represents an important vulnerability: it holds about 40 percent of deposits, has the largest number of branches, and had about 10 percent of its total NPLs recovered; it is seeking strategic investors with external consultant support.

### Risks and outlook scenarios
- Baseline outlook:
  - Growth about 3¾ percent in 2021, supported by consumption and cashew nut exports.
  - Medium-term convergence: inflation below 3 percent regional convergence criterion; current account to converge to about 4 percent.
- Downside risks (tilted to the downside):
  - Political risks, weak capacity, volatile global food and oil prices, and cashew export volatility.
  - Negative food price shock could exacerbate debt vulnerabilities.
  - Political risks include conflict related to public sector salaries, tensions from new taxes, weak governance and corruption, high poverty, and weak public service delivery.
  - Limited public sector capacity and ineffective coordination may hinder reform implementation.
- Upside scenario:
  - Stronger cashew sector performance and successful vaccination campaign could underpin faster recovery.
  - Greater political stability could crowd in private sector activity and donor support.

### Governance, transparency, and structural reforms
- Key reforms required for SMP success and addressing long-standing socioeconomic challenges:
  - Strengthen expenditure control.
  - Strengthen tax and customs frameworks.
  - Fight against corruption.
  - Mitigate State-Owned Enterprises’ risks.
  - Amend legal procurement framework.
  - Amend asset declaration regime.
- IMF support:
  - IMF provides capacity development in coordination with international partners.
  - IMF supports authorities’ efforts to mobilize external concessional financing.

### Staff views and policy stance
- Staff supports completing the first review of the SMP based on policies in the Memorandum of Economic and Financial Policies.
- Draft 2022 budget supports strong fiscal consolidation; authorities taking steps to meet all QTs and SBs.
- If downside risks materialize, authorities committed to further rationalize expenditures, particularly domestically financed investment and non-priority spending.

*GUINEA-BISSAU: FIRST REVIEW UNDER THE STAFF-MONITORED PROGRAM. November 17, 2021.*

### 8.       Program performance under the SMP has been positive. Five out of seven quantitative

### 8.       Program performance under the SMP has been positive. Five out of seven quantitative targets (QTs) were met

### Program performance and quantitative targets
- Five out of seven quantitative targets (QTs) were met (Table 6).
- Domestic tax revenue floor exceeded the end-June QT by more than 9.2 percent.
- The social priority spending floor exceeded the QT by more 1.5 percent.
- US$0.5 million external payments arrears were incurred, largely reflecting small technical difficulties; authorities are taking actions to resolve (MEFP ¶17 and fn. 9 Table 6).
- The end-June QT capping the domestic primary deficit was missed: higher than the QT by CFAF 1.4 billion or 0.2 percent of GDP, mainly due to higher COVID-related expenditures and the need to improve service delivery in health and education sectors.
- Indicative value (IV) is staff projection consistent with QTs.

### Structural benchmarks (SBs) and implementation
- All SBs for end-July were met; all but one for end-September and one for end-December were met (Table 7).
- Expenditure control:
  - Treasury Committee continued weekly meetings without interruption (SB, end-July).
  - Ministerial order defining clear prioritization criteria in the expenditure category to avoid arrears (SB, end-July).
  - Executive order to end the hiring of employees without contract (SB, end-September 2021).
  - Team appointed to spearhead implementation of the Treasury Single Account (TSA) at the General Directorate of Treasury; mandatory prior authorization by the Minister of Finance for opening public bank accounts is in place; all public sector bank accounts have been identified (SB, end-September).
- Tax and customs frameworks and tax administration:
  - Council of Ministers approved and submitted to Parliament: the revised general tax code and a tax penalty regime (SBs, end-July), a revised customs code (SB, end-September), and a new VAT law (SB, end-December).
  - Kontaktu system for electronic filing of tax returns and payments is operational for a small number of taxpayers (pilot phase); progress made to extend to all large taxpayers to achieve full implementation.
  - Staff supports rephasing full implementation of Kontaktu from end-September to end-December to ensure smooth transition amid the pandemic (MEFP ¶17 bullet 2).
  - With ongoing IMF TA support, customs management is taking steps: introduction of a modern clearance procedure, control of import values, fight against smuggling and abuse of exemptions.

### Policy priorities (overview)
- Policy priorities include:
  - (i) supporting post-COVID economic recovery; and
  - (ii) start implementing an ambitious yet realistic growth-enhancing fiscal consolidation program to ensure debt sustainability while addressing Guinea-Bissau’s developmental needs, through stronger fiscal governance and transparency.

### Macroeconomic policies — Addressing fiscal consolidation
- The end-2021 domestic primary balance target is no longer within reach.
- Authorities expect revenue performance in 2021H2 to remain strong due to two new taxes (democracy and telecommunication taxes) and fishing licenses.
- For the full year, revenue is projected to be higher than the SMP target by 0.7 percentage points of GDP.
- Government adopted expenditure containment measures to keep end-December domestic primary deficit at 2.1 percent of GDP (about 0.4 percentage points above SMP target), representing a fiscal consolidation effort of 1.9 percent of GDP in 2021, bringing primary balance closer to its 2019 level.
- Higher domestic primary deficit is largely due to higher COVID-related expenditures and improvements in service delivery in health and education sectors (Annex III).
- Staff proposes internalizing the slippage based on authorities’ commitment to further rationalize non-priority spending (¶13).
- Note: The domestic primary balance in 2021 could reach around -1.9 percent of GDP after adjusting for the domestically financed vaccination costs (TMU ¶16).

### Revenue measures and performance
- Key measures taken: new taxes on telecommunications and labor income along with other revenue-enhancing measures (MEFP ¶10, bullet 1).
- Fiscal yield estimates for 2021:
  - tax measures: about 0.4 percent of GDP;
  - non-tax measures: about 0.1 percent of GDP.
- Based on available data, tax collection for April-August for these taxes reached about CFAF 1.6 billion.
- Authorities expect to mobilize revenues and reduce contact points by fully implementing the website for electronic tax returns by end-2021, allowing electronic filing and payment.
- Staff advised to fully implement digitalization projects to increase revenue mobilization towards similar levels of Guinea-Bissau’s peers over the medium term.

### Expenditure control and wage bill
- Ministerial order for expenditure containment measures to meet end-December domestic primary balance floor includes:
  - (i) wage bill rationalization through suspension of new hires;
  - (ii) suspension of all official missions;
  - (iii) limiting tax expenditures by not granting fiscal and customs exemptions, in particular on fuel (this measure does not apply to embassies and international organizations);
  - (iv) suspensions of new infrastructure projects except priority sectors;
  - (v) limiting acquisitions of goods and services to those associated to core functions (MEFP ¶10, bullet 2).
- Government committed to safeguard priority sector spending (TMU ¶14) and not using irregular and improperly documented expenditure (DNTs).
- Staff supports wage bill control measures and deployment of IMF-supported blockchain-based project to assist in reconciliation of personnel and payroll records.
- Objective: convergence to WAEMU regional ceiling of 35 percent of wages-to-tax revenues ratio over the medium-term (Text Figure 4).
- Wage rationalization note: authorities initiated freezing of public sector salaries and new hires, and rationalized incentives in 2020 (from 26 percent of wages and salaries in 2019 to 13 percent in 2020).

### State Owned Enterprises (SOEs)
- Steps to strengthen management of EAGB (electricity company): changing top management, revamping management operations, enhancing financial management controls (MEFP ¶10, bullet 2).
- Additional steps needed to further strengthen EAGB to ensure financial viability and limit fiscal risks.
- EAGB has non-publicly guaranteed debts estimated at 2.5 percent of GDP.
- IMF will provide TA to enhance SOE supervision.

### Priority spending and vaccination
- Priority spending in 2021 focuses on vaccination, and health and social spending.
- National vaccination campaign initiated in April 2021 aims to vaccinate 700,000 people by early 2022 with a cost of around CFAF 9 billion (1 percent of GDP).
- So far operational cost borne by government, except US$1 million granted by GAVI; funding gap of US$5.5 million requires additional donor support.
- 2021 projected health expenditure: 2.4 percent of GDP (about 1 percentage point of GDP above pre-COVID projections).
- 2021 social spending increased as share of GDP compared to pre-COVID projections, largely due to additional transfers to vulnerable families.
- Government launched program in 2020 to support financing of cashew nut campaign by on-lending resources (1.8 percent of GDP) through banking sector.
- Authorities prepared to further support health sector and vulnerable families through prioritizing expenditures if health crisis worsens.
- Staff emphasized need to safeguard priority spending on health, education and social sectors.

### Investment plans
- Government investment plans to strengthen health, education and road infrastructure to sustain recovery; include COVID-related investments and investments supporting food security totaling 1.2 percent of GDP.
- Staff discussed measures to improve quality of investment plans, strengthen public procurement to increase investment efficiency, and mobilize external grants to finance specific projects.
- IMF TA will support cost-benefit analysis, strategic planning, and formulation and monitoring of public investment plans.

### 2022 budget
- Draft 2022 budget to be submitted to Parliament by mid-November is in line with SMP targets for overall and domestic primary deficits reaching respectively -4.4 percent of GDP and -1.2 percent of GDP (LOI).
- Projections and planned adjustments:
  - Current expenditure (excluding interest) as percent of GDP projected to fall by 1.5 percentage points.
  - Domestically financed capital expenditure projected to increase by 0.8 percentage points.
  - Fiscal consolidation underpinned by improvement in revenue mobilization of 0.2 percentage points, reallocating resources from wages and salaries to priority spending and capital expenditure, and rationalizing goods and services and other expenditures.
- Authorities will exercise strict control on budgetary execution, avoid accumulation of arrears, and authorize external borrowing consistent with debt sustainability.
- Plans to review debt management framework, wage bill policy, public investment management and SOE supervision with TA support from World Bank and IMF.
- Note: Guinea-Bissau has a significant share of externally financed projects in its capital budget, requiring strong coordination within government and with donors/lenders.

### Financing and debt
- IMF emergency financing, CCRT debt relief, and concessional loans of multilateral institutions will ease budget financing pressures in 2021.
- RCF and the SMP are helping catalyze additional donor support and alleviate financing pressures from reliance on non-concessional lending from BOAD and Treasury issuances in regional market.
- Reengagement strategy included joining DSSI and taking steps towards solving all legacy external arrears.
- Expected COVID-related grants include project financing from World Bank and African Development Bank, and budget support from France and African Development Bank.
- Guinea-Bissau received an allocation of SDR 27.2 million in end-August (Annex IV).
  - The SDR allocation was transferred by the BCEAO as a currency repo operation of CFAF 21.6 billion with 20-year maturity and a single bullet payment at end-period.
  - Interest rate fixed at 0.05 percent; operation equivalent to a loan with a grant element of 62 percent.
  - At maturity, operation could be renewed for 20-years at an interest rate linked to SDR interest rate.
- Authorities plan to use SDR allocation to reduce financing costs by amortizing expensive debt and close the 2021 financing gap associated with emergency response to the pandemic.
  - Authorities will use the allocation to repay BOAD amortization due in 2021 and 2022.
  - Staff estimates the debt management operation could save up to CFAF 3.4 billion (0.4 percent of 2021 GDP) on interest payments up to 2026.
  - Concessional terms of on-lending provide alternative to more costly financing such as contracting non-concessional debt and issuing Treasury bills in the WAEMU regional market.
  - Staff recommended that any pandemic spending and its financing should be transparently recorded in the budget in accordance with the IMF's Fiscal Transparency Code.
- Authorities’ policies to support fiscal consolidation and preserve debt sustainability could still require additional financing needs of 2.1 percent of GDP in 2022-24.
  - Staff estimates a financing gap of CFAF 7.4 billion each year, about 0.7 percent of GDP.
  - Covering this gap with concessional loans will decrease recourse to regional commercial bank financing, reducing interest expenses by an average of 0.1 percent of GDP over 2022-26.
  - Fiscal space from lower interest burden could be used for investment in public infrastructure and priority sectors.
- Staff discussed ways to improve debt management with TA support, which would allow for elaboration and update of annual borrowing plans in line with best practices.

*Source: Guinea-Bissau authorities and IMF staff calculations (chapter text).*

### 22.      Guinea-Bissau is at high risk of external and overall debt distress, but debt was

### 22. Guinea-Bissau is at high risk of external and overall debt distress, but debt was assessed as sustainable in a forward-looking sense hinging on the authorities’ commitment to sound policies supported by strong donor engagement

### Debt assessment, outlook, and conditionality
- Assessment: Guinea-Bissau is at high risk of external and overall debt distress, but debt was assessed as sustainable in a forward-looking sense hinging on the authorities’ commitment to: (i) an ambitious fiscal adjustment strategy; (ii) prudent borrowing policies, including avoiding 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.
- Projection: Staff projects a gradual decline of the PV of public debt relative to GDP over the medium term, with the fiscal deficit and public debt meeting WAEMU convergence criteria in 2025.
- Contingencies/assumptions: The macroeconomic framework assumes that the SDR allocation will be used to repay non-concessional debt and finance critical spending.
- Technical assistance: The authorities are seeking long-term TA from the World Bank and the IMF to improve its capacity for debt recording, monitoring, and overall debt management. Due to capacity constraints on debt recording, monitoring and reporting in Guinea-Bissau, staff proposes to defer converting the nominal limit on concessional project loans to a present value limit (as recommended by the new Debt Limits Policy) to a future ECF request.

### Debt classification and transparency
- Reclassification: Staff discussed the reclassification of BOAD debt and the improvement of debt transparency. The authorities have no objection to the reclassification of the debt to BOAD as external.
- Hybrid approach at ECF request: At the time of the authorities’ request for an ECF arrangement, debt classification in the DSA and debt limits will follow a hybrid approach in which debt to BOAD (denominated in CFA francs) will be classified as external and the remaining debt sources will continue to follow a currency-based classification.
- Rationale: Considering the importance of this creditor to the country (23 percent of total debt), this reclassification will improve the coverage of debt limits. BOAD’s borrowing sources are mostly non-resident and its lending should be treated as external debt.
- Commitment to transparency: The authorities remain committed to debt transparency, including on the debt holder profile in line with new requirements under the Debt Limits Policy (DLP) and plan to request IMF technical assistance to further improve the quality of debt data.

### Debt stock, composition, and debt service (selected figures from Text Table 4)
- Total public debt (end-period, 2020): Total 1,212,212,426 (In US$); 100.0 percent of total debt; 77.1 percent of GDP.
- Total debt service (2020–22 row headings shown): 130,918,373 (2020), 215,051,858 (2021), 93,461,664 (2022).
- External debt (end-period, 2020): 388,105,448 (In US$); 32.0 percent of total debt; 24.7 percent of GDP.
- Multilateral creditors (end-period, 2020): 272,764,947 (In US$); 22.5 percent of total debt; 17.3 percent of GDP.
  - IMF: 29,222,503 (In US$); 2.4 percent of total debt; 1.9 percent of GDP.
  - World Bank: 147,765,418 (In US$); 12.2 percent of total debt; 9.4 percent of GDP.
  - AfDB: 44,197,787 (In US$); 3.6 percent of total debt; 2.8 percent of GDP.
  - Other Multilaterals (o/w Islamic Development Bank): 51,579,238 (In US$); 4.3 percent of total debt; 3.3 percent of GDP. Islamic Development Bank: 22,401,895 (In US$); 1.8 percent of total debt; 1.4 percent of GDP. BADEA: 10,025,825 (In US$); 0.8 percent of total debt; 0.6 percent of GDP.
- Bilateral creditors (end-period, 2020): 115,340,502 (In US$); 9.5 percent of total debt; 7.3 percent of GDP.
  - Paris Club: 3,442,487 (In US$); 0.3 percent of total debt; 0.2 percent of GDP.
  - Non-Paris Club: 111,898,015 (In US$); 9.2 percent of total debt; 7.1 percent of GDP. Notable non-Paris Club exposures: Angola 32,900,000 (In US$); 2.7 percent of total debt; 2.1 percent of GDP. Kuwait 28,900,000 (In US$); 2.4 percent of total debt; 1.8 percent of GDP.
- Domestic debt (end-period, 2020): 824,106,978 (In US$); 68.0 percent of total debt; 52.4 percent of GDP.
  - Regional T-bills: 259,847,203 (In US$); 21.4 percent of total debt; 16.5 percent of GDP.
  - BOAD: 284,620,264 (In US$); 23.5 percent of total debt; 18.1 percent of GDP.
  - BCEAO: 175,568,676 (In US$); 14.5 percent of total debt; 11.2 percent of GDP.
  - Loans local commercial banks: 81,238,088 (In US$); 6.7 percent of total debt; 5.2 percent of GDP.
- Payment arrears (end-period, 2020): 22,832,747 (In US$); 1.9 percent of total debt; 1.5 percent of GDP.
- Contingent liabilities: 19,578,219 (In US$); 1.6 percent of total debt; 1.2 percent of GDP.
- Public guarantees: 19,578,219 (In US$); 1.6 percent of total debt; 1.2 percent of GDP.
- Nominal GDP (reported): 1,474,656,307 (In US$) for 2020; repeated values shown for other columns (1,474,656,307; 1,644,325,141; 1,777,458,461) as presented in the table.

### Governance, transparency, and public financial management reforms in progress
- COVID-19 related governance:
  - COVID-related funds are managed using a dedicated account at the BCEAO and will be subject to an ex-post independent audit by a reputable third-party auditor who will work jointly with the Audit Court.
  - An additional audit of COVID-19 expenses by the Audit Court has started in October at the request of the High Commissioner for COVID-19, covering the period June 2020–August 2021.
  - Terms of Reference for hiring a reputable third-party auditor are being developed in consultation with the Fund for an audit covering all COVID-19 expenses for 2021 to be published by end-September of 2022.
  - The government has published, through the High Commission for COVID-19, financial reports and key information of all crisis-related contracts for the years 2020 and 2021; the High Commission has published financial reports that cover the period June 2020 until June 2021 and some crisis-related contracts.
  - Staff advised the High Commissioner to create a dedicated space on their website for each type of publication to increase visibility. The government will publish the full text of contracts and ex-post validation of delivery and start to disclose beneficial ownership information of companies awarded COVID-19 related contracts as soon as the legal procurement framework has been amended with IMF TA (SB end-December 2021, MEFP ¶14).
- Public financial management (PFM) measures:
  - Steps taken towards establishing a Treasury Single Account (TSA) to strengthen cash management; Ministry of Finance created a unit within the Directorate General of Treasury to implement the cash management function using the IMF tool.
  - Consultations are ongoing to amend the legal procurement framework to enable collection and publication of beneficial ownership information; IMF TA is supporting the review.
  - Preparation of an executive order to enforce control by the financial controller over all public salaries and reconcile personnel and payroll records (SB end-December 2021), supported by the blockchain project. The Council of Ministers decided (July 27, 2021 resolution) that these measures must be implemented by all public entities whose wages are included in the budget.
  - Two additional expenditure control measures beyond SMP commitments: (i) require certification of goods and services delivery before payment to providers; (ii) a ministerial order mandating implementation of the “Manual for procedures on public expenditures” starting with a pilot with at least five line ministries (MEFP ¶12).
  - The government will publish a follow-up report on previous Tribunal de Contas audit reports’ recommendations on Electricidade e Aguas da Guinea-Bissau (EAGB) by end-December.
- Revenue mobilization and information exchange:
  - The government will ensure information exchange between the directorates general of Taxes, Customs, and Treasury, and the National Institute of Social Security to increase tax revenue mobilization. Partial progress had been made by end-August; the government will include the National Institute of Social Security in the exchange of information by end-October.
- Anti-corruption and asset declarations:
  - Plan to reform the asset declaration regime with IMF TA support to: (i) cover all politically exposed persons (PEPs) as defined by the Financial Action Task Force standards and their family members and close associates; (ii) cover assets and interests owned, including those beneficially owned, domestically and abroad; (iii) ensure declarations are publicly available online; and (iv) allow imposition of targeted, proportionate, and dissuasive sanctions consistently enforced for failure of submission and for submission of false declaration.
  - The recommendations of the GIABA mutual evaluation report have not been finalized; authorities shared a preliminary National AML/CFT Risk Assessment with staff.
- Financial sector stability:
  - The government is monitoring the restructuring plan of the undercapitalized bank and is preparing a report including a viable disengagement strategy by 2024 as agreed with the regional Banking Commission (SB, end-December 2021). This report will recommend a full audit of the bank’s NPLs by an independent third-party auditing firm (MEFP ¶21).
- 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.

### Staff appraisal and macroeconomic outlook
- Recent shocks and recovery: After being severely hit by the COVID-19 global pandemic, following a negative terms-of-trade shock in 2018–19, economic conditions are improving on the back of higher cashew nut exports.
- Growth: Growth was revised upwards to 1.5 percent in 2020 and is projected to accelerate to 3¾ percent in 2021.
- Fiscal performance and targets:
  - The overall fiscal deficit including grants is expected to be contained to 5.2 percent of GDP in 2021, representing a substantial fiscal adjustment in line with program objectives.
  - Authorities are committed to implement policy measures to bring the fiscal deficit down to 4.4 percent of GDP in 2022 and to gradually converge to the WAEMU regional deficit norm of 3 percent of GDP by 2025 (convergence postponed to 2025 given the size of fiscal consolidation in Guinea-Bissau).
  - Stronger revenue mobilization and expenditure containment including in the wage bill are expected to continue creating fiscal space and crowding-in donor support to protect social spending in education, health, and pandemic-related expenditures and to undertake key infrastructure investments.
- SDR allocation use: Staff welcomes the prudent use of the SDR allocation. The authorities decided to use most of the recent SDR 27.2 million allocation (about US$ 38.4 million) to buttress debt sustainability by repaying BOAD‘s non-concessional debt, and allocate the remaining amount to supporting COVID-related expenditures, including vaccination and improvement in health services.
- Governance importance: Timely implementation of governance and transparency reforms are key for the SMP success. Staff commends the authorities for the implementation of the PFM strategy to enhance fiscal governance, transparency and accountability, including measures to strengthen expenditure control, tax and customs frameworks, the fight against corruption and mitigation of SOEs’ risks. Staff supports the authorities’ strong commitment to amend the legal procurement framework to enable the collection and publication of beneficial ownership information and review the asset declaration regime with IMF TA during the SMP.

*Source: IMF staff report excerpt on Guinea-Bissau (Text and tables provided in the source content).*

### 35.      Staff supports the authorities’ request for completion of the first review of the SMP

### 1gnbea2021003 - 35. Staff supports the authorities’ request for completion of the first review of the SMP

### Program review and staff assessment
- Staff supports the authorities’ request for completion of the first review of the SMP given the satisfactory performance in achieving program objectives.
- Quantitative targets and structural benchmarks:
  - Five out of seven QTs for end-June were met.
  - All SBs for end-July were met.
  - Authorities have already met all but one SBs for end-September and one SB for end-December.
- Capacity constraints and technical assistance:
  - To mitigate potential risks from capacity constraints, the IMF will support the authorities’ efforts in all policy areas covered by the SMP through tailored TA.

### Fiscal stance, projections, and key fiscal figures (selected)
- Revenue and grants (CFAF billions): 130.1, 134.7, 162.0, 168.8, 177.0, 195.0, 208.9, 226.8, 243.5
- Tax revenue (CFAF billions): 79.1, 67.8, 87.9, 93.5, 101.6, 113.6, 126.0, 137.8, 148.1
- Grants (CFAF billions): 24.5, 35.0, 47.0, 47.8, 45.7, 49.1, 48.4, 51.7, 55.8
- Expenditure (CFAF billions): 163.2, 212.9, 206.1, 215.5, 219.5, 238.2, 249.9, 263.0, 282.8
- Net acquisition of nonfinancial assets (CFAF billions): 38.5, 75.7, 71.7, 69.5, 75.0, 88.7, 89.8, 91.9, 100.4
- Overall balance, including grants (commitment, CFAF billions): -33.1, -78.2, -44.1, -46.6, -42.4, -43.3, -40.9, -36.1, -39.3
- Overall balance, excluding grants (commitment, CFAF billions): -57.6, -113.1, -91.2, -94.5, -88.2, -92.3, -89.3, -87.8, -95.1
- Overall balance, including grants (cash, CFAF billions): -41.0, -77.8, -57.8, -54.8, -48.0, -43.3, -40.9, -36.1, -39.3
- Financing (CFAF billions): 41.0, 77.8, 47.0, 54.8, 40.5, 35.9, 33.6, 36.1, 39.3
- Domestic primary balance (commitment, memorandum item, CFAF billions): -11.7, -33.5, -15.4, -18.9, -11.5, -8.8, -0.3, 6.7, 6.0

### Fiscal ratios (selected, percent of GDP)
- Revenue and grants: 15.4, 15.9, 18.5, 18.7, 18.3, 18.7, 18.6, 18.7, 18.6
- Tax revenue: 9.4, 8.0, 10.1, 10.4, 10.5, 10.9, 11.2, 11.3, 11.3
- Grants: 2.9, 4.1, 5.4, 5.3, 4.7, 4.7, 4.3, 4.3, 4.3
- Expenditure: 19.3, 25.1, 23.6, 23.9, 22.7, 22.9, 22.2, 21.7, 21.6
- Overall balance, including grants (commitment, percent of GDP): -3.9, -9.2, -5.0, -5.2, -4.4, -4.2, -3.6, -3.0, -3.0
- Domestic primary balance (commitment, memorandum item, percent of GDP): -1.4, -4.0, -1.8, -2.1, -1.2, -0.8, 0.0, 0.6, 0.5

### Quantitative targets and program performance (highlights)
- Quantitative targets (cumulative, CFAF billion) — selected:
  - Total domestic tax revenue (floor): Target 38.2 (Jun) / 62.8 (Sep) / 87.9 (Dec); Actual 41.7 (Jun) — status: met.
  - Ceiling on new non-concessional external debt contracted or guaranteed by the central government (US$ millions): 0.0 — status: met.
  - New external payment arrears (US$ millions, ceiling): Target 0.0 — Actual 0.5 — status: not met.
  - New domestic arrears (ceiling): 0.0 — status: met.
  - Social and priority spending (floor): 27.2 (Jun) — Actual 27.6 — status: met.
  - Domestic primary balance (commitment basis, floor): Target -16.4 (Jun) — Actual -17.8 — status: not met.
- Memorandum items (selected):
  - External budgetary assistance (US$ millions): 1.8 (Jun); 0.0 (Sep).
  - Concessional project loans (US$ millions): 9.9 (Jun); 14.0 (Sep).

### Structural benchmarks (status and timelines)
- Public Financial Management / Expenditure control:
  - Continue weekly Treasury Committee meetings without interruptions — Continuous — Met.
  - Issue a ministerial order defining clear criteria for prioritization of cash payments — End-July 2021 — Met.
  - Appoint a team to implement the TSA at DGTCP; make prior authorization of the Minister of Finance mandatory for opening public bank accounts; identify all public bank accounts — End-September 2021 — Met.
  - Amend legal procurement framework to enable collection and publication of beneficial ownership information for contracts above a threshold — End-December 2021 — In progress.
  - Issue an executive order to end hiring of irregular employees, enforce control by the financial controller over all public salaries, and reconcile personnel and payroll records — End-December 2021 — In progress.
- Revenue Mobilization:
  - Approve by Council of Ministers and submit to parliament: (i) revised general tax code and revised tax penalty regime — End-July 2021 — Met.
  - (ii) the new VAT bill — End-December 2021 — Met.
  - Implement the Kontaktu system for tax returns filing and electronic payments through e-banking and mobile money: (i) pilot phase for a small number of large taxpayers — End-July 2021 — Met; (ii) full implementation — End-September 2021 — In progress. To be met in end-December.
  - Approve by Council of Ministers and submit to parliament a reviewed customs code — End-September 2021 — Met.
- Financial sector:
  - Prepare a report with the exit strategy from the undercapitalized systemic bank, including a full financial assessment — End-December 2021 — In progress.

### Risks (Risk Assessment Matrix) and mitigation policies
- External risks:
  - Global resurgence of the COVID-19 pandemic (including vaccine-resistant variants) — Relative likelihood: High — Expected impact: High / ST.
    - Expected impact: high human toll given weak health system; large disruptions in cashew trade and business activity.
    - Policies to mitigate: prioritize spending towards health sector and social protection; mobilize additional grants and concessional loans from development partners.
  - Further adverse cashew nut price movements — Relative likelihood: Medium — Expected impact: High / ST.
    - Expected impact: private sector incomes under pressure; government revenues diminish.
    - Policies to mitigate: control public expenses; preserve social spending focused on the most vulnerable; step up diversification efforts.
- Domestic risks:
  - Continued weaknesses in state-owned enterprises (e.g., public electricity and water utility, EAGB) — Relative likelihood: Medium — Expected impact: Moderate / ST.
    - Expected impact: limited/expensive electricity and water; contingent liabilities adding fiscal pressure.
    - Policies to mitigate: implement credible strategy to improve management of public enterprises; improve governance, transparency, and accountability.
  - Banking instability from high NPLs and bank undercapitalization — Relative likelihood: Medium — Expected impact: High / ST.
    - Expected impact: limited credit extension, hampering investment and growth; potential contingent liabilities.
    - Policies to mitigate: enhance banking supervision and enforce prudential regulations; improve processes for debt collection and collateral.
  - Widespread social discontent and political instability — Relative likelihood: Medium — Expected impact: High / ST.
    - Expected impact: delayed fiscal adjustment, limited financing inflows, supply disruptions, weaker confidence.
    - Policies to mitigate: enhance targeted social policies and strengthen social safety nets; avoid early withdrawal of fiscal and financial incentives supporting affected households and companies; improve governance, transparency and fight corruption.
  - Higher frequency/severity of climate-related natural disasters — Relative likelihood: Medium — Expected impact: High / ST, MT.
    - Expected impact: harm to cashew production, higher recovery spending, higher financing costs, lower revenues.
    - Policies to mitigate: address infrastructure gaps and regional development disparities; institute appropriate social safety nets; promote investment in climate-resilient infrastructure.

*Source: Guinea-Bissau authorities; IMF staff estimates and projections as presented in the Staff-Monitored Program documentation.*

### Annex II. Recently Adopted Key Measures on Governance and

### Annex II. Recently Adopted Key Measures on Governance and Corruption

### Social and priority spending — summary and composition
- Social and priority spending exceeded the quantitative target by more than 1.5 percent (Table 6).
- Distribution of end-June 2021 spending (CFAF billion and percent shares as presented):
  - Ministry of Education: 15.6, 57%
  - Ministry of Health: 6.4, 23%
  - High Commissioner (COVID-19): 4.2, 15%
  - Ministry of Women, Family and Social Protection: 1.4, 5%
- Sectoral composition of social/priority spending:
  - Education: 57 percent of social and priority spending.
  - Health: 38 percent, including COVID-19 related expenditure.
  - Social sector: 5 percent.

### Education — recent measures and gaps
- Primary driver of education spending: hiring 2,500 teachers to meet rising needs in the interior and to address COVID-19 related classroom size reductions.
- Remaining vacancies: nearly 3,000 vacancies across education levels and regions, concentrated in basic education in underserved rural areas (Text Figure 6).
- As of July 2021, nearly 12,000 permanent teachers distributed by region (figure data retained in source).

### Health — spending focus and specific items
- Health spending focused on enhancing service delivery and building long-term capacity via infrastructure investment.
- Ministry of Health monthly/current expenditure items:
  - Hospital consumables for the Hospital Nacional Simão Mendes: CFAF 48 million per month.
  - Operation of the Raul Follereaux Hospital: CFAF 23 million per month.
- Ministry of Health capital expenditure items:
  - Maintenance contract for equipment in all hospitals: CFAF 15 million per month.
  - Infrastructure investment in Hospital Nacional Simão Mendes: CFAF 640 million.
- High Commission for COVID-19 spending (end-June breakdown):
  - Domestically financed expenditure on vaccination: about CFAF 1.3 billion (or 30 percent) of total spending of the High Commission as of end-June.
  - Spending on prevention and containment of COVID-19 and investment accounted respectively for CFAF 3.0 billion.

### Rationale for protecting social and priority spending
- Given Guinea-Bissau’s considerable developmental challenges and weak healthcare system (Figure 3), enhancing social and priority spending supports inclusive growth and long-term development.
- Cited IMF (2021) finding: countries that successfully exit from fragility spend more on health and education than those that do not escape.
- Protecting social spending supports political and social inclusion and enables government effectiveness through steady build-up of fiscal, legal, and civil service capacities.

### Annex IV — Treatment and use of the proposed SDR allocation
A. Background
- Guinea-Bissau received an allocation of SDR 27.2 million (CFAF 21.6 billion), or 96 percent of quota.
- Existing SDR holdings as of end-August 2021: SDR 32.4 million in outstanding purchases and SDR 33.4 million loans.
- Previous SDR allocation in 2009: SDR 12.4 million used to pay domestic arrears.

B. Accounting treatment
- Under latest accounting guidelines, Net International Reserves (NIR) are expected to increase because of the SDR allocation.
- No impact on net foreign assets (increase in both foreign assets and liabilities).
- SDR allocation treated as a long-term foreign exchange liability; long-term liabilities are excluded from the NIR definition, thus increasing NIR.
- The SDR position is shown on the BCEAO’s balance sheet.

C. Cost of use of the SDR holdings
- The new SDR allocation was transferred by BCEAO through a currency repo operation of CFAF 21.6 billion.
- Terms of the operation:
  - 20-years maturity.
  - 0.05 percent fixed interest rate in CFAF.
  - Single bullet payment at end-period.
- At maturity, operation could be renewed for 20-years at an interest rate linked to the SDR interest rate.
- Note on SDR rate: the SDR interest rate is a weighted average of interest rates on 3-month debt in the money markets of the five SDR basket currencies; the current SDR rate is very low by historical standards, and the SDR interest rate has averaged 5.5 percent over the last 30 years.

D. Use of the allocation — staff recommendations and options
- Staff supports allocating the on-lending to repay non-concessional debt and/or to finance critical spending covering the financing gap under the SMP while avoiding delaying the envisaged path of fiscal adjustment.
- Repayment of costly debt:
  - BCEAO on-lending is concessional and provides an alternative to more costly options such as contracting debt with regional development banks (project financing) and issuing short-term treasury bills in the regional market.
  - Authorities are repaying BOAD amortization for 2021 and 2022.
  - Staff estimates the debt management operation can save up to [CFAF 3.4] billion on interest payments up to 2026.
- Emergency response and resilience:
  - Authorities are considering allocating some resources to support COVID-19 emergency response and recovery, including the vaccination roll out plan (¶ 1).
  - Operational cost of vaccination campaign is borne by the government, except US$1 million grant from GAVI.
- Governance and transparency recommendations for use and accounting of SDR allocation:
  - (i) Any fiscal easing should be consistent with a credible and sustainable medium-term framework.
  - (ii) Resources should finance high quality spending following best governance principles.
  - (iii) Any spending and its financing should be transparently recorded in the budget in accordance with the IMF's Fiscal Transparency Code.

### Vaccination campaign and financing specifics
- Vaccination rollout and supply as of end-September 2021:
  - [94,715] vaccine doses have been administered (as reported to WHO).
  - This covers about - 13.5 percent of the target population (about 700,000 people).
  - 676,650 doses delivered to date (AstraZeneca, Johnson & Johnson, and Pfizer) provided by the African Union, COVAX, Sweden, and the United States.
  - In addition, 200,000 Sinopharm doses are expected from China.
- Operational cost and funding gap:
  - Operational cost of the vaccination campaign is borne by the government, except US$1 million granted by GAVI.
  - Funding gap for the vaccination campaign: US$5.5 million for 2021-2022.
- Government target: vaccinate 50 percent of the target population by end-December (national vaccine program launched in April 2021 using AstraZeneca vaccines).

### Macroeconomic context, projections, and reform commitments (MEFP highlights)
- COVID-19 and recovery:
  - As of October 1, 2021: 5,329 confirmed cases and 135 deaths.
  - Growth revisions and outlook:
    - Growth in 2020 revised upwards to 1.5 percent (from an estimated contraction of 1.4 percent).
    - GDP growth for 2021 forecasted at about 3¾ percent.
    - Average price inflation projected to accelerate to 2.4 percent from 1.5 percent in 2020.
  - Cashew sector:
    - Cashew nut export value expected to grow by 34.5 percent year on year in 2021.
    - At least 500,000 households of poor cashew farmers benefited from export gains.
- Banking sector vulnerabilities:
  - Low capitalization of one bank and high NPL level remain important vulnerabilities despite high provisions.
  - BCEAO encouraged WAEMU banks in December 2020 to refrain from distributing dividends to strengthen capital buffers.
  - An undercapitalized bank recovered part of loans considered non-performing in late 2020 and is seeking strategic investors.
  - Government settled litigation with another local bank in December 2020 by settling cross liabilities, reducing that bank’s NPLs.
- Fiscal outlook and public debt:
  - Overall fiscal deficit (including grants on a commitment basis) projected to fall to 5.2 percent of GDP from 9.2 percent of GDP in 2020.
  - Stock of public and publicly guaranteed debt projected to stabilize at about 77.0 percent of GDP (from 77.1 percent of GDP in 2020).
  - Tax revenue expected to be robust in 2021 underpinning a sizeable pace of fiscal consolidation, albeit slower than expected due to higher COVID-related and social priority spending.
- Policy and governance commitments (from Letter of Intent and MEFP):
  - Fiscal policy commitments:
    - Observe legal time frame for budget submission to Parliament for second year.
    - 2022 draft budget anchored to SMP macroframework for overall deficit and domestic primary deficit.
    - Enhance revenue mobilization; re-allocate resources for wages and salaries to support priority spending and capital expenditure; rationalize spending in goods and services and other expenditures.
    - Strict control on budgetary execution to avoid accumulation of arrears and authorize external borrowing consistent with debt sustainability.
    - Review debt management framework, wage bill policy, public investment management and SOEs supervision with technical assistance from the World Bank and the IMF.
  - Governance reforms:
    - Complete implementation of the RCF’s governance safeguards on COVID-19 spending, including independent audit of COVID-19 spending.
    - Publish audit report along with regular expenditure reports, procurement contracts including names of awarded companies and related beneficial ownership information, and ex-post reports on validation of delivery of goods and services.
    - Amend legal procurement framework and reform asset declaration regime frameworks to enable collection and publication of beneficial ownership information.
    - IMF to support implementation through technical assistance.
- Use of SDR resources committed in Letter of Intent:
  - Government will use the last US$ 38.4 million SDR allocation to support COVID-related spending, including vaccination and improvement in health services, and buttress debt sustainability by repaying non-concessional debt due end-2021 and 2022.
- Program performance to date:
  - Authorities met five out of seven end-June quantitative targets and all structural benchmarks under the SMP.
  - The end-June quantitative target capping the domestic primary deficit was missed due to higher COVID related expenditures, the need to improve service delivery in health and education sectors and other current spending.
  - Arrears to Libya and the Islamic Development Bank (IDB) were incurred for technical reasons; government has taken actions to resolve.
  - Met four structural benchmarks for end-July, all but one out of three structural benchmarks due in September and one out of three important structural benchmarks due in December by approving in cabinet and submission to Parliament the new VAT bill.

*Italic: Source — 1gnbea2021003 - Annex II. Recently Adopted Key Measures on Governance and Corruption (IMF PDF content provided).*

### 1.2 percent of GDP of financing needs. Furthermore, the CCRT debt service relief will contribute an

### 1gnbea2021003 - 1.2 percent of GDP of financing needs. Furthermore, the CCRT debt service relief will contribute an

### C. Performance Under the SMP
- The recovery of the external economic environment contributed to improvement of fiscal performance, allowing to meet five quantitative targets (Table 1).
- Revenue mobilization improved, allowing to meet the domestic tax revenue floor by more than 9.2 percent of the QT.
- Expenditure control and debt policy:
  - Avoided new domestic arrears and recurrence to non-concessional borrowing and non-regularized expenditures (DNTs).
  - Priority spending floor exceeded the QT by more than 1.5 percent.
- Arrears and targets missed:
  - Incurred US$ 0.5 million external payments arrears; actions taken to resolve them (paragraph 17).
  - End-June quantitative target capping the domestic primary deficit was missed due to higher COVID-related expenditures and service delivery needs in health and education; exceeded the QT by CFAF 1.4 billion or 8.5 percent.

### Governance and Structural Benchmarks (SBs)
- Progress and compliance:
  - Met all end-July SBs, all but one for September and one for December (Table 2).
- Expenditure control measures:
  - Treasury Committee continued weekly meetings without interruption.
  - Ministerial order issued defining clear prioritization criteria by expenditure category to avoid arrears by end-June.
  - Team appointed to implement Treasury Single Account (TSA) at the General Directorate of Treasury (DGTCP).
  - Prior authorization from the Minister of Finance made compulsory for opening public bank accounts; all public bank accounts identified by end-September.
- Tax and customs frameworks and administration:
  - Council of Ministers approved and submitted to Parliament the revised general tax code and tax penalty regime (SBs, end-July), the modernized statute of the VAT (SB, end-December), and the revised customs code (SB, end-September).
  - Kontaktu system for electronic filing of tax returns and payments is operational for a small number of taxpayers (pilot phase); progress made to extend to all large taxpayers, achieving full implementation. Request to rephase full implementation from end-September to end-December to allow training and communication amid the pandemic.
  - Customs management improvements with ongoing TA: modern clearance procedure, control of import values, fight against smuggling and abuse of exemptions.

### Measures to Address Fiscal Consolidation
- Tax and non-tax measures:
  - New tax on telecommunications and a new tax on labor income introduced.
  - Measures to enhance tax compliance via decrees and ministerial orders to strengthen internal control procedures of customs and tax directorate.
  - Plan to launch, with IMF TA support, a website for electronic tax returns in 2021 allowing electronic filing and payment.
- Expenditure control and wage bill:
  - Adopted containment measures including:
    - Wage bill rationalization through suspension of new hires.
    - Suspension of all official missions.
    - Limiting tax expenditures by not granting fiscal and customs exemptions (except embassies and international organizations); in particular on fuel.
    - Suspension of new infrastructure projects except priority sectors.
    - Limiting acquisitions of goods and services to core functions.
  - Deploying blockchain technology with IMF support to assist in reconciling personnel and payroll records.
  - Initiated discussions on public administration reform to assess the accurate size of the public service.
  - Reinstatement of the Treasury Committee to improve expenditure control.
  - Steps taken to strengthen management of the largest SOE, Electricidade e Aguas da Guinea-Bissau (EAGB), by revamping management operations and enhancing financial management controls.
  - Commitment to safeguard priority spending on health, education and the social sector and not use DNTs to cover emergency cases.

### Other Structural and Governance Reforms in Progress
- Public financial management and procurement:
  - Progressive steps towards a TSA; IMF TA to support treasury and cash management improvement.
  - Created a unit within DGTCP to implement the cash management function using the IMF tool.
  - Will amend legal procurement framework to enable collection and publication of beneficial ownership information above a threshold to be defined (SB, end-December 2021); IMF TA requested in May.
- Payroll and hiring controls:
  - Executive order issued to end hiring employees without contract (SB, end-September 2021).
  - Ongoing work to enforce control by the financial controller over all public salaries and reconcile personnel and payroll records (SB end-December 2021) supported by blockchain project.
  - Council of Ministers resolution on July 27 requiring implementation by all public entities whose wages are included in the budget.
- Additional expenditure control measures:
  - Enforce normal expenditure execution by requiring certification of delivery of goods and services before payment via a ministerial order; pilot in at least five selected line ministries with IMF TA support.
  - Publish a follow-up report on previous Tribunal de Contas audit recommendations on EAGB by end-December.
- Information exchange and COVID-19 governance:
  - Ensure information exchange between DGCI, DGA, Treasury and the National Institute of Social Security; partial progress by end-August; include National Institute of Social Security by end-October.
  - COVID-19 spending managed using a dedicated account at the BCEAO; allocation of funds subject to ex-post independent audit by a reputable third-party auditor working with the Audit Court.
  - Audit of COVID-19 expenses by the Audit Court started in October covering June 2020-August 2021.
  - Terms of Reference for third-party audit being developed for complementary audit covering all COVID-19 expenses for 2021 to be published by end-September of 2022.
  - Crisis-related spending is part of the State Budget and reported in the budget execution report to the National Assembly.
  - Government published key information of all crisis-related contracts for 2020 through the High Commission for COVID-19.
  - Will publish full text of contracts, ex-post validation of delivery, and start to disclose beneficial ownership information (SB end-December 2021) of companies awarded COVID-19 related contracts once legal procurement framework amended.

- Anti-corruption and asset declarations:
  - Propose to reform the asset declaration regime with IMF TA to:
    - Cover all politically exposed persons (PEPs) per FATF standards and their family members and 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 consistently enforced for failure of submission and for false declarations.

### Measures to Mitigate Debt Vulnerabilities
- Domestic arrears:
  - Commit to clear part of outstanding domestic arrears and avoid accumulating new ones.
  - 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 true amount of outstanding arrears through further auditing and verifications, verify full tax compliance of all creditors, and determine net government arrears after correcting for tax obligations to decide on a medium-term clearance strategy.
- External arrears and debt reprofiling:
  - Committed to solving all legacy external arrears and avoiding 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 intends to explore debt reprofiling/restructuring with development partners in the context of COVID-19 downside risks.
  - In this review, arrears to Libya and the Islamic Development Bank (IDB) were incurred due to technical reasons; correspondent banking constraints prevented timely payment to Libya (actions taken); payment to IDB was delayed due to coordination but already executed.
  - Weekly coordination meetings between treasury and debt directorates expected to prevent incurrence of such arrears for technical reasons.
- Debt management strengthening:
  - Seek long-term TA to improve capacity for debt recording, monitoring and overall debt management.
  - Start publishing annual reports on debt (external and domestic) covering debt service, disbursements and agreements, and continue reporting to international debt statistics databases.
  - Hold bi-weekly meetings of the National Committee of Public Debt after approval of decrees by the Council of Ministers.
- Investment planning and new borrowing:
  - Plan new investments carefully and contract future debt only on highly concessional terms.
  - Rank investments based on cost-benefit analysis including social considerations and macroeconomic impact.
  - Consult with IMF regarding evaluation of financial terms of proposed loans.
  - Committed not to rely on non-concessional loans.
  - Start quarterly meetings with all Project Implementation Units (PIUs) to review project implementation and challenges.
  - Prepare quarterly reports on Public Investment Plan (PIP) execution.
  - In the medium-term, design a three-year PIP fully integrated with the medium-term expenditure framework.
- Use of SDR allocation:
  - Recent SDR 27.2 million allocation to Guinea-Bissau (about US$ 38.4 million) will be used to anticipate repayments of non-concessional debt due in end-2021 and 2022, and support COVID-related spending including vaccination and health services improvement.

### Measures to Strengthen the Financial Sector
- Preserve financial sector stability:
  - Refrain from allocating additional public resources to a large bank where government has participation.
  - Monitor restructuring plan of the bank and prepare a report including a viable disengagement strategy by 2024 as agreed with the regional Banking Commission (SB, end-December 2021).
  - The report will recommend a full audit of the bank’s NPLs by an independent third-party auditing firm.

### Key Quantitative Targets and Indicators (selected exact figures from Table 1)
- Total domestic tax revenue (floor): Target 38.2 | Actual 41.7 | Status met | Proposed 62.8 | Target Sep 87.9 | Target Dec 93.5
- Ceiling on new non-concessional external debt contracted or guaranteed by the central government (US$ millions): 0.0 | Actual 0.0 | Status met | Proposed 0.0 | Target Sep 0.0 | Target Dec 0.0
- New external payment arrears (US$ millions, ceiling): 0.0 | Actual 0.5 | Status not met | Proposed 0.0 | Target Sep 0.0 | Target Dec 0.0
- New domestic arrears (ceiling): 0.0 | Actual 0.0 | Status met | Proposed 0.0 | Target Sep 0.0 | Target Dec 0.0
- Social and priority spending (floor): 27.2 | Actual 27.6 | Status met | Proposed 38.7 | Target Sep 50.1 | Target Dec 50.1
- Domestic primary balance (commitment basis, floor): -16.4 | Actual -17.8 | Status not met | Proposed -23.4 | Target Sep -15.4 | Target Dec -18.9
- Non regularized expenditures (DNTs, ceiling): 0.0 | Actual 0.0 | Status met | Proposed 0.0 | Target Sep 0.0 | Target Dec 0.0
- Memorandum items (selected):
  - External budgetary assistance (US$ millions): 1.8 | Actual 0.0 | Proposed ... | Target 1.8 | Sep 6.9 | Dec 6.8
  - Net domestic bank credit to the central government: 23.4 | Actual 11.0 | Proposed ...
  - Concessional project loans (US$ millions): 9.9 | Actual 14.0 | Proposed ... | Target 14.9 | Sep 19.9 | Dec 19.6
  - Outstanding stock of government guarantees: 10.1 | Actual 12.5 | Proposed ... | Target 23.1 | Sep 23.1 | Dec 10.3

### Structural Benchmarks (selected table entries; date and status preserved)
- Continue weekly Treasury Committee meetings without interruptions. Expenditure control. Date: Continuous. Current Status: Met.
- Issue a ministerial order defining prioritization of cash payments to avoid arrears (restos a pagar). Expenditure control. Date: End-July 2021. Current Status: Met.
- Appoint team to implement TSA at DGTCP; make prior authorization for opening public bank accounts compulsory; identify all public bank accounts. Expenditure control. Date: End-September 2021. Current Status: Met.
- Amend legal procurement framework to enable collection/publication of beneficial ownership information for contracts above a threshold. Expenditure control/Anti-corruption. Date: End-December 2021. Current Status: In progress.
- Issue executive order to end hiring of irregular employees and enforce payroll reconciliation. Wage bill control. Date: End-December 2021. Current Status: In progress.
- Approve revised general tax code and revised tax penalty regime. Strengthen tax framework. Date: End-July 2021. Current Status: Met.
- Approve new VAT bill. Strengthen tax framework. Date: End-December 2021. Current Status: Met.
- Implementation of Kontaktu system: pilot phase for large taxpayers followed by full implementation. Increase revenues. Date: End-July 2021 / End-September 2021. Current Status: Met / In progress. To be met end-December.
- Approve reviewed customs code. Strengthen custom framework. Date: End-September 2021. Current Status: Met.
- Prepare report with exit strategy from undercapitalized systemic bank including full financial assessment. Financial stability. Date: End-December 2021. Current Status: In progress.

*Source: Guinea-Bissau authorities and IMF staff*

### Introduction

### Introduction

### Overview
- Memorandum sets out understandings between the Bissau-Guinean authorities and the International Monetary Fund (IMF) regarding definitions of quantitative targets (QTs) and structural benchmarks (SBs) supported by the Staff Monitoring Program (SMP) arrangement, and related reporting requirements.
- Unless otherwise specified, all quantitative targets will be evaluated in terms of cumulative flows from the beginning of the period, as specified in Table 1 of the Memorandum of Economic and Financial Policies (MEFP).

### Program exchange rates
- For the purpose of the program, foreign currency denominated values for 2021 will be converted into local currency (CFAF) using a program exchange rate of CFAF 538.36/US$ and cross rates as of end-December 2020.
- The source of the cross-exchange rates is International Financial Statistics.

### Quantitative Targets

A. Floor on Total Domestic Tax Revenue
- Definition: Tax revenue includes direct and indirect taxes as presented in the central government financial operations table.

B. New Non-Concessional External Debt Contracted or Guaranteed by the Central Government
- Definition: All forms of new non-CFAF denominated debt contracted or guaranteed by the central government.
- Exclusions and inclusions:
  - 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 for which verbal agreement has been reached.
  - Applies to commitments contracted or guaranteed for which value has not been received.
- This QT applies on a continuous basis.
- Reporting requirement: 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.

C. New External Payment Arrears of the Central Government
- Definition: External payment arrears, based on the currency test, are debt service payments not paid on due dates (taking into account contractual grace periods, if any) and that have remained unpaid 30 days after the due dates.
- Non-program arrears (not considered arrears for this QT) are:
  - (i) arrears on the service of legacy HIPC external debt for which there is a pre-existing request for rescheduling or restructuring; and/or
  - (ii) amounts subject to litigation.
- For the purposes of this QT, central government is as defined in paragraph 6.
- This QT applies on a continuous basis effective on the date of approval of the SMP.

D. New Domestic Arrears of Central Government
- Definition: Domestic arrears are CFAF-denominated accounts payable (resto-a-pagar) 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.
- Domestic arrears also include CFAF-denominated debt service payments not paid on due dates (taking into account contractual grace periods, if any) and that have remained unpaid 30 days after the due dates.
- For the purposes of this QT, central government is as defined in paragraph 6.

E. Social and Priority Spending
- Definition: Includes spending in the Ministries of Health, Education and the Ministry of Women, Family and Social Cohesion, and the High Commission for COVID-19.

F. Domestic Primary Balance (Commitment Basis)
- Definition and coverage:
  - Domestic primary fiscal deficit on a commitment basis = government revenue minus domestic primary expenditure on commitment basis.
  - Government revenue includes all tax and nontax receipts and excludes external grants.
  - Domestic primary expenditure consists of current expenditure plus domestically financed capital expenditure, excluding all interest payments and capital expenditure financed by project loans or grants.
  - Government commitments include all expenditure for which commitment vouchers have been approved by the Ministry of Finance; automatic expenditure (such as wages and salaries, pensions, utilities, and other expenditure for which payment is centralized); and expenditure by means of offsetting operations.
- Adjustment clause: The floor in the domestic primary balance will be adjusted downwards by the excess in the CFAF value of any programmed domestically financed current expenditures related to COVID-19 vaccination implementation (programmed at zero in 2021).

G. Non-Regularized Expenditure (DNTs)
- Definition: Any treasury outlay not properly accounted for by the National Budget Directorate and/or not included in the budget.
- Reporting requirement: Government will report any non-regularized expenditures on a continuous basis within one week of realization.

### Memorandum Items

H. Net Domestic Bank Credit to the Central Government (NCG)
- Definition: NCG refers to the net banking system’s claim on the central government as calculated by the Treasury Department. It is the sum of:
  a. the net position of the Government with the national BCEAO, including: treasury bills and bonds excluding on-lent IMF credit; less central Government deposits (excluding project-related deposits) at the BCEAO;
  b. the net position of the Government with commercial banks, including: (a) treasury bills; (b) treasury bearer bonds; and (c) loan and advances of commercial banks to the central Government; less central Government deposits (excluding project-related deposits) in commercial banks; and
  c. any other CFAF-denominated commercial credit, including net disbursement of project loans by the regional development bank, BOAD (excluding concessional loans with a grant element of at least 35 percent).
- Any domestic loan guarantees issued by the government will be included in the net position of the government as defined above.
- For the purposes of this QT, central government is as defined in paragraph 6 above.
- Data source: Monetary survey and the net position of the government (Position Nette du Tresor, PNT) table, as amended to include net project borrowing from BOAD, submitted monthly to IMF staff by the Ministry of Finance.

### Program Monitoring
- Program performance under the SMP will be monitored through quarterly reviews of quantitative targets and structural benchmarks.
- Test dates and expected review completion dates:
  - First test date: June 30, 2021; review expected to be completed by end-September 2021.
  - Second test date: September 30, 2021; review expected to be completed by end 2021.
  - Third test date: December 31, 2021; review expected to be completed by end-March 2022.

### Reporting Requirements (summary of Table 1)
- Fiscal Sector reporting items (frequency and deadline, responsible):
  - Central Government budget and outrun: Monthly — 30 days after the end of the month — DGPS/MF
  - Grants: Monthly — 30 days after the end of the month — DGPS/MF
  - Budgetary grants: Monthly — 30 days after the end of the month — DGPS/MF
  - Project grants: Monthly — 30 days after the end of the month — DGPS/MF
  - Change in the stock of domestic arrears: Monthly — 30 days after the end of the month — DGPS/MF
  - Unpaid claims: Monthly — 30 days after the end of the month — DGPS/MF
  - Interest arrears: Monthly — 30 days after the end of the month — DGPS/MF
  - Proceeds from bonds issued in the regional WAEMU market: Monthly — 30 days after the end of the month — DGPS/MF
  - Social and priority spending: Quarterly — 30 days after the end of the quarter — DGPS/MF
  - Non-regularized expenditure: As occuring — DGPS/MF
- Real and External Sector reporting items:
  - Updates on annual National Accounts by sector: Annually — 30 days after approval — CSO/MF
  - Balance of Payments data: Annually — 30 days after approval — BCEAO/MF; Quarterly — 45 days after the end of the quarter — BCEAO/MF
  - Details of exports breakdown: Quarterly — 45 days after the end of the quarter — BCEAO/MF
  - Details of imports breakdown: Quarterly — 45 days after the end of the quarter — CSO/MF
  - CPI Monthly: Monthly — 45 days after the end of the month — CSO/MF
- Debt sector reporting items (monthly — 30 days after the end of the month — Debt Directorate unless otherwise noted):
  - External and domestic debt and guaranteed debt by creditor
  - Disbursements
  - Amortization Monthly
  - Interest payments
  - Stock of external debt
  - Stock of domestic debt
  - Arrears on interest and principal
  - Exceptional domestic financing
  - Copies of any new loan agreements — As occuring
- Monetary/Financial sector reporting items (Monthly — 45 days after the end of the month — BCEAO/MF):
  - Detailed balance sheet of the central bank (national BCEAO)
  - Detailed bank-by-bank balance sheets
  - Detailed consolidated balance sheet of commercial banks
  - The monetary survey
  - Detailed net position of central government (PNG/PNT)
  - Financial soundness indicators
  - Interest rates
  - Deposit rates on all types of deposits at commercial banks
  - Short- and long-term lending rates of commercial banks

*Source: 1gnbea2021003 - Introduction*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1gnbea2021003.pdf_