## 1gnbea2022001

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---

### Executive summary: context and program support
- After two years of protracted political turmoil and delays in reforms, the authorities put in place in 2021 an ambitious fiscal consolidation program to ensure debt sustainability while creating fiscal space to address vast developmental needs.
- Fund Management approved a 9-month Staff Monitored Program (SMP) in late July 2021 to support the government’s reform program aimed at stabilizing the economy, strengthening governance, and building a soundtrack-record of policy implementation towards an Extended Credit Facility (ECF) arrangement.
- A Rapid Credit Facility (RCF) disbursement of SDR 14.2 million (50 percent of quota) was approved in January to provide urgent financing to support critical spending in health and catalyze additional donor resources.
- The SDR 27.2 million allocation (96 percent of quota) and reforms underpinned by the SMP are contributing to address fragility, improve government spending transparency, mitigate debt vulnerabilities, and create conditions to help restore donor confidence and catalyze concessional financing.
- Mission period: November 30–December 14, 2021.

### SMP review and program performance
- Review focus: continued implementation of SMP-supported policies and reforms to secure fiscal discipline, ensure debt sustainability, strengthen fiscal governance and transparency, and mitigate fiscal risks.
- Quantitative targets (QTs):
  - Six out of seven QTs were met.
  - Program performance at end-September 2021 was satisfactory; all but one end-September QTs were met.
  - End-September domestic tax revenue exceeded the QT by more than 12.5 percent.
  - The domestic primary balance outperformed the adjusted QT by CFAF 10.6 billion (1.2 percentage points of GDP).
- Structural benchmarks (SBs):
  - All but two SBs were met.
  - Two SBs (full implementation of a digital tax payment solution to all large taxpayers; amending the procurement legal framework to enable collection and publication of beneficial ownership information for public contracts) were postponed to end-March 2022.
- Arrears:
  - A small accumulation of external arrears was cleared; the US$0.5 million external payments arrears identified at end-June and a residual amount due to the African Development Bank at end-September were cleared in October and November.

### Staff views and conditionality
- Staff supports the authorities’ request for completing the second review of the SMP based on the policies in the attached Memorandum of Economic and Financial Policies (MEFP).
- The 2022 budget and tax reform package approved by parliament supports strong fiscal consolidation.
- Authorities are taking steps to meet all QTs and SBs.
- Program downside risks remain, including a more protracted pandemic that could trigger social tensions and political instability.

### Recent economic developments and outlook
- COVID-19 statistics and vaccination:
  - By end-December, there were 6,499 confirmed cases and 149 deaths.
  - By end-December, about 260,000 people have been fully vaccinated, covering about 38 percent of the target population (70 percent of the population over 18 years old, or about 683,147 people).
  - 882,970 doses have been delivered to date.
  - By end-December 57 percent of the target population has received at least one dose.
  - The vaccination campaign aimed to reach 50 percent of the target population by end-March 2022.
- Growth and inflation:
  - Real GDP growth: 1.5 percent in 2020; projected to accelerate to 3¾ percent in 2021.
  - Average price inflation is expected to have accelerated to 3 percent in 2021.
- External sector and cashew exports:
  - Cashew nut exports are expected to reach historical record levels and have contributed to the improvement of the external balance, providing extra income to at least 500,000 households.
  - Guinea-Bissau exports are expected to grow by 34.5 percent year on year.
  - A significant recovery in cashew nut export volume and prices is expected to generate a 47.2 percent increase in cashew nut export value.
  - Trade balance: trade deficit projected to decrease from 14.1 percent of GDP in 2020 to 13.1 percent of GDP in 2021.
  - Current account deficit is projected to reach 4 percent of GDP in 2021.
- Fiscal developments:
  - Tax revenue is projected to increase by about 39 percent in 2021, reaching 10.4 percent of GDP.
  - The overall fiscal deficit (including grants on a commitment basis) is projected to fall to 5.4 percent of GDP from 10.0 percent of GDP in 2020.
  - The January 2021 RCF disbursement contributed to cover 1.1 percent of GDP of the financing needs; CCRT debt service relief contributed 0.1 percent of GDP; the last SDR allocation contributed 2.4 percent of GDP.
  - The stock of public debt is projected to increase in 2021 by 0.9 percent of GDP mainly because of domestic currency depreciation and the rephasing of the legacy arrears clearance; the debt stock is projected to begin falling in 2022 and converge to the WAEMU 70 percent of GDP debt ceiling by 2026.
- Banking sector and financial stability:
  - Pandemic-related measures by BCEAO continued to support credit; credit to the economy grew by 33.3 percent in September 2021 (y-o-y) and 25.7 percent compared to December 2020.
  - The banking sector excluding one systemic undercapitalized bank is considered adequate based on financial soundness indicators for end-September 2021.
  - One systemic undercapitalized bank holds about 40 percent of deposits and remains undercapitalized with high NPLs; about 10 percent of that bank’s total NPLs has been recovered.

### Policy measures and reforms in progress
- Authorities’ reform agenda under the SMP includes:
  - Ambitious fiscal consolidation to secure macroeconomic stability and preserve debt sustainability.
  - Measures to fight corruption and improve governance and transparency.
  - Implementation of an innovative wage bill control blockchain-based project supported by IMF, Ernst & Young, and partners (currently UNDP, and AfDB and the World Bank in the future).
  - A digital solution to strengthen tax administration allowing filing of tax returns and electronic payments through the banking system.
- Governance and arrears management:
  - Expenditure control and enhancements in debt management are expected to avoid new external and domestic arrears, contracting non-concessional debt, and incurring non-regularized expenditures (DNTs).

### Fiscal consolidation, 2021 outturns and 2022 budget
- 2021 outturns and measures:
  - Domestic primary deficit projected to reach the SMP target because of higher revenue mobilization and a lower than projected wage bill due to proper accounting of wage arrears accrued in 2019-20 but cleared in 2021.
  - Authorities expect strong revenue performance in Q4 2021 from two new taxes (democracy and telecommunication taxes) and fishing licenses.
  - For the full year:
    - Revenue expected to be higher than the SMP target by 0.7 percentage points of GDP.
    - Government adopted expenditure containment measures to keep the end-December domestic primary deficit target of CFAF 18.9 billion within reach.
    - Projected domestic primary deficit of CFAF 15.4 billion corresponds to a fiscal consolidation of 3.1 percent of GDP in 2021.
  - Revenue measures in 2021:
    - New taxes on telecommunications and labor income and other revenue-enhancing measures.
    - Fiscal yield estimate for tax measures in 2021 amounts to about 0.5 percent of GDP.
    - Authorities expected to mobilize additional revenues through Kontaktu by about CFAF 1.2 billion.
  - Expenditure control:
    - A ministerial order adopted for expenditure containment to meet end-December domestic primary balance QT.
    - Deployment of IMF-supported blockchain-based project to assist reconciliation of personnel and payroll records.
    - WAEMU regional ceiling for wages-to-tax revenues ratio is of 35 percent.
- 2022 Budget (approved by Cabinet in mid-November and National Assembly in mid-December):
  - Overall deficit target of 4.2 percent of GDP.
  - Domestic primary deficit target of 1.2 percent of GDP.
  - Current expenditure—excluding interest payments—as percent of GDP projected to fall by 1.3 percentage points.
  - Domestically financed capital expenditure will increase by 0.8 percentage points.
  - Improved revenue mobilization of 0.2 percentage points underpins consolidation while supporting social and priority spending and capital expenditure.
  - Authorities will exercise strict control on budgetary execution, avoiding accumulation of arrears and authorizing external borrowing consistent with debt sustainability.

### Financing, debt management, and SDR treatment
- 2021 financing support:
  - IMF emergency financing, CCRT debt relief, concessional multilateral loans and budget support from France eased budget pressures.
  - January 2021 RCF and current SMP helping catalyze additional donor support and alleviate reliance on non-concessional lending.
  - French budget support of €1.3 million disbursed in October.
- Domestic arrears:
  - Domestic arrears of CFAF 10.2 billion accumulated in 2019-20 were recognized and paid in 2021.
  - Authorities plan to start clearing stock of domestic arrears accumulated between 1974 and 1999 amounting to CFAF 14.3 billion in coming years.
  - By end-2022, with external technical support, government intends to determine true amount of any outstanding arrears through auditing and verifications, verify full tax compliance of all creditors, and determine net government arrears after correcting for tax obligations.
- SDR allocation and use:
  - Recent SDR allocation of SDR 27.2 million (about US$38.4 million) used to pre-pay non-concessional debt to BOAD due end-2021 and in 2022.
  - Staff estimates 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 operation provide alternative to more costly financing such as contracting non-concessional debt and issuing Treasury bills in WAEMU regional market.
  - Staff recommended transparent recording of pandemic spending and financing in the budget in accordance with IMF's Fiscal Transparency Code.
- Financing gap and external support needs:
  - Authorities’ policies could still require additional financing of 2.1 percent of GDP in 2022-24 to support fiscal consolidation and debt sustainability.
  - Staff estimates a financing gap of CFAF 7.4 billion each year, about 0.7 percent of GDP.
  - Covering this gap with concessional loans would decrease recourse to regional commercial bank financing, reducing interest expenses by an average of 0.1 percent of GDP over 2022-26.

### Debt sustainability, classification and projections
- Debt sustainability 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 sound policies supported by strong donor engagement.
- Reclassification of BOAD debt:
  - Authorities have agreed to reclassify debt to BOAD as external at the time of a possible new IMF-supported program.
  - In a future program, debt classification will follow a hybrid approach: debt to BOAD (denominated in CFA francs) will be classified as external while remaining debt sources follow currency-based classification.
  - Rationale: BOAD creditor importance (23 percent of total debt) — reclassification will improve coverage of debt limits and is consistent with the Guidance Note on the Bank-Fund Debt Sustainability Framework for Low Income Countries.
- Debt stock and composition (selected exact figures, 2020):
  - Total debt stock (end of period) 2020: 1,241.1 (US$ million) — 100.0 (Percent of total debt) — 78.9 (Percent of GDP).
  - External (2020): 404.4 (US$ million) — 32.6 (Percent of total debt) — 25.7 (Percent of GDP).
  - Multilateral creditors (2020): 272.8 (US$ million) — 22.0 (Percent of total debt) — 17.3 (Percent of GDP).
  - IMF (2020): 29.2 (US$ million) — 2.4 (Percent of total debt) — 1.9 (Percent of GDP).
  - World Bank (2020): 147.8 (US$ million) — 11.9 (Percent of total debt) — 9.4 (Percent of GDP).
  - BADEA (2020): 43.0 (US$ million) reported also under PPG external debt; Volume of new debt in 2021 as 43.0 (US$ million) and Present value of new debt in 2021 as 27.9 (US$ million).
  - Domestic (2020): 836.8 (US$ million) — 67.4 (Percent of total debt) — 53.2 (Percent of GDP).
  - BOAD (2020) listed under domestic: 284.6 (US$ million) — 22.9 (Percent of total debt) — 18.1 (Percent of GDP).
  - Regional T-bills (2020): 259.8 (US$ million) — 20.9 (Percent of total debt) — 16.5 (Percent of GDP).
  - Payment Arrears (2020): 35.5 (US$ million) — 2.9 (Percent of total debt) — 2.3 (Percent of GDP).
  - Contingent liabilities: 19.6 (US$ million) — 1.6 (Percent of total debt) — 1.2 (Percent of GDP).
  - Public guarantees: 19.6 (US$ million) — 1.6 (Percent of total debt) — 1.2 (Percent of GDP).

### SDR on-lending / currency repo operation: CFAF 21.6 billion (20-year single bullet; 0.05 percent)
- Operation amount: 21.6 billion (CFAF).
- Maturity: 20-year maturity and a single bullet payment at end-period.
- Interest rate fixed at 0.05 percent.
- Equivalence: With an interest rate fixed at 0.05 percent, this operation is equivalent to a loan with a grant element of 62 percent.
- Renewal option: At maturity, this operation could be renewed for 20-years at an interest rate linked to SDR interest rate.
- Use of proceeds (total CFAF 21.6 billion):
  - CFAF 14.8 billion (69 percent) used to pre-pay BOAD principal due in September 2021–December 2022.
  - CFAF 2 billion (9 percent) used to pre-pay BOAD interest due in the same period.
  - CFAF 4.8 billion (22 percent) used to finance COVID-related expenditures.
- Transaction and classification:
  - The new SDR allocation was transferred by BCEAO though a currency repo operation.
  - Decision taken by: the BCEAO Governors on August 20, 2021.
  - Classification for Debt Sustainability Analysis: this operation will be considered domestic debt.
  - SDR allocation: SDR 27.2 million (CFAF 21.6 billion), about 96 percent of quota.
  - Existing SDR holdings were at SDR 59.6 million with outstanding purchases and loans at SDR 32.52 million as of end-December 2021.
  - Guinea-Bissau quota stands at SDR 28.4 million.
- Use and rationale:
  - Pre-payment of costly debt: Authorities pre-paid debt service to BOAD, both interest and principal due during September 2021–December 2022, at the amount of CFAF 16.8 billion.
  - Emergency response: Remaining resources allocated: about CFAF 4.8 billion to cover the 2021 fiscal financing gap and support the emergency response and recovery from the pandemic.
  - Vaccination target funded: plan to vaccinate 1.4 million people by the end-first quarter of 2022.
  - Vaccination rollout and deliveries to date: 882,970 doses delivered to date.
  - Operational cost borne by government except US$1 million grant from GAVI.
  - SMP Staff Report note: estimated fiscal financing gap of CFAF11 billion.
- Staff estimate of interest savings from debt management operation: up to CFAF 3.4 billion on interest payments up to 2026.
- Staff guidance on use and transparency:
  - Staff supports allocating the on-lending to retire non-concessional debt and/or finance critical spending covering the financing gap under the SMP while avoiding delaying the envisaged path of fiscal adjustment.
  - Staff recommends: (i) any fiscal easing should be consistent with a credible and sustainable medium-term framework; (ii) resources should be used to 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.

### Financial sector, SOEs, governance and safeguards
- Banking sector:
  - One systemic undercapitalized bank holds about 40 percent of deposits and has the largest branch network.
  - Government monitoring restructuring plan and delivered a report including a viable disengagement strategy by 2024 (SB, end-December 2021).
  - Staff recommends an independent full audit of the bank’s NPLs; authorities agreed to request BCEAO to share the Banking Commission audit results with the IMF.
  - BCEAO safeguards: BCEAO has implemented all recommendations from the 2018 safeguards assessment; an update assessment is due in 2022.
- State-Owned Enterprises (SOEs) / EAGB:
  - Steps to strengthen EAGB: changing top management, revamping management operations and enhancing financial management controls.
  - EAGB has 0.7 percent of GDP in public guaranteed debt from a total debt estimated at 2.9 percent of GDP.
  - With World Bank support, a Portuguese consortium tasked to prepare and publish all financial statements since fiscal year 2016 by March 2022.
  - Tribunal de Contas plans to audit the company and publish its assessment in 2022.
  - IMF to provide TA to enhance fiscal oversight of SOEs.
- Public financial management and transparency:
  - Treasury Committee continued weekly meetings without interruption.
  - Executive order issued to end hiring of employees without contract (SB, end-September 2021).
  - TSA team appointed at the General Directorate of Treasury (SB, end-September).
  - 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).
  - Procurement legal framework amendment to enable collection and publication of beneficial ownership information: SB end-December 2021 — Not met; reset for end-March 2022.
  - Audit of COVID-19 expenses by the Audit Court started in October covering June 2020-August 2021; to be published in April 2022; complementary audit to be published by end-September 2022.
  - Government will publish full text of contracts and ex-post validation of delivery and start to disclose beneficial ownership information of entities awarded COVID-19 related and public procurement contracts as soon as the procurement legal framework has been amended.

### Social and priority spending, vaccination financing
- 2021 spending focused on vaccination efforts, health, education, and other social spending.
- Cost of national COVID-19 vaccination campaign projected at about CFAF 9 billion (1 percent of GDP) for 2021-2022.
- Operational cost mostly borne by government; additional donor support needed to fill a funding gap of about US$4 million (US$4.2 million noted elsewhere) for 2022.
- Social and priority spending at end-September reached 4.7 percent of GDP, led by education, followed by health (including COVID-19 related expenditure), and the social sector.
- Vaccination data & targets (selected figures reiterated):
  - As of end-December: 260,000 people fully vaccinated, covering about 35 percent of the target population (70 percent of the population over 18 years old, or about 683,147 people) [alternate phrasing in source].
  - Doses delivered to date: 882,970.
  - Vaccination campaign aim: reach 50 percent of the target population by end-March 2022.

### Key statistics and projections (selected exact figures from source)
- Growth and inflation (selected exact figures):
  - Real GDP at market prices: 2020: 4.5; 2021: 1.5; 2022: 3.8; 2023: 4.0; 2024: 5.0; 2025: 5.0; 2026: 5.0
  - Real GDP per capita: 2020: 2.3; 2021: -0.7; 2022: 1.5; 2023: 1.7; 2024: 2.8; 2025: 2.8; 2026: 2.9
  - Consumer price index (annual average): 2020: 0.3; 2021: 1.5; 2022: 3.0; 2023: 2.0; 2024: 2.0; 2025: 2.0; 2026: 2.0
- External sector and cashew exports (selected):
  - Exports, f.o.b (CFA francs): 2020: -22.7; 2021: -15.6; 2022: 34.8; 2023: 2.2; 2024: 3.6; 2025: 4.5; 2026: 3.2
  - Imports, f.o.b (CFA francs): 2020: 20.5; 2021: -9.9; 2022: 14.4; 2023: 6.2; 2024: 3.5; 2025: 3.1; 2026: 3.7
  - Cashew export quantity (thousands of tons) memorandum: 2019: 196; 2020: 155; 2021: 240; 2022: 240; 2023: 245; 2024: 250; 2025: 255; 2026: 260
  - Cashew export prices (US$ per ton): 2019: 1,098; 2020: 1,000; 2021: 1,148; 2022: 1,159; 2023: 1,194; 2024: 1,229; 2025: 1,254; 2026: 1,279
- Fiscal balances and debt (selected):
  - Overall balance (commitment basis), including grants: 2019: -4.0; 2020: -10.0; 2021: -5.4; 2022: -4.2; 2023: -4.1; 2024: -3.6; 2025: -3.0; 2026: -3.0
  - Overall balance (commitment basis), excluding grants: 2019: -6.9; 2020: -14.1; 2021: -10.4; 2022: -8.4; 2023: -8.3; 2024: -7.4; 2025: -6.7; 2026: -6.7
  - Stock of public and publicly guaranteed debt (percent of GDP): 2019: 65.9; 2020: 78.9; 2021: 79.8; 2022: 78.2; 2023: 76.2; 2024: 74.0; 2025: 71.3; 2026: 68.9
  - Of which: external debt (percent of GDP): 2019: 24.2; 2020: 25.7; 2021: 27.9; 2022: 26.6; 2023: 25.4; 2024: 24.3; 2025: 22.7; 2026: 21.5
- Current account and financing (selected):
  - External current account (percent of GDP): 2019: -8.8; 2020: -2.6; 2021: -4.0; 2022: -4.3; 2023: -4.3; 2024: -4.2; 2025: -4.0; 2026: -4.0
  - Official transfers (percent of GDP): 2019: 2.9; 2020: 3.9; 2021: 4.8; 2022: 4.2; 2023: 4.2; 2024: 3.8; 2025: 3.7; 2026: 3.7

### Structural benchmarks, revenue mobilization and digitalization
- SB compliance:
  - Three out of four structural benchmarks (SBs) for end-September were met.
  - Actions are being taken to meet all SBs for the third review.
- Tax and customs frameworks:
  - Council of Ministers approved and submitted to Parliament: revised general tax code and a tax penalty regime (SBs, end-July); revised customs code (SB, end-September); new VAT law (SB, end-December). All laws approved by parliament in mid-December.
  - Kontaktu system operational in a pilot phase for a small number of taxpayers; full implementation rephased to end-March 2022. Kontaktu expected to mobilize about CFAF 1.2 billion.
  - With IMF TA, customs management steps include modern clearance procedure, control of import values, fight against smuggling and abuse of exemptions.
- Digital projects:
  - Kontaktu: MVP implemented; multi-language open-source solution enabling electronic filing and payments via e-banking and mobile money; managerial dashboards and data cross-matching.
  - Blockchain wage bill project: real time employment and salary records; implementation planned to start in January 2022 in the Ministry of Finance; technology by Ernst and Young (EY) with IMF, UNDP support.

### Risks, mitigation and program monitoring
- Downside risks (selected exact descriptions):
  - Political risks, weak capacity, volatile global food and oil prices, weaker cashew nut exports, severe climate change-related natural disasters, financial stress in state-owned enterprises, banking fragilities with high NPLs and undercapitalization of a systemically important bank.
  - If downside risks materialize, authorities committed to further rationalize non-priority expenditures and domestically financed investment.
- Upside scenario:
  - Stronger cashew sector performance and successful vaccination campaign could underpin a faster recovery; greater political stability could crowd in private sector activity and donor support.
- Program monitoring:
  - Quantitative targets and structural benchmarks monitored quarterly.
  - Test dates: June 30, 2021; September 30, 2021; December 31, 2021 with respective review completion expectations.

*Italic line: Source — IMF staff report content (extract provided).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and program support
- After two years of protracted political turmoil and delays in reforms, the authorities put in place in 2021 an ambitious fiscal consolidation program to ensure debt sustainability while creating fiscal space to address vast developmental needs.
- In late July, Fund Management approved a 9-month Staff Monitored Program (SMP) to support the government’s reform program aimed at stabilizing the economy, strengthening governance, and building a soundtrack-record of policy implementation towards an Extended Credit Facility (ECF) arrangement.
- A Rapid Credit Facility (RCF) disbursement of SDR 14.2 million (50 percent of quota) was approved in January to provide urgent financing to support critical spending in health and catalyze additional donor resources.
- The SDR 27.2 million allocation (96 percent of quota) and reforms underpinned by the SMP are contributing to address fragility, improve government spending transparency, mitigate debt vulnerabilities, and create conditions to help restore donor confidence and catalyze concessional financing.
- Mission period: November 30–December 14, 2021.

### SMP review and program performance
- Review focus: continued implementation of SMP-supported policies and reforms to secure fiscal discipline, ensure debt sustainability, strengthen fiscal governance and transparency, and mitigate fiscal risks.
- Quantitative targets (QTs):
  - Six out of seven QTs were met.
  - Program performance at end-September 2021 was satisfactory; all but one end-September QTs were met.
  - End-September domestic tax revenue exceeded the QT by more than 12.5 percent.
  - The domestic primary balance outperformed the adjusted QT by CFAF 10.6 billion (1.2 percentage points of GDP).
- Structural benchmarks (SBs):
  - All but two SBs were met.
  - Two SBs (full implementation of a digital tax payment solution to all large taxpayers; amending the procurement legal framework to enable collection and publication of beneficial ownership information for public contracts) were postponed to end-March 2022.
- Arrears:
  - A small accumulation of external arrears was cleared; the US$0.5 million external payments arrears identified at end-June and a residual amount due to the African Development Bank at end-September were cleared in October and November.

### Staff views and conditionality
- Staff supports the authorities’ request for completing the second review of the SMP based on the policies in the attached Memorandum of Economic and Financial Policies (MEFP).
- The 2022 budget and tax reform package approved by parliament supports strong fiscal consolidation.
- Authorities are taking steps to meet all QTs and SBs.
- Program downside risks remain, including a more protracted pandemic that could trigger social tensions and political instability.

### Recent economic developments and outlook
- COVID-19 statistics and vaccination:
  - By end-December, there were 6,499 confirmed cases and 149 deaths.
  - By end-December, about 260,000 people have been fully vaccinated, covering about 38 percent of the target population (70 percent of the population over 18 years old, or about 683,147 people).
  - 882,970 doses have been delivered to date.
  - By end-December 57 percent of the target population has received at least one dose.
  - The vaccination campaign aimed to reach 50 percent of the target population by end-March 2022.
- Growth and inflation:
  - Real GDP growth: 1.5 percent in 2020; projected to accelerate to 3¾ percent in 2021.
  - Average price inflation is expected to have accelerated to 3 percent in 2021.
- External sector and cashew exports:
  - Cashew nut exports are expected to reach historical record levels and have contributed to the improvement of the external balance, providing extra income to at least 500,000 households.
  - Guinea-Bissau exports are expected to grow by 34.5 percent year on year.
  - A significant recovery in cashew nut export volume and prices is expected to generate a 47.2 percent increase in cashew nut export value.
  - Trade balance: trade deficit projected to decrease from 14.1 percent of GDP in 2020 to 13.1 percent of GDP in 2021.
  - Current account deficit is projected to reach 4 percent of GDP in 2021.
- Fiscal developments:
  - Tax revenue is projected to increase by about 39 percent in 2021, reaching 10.4 percent of GDP.
  - The overall fiscal deficit (including grants on a commitment basis) is projected to fall to 5.4 percent of GDP from 10.0 percent of GDP in 2020.
  - The January 2021 RCF disbursement contributed to cover 1.1 percent of GDP of the financing needs; CCRT debt service relief contributed 0.1 percent of GDP; the last SDR allocation contributed 2.4 percent of GDP.
  - The stock of public debt is projected to increase in 2021 by 0.9 percent of GDP mainly because of domestic currency depreciation and the rephasing of the legacy arrears clearance; the debt stock is projected to begin falling in 2022 and converge to the WAEMU 70 percent of GDP debt ceiling by 2026.
- Banking sector and financial stability:
  - Pandemic-related measures by BCEAO continued to support credit; credit to the economy grew by 33.3 percent in September 2021 (y-o-y) and 25.7 percent compared to December 2020.
  - The banking sector excluding one systemic undercapitalized bank is considered adequate based on financial soundness indicators for end-September 2021.
  - One systemic undercapitalized bank holds about 40 percent of deposits and remains undercapitalized with high NPLs; about 10 percent of that bank’s total NPLs has been recovered.
- Outlook risks:
  - Downside risks: political risks, weak capacity, volatile global food and oil prices, weaker cashew nut exports, severe climate change-related natural disasters, financial stress in state-owned enterprises, banking fragilities with high NPLs and undercapitalization of a systemically important bank.
  - If downside risks materialize, authorities are committed to further rationalize non-priority expenditures and domestically financed investment.
  - Upside scenario: stronger cashew sector performance and successful vaccination campaign could underpin a faster recovery; greater political stability could crowd in private sector activity and donor support.

### Policy measures and reforms in progress
- Authorities’ reform agenda under the SMP includes:
  - Ambitious fiscal consolidation to secure macroeconomic stability and preserve debt sustainability.
  - Measures to fight corruption and improve governance and transparency.
  - Implementation of an innovative wage bill control blockchain-based project supported by IMF, Ernst & Young, and partners (currently UNDP, and AfDB and the World Bank in the future).
  - A digital solution to strengthen tax administration allowing filing of tax returns and electronic payments through the banking system.
- Governance and arrears management:
  - Expenditure control and enhancements in debt management are expected to avoid new external and domestic arrears, contracting non-concessional debt, and incurring non-regularized expenditures (DNTs).

*International Monetary Fund staff mission; discussions held with H.E. President Sissoco Embaló, Prime Minister Nabiam, Vice-Prime Minister Sambú, the Minister of Finance Fadia, BCEAO National Director Embalo, President of the Court of Auditors Baldé, High Commission for COVID-19, and other officials and stakeholders during November 30–December 14, 2021.*

### 10.      Three out of four structural benchmarks (SBs) for end-September were met (Table 7)

### 10. Three out of four structural benchmarks (SBs) for end-September were met (Table 7)

### SB compliance and implementation actions
- Three out of four structural benchmarks (SBs) for end-September were met.
- Actions are being taken to meet all SBs for the third review.

### Expenditure control and Treasury reforms
- Treasury Committee continued weekly meetings without interruption.
- An executive order issued to end the hiring of employees without contract (SB, end-September 2021).
- 2022 Budget Law directive to enforce control by the financial controller over all public salaries including employment incentives and the National Assembly salaries and reconcile the personnel and the payroll records (SB end-December 2021) supported by implementation of the blockchain project.
- A team appointed to spearhead implementation of the Treasury Single Account (TSA) at the General Directorate of Treasury (SB, end-September).
- Mandatory prior authorization by the Minister of Finance for opening public bank accounts is in place, and all public sector bank accounts have been identified (SB, end-September).
- Arrears cleared:
  - Islamic Development Bank arrears cleared in October.
  - Historical arrears to Libya, including US$0.34 million incurred during the SMP, cleared in November.
  - Residual amounts owed to the African Development Bank (less than US$20,000) paid in November.

### Tax, customs frameworks and tax administration
- The Council of Ministers approved and submitted to Parliament:
  - Revised general tax code and a tax penalty regime (SBs, end-July).
  - Revised customs code (SB, end-September).
  - New VAT law (SB, end-December).
- All laws were approved by parliament in mid-December.
- Kontaktu system for electronic filing of tax returns and payments is operational in a pilot phase for a small number of taxpayers; progress to extend to all large taxpayers to achieve full implementation (Annex III).
  - Staff supports rephasing full implementation from end-December 2021 to end-March 2022 to allow training, secure permanent internet access and deploy a communication campaign (MEFP ¶10 bullet 2).
  - Kontaktu expected to mobilize about CFAF 1.2 billion.
- With ongoing IMF TA support, customs management steps include introduction of a modern clearance procedure, control of import values, fight against smuggling and abuse of exemptions.

### Macroeconomic and fiscal policy priorities
- Policy priorities:
  - Overcoming the pandemic and supporting post-COVID economic recovery.
  - Continue implementing an ambitious yet realistic growth-enhancing fiscal consolidation program to ensure debt sustainability while addressing developmental needs.
  - Enhancing fiscal governance and transparency.

### Fiscal consolidation and 2021 outturns
- Despite higher COVID-related and priority spending, the domestic primary deficit projected to reach the SMP target because of higher revenue mobilization and a lower than projected wage bill due to proper accounting of wage arrears accrued in 2019-20 but cleared in 2021.
- Authorities expect strong revenue performance in Q4 2021 from two new taxes (democracy and telecommunication taxes) and fishing licenses.
- For the full year:
  - Revenue expected to be higher than the SMP target by 0.7 percentage points of GDP.
  - Government adopted expenditure containment measures to keep the end-December domestic primary deficit target of CFAF 18.9 billion within reach.
  - Projected domestic primary deficit of CFAF 15.4 billion corresponds to a fiscal consolidation of 3.1 percent of GDP in 2021.
- Revenue measures in 2021:
  - New taxes on telecommunications and labor income and other revenue-enhancing measures.
  - Fiscal yield estimate for tax measures in 2021 amounts to about 0.5 percent of GDP.
  - Authorities expected to mobilize additional revenues through Kontaktu by about CFAF 1.2 billion.
- Expenditure control:
  - A ministerial order adopted for expenditure containment to meet end-December domestic primary balance QT.
  - Deployment of IMF-supported blockchain-based project to assist reconciliation of personnel and payroll records (Annex III).
  - Convergence to the WAEMU regional ceiling over the medium-term supported by these measures.
    - WAEMU regional ceiling for wages-to-tax revenues ratio is of 35 percent.

### State-Owned Enterprises (SOEs)
- Steps to strengthen management of EAGB (Electricidade e Aguas da Guinea-Bissau):
  - Changing top management, revamping management operations and enhancing financial management controls (MEFP ¶10, bullet 2).
- Additional measures needed to ensure financial viability and limit fiscal risks.
- IMF to provide TA to enhance fiscal oversight of SOEs.
- EAGB specifics:
  - EAGB has 0.7 percent of GDP in public guaranteed debt from a total debt estimated at 2.9 percent of GDP.
  - With World Bank support, a Portuguese consortium tasked to improve operational and financial management, prepare and publish all financial statements since fiscal year 2016 by March 2022.
  - Tribunal de Contas plans to audit the company and publish its assessment in 2022.

### Social and priority spending
- 2021 spending focused on vaccination efforts, health, education, and other social spending.
- Cost of national COVID-19 vaccination campaign projected at about CFAF 9 billion (1 percent of GDP) for 2021-2022.
- Operational cost mostly borne by government; additional donor support needed to fill a funding gap of about US$4 million for 2022.
- Social and priority spending at end-September reached 4.7 percent of GDP, led by education, followed by health (including COVID-19 related expenditure), and the social sector.

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

### 2022 Budget
- 2022 Budget approved by Cabinet in mid-November and National Assembly in mid-December.
- 2022 budget targets:
  - Overall deficit target of 4.2 percent of GDP.
  - Domestic primary deficit target of 1.2 percent of GDP (Table 1).
- Composition and measures:
  - Current expenditure—excluding interest payments—as percent of GDP projected to fall by 1.3 percentage points.
  - Domestically financed capital expenditure will increase by 0.8 percentage points.
  - Fiscal consolidation underpinned by improved revenue mobilization of 0.2 percentage points, supporting social and priority spending and capital expenditure.
  - Authorities will exercise strict control on budgetary execution, avoiding accumulation of arrears and authorizing external borrowing consistent with debt sustainability.
- Government plans to review debt management framework, wage bill policy, public investment management and SOEs supervision with TA support from World Bank and IMF.

### Financing, debt management and arrears
- 2021 financing support:
  - IMF emergency financing, CCRT debt relief, concessional multilateral loans and budget support from France eased budget pressures.
  - January 2021 RCF and current SMP helping catalyze additional donor support and alleviate reliance on non-concessional lending.
  - French budget support of €1.3 million disbursed in October.
- Domestic arrears:
  - Domestic arrears of CFAF 10.2 billion accumulated in 2019-20 were recognized and paid in 2021.
  - Authorities plan to start clearing stock of domestic arrears accumulated between 1974 and 1999 amounting to CFAF 14.3 billion in coming years.
  - By end-2022, with external technical support, government intends to determine true amount of any outstanding arrears through auditing and verifications, verify full tax compliance of all creditors, and determine net government arrears after correcting for tax obligations.
- Debt management actions:
  - Implementation of decrees approved in June; Directorate Generals of Treasury and Debt hold weekly coordination meetings.
  - Biannual meetings of National Committee of Public Debt to start in 2022; extraordinary meetings to discuss new loan agreements.
  - Authorities seeking long-term TA to improve capacity for debt recording, monitoring, and management.
  - Continue publishing annual debt reports and reporting to international debt statistics databases.
- SDR allocation and use:
  - Recent SDR allocation of SDR 27.2 million (about US$38.4 million) used to pre-pay non-concessional debt to BOAD due end-2021 and in 2022.
  - Staff estimates 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 operation provide alternative to more costly financing such as contracting non-concessional debt and issuing Treasury bills in WAEMU regional market.
  - Staff recommended transparent recording of pandemic spending and financing in the budget in accordance with IMF's Fiscal Transparency Code.

### Financing gap and external support needs
- Authorities’ policies could still require additional financing of 2.1 percent of GDP in 2022-24 to support fiscal consolidation and debt sustainability.
- Staff estimates a financing gap of CFAF 7.4 billion each year, about 0.7 percent of GDP.
- Covering this gap with concessional loans would 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 to support investment in public infrastructure and priority sectors.

### Debt sustainability 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 sound policies supported by strong donor engagement.

_Italic line: Source — IMF staff report content (extract provided)._

### 21.6 billion with 20-year maturity and a single bullet payment at end-period. With an interest rate fixed at

### 1gnbea2022001 - 21.6 billion with 20-year maturity and a single bullet payment at end-period. With an interest rate fixed at

### Debt operation and terms
- Operation amount: 21.6 billion.
- Maturity: 20-year maturity and a single bullet payment at end-period.
- Interest rate fixed at 0.05 percent.
- Equivalence: With an interest rate fixed at 0.05 percent, this operation is equivalent to a loan with a grant element of 62 percent.
- Renewal option: At maturity, this operation could be renewed for 20-years at an interest rate linked to SDR interest rate.

### Use of proceeds
- Total amount: CFAF 21.6 billion.
- CFAF 14.8 billion (69 percent) used to pre-pay BOAD principal due in September 2021–December 2022.
- CFAF 2 billion (9 percent) used to pre-pay BOAD interest due in the same period.
- Remaining amount: CFAF 4.8 billion (22 percent) used to finance COVID-related expenditures.

### Institutional measures and debt management
- June action: Council of Ministers approved decrees related to:
  - (i) the creation of a National Committee of Debt Policy;
  - (ii) the organization and functioning of the Direção Geral da Dívida Publica;
  - (iii) the issuance of debt and debt management.
- Authorities’ commitments for debt sustainability assessment:
  - (i) an ambitious fiscal adjustment strategy;
  - (ii) prudent borrowing policies, including avoiding non-concessional project financing;
  - (iii) enhanced debt management;
  - (iv) cautious management of the existing loan pipeline and application of assessment procedures based on best international practices to ensure criticality of investment projects.
- Short-term risks: Increased, reflecting revisions to the debt stock and debt service associated with the resolution of legacy arrears (domestic and external) and contingent liabilities associated with EAGB and the domestic undercapitalized systemic bank.
- Recommendation: Authorities should enhance capacities allowing for the elaboration and update of annual borrowing plans in line with best practices.
- Transparency: Authorities remain committed to debt transparency, including on the debt holder profile in line with new requirements under the Debt Limits Policy.
- TA: Authorities are planning to request IMF TA to further improve the quality of debt data.

### New external borrowing in 2021 and projections
- New external borrowing in 2021 relied on concessional loans.
- In line with the DLP, concessional loans from multilateral donors, together with grants, are expected to have covered the financing needs related to social spending and infrastructure projects—a trend expected to remain in 2022 as the country relies on the catalytical effect of a successfully completed SMP.
- Indicative projections 2022 (selected entry shown):
  - BID - Education 17.2 TBD
- Note on present value calculation: The present value of debt is calculated using the terms of individual loans and applying the 5 percent program discount rate.
- Definition: Debt with a grant element that exceeds a minimum threshold. This minimum is typically 35 percent.

### Reclassification of BOAD debt and coverage
- Agreement: Authorities have agreed to the reclassification of the debt to BOAD as external at the time of a possible new IMF-supported program.
- Planned ECF request: Authorities are expected to request an ECF arrangement in 2022; in the context of a future program, 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 whereas 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.
- Consistency: The reclassification of BOAD’s debt as external debt is consistent with the Guidance Note on the Bank-Fund Debt Sustainability Framework for Low Income Countries. BOAD’s borrowing sources are mostly non-resident and its lending should be treated as external debt.

### Debt stock, composition, and debt service (selected figures)
- Total debt stock (end of period) 2020: 1,241.1 (In US$ million) — 100.0 (Percent of total debt) — 78.9 (Percent of GDP).
- External (2020): 404.4 (In US$ million) — 32.6 (Percent of total debt) — 25.7 (Percent of GDP).
- Multilateral creditors (2020): 272.8 (In US$ million) — 22.0 (Percent of total debt) — 17.3 (Percent of GDP).
- IMF (2020): 29.2 (In US$ million) — 2.4 (Percent of total debt) — 1.9 (Percent of GDP).
- World Bank (2020): 147.8 (In US$ million) — 11.9 (Percent of total debt) — 9.4 (Percent of GDP).
- BADEA (2020): 43.0 (In US$ million) reported also under PPG external debt contracted or guaranteed Volume of new debt in 2021 as 43.0 (US$ million) and Present value of new debt in 2021 as 27.9 (US$ million).
- Domestic (2020): 836.8 (In US$ million) — 67.4 (Percent of total debt) — 53.2 (Percent of GDP).
- BOAD (2020) listed under domestic: 284.6 (In US$ million) — 22.9 (Percent of total debt) — 18.1 (Percent of GDP).
- Regional T-bills (2020): 259.8 (In US$ million) — 20.9 (Percent of total debt) — 16.5 (Percent of GDP).
- Payment Arrears (2020): 35.5 (In US$ million) — 2.9 (Percent of total debt) — 2.3 (Percent of GDP).
- Contingent liabilities: 19.6 (In US$ million) — 1.6 (Percent of total debt) — 1.2 (Percent of GDP).
- Public guarantees: 19.6 (In US$ million) — 1.6 (Percent of total debt) — 1.2 (Percent of GDP).
- Nominal GDP (various): 1,474.7; 1,474.7; 1,633.1; 1,726.5 (as presented in table).

### Governance, PFM, and transparency reforms
- COVID-19 spending safeguards:
  - COVID-related funds managed using a dedicated account at the BCEAO and subject to ex-post independent audits, including an additional audit carried out by the Audit Court with the support of a reputable third-party auditor.
  - An audit of COVID-19 expenses by the Audit Court started in October covering the period June 2020-August 2021 to be published in April 2022.
  - Complementary audit will cover all COVID-19 expenses for 2021 and will be published by end-September of 2022.
  - Terms of Reference for a reputable third-party auditor were developed in consultation with the Fund and its public tender took place in early December.
  - Crisis-related spending is part of the State Budget and spending reports are being presented to the National Assembly; government has published financial reports and key information of crisis-related contracts for the years 2020-21.
  - Staff advised creating a dedicated space on the High Commission’s website for each type of publication to increase visibility and to update publication of procurement contracts and ex-post validation of delivery related to COVID-19 expenditures.
  - Government will publish full text of contracts and ex-post validation of delivery and start to disclose beneficial ownership information of entities awarded COVID-19 related and public procurement contracts as soon as the procurement legal framework has been amended with IMF TA (SB end-March 2022, MEFP ¶1 5 and below).
- Public financial management strengthening:
  - Steps toward establishing a TSA and strengthening cash management; IMF TA continues supporting the improvement of the treasury and cash management function. The Ministry of Finance created a unit within the Directorate General of Treasury that will use the IMF tool.
  - Technical work to amend procurement legal framework to enable collection and publication of beneficial ownership information of entities awarded public contracts above certain threshold (SB, end-December 2021, reset end-March 2022). IMF TA supporting review; authorities committed to finalizing amendments during the SMP period.
  - Executive order issued to end hiring of employees without contract (SB, end-September 2021).
  - 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.
  - Council of Ministers decision (July 27, 2021 resolution) that measures must be implemented by all public entities whose wages are included in the budget.
  - Ministerial order prepared to require certification of goods and services delivery before payment to providers; pilot in at least five selected line ministries to start at the beginning of 2022 with IMF TA requested.
  - Government preparing follow-up report on recommendations from previous Tribunal de Contas (TC) audit reports on EAGB to be published by end-March 2022; TC included EAGB in the 2022 plan of audits. IMF TA will support enhancement of SOEs fiscal oversight.
- Revenue mobilization and information exchange:
  - Government will ensure information exchange between DGCI, DGA, DGTCP, and INSS.
  - Progress: DGTCP started filing withholding tax returns; MoUs signed between DGCI, DGA and INSS with support of Minister of Finance and Minister of the Public Administration at end-December.
  - IMF TA to be provided in these areas in February/March 2022 once MoUs have been signed.
- Anti-corruption and asset declaration reform:
  - Proposed reform of the Asset Declaration Regime to be sent to Parliament aims 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;
    - (iv) allow the imposition of targeted, proportionate, and dissuasive sanctions that are consistently enforced for failure of submission and for submission of false declaration.
  - IMF TA: Reform of Law of 1999 with IMF TA (MEFP ¶16).
  - GIABA: Draft mutual evaluation report recommendations discussed with authorities in December; final report to be discussed in February. Authorities shared preliminary National AML/CFT Risk Assessment and action plan.

### Financial sector stability and safeguards
- Undercapitalized bank: Government monitoring restructuring plan and delivered a report including a viable disengagement strategy by 2024 (SB, end-December 2021), as agreed with the regional Banking Commission.
- Staff recommendation: Importance of an independent full audit of the bank’s NPLs to provide an accurate diagnostic; authorities agreed to request the BCEAO to share with the IMF the results of the full NPLs audit performed by the Banking Commission (MEFP ¶22).
- Safeguards assessment: The BCEAO has implemented all recommendations provided in the 2018 safeguards assessment. The assessment found BCEAO had broadly appropriate governance arrangements and a robust control environment. An update assessment of the BCEAO is due in 2022 in line with the safeguards policy's four-year cycle for regional central banks.

*Source: Guinea-Bissau authorities and IMF staff, as presented in the provided content.*

### 30.      Despite the persistence of the pandemic, economy activity is    expected to have

### 1gnbea2022001 - 30.      Despite the persistence of the pandemic, economy activity is    expected to have

### Economic outlook and risks
- Economic activity is expected to have improved in 2021 despite the persistence of the pandemic, with a modest acceleration in growth in 2021.
- Growth drivers cited: record high cashew nut exports, supportive economic policies, and higher business confidence associated with a more stable political environment.
- Inflation remains in line with the WAEMU convergence criteria in 2021, despite price pressures from imported goods.
- Downside risks:
  - A more protracted pandemic that could trigger social tensions and political instability.

### Fiscal developments, consolidation, and reforms
- Fiscal performance and objectives:
  - The overall fiscal deficit including grants is expected to be contained to 5.4 percent of GDP in 2021.
  - The 2022 budget approved by Parliament in early December envisages bringing the fiscal deficit down to 4.2 percent of GDP in 2022.
  - Target to gradually converge to the WAEMU regional deficit criteria of 3 percent of GDP by 2025.
- Tax and public financial management reforms:
  - Parliament approved in mid-December a tax reform package including a revised general tax code, the tax penalty regime and customs code, together with a modernized statute of the VAT.
  - Implementation of a PFM strategy to enhance fiscal governance, transparency and accountability, including measures to strengthen expenditure control, tax and custom frameworks, the fight against corruption and mitigation of SOEs’ risks.
  - Commitment to amend the procurement legal framework to enable collection and publication of beneficial ownership information of entities awarded public procurement contracts.
  - Reform of the Asset Declaration Regime to be concluded in the first quarter of 2022.
  - Rephasing of the full implementation of the Kontaktu tax payment solution to all large tax taxpayers to end-March 2022 to ensure a smooth transition.
- Social and donor support:
  - Reforms and fiscal consolidation are expected to create fiscal space and catalyze donor support to protect social spending in education, health, and pandemic-related expenditures and to undertake key infrastructure investments.

### Use of SDRs and debt management
- SDR allocation:
  - The authorities decided to use the recent SDR 27.2 million allocation (about US$38.4 million) to buttress debt sustainability by anticipating service to BOAD non-concessional loans due up to 2022, and cover COVID-related expenditures, including vaccination and improvement in health services.
- Debt management strengthening:
  - Authorities have been holding weekly coordination meetings between directories of treasury and debt, and are reviewing the debt management framework.
  - Supported by the RCF disbursement, the CCRT debt relief, and the special SDR allocation, progress has been made on the reform program securing macroeconomic stability.

### Banking sector, SOEs, and governance recommendations
- Banking and SOE concerns:
  - Staff recommends closely monitoring the restructuring of the undercapitalized systemic bank and implementing measures to improve governance and operations of EAGB.
  - Authorities are preparing a report on the bank situation, including a viable disengagement strategy by 2024 (SB, December 2021).
  - Authorities should closely monitor EAGB’s management and governance restructuring plan aimed at revamping management operations and enhancing financial management controls to ensure financial viability and limit fiscal and public debt sustainability risks.
- Governance and transparency:
  - Timely implementation of governance and transparency reforms is key to SMP success.
  - Staff commends implementation of PFM strategy measures and supports planned legal and institutional reforms noted above.

### SMP performance and IMF support
- Program performance:
  - Authorities deserve credit for strong SMP implementation.
  - Six out of seven QTs and three out of four SBs for end-September were met.
  - Authorities have already taken steps to ensure most of the SB for the third review of the SMP are met.
- IMF support:
  - Staff supports the authorities’ request for completion of the second review of the SMP given the satisfactory performance in achieving program objectives.
  - To mitigate potential risks from capacity constraints, the IMF is supporting the authorities’ efforts in all policy areas covered by the SMP through tailored TA.

### Key statistics and projections (selected exact figures from source)
- Growth and inflation:
  - Real GDP at market prices: 2020: 4.5; 2021: 1.5; 2022: 3.8; 2023: 4.0; 2024: 5.0; 2025: 5.0; 2026: 5.0
  - Real GDP per capita: 2020: 2.3; 2021: -0.7; 2022: 1.5; 2023: 1.7; 2024: 2.8; 2025: 2.8; 2026: 2.9
  - Consumer price index (annual average): 2020: 0.3; 2021: 1.5; 2022: 3.0; 2023: 2.0; 2024: 2.0; 2025: 2.0; 2026: 2.0
- External sector and cashew exports:
  - Exports, f.o.b (CFA francs): 2020: -22.7; 2021: -15.6; 2022: 34.8; 2023: 2.2; 2024: 3.6; 2025: 4.5; 2026: 3.2
  - Imports, f.o.b (CFA francs): 2020: 20.5; 2021: -9.9; 2022: 14.4; 2023: 6.2; 2024: 3.5; 2025: 3.1; 2026: 3.7
  - Cashew export quantity (thousands of tons) memorandum: 2019: 196; 2020: 155; 2021: 240; 2022: 240; 2023: 245; 2024: 250; 2025: 255; 2026: 260
  - Cashew export prices (US$ per ton): 2019: 1,098; 2020: 1,000; 2021: 1,148; 2022: 1,159; 2023: 1,194; 2024: 1,229; 2025: 1,254; 2026: 1,279
- Fiscal balances and debt:
  - Overall balance (commitment basis), including grants: 2019: -4.0; 2020: -10.0; 2021: -5.4; 2022: -4.2; 2023: -4.1; 2024: -3.6; 2025: -3.0; 2026: -3.0
  - Overall balance (commitment basis), excluding grants: 2019: -6.9; 2020: -14.1; 2021: -10.4; 2022: -8.4; 2023: -8.3; 2024: -7.4; 2025: -6.7; 2026: -6.7
  - Stock of public and publicly guaranteed debt (percent of GDP): 2019: 65.9; 2020: 78.9; 2021: 79.8; 2022: 78.2; 2023: 76.2; 2024: 74.0; 2025: 71.3; 2026: 68.9
  - Of which: external debt (percent of GDP): 2019: 24.2; 2020: 25.7; 2021: 27.9; 2022: 26.6; 2023: 25.4; 2024: 24.3; 2025: 22.7; 2026: 21.5
- Current account and financing:
  - External current account (percent of GDP): 2019: -8.8; 2020: -2.6; 2021: -4.0; 2022: -4.3; 2023: -4.3; 2024: -4.2; 2025: -4.0; 2026: -4.0
  - Official transfers (percent of GDP): 2019: 2.9; 2020: 3.9; 2021: 4.8; 2022: 4.2; 2023: 4.2; 2024: 3.8; 2025: 3.7; 2026: 3.7

*Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1gnbea2022001.pdf*

### 0.0 met

### 1gnbea2022001 - 0.0 met

### Memorandum items and fiscal/financial figures
- External budgetary assistance (US$ millions): 5; 1.8; 0.0...; 1.8 0.0; ...; 6.9 6.8
- Net domestic bank credit to the central government: 23.4; 11.0...; 53.6 11.2; ...; 42.2 15.8
- Concessional project loans (US$ millions): 6; 9.9; 14.0...; 14.9 26.7; ...; 19.9 19.6
- Outstanding stock of government guarantees: 7; 10.1; 12.5...; 23.1 11.9; ...; 23.1 10.3
- Arrears: Arrears of US$0.34 million to Libya and US$0.11 million to the Islamic Development Bank (IDB) were accumulated for technical reasons; residual amounts (less than US$20,000) were due to the African Development Bank. All pending payments have been executed by end-November.
- Notes and adjustments:
  - The quantitative targets are defined in the Technical Memorandum of Understanding.
  - These apply on a continuous basis.
  - Spending by the Ministries of Health, Education and the Ministry of Women, Family and Social Cohesion, and the High Commissioner for COVID-19 is defined as specified.
  - Excludes grants, foreign and BOAD financed capital spending, and interest. To account for domestically financed current expenditures associated to COVID vaccination implementation (TMU paragraph 11), the SMP targets for end-June and end-September (deficits of CFAF 16.4 billion and CFAF 23.4 billion) have been adjusted downwards by CFAF 1.3 billion and CFAF 2.0 billion respectively.
  - The actual figures for end-June and end-September have been updated to exclude payment of wage arrears incurred in 2019-20 previously accounted in wage expenditures in 2021.
  - For end-December, the target proposed in the SMP request and the First Review do not account for the adjustor.
  - Comprises budget support grants and program loans (for budget support) excluding RCF disbursements and CCRT debt relief.
  - Comprises project loans with grant elements exceeding or equal to 35 percent.
  - All guarantees are denominated in CFAF.
  - Based on preliminary data and estimates.

### Structural benchmarks (Public Financial Management, Revenue Mobilization, Financial Sector)
- Public Financial Management (Measures, rationale, date, current status):
  - Continue weekly Treasury Committee meetings without interruptions. Rationale: Expenditure control. Date: Continuous. Current status: Met.
  - Issue a ministerial order defining a clear criteria for prioritization of cash payments by expenditure category to avoid arrears (restos a pagar) after their due date. Rationale: Expenditure control. Date: End-July 2021. Current status: Met.
  - Appoint a team in charge of the project of implementing the TSA at the General Directorate of Treasury and Public Accounting (DGTCP) through a DGTCP mission letter. Make compulsory the prior authorization of the Minister of Finance for any opening of a public bank account through a Ministry of Finance decision. Identify all public bank accounts by requesting separately the information from the banks, the sectoral ministries and other public entities. Rationale: Expenditure control. Date: End-September 2021. Current status: Met.
  - Amend the procurement legal framework to enable the collection and publication of beneficial ownership information for contracts that fall above a certain threshold to be defined. Rationale: Expenditure control/Anti-corruption. Date: End-December 2021. Current status: Not met. Reset for end-March 2022.
  - Issue an executive order to end hiring of irregular employees and enforce control by the financial controller over all public salaries, including employment incentives and the National Assembly salaries, and reconcile the personnel and the payroll records. Rationale: Wage bill control. Date: End-December 2021. Current status: Met.
- Revenue Mobilization:
  - Approve by Council of Ministers, submit to parliament: (i) the revised general tax code and the revised tax penalty regime. Rationale: Strengthen tax framework. Date: End-July 2021. Current status: Met.
  - (ii) the new VAT bill. Rationale: Strengthen tax framework. Date: End-December 2021. Current status: Met.
  - Implementation of 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 followed by. Rationale: Increase revenues. Date: End-July 2021. Current status: Met.
  - (ii) full implementation. Rationale: Increase revenues. Date: End-September 2021. Current status: Not met. Reset for end-March 2022.
  - Approve by Council of Ministers, submit to parliament a reviewed customs code. Rationale: Strengthen custom framework. Date: End-September 2021. Current status: Met.
- Financial Sector:
  - Prepare a report with the exit strategy from the undercapitalized systemic bank, including a full financial assessment. Rationale: Financial stability. Date: End-December 2021. Current status: Met.

### Risk Assessment Matrix — nature, likelihood, expected impact, mitigation
- External Risks:
  - Uncontrolled COVID-19 local outbreaks and subpar/volatile growth in affected countries; global resurgence of the COVID-19 pandemic (possibly due to vaccine-resistant variants).
    - Relative likelihood: Medium.
    - Expected impact if realized / Time horizon: High / ST.
    - Expected impacts:
      - Large adverse human toll due to weak health system.
      - Economy hit by disruptions in the cashew trade and business.
    - Policies to mitigate:
      - Prioritize spending towards health sector and social protection.
      - Mobilize additional grants and concessional loans from development partners to cover more persistent external needs.
  - Further adverse cashew nut price movements; rising commodity prices amid bouts of volatility.
    - Relative likelihood: Medium.
    - Expected impact if realized / Time horizon: High / ST.
    - Expected impacts:
      - Private sector incomes under pressure; dented economic activity.
      - Government revenues diminish.
      - Balance of payments problems from worsening current account.
    - Policies to mitigate:
      - Control public expenses to compensate for lower revenues.
      - Preserve social spending focused on the most vulnerable.
      - Step up diversification efforts.
- Domestic Risks:
  - Continued weaknesses in state-owned enterprises (public electricity and water utility EAGB).
    - Relative likelihood: Medium.
    - Expected impact if realized / Time horizon: Moderate / ST.
    - Expected impacts:
      - Limited and expensive electricity and water supply.
      - Contingent liabilities adding to fiscal pressures.
    - Policies to mitigate:
      - Implement credible strategy to improve management of public enterprises.
      - Improve governance, transparency and accountability.
  - Banking instability arising from high NPLs and bank undercapitalization.
    - Relative likelihood: Medium.
    - Expected impact if realized / Time horizon: High / ST.
    - Expected impacts:
      - Limited credit extension hampers investment and growth.
      - Potential contingent liabilities adding to fiscal pressures.
    - Policies to mitigate:
      - Enhance banking supervision and enforce prudential regulations.
      - Improve processes and procedures for collection of debts and collateral.
  - Widespread social discontent and political instability from withdrawal of pandemic-related support and rising prices.
    - Relative likelihood: Medium.
    - Expected impact if realized / Time horizon: High / MT.
    - Expected impacts:
      - Delayed fiscal adjustment.
      - Limited financing inflows delaying investment projects.
      - Supply disruptions and weaker confidence.
    - Policies to mitigate:
      - Enhance targeted social policies and strengthen social safety nets.
      - Avoid early withdrawal of fiscal and financial incentives supporting households and companies impacted by the pandemic.
      - Improve governance, transparency and accountability and fighting corruption.
  - Higher frequency and severity of natural disasters related to climate change.
    - Relative likelihood: Medium.
    - Expected impact if realized / Time horizon: High / ST, MT.
    - Expected impacts:
      - Harm cashew production; worsen rural livelihoods and extreme poverty/inequalities.
      - Higher recovery spending, higher financing costs, and lower revenues.
      - Supply disruptions and weaker confidence.
    - Policies to mitigate:
      - Address infrastructure gaps and income/developmental disparities among regions, while instituting appropriate social safety nets.
      - Promote investment in climate resilient infrastructure.

### Annex II — Adopted measures on governance and corruption (selected measures and dates)
- Adopt a firm customs policy against cases of characterized undervaluation and apply progressive sanctions. Date: Continuous since 2020.
- Publish the diagnostic report on enhancing governance and anti-corruption framework. Date: Jun-20.
- Create a commission to eliminate unjustified wage incentives to public servants. Date: Jul-20.
- Publish select information of some COVID-related procurement contracts. Date: Continuous since Aug-20.
- Repeal the 2015 Budget Law amendments to the IGV and the Investment Code (Código de Investimento). Date: Sep-20.
- Approve by parliament, and promulgation by the President of the 2020 Budget. Date: Sep-20.
- Reformulate and resume customs control of the land flow of imports. Date: Oct-20.
- Issue a ministerial order allowing the IGV (VAT) electronic tax return. Date: Oct-20.
- Approve by parliament, and promulgation by the President of the 2021 budget. Date: Dec-20/Jan-21.
- Strengthen the general custom clearance procedure. Date: Continuous since Jan-21.
- Reestablish Treasury Committee by Ministerial order. Date: Feb-21.
- Approve by the Council of Ministers decrees that create a National Committee of Debt Policy; establish the organization and functioning of the Direção Geral da Dívida Publica; and regulate the issuance of debt and debt management. Date: Jun-21.
- Launch system for tax returns filing and electronic payments through e-banking and mobile money. Date: Jun-21.
- Establish priority expenses, in the framework of the 2021 budget execution by Ministerial order. Date: Jul-21.
- Establish expenditure limits per budget line. Date: Jul-21.
- Approve and send to Parliament a revised general tax code and a revised tax penalty regime by the Council of Ministers. Date: Jul-21.
- Approve and send to Parliament a modernized statute of the Imposto Geral sobre Vendas (IGV or VAT) by the Council of Ministers. Date: Jul-21.
- Note: The High Commissioner website hosts select COVID-related procurement contract information as referenced.

### Annex III — Leveraging digitalization: Kontaktu and blockchain projects
A. Background
- Digitalization seen as an opportunity to fight corruption by promoting transparency and accountability.
- Blockchain offers security and integrity of records, reducing falsification and risks of data concentration.
- Authorities leveraged IMF TA to improve tax administration and strengthen expenditure control via digitalization: (i) the Kontaktu system for electronic filing of tax returns and payments through e-banking and mobile money; and (ii) a blockchain solution to support wage bill control. These projects aim to improve fiscal transparency and fight corruption.

B. Kontaktu: Enhancing revenue mobilization via electronic tax returns filing and payment
- Main objectives and key features:
  - The Minimum Viable Product (MVP) website for electronic tax returns filing and payment was implemented; the MVP was developed by the IMF.
  - Kontaktu is a multi-language and open-source solution, with some machine-learning capabilities to ensure scalability to other countries and current and future taxes without new developments.
  - It enables taxpayers to send electronic tax returns filing through the internet and pay their liabilities through e-banking or telecom services (mobile money).
  - The MVP can be accessed through computers and smartphones, and includes managerial dashboards, allowing data cross-matching to enhance taxpayers compliance and transparency.
  - Communication from tax administration to taxpayers through email and cellphones reduces face-to-face interactions amid the pandemic.
  - An electronic tax laws database was made available for the first time in Guinea-Bissau.
  - It can be hosted in the servers of tax administration premises or in commercial clouds.
- Progress:
  - The Kontaktu system is operational for a small number of taxpayers (pilot phase), with progress toward extending the solution to all large taxpayers.
  - The full implementation of the system has been rephased from end-December 2021 to end-March 2022 to ensure a smooth transition amid the pandemic and capacity constraints and to allow training of users, secure permanent internet access and deploy a communication campaign.
- Text Figure 1 (descriptive): Number of Companies and Revenue Collected in Kontaktu System — series reported for Sep-21, Oct-21, Nov-21 with tax categories including Others, Personal income tax, Corporate income tax, Goods & Services tax; vertical axis labels include CFAF million and Number of companies (RHS).

C. Blockchain: Strengthening control of wage bill via innovative technology
- Main objectives and key features:
  - Project would generate real time information on employment, salaries and incentive payments; maintain reliable and timely records; improve transparency of information, reduce incentives for corruption, and make officials more accountable.
  - It would complement the existing financial management information system and computerized payroll system.
  - Additional analytical tools could be added, including forensic models and predictive analytics for continuous monitoring and reporting, e.g., to identify corruption risks in personnel management.
  - Implementation could first extend to all ministries and then to other areas of the public sector (judicial system, land and corporate registries, procurement, public investment, customs, social security, health).
  - Successful implementation intended to demonstrate leapfrogging is possible in fragile states.
- Implementation and support:
  - The project was one of the winners of the 2020 IMF global governance/anti-corruption challenge.
  - The blockchain technology is provided by Ernst and Young (EY); the project is led by the authorities, with support of the IMF in collaboration with EY and the UNDP.
  - Progress: Implementation planned to start in January 2022 in the Ministry of Finance. Work is being finalized on the institutional and legal framework to allow donor support.

### Annex IV — Treatment and use of the proposed SDR allocation increase
A. Background
- Guinea-Bissau received an allocation of SDR 27.2 million (CFAF 21.6 billion), about 96 percent of quota.
- Existing SDR holdings were at SDR 59.6 million with outstanding purchases and loans at SDR 32.52 million as of end-December 2021.
- Guinea-Bissau quota stands at SDR 28.4 million.
- The last SDR allocation (SDR 12.4 million, in 2009) was used to pay for domestic arrears.

B. Accounting treatment
- Under the latest accounting guidelines, Net International Reserves (NIR) are expected to increase as a result of the SDR allocation.
- The SDR allocation will have no impact on net foreign assets because there is an increase in both foreign assets and liabilities.
- As the SDR allocation is treated as a long-term foreign exchange liability, it would increase NIR since long-term liabilities are excluded from the NIR definition.
- The SDR position is shown on the BCEAO balance sheet. The regional central bank follows this convention.

C. Cost of use of the SDR holdings
- (Section heading present; full cost discussion not included in supplied text.)

*Source: IMF staff and Guinea-Bissau authorities (content as provided in the supplied PDF excerpt).*

### 3.      The new SDR allocation was transferred by BCEAO though a currency repo operation.

### 3.      The new SDR allocation was transferred by BCEAO though a currency repo operation.

### Use of the allocation
- Pre-payment of costly debt:
  - Authorities pre-paid debt service to BOAD, both interest and principal due during September 2021–December 2022, at the amount of CFAF 16.8 billion.
  - Rationale: BCEAO on-lending is concessional and provides an alternative source of funding amid constraints to mobilize donor support in 2021, compared with more costly alternatives such as contracting debt with some regional development banks (project financing) and issuing short-term treasury bills in the regional market.
- Emergency response and resilience:
  - Remaining resources allocated: about CFAF 4.8 billion to cover the 2021 fiscal financing gap and support the emergency response and recovery from the pandemic.
  - Vaccination target funded: plan to vaccinate 1.4 million people by the end-first quarter of 2022.
  - Vaccination rollout and deliveries to date: 882,970 doses delivered to date (AstraZeneca, Johnson & Johnson, and Sinopharma) provided by the African Union, COVAX, Senegal, Portugal, Sweden, China and the United States.
  - Vaccination campaign aim: reach 50 percent of the target population by end-March 2022.
  - Operational cost borne by government except US$1 million grant from GAVI.
  - SMP Staff Report note: estimated fiscal financing gap of CFAF11 billion.

### Staff guidance on use and transparency
- Staff supports allocating the on-lending to:
  - retire non-concessional debt and/or
  - finance critical spending covering the financing gap under the SMP while avoiding delaying the envisaged path of fiscal adjustment.
- Governance and transparency recommendations (staff will recommend):
  - (i) any fiscal easing should be consistent with a credible and sustainable medium-term framework;
  - (ii) resources should be used to finance high quality spending following the 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.

### Contextual program and pandemic financing notes (selected figures)
- SDR allocation proceeds used to: support COVID-related spending, including vaccination and improvement in health services, and buttress debt sustainability by repaying non-concessional debt due in end-2021 and 2022.
- Vaccination campaign data and targets:
  - As of end-December: 260,000 people fully vaccinated, covering about 35 percent of the target population (70 percent of the population over 18 years old, or about 683,147 people).
  - Doses delivered to date: 882,970.
  - Funding gap for the vaccination campaign: US$ 4.2 million for 2021-2022.
- Macroeconomic and fiscal snapshots:
  - GDP growth forecast for 2021: about 3.8 percent.
  - Average price inflation projection for 2021: 3 percent (from 1.5 percent in 2020).
  - Cashew nut export value expected growth: 47.2 percent year on year.
  - Overall fiscal deficit (including grants on a commitment basis) projected to fall to 5.4 percent of GDP from 10.0 percent of GDP in 2020.
  - Stock of public debt projected increase in 2021 by 0.8 percent of GDP; projected to begin falling in 2022 and converge to the WAEMU 70 percent of GDP debt ceiling by 2026.
  - Trade deficit projection: decrease from 14.1 percent in 2020 to 13.1 percent of GDP in 2021.
  - Current account deficit projection: reach 4.3 percent of GDP.
- Banking sector note:
  - One systemic undercapitalized bank holds about 40 percent of deposits and has the largest number of branches throughout the country.
  - About 10 percent of the bank’s total NPLs has been recovered.

*Source: IMF staff report text provided in the chapter titled "3.      The new SDR allocation was transferred by BCEAO though a currency repo operation."*

### 11.      The government is committed to the following measures to mobilize domestic

### 11. The government is committed to the following measures to mobilize domestic revenues, rationalize expenditures, and avoid expensive non-concessional financing

### Tax and revenue mobilization
- New taxes introduced:
  - A new tax on telecommunications.
  - A new tax on labor income (the newly introduced “democracy tax” has labor income as tax base).
- Measures to enhance tax compliance:
  - Adoption of new decrees and ministerial orders to strengthen internal control procedures of the customs and tax directorate.
  - Launch of a website for electronic tax returns in 2021 allowing electronic tax returns filing and payment (supported by IMF technical assistance).
  - IMF TA in Q1 2022 will support strengthening the collection of the telecom tax in 2022.
- Telecom tax scope (as noted in a footnote):
  - The telecommunication tax covers: call traffic; instant messaging services; voice or text messaging services; advertising and information services; mobile data services; and internet access and connection services.
- Operational issues noted:
  - Tax collections underperformed in October due to disruption in the container shipping sector and ongoing disputes on the taxable volume of services in the telecom sector.
  - Actions are being taken to avoid compromising the achievement of end-December quantitative targets.

### Expenditure control and wage bill measures
- Expenditure containment measures adopted:
  - (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) Suspension of new infrastructure projects with exception of priority sectors.
  - (v) Limiting acquisitions of goods and services to those associated to core functions.
- Continued and planned measures:
  - Deployment, with IMF support, of blockchain technology to assist in reconciling personnel and payroll records.
  - Initiated discussions on a public administration reform to assess the accurate size of the public service.
  - Reinstatement of the Treasury Committee to improve expenditure control.
  - Steps to strengthen management of Electricidade e Aguas da Guinea-Bissau (EAGB) through revamping management operations and enhancing financial management controls.
  - Commitment to safeguard priority spending on health, education and the social sector and not using irregular and improperly documented expenditure (DNTs) for emergency cases.
- Additional expenditure control measures being prepared:
  - Ministerial order to enforce normal expenditure execution procedure requiring delivery of goods and services to be certified before payment; pilot in at least five selected line ministries in the beginning of 2022 (IMF TA requested to support implementation).
  - Publish a follow-up report on previous Tribunal de Contas audit reports’ recommendations on EAGB to strengthen management and transparency of this SOE; report to be published by end-December.
  - IMF TA will support enhancing fiscal oversight of SOEs.

### Public financial management and structural benchmarks (SBs)
- Steps toward a TSA (Treasury Single Account):
  - Progressive steps taken; IMF TA to support improvement of treasury and cash management.
  - Creation of a unit within DGTCP to implement the cash management function that will use the IMF cash management tool.
- Procurement and beneficial ownership:
  - Government will amend the procurement legal framework to enable collection and publication of beneficial ownership information of entities awarded procurement contracts above a certain threshold, to be defined based on IMF TA recommendations.
  - IMF TA is supporting the amendment. The structural benchmark was requested to be reset for end-March 2022 (original SB end-December 2021).
- Personnel and payroll controls:
  - Executive order issued to end the hiring of employees without contract (SB, end-September 2021).
  - Expectation to issue another executive order to enforce control by the financial controller over all public salaries including employment incentives and the National Assembly salaries and reconcile personnel and payroll records (SB end-December 2021), supported by the blockchain project.
  - Resolution of the Council of Ministers on July 27 requires these measures by all public entities whose wages are included in the budget.
- Cash payment prioritization and account identification:
  - Appoint a team in charge of TSA implementation at DGTCP through a DGTCP mission letter; make prior authorization of the Minister of Finance compulsory for any opening of a public bank account; identify all public bank accounts by requesting information from banks, sectoral ministries and other public entities (SB end-September 2021 — Met).

### Information exchange and inter-agency cooperation
- To support revenue mobilization:
  - Ensure information exchange between DGCI, DGA, Treasury and the National Institute of Social Security to foster transparency and increase tax revenue mobilization.
  - Partial progress:
    - Treasury will start to provide required information filing the withholding tax return.
    - MoUs will be signed between the DGCI and DGA and with the National Institute of Social Security, with support of the Minister of Finance and the Minister of the Public Administration by end-December.
    - IMF TA to be provided in February/March 2022 once the MoUs are signed.

### Governance, transparency, and COVID-19 spending safeguards
- Management of COVID-19 related funds:
  - COVID-19 funds managed 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.
  - Audit of COVID-19 expenses by the Audit Court started in October at the request of the High Commissioner for COVID-19, covering June 2020-August 2021.
  - Terms of Reference for a reputable third-party auditor developed in consultation with the Fund to cover all COVID-19 expenses for 2021 to be published by end-September of 2022; the public tender took place in early December.
  - Crisis-related spending is part of the State Budget and reports on such spending are published in the budget execution report presented to the National Assembly.
  - Government published, through the High Commissioner for COVID-19, key information of all crisis-related contracts for the year 2020.
  - Government will publish full text of contracts and ex-post validation of delivery and start to disclose beneficial ownership information of entities awarded COVID-19 related and public procurement contracts as soon as procurement legal framework amended.

- Anti-corruption and asset declaration reform:
  - Propose reform to upgrade 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;
    - (iv) allow the imposition of targeted, proportionate, and dissuasive sanctions consistently enforced for failure of submission and for submission of false declaration.
  - Expect to finalize the reform proposal by end-February 2022.

### Measures to mitigate debt vulnerabilities
- Domestic arrears:
  - Recognized and paid CFAF 10.2 billion of domestic arrears accumulated in 2020.
  - Plans to start clearing remaining stock of domestic arrears accumulated between 1974 and 1999 amounting to CFAF 14.3 billion in the coming years.
  - By end-2022, with external technical support, government intends 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.
  - This will allow the government to decide on a strategy towards clearing all outstanding domestic arrears over the medium term.

- External arrears and debt treatment:
  - Agreement or settlement reached with Libya, Taiwan Province of China and Angola.
  - In November, requests were sent to Russia, Brazil and Pakistan to attempt resolving remaining external arrears.
  - Government has joined the Debt Service Suspension Initiative (DSSI) and intends to explore debt reprofiling/restructuring with development partners in the context of downside risks from the COVID-19 pandemic.
  - In this review, arrears to Libya and the Islamic Development Bank (IDB) incurred in June for technical reasons and a residual amount due to the African Development Bank were fully cleared in October and November (Table 1).
  - Weekly coordination meetings between the directorates of treasury and debt implemented to prevent incurrence of arrears for technical reasons.

- Debt management strengthening:
  - Seek long-term technical assistance 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.
  - Weekly coordination meetings between Directorate Generals of Treasury and Debt; will hold biannual meetings of the National Committee of Public Debt after approval of decrees by the Council of Ministers.

- New borrowing and investment planning:
  - Contract future debt only on highly concessional terms.
  - Carefully rank investments based on cost-benefit analysis, including social considerations and impact on macroeconomic stability.
  - Work in consultation with the IMF regarding evaluation of financial terms of new proposed loans.
  - Committed not to rely on non-concessional loans.
  - Start quarterly meetings with all Project Implementation Units (PIUs) to take stock of project implementation and discuss 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.
  - New SDR allocation usage:
    - Recent SDR 27.2 million allocation to Guinea-Bissau (about US$ 38.4 million) was used to pre-pay non-concessional debt due in end-2021 and 2022 and to support COVID-related spending including vaccination and improvement in health services.

### Measures to strengthen the financial sector
- Preserve financial sector stability:
  - Refrain from allocating additional public resources to a large bank where the government has a 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).
  - Government will request BCEAO to share the results of the NPLs audit with the IMF (Fund has interest in an assessment of the bank’s NPLs).

### Quantitative targets and select outcomes (Table 1 highlights)
- Total domestic tax revenue (floor):
  - SMP Request end-June 2021: 38.2
  - Adjusted Target end-June 2021: 41.8
  - Actual end-June 2021: met 62.8
  - SMP Request end-September 2021: 70.7
  - Adjusted Target end-September 2021: 87.9
  - Actual end-September 2021: 93.5
- Ceiling on new non-concessional external debt contracted or guaranteed by the central government (US$ millions):
  - SMP Request and Adjusted Target shown as 0.0; Actual met 0.0
- New external payment arrears (US$ millions, ceiling):
  - SMP Request: 0.0
  - Adjusted Target: 0.5
  - Actual: not met
- New domestic arrears (ceiling): 0.0 — met
- Social and priority spending (floor) (defined as spending by the Ministries of Health, Education and the Ministry of Women, Family and Social Cohesion, and the High Commissioner for COVID-19):
  - SMP Request end-June 2021: 27.2 — met
  - Adjusted Target end-September 2021: 27.6 — met
  - Actual end-September 2021: 38.7
  - SMP Request end-December 2021: 42.3 — met; Actual end-December 2021: 50.1
- Domestic primary balance (commitment basis, floor) (Excludes grants, foreign and BOAD financed capital spending, and interest):
  - SMP Request end-June 2021: -16.4
  - Adjusted Target end-June 2021: -17.7
  - Actual end-June 2021: -17.8 (not met)
  - SMP Request end-September 2021: -23.4
  - Adjusted Target end-September 2021: -25.4
  - Actual end-September 2021: -14.8 (met)
  - SMP Request end-December 2021: -15.4
  - Adjusted Target end-December 2021: -18.9
- Non regularized expenditures (DNTs, ceiling): 0.0 — met
- Memorandum items (selected):
  - External budgetary assistance (US$ millions): 1.8 (SMP Request) / 0.0 (Adjusted Target)
  - Net domestic bank credit to the central government: 23.4 (SMP Request) / 11.0 (Adjusted Target)
  - Concessional project loans (US$ millions): 9.9 (SMP Request) / 14.0 (Adjusted Target)
  - Outstanding stock of government guarantees: 10.1 (SMP Request) / 12.5 (Adjusted Target)
- Notes on arrears in Table 1:
  - Arrears of US$0.34 million to Libya and US$0.11 million to the Islamic Development Bank (IDB) were accumulated for technical reasons; residual amounts (less than US$20,000) were due to the African Development Bank. All pending payments have been executed by end-November.

### Structural Benchmarks (Table 2 selected items and statuses)
- 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 by expenditure category to avoid arrears (restos a pagar) after their due date — End-July 2021 — Met.
  - Appoint a team in charge of TSA implementation at DGTCP, make prior authorization of Minister of Finance compulsory for opening public bank accounts, identify all public bank accounts — End-September 2021 — Met.
  - Amend procurement legal framework to enable collection and publication of beneficial ownership information for contracts above a threshold — End-December 2021 — Not met. Reset for end-March 2022.
  - Issue an executive order to end hiring of irregular employees and enforce control by financial controller over all public salaries and reconcile personnel and payroll records — End-December 2021 — Met.
- 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 — Met.
  - (ii) the new VAT bill — End-December 2021 — Met.
  - Implementation of 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 — Met; full implementation — End-September 2021 — Not met. Reset for end-March 2022.
  - Approve by Council of Ministers, 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 — Met.

*Source: Guinea-Bissau authorities and IMF staff (excerpts from the IMF staff-monitored program documents and Technical Memorandum of Understanding).*

### 2.      Program exchange rates

### 2.      Program exchange rates

### Program exchange rate
- 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 is defined to include 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.
  - A debt is considered contracted when all conditions for its entry into effect have been met, including approval by the Minister of Finance.
  - Excludes normal trade credit for imports and debt denominated in CFAF.
  - Includes domestically held foreign exchange (non-CFAF) debts.
  - Applies not only to debt as defined in the Guidelines on Public Debt Conditionality in Fund Arrangements attached to Decision No. 15688-(14/107), adopted December 5, 2014, point 8, but also to commitments contracted or guaranteed for which value has not been received.
  - Excluded from this QT are disbursements from the IMF and those debts subject to rescheduling or for which verbal agreement has been reached.
  - This QT will apply on a continuous basis.
- Notes:
  - Contracting of credit lines (which can be drawn at any time and entered into effect) with no predetermined disbursement schedules or with multiple disbursements will be also considered as contracting of debt.
- Reporting requirement:
  - The government will report any new external borrowing and its terms to Fund staff as soon as external debt is contracted or guaranteed by the government, but no later than within two weeks of such external debt being contracted or guaranteed.
- Central government definition (applies to this and other QTs):
  - Central government comprises the central administration of the Republic of Guinea-Bissau and does not include any local administration, the central bank nor any other public or government-owned entity with autonomous legal personality not included in the government flow-of-funds table (TOFE).

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

E. Social and Priority Spending
- Definition:
  - Social and Priority spending is defined to include spending in the Ministries of Health, Education and the Ministry of Women, Family and Social Cohesion, and the High Commissioner for COVID-19.

F. Domestic Primary Balance (Commitment Basis)
- Definition and calculation:
  - The domestic primary fiscal deficit on a commitment basis is calculated as the difference between government revenue and 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 CFAF 2.2 billion for the end-December 2021 domestic primary balance target of CFAF -18.9 billion which was set at the first review).

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:
  - The 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 defined as the sum of the following:
    - 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:
  - The data source for the above will be the 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 the 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:
  - 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.

*Source: 1gnbea2022001 - 2.      Program exchange rates*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1gnbea2022001.pdf_