## GUINEA: STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION AND REQUEST FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY ## Source details **Canonical URL:** [GUINEA: STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION AND REQUEST FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY](https://www.imf.org/-/media/files/publications/cr/2023/english/1ginea2023001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1ginea2023001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1ginea2023001.pdf.json) --- ### Executive summary and context - Real GDP Growth (annual percentage change): 4.9 (2020), 4.3 (2021), 4.7 (2022), 5.6 (2023). - Growth drivers and context: - Growth driven by continued strength in the mining sector; non-mining sector recovery is precarious amid international price shocks and post-pandemic effects. - Political context: coup d’état in September 2021; transition calendar revised to 24 months from an initially announced 36-month timeline. - IMF support: - Executive Board approved a disbursement of SDR 53.55 million (US$71 million) under the Food Shock Window (FSW) of the Rapid Credit Facility (RCF). ### Food insecurity, external shocks, and intended use of IMF resources - Food insecurity and shocks: - WFP estimate: about 11 percent (1.2 million people) of the population acutely food-insecure (estimate likely to be revised upwards). - Local fertilizer prices increased by 300 percent from 2021; fertilizer use fell by 57 percent in 2022 compared to 2021. - Russian invasion of Ukraine produced global food, fuel, and fertilizer price shocks; higher mineral prices (gold and bauxite) partially offset effects. - FSW disbursement and planned use: - Disbursement approved: SDR 53.55 million (US$71 million). - Planned use of resources: - In-kind food distribution (implemented together with the World Food Program). - Purchase of fertilizer to improve next harvests. - Strengthening and scaling up cash transfer programs to vulnerable households. - Budget support to mitigate impacts on the most vulnerable. - Authorities’ detailed allocations (from Letter of Intent): - US$20 million to WFP for in-kind food assistance for an estimated 1.2 million people. - US$20 million to purchase and distribute fertilizers and agricultural products. - US$25 million in cash transfers to vulnerable communities delivered by ANIES. - Remaining US$4 million to FDSI for social and health care for indigent people. ### Macroeconomic performance and key projections - Selected historical indicators (annual percentage change unless indicated): - Mining growth: 28.3 (2020), 6.6 (2021), 11.8 (2022), 11.1 (2023). - Industrial mining: 1.6 (2020), -0.6 (2021), 10.9 (2022), 11.9 (2023). - Non-mining growth: 0.3 (2020), 3.7 (2021), 2.9 (2022), 4.1 (2023). - Inflation Average (annual percentage change): 10.6 (2020), 12.6 (2021), 12.2 (2022), 11.4 (2023). - Key projections (Est./Projection): - Real GDP Growth: 2021: 4.3; 2022: 4.7; 2023: 5.6; 2024: 5.8; 2025: 5.6; 2026: 5.5; 2027: 5.4. - Mining growth: 2021: 6.6; 2022: 11.8; 2023: 11.1; 2024: 9.3; 2025: 6.3; 2026: 5.1; 2027: 6.3. - Non-mining growth: 2021: 3.7; 2022: 2.9; 2023: 4.1; 2024: 4.8; 2025: 5.4; 2026: 5.6; 2027: 5.1. - Inflation, average: 2021: 12.6; 2022: 12.2; 2023: 11.4; 2024: 9.5; 2025: 8.9; 2026: 8.3; 2027: 7.8. - External sector indicators (selected): - Current account balance (including official transfers, percent of GDP): -16.1 (2020), -2.1 (2021), -7.4 (2022), -6.8 (2023). - Overall balance of payments (US$ billion): -0.9 (2020), 2.4 (2021), -0.3 (2022), 0.4 (2023). - Gross available reserves (months of imports): 2.5 (2020), 2.7 (2021), 2.5 (2022), 2.4 (2023). - Fiscal indicators (central government, percent of GDP): - Total revenue and grants: 13.9 (2020), 13.6 (2021), 13.1 (2022), 13.0 (2023). - Expenditures and net lending: 17.0 (2020), 15.3 (2021), 14.4 (2022), 15.3 (2023). - Capital Expenditures: 3.5 (2020), 2.3 (2021), 3.7 (2022), 4.5 (2023). - Overall balance including grants: -3.1 (2020), -1.7 (2021), -1.3 (2022), -2.3 (2023). - Nominal GDP (GNF billions): 135,612 (2020), 157,725 (2021), 185,329 (2022), 215,692 (2023). ### Fiscal policy, revenue mobilization, and public investment - Recent fiscal outcomes and 2023 framework: - 2022 overall deficit expected at 1.3 percent of GDP, lower than projected earlier due to good non-fuel revenue, containment of recurrent expenditure, and under-execution of domestically financed capital spending. - Authorities’ 2023 budget framework: allocate about ¼ of spending to infrastructure; staff expects an overall deficit closer to 2.3 percent of GDP (staff view) versus letter suggesting up to 4.5 percent (authorities’ initial suggestion, staff estimate closer to 3½ percent before assessment). - Revenue mobilization priorities: - Mobilize domestic revenue including from the mining sector; New Tax Code in force January 2022 introduces a 20 percent tax bracket. - Address transfer pricing and profit shifting in the bauxite industry; July 2022 decree sets a reference price formula for domestic bauxite. - Revenue mobilization efforts expected to increase tax revenue by about 2.8 percent of GDP over 2022–27. - Public investment management and expenditure quality: - Improve investment efficiency, reduce regressive subsidies, and prioritize human capital and infrastructure (especially rural infrastructure, education, and social protection). - Electricity sector reforms: align tariffs to costs with targeted social tariffs; complete transmission to utilize Souapiti hydropower; improve collection rates. ### Monetary policy, financial sector, and statistics - Monetary stance and measures: - Maintain a tight monetary stance to contain inflation; monetary policy committee kept reserve requirement and main reference rates unchanged at 15 and 11.5 percent, respectively (September 2022 decision). - Ensure central bank lending to government remains within statutory limits; avoid monetary financing. - Recommendations: delay further reductions in reserve requirements until international price risks subside; stick to rule-based FX intervention policy. - Financial sector and credit: - NPL ratio: 11 percent (Q2 2022); profitability down about ¼ in H1 2022 compared to pre-crisis values. - Private sector credit: 8.8 percent of GDP in December 2021; private sector credit growth averaged 13.6 percent in January-August 2022. - First long-term domestic bond auctions (5- and 3-year) in April and August 2022; need for clear issuance calendar and secondary market development. - Statistics and CPI rebasing: - INS updating CPI to national coverage and rebasing; staff advises gradual transition beginning with a rebased Conakry index and later the national index. - Priority data improvements: finalizing transition to GFS 2014, rebasing national accounts, strengthening debt and external sector data, improving artisanal gold data. ### Debt sustainability, contingent liabilities, and capacity to repay - Risk assessment: - Guinea remains at moderate risk of debt distress with some space to absorb shocks but limited space for new borrowing. - Composite Indicator (CI): 2.47; CPIA: 3.3. - Debt levels and trends: - Gross public debt: 47.1 (2020), 40.4 (2021), 34.9 (2022), 35.3 (2023) percent of GDP. - External public debt (percent of GDP): 27.9 (2020), 22.8 (2021). - Total outstanding credit based on existing and prospective drawings to the IMF projected at about 167 percent of quota by end-2022; equivalent to 5 percent of exports and about 27 percent of gross official reserves. - DSA stress test highlights: - Contingent liabilities test implies an 11.2 percent of GDP shock from contingent liabilities composed of: SOE debt 2 percent of GDP; PPP stock shock 1.33 percent of GDP; financial market shocks 5 percent of GDP; arrears 2.9 percent of GDP. - Stress tests show shocks to exports are most detrimental; under extreme export shock PV of debt-to-GDP ratio could exceed 60 percent and debt-to-exports could jump to over 300. - Policy implications: - Maximize concessionality of new debt; tap domestic financing sources; strengthen debt management capacity; enhance public investment management to preserve medium-term debt sustainability. ### Structural reforms, diversification, and governance - Structural priorities: - Economic diversification to reduce mining concentration risk; explore agriculture, services, and mining value-chain activities (e.g., alumina/aluminum). - Strategic priority: sound implementation of the Simandou iron ore project; reported proposed infrastructure cost about $15 billion (railway and port) and government 15 percent free non-dilutable stake in joint venture (project treated as medium-term upside risk). - Artisanal gold and tax measures: - ASM comprised nearly 71 percent of total gold production in 2021; artisanal gold exports were 83 metric tonnes in 2021. - June 2022 agreement: export tax of $200 per kilogram of raw gold; estimated revenue up to about $17 million in 2022; IMF staff estimate a 1 percent increase on the tax rate could raise as much as $44 million (¼ percent of GDP) in 2022. - Governance, AML/CFT, and safeguards: - Continue reforms to strengthen anti-corruption, implement safeguards assessment recommendations, improve AML/CFT effectiveness ahead of GIABA mutual evaluation, and enhance judicial capacity (e.g., more specialized judges). - Outstanding safeguards priorities: timeliness of IFRS financial statements, strengthen independence of Audit Committee, capacity building for accounting, risk management, and internal audit. ### Risks, staff appraisal, and recommended policy package - Downside risks: - Continued price and supply disruptions from the war in Ukraine and possible additional global supply shocks; risk of higher financing needs inducing monetary financing; price shock and global tightening reducing bauxite demand and revenues. - Upside risks: - Accelerated progress on Simandou could deliver faster growth, higher exports, and more revenues; faster-than-expected revenue reforms could improve outlook. - Staff appraisal and urgent recommended actions: - Support vulnerable households through targeted measures and strengthen social protection; use FSW resources primarily for in-kind food distribution (about 30 percent), cash transfers (about 40 percent), and fertilizer imports. - Prepare a plan to gradually remove fuel subsidies and transition to an automatic fuel pricing mechanism with smoothing, supported by IMF TA and a communications campaign. - Maintain tight monetary policy and avoid central bank financing; manage liquidity actively; ensure transparency and coordination in PFM. - Maximize concessional financing for infrastructure; strengthen PIM and debt management; clear and audit domestic arrears and avoid accumulation of new arrears. - Prioritize combined investments in education, infrastructure, and transfers if additional mining revenues are mobilized—model simulations show combination yields largest long-term gains: e.g., combined education and infrastructure increases GDP growth by 1.18 percentage points (over 30 years) and the three-way package (education + infrastructure + transfers) can reduce the poverty rate by 17.9 percentage points. ### Fund engagement and conditionality/monitoring commitments - Fund engagement: - Authorities requested disbursement of 25 percent of quota (SDR 53.55 million) under the RCF-FSW. - Fund team visited and held discussions during October 4–November 4, 2022. - Transparency and safeguards for FSW use: - MoU between Ministry of Economy and Finance and BCRG to establish responsibilities; create subaccount within Treasury Single Account; US$20 million to be transferred immediately to WFP upon receipt. - Authorities commit to publish monthly, quarterly, and annual execution reports; full audit of emergency resources at end-2023; prepare action plan by June 30, 2023 to address PFM vulnerabilities identified by the Court of Auditors and update safeguards assessment after FSW disbursement. - Staff recommendation: - Staff support the FSW disbursement and recommend urgent interventions: distribute food, scale-up cash transfers, mobilize fertilizers, and work with WFP for prompt implementation. *Source: GUINEA STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION AND REQUEST FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY (selected excerpts).* ### 4.7 percent in 2022 and 5.6 percent in 2023, driven by continued strength in the mining sector, ### GUINEA: STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION AND REQUEST FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY ### Executive summary and context - Real GDP Growth (annual percentage change): 4.9 (2020), 4.3 (2021), 4.7 (2022), 5.6 (2023). - Growth is driven by continued strength in the mining sector, though the non-mining sector is grappling with the impact of international price shocks and a precarious post-pandemic recovery. - The Executive Board approved a disbursement of SDR 53.55 million (US$71 million) under the Food Shock Window of the Rapid Credit Facility to help address urgent balance of payment needs related to the global food crisis. - The UN 2022 Global Report on Food Crises considers Guinea to have a major food crisis, with a large share of the population affected by acute food insecurity and worsening malnutrition. - Political context: a coup d’état in September 2021 led to socio-political tension; a revised, shorter (24-month) transition calendar was agreed with ECOWAS. The transition timeline was shortened from an initially announced 36-month timeline to 24 months following negotiations. ### Food insecurity and external shocks - Food insecurity: - WFP estimates about 11 percent (1.2 million people) of the population are acutely food-insecure (estimate likely to be revised upwards). - Malnutrition and other social indicators have deteriorated. - Fertilizer shock: - Local fertilizer prices increased by 300 percent from 2021, contributing to risk of a below-average harvest and lower food availability next year. - International shocks: - The Russian invasion of Ukraine and ensuing global food, fuel, and fertilizer price shocks slowed recovery from Covid-19 and undermined food security. - Higher mineral prices (including gold and bauxite) partially offset the impact of higher food, fuel, and fertilizer prices. ### IMF financial support and intended use - Disbursement approved: SDR 53.55 million (US$71 million) under the Rapid Credit Facility-Food Shock Window (FSW). - Planned use of resources: - In-kind food distribution (implemented together with the World Food Program). - Purchase of fertilizer to improve next harvests. - Strengthening and scaling up cash transfer programs to vulnerable households. - Budget support to mitigate the impact of the shock on the most vulnerable. ### Macroeconomic and fiscal indicators (selected) - Output and inflation: - Mining (annual percentage change): 28.3 (2020), 6.6 (2021), 11.8 (2022), 11.1 (2023). - Industrial mining (annual percentage change): 1.6 (2020), -0.6 (2021), 10.9 (2022), 11.9 (2023). - Non-mining (annual percentage change): 0.3 (2020), 3.7 (2021), 2.9 (2022), 4.1 (2023). - Inflation Average (annual percentage change): 10.6 (2020), 12.6 (2021), 12.2 (2022), 11.4 (2023). - Central Government finances (percent of GDP unless otherwise indicated): - Total revenue and grants: 13.9 (2020), 13.6 (2021), 13.1 (2022), 13.0 (2023). - Expenditures and net lending: 17.0 (2020), 15.3 (2021), 14.4 (2022), 15.3 (2023). - Current Expenditures: 13.5 (2020), 13.0 (2021), 10.6 (2022), 10.7 (2023). - Capital Expenditures: 3.5 (2020), 2.3 (2021), 3.7 (2022), 4.5 (2023). - Overall balance including grants: -3.1 (2020), -1.7 (2021), -1.3 (2022), -2.3 (2023). - Basic fiscal balance: -1.5 (2020), -0.7 (2021), 0.1 (2022), -0.1 (2023). - External sector: - Current account balance (including official transfers): -16.1 (2020), -2.1 (2021), -7.4 (2022), -6.8 (2023). - Current account balance (excluding official transfers): -16.9 (2020), -2.1 (2021), -7.4 (2022), -6.8 (2023). - Overall balance of payments: -0.9 (2020), 2.4 (2021), -0.3 (2022), 0.4 (2023). - Gross available reserves (months of imports): 2.5 (2020), 2.7 (2021), 2.5 (2022), 2.4 (2023). - Gross public debt: 47.1 (2020), 40.4 (2021), 34.9 (2022), 35.3 (2023). - Nominal GDP (GNF billions): 135,612 (2020), 157,725 (2021), 185,329 (2022), 215,692 (2023). ### Policy recommendations and priorities - Immediate priorities: - Support vulnerable households via targeted measures and strengthen social protection programs. - Use emergency financial assistance under the RCF Food Shock Window to address urgent balance-of-payments needs and mitigate the food shock. - Fiscal policy: - Mobilize domestic revenue, including from the mining sector. - Improve the quality of expenditure by reducing regressive subsidies and improving public investment management. - Continue efforts to mobilize additional revenue and address profit shifting in the mining sector. - Fiscal stance was projected to be tighter in 2022 relative to 2021 owing to restraint in recurrent expenditures and under-execution of the capital budget despite forgone revenues from fuel price support measures. - Monetary policy: - Maintain a tight monetary stance to contain inflation. - Ensure central bank lending to government remains within the statutory limit. - Develop and introduce a new consumer price index covering the entire country gradually, according to best practice. - Debt and financing: - Guinea remains at moderate risk of debt distress, with some space to absorb shocks but limited space for new borrowing. - Maximize concessionality of new debt, tap domestic financing sources, strengthen debt management capacity, and enhance public investment management to preserve medium-term debt sustainability. - Structural and governance reforms: - Economic diversification is essential to sustain growth and enhance resilience and inclusiveness. - Sound implementation of the Simandou iron ore project should be a key priority. - Address governance weaknesses, implement the 2021 safeguards assessment recommendations, improve governance and the anti-corruption system, and strengthen the AML/CFT regime. - Reforms to enhance governance, resilience, and the business climate are critical for inclusive, more resilient growth and improved social indicators. ### Fund engagement, program modalities, and staff work - The authorities requested disbursement of 25 percent of quota (SDR 53.55 million) under the RCF-FSW to address urgent balance-of-payments needs and mitigate the food shock. - The Fund team visited and held virtual and in-person discussions with authorities during October 4–November 4, 2022. - The report includes policy discussions on fiscal policy, monetary and financial sector policies, and diversification, resilience and governance, and provides a staff appraisal and annexes on implementation and sectoral issues. *Source: GUINEA STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION AND REQUEST FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY (selected excerpts).* ### Box 1. The Interim Reference Program and the Economic Recovery Plan ### Box 1. The Interim Reference Program and the Economic Recovery Plan ### PRI and PRE: objectives and design - The transitional authorities drafted a national development program (Programme de Référence Intérimaire de la Transition, PRI) for the 2022-2025 period in June 2022. - The PRI adopts five pillars: - 1) the institutions needed to return to constitutional order; - 2) the macroeconomic and financial framework; - 3) the legal and governance framework; - 4) social action for employment; - 5) infrastructure and sanitation. - In October 2022 the transitional authorities drafted an Economic Recovery Plan (Plan de Relance Économique, PRE) to serve as the execution framework for the PRI. - Principal objectives of the PRE: - 1) improving productivity; - 2) diversifying exports; - 3) improving living standards. - Primary PRE interventions: - improving productivity of primary sector activities through infrastructure investments that better link rural and urban areas; - improvements in agricultural, livestock, fishing, and forestry practices; - establishing special economic zones; - promoting agribusiness and SME development. - Assessment and gap: - The PRE’s overarching objectives are directionally appropriate, but the plan could benefit from additional details, notably concrete strategies to improve living standards by strengthening Guinea’s weak social safety net. - Strategic alignments: - The PRI and PRE maintain Guinea’s commitment to its 2040 Vision, the Sustainable Development Goals, ECOWAS’ Vision 2050, and the African Union’s Agenda 2063. ### Progress on prior recommendations and fiscal/financial policy actions - Authorities’ actions and progress: - Progress was made in implementing key recommendations from the 2021 Article IV consultation, but challenges remain. - Authorities have shown restraint in resorting to central bank advances. - Addressed transfer pricing issues for bauxite prices as part of revenue mobilization. - Fiscal policy has been prudent; work is ongoing to strengthen PFM procedures. - 2021 budget and fiscal outcomes: - Donor grants were a third lower than projected at the time of the 2021 Article IV consultation. - The deficit is projected to have reached 1.7 percent of GDP in 2021, about ½ percentage points lower than projected in the last Article IV consultation. - Under-execution of externally financed capital expenditure (over 2 percent of GDP) more than compensated for overruns in electricity subsidies. - The authorities temporarily froze public accounts immediately after the coup. ### Recent economic developments and key indicators - Growth and sectoral developments: - Growth in 2021 is expected to have reached 4.3 percent, reflecting resilient mining performance—particularly in formal and artisanal gold production. - Overall growth is expected to reach 4.7 percent in 2022, supported by an increase in bauxite and gold production. - Mining remained the main driver; non-mining sector recovery was fragile due to political uncertainty, domestic arrears, and reduced external support. - Artisanal gold exports reached 83 tons in 2021, more than 10 times their average exports during the decade prior to the pandemic. Staff’s underlying framework reflects understanding that about 40 percent of the artisanal gold exports was reportedly smuggled for reexport from neighboring countries. - Inflation and exchange rate: - Average inflation peaked at 12.6 in 2021. - Inflation declined slightly to 12.3 percent by July 2022. - The Guinean Franc (GNF) appreciated against the US dollar by 15 percent between February 2021 and August 2022. - Fixed domestic fuel price in the first half of 2022 supported inflation containment. - Food price inflation is expected to remain above 12 percent in 2023. - Monetary and reserve developments: - Reserve levels increased in 2021 to reach 2.7 months of prospective imports. - Absent IMF support the reserve coverage ratio was projected to decline to 2.3 in 2023. - Staff recommends pursuing a gradual accumulation of reserves to reach reserve coverage of at least 3 months of prospective imports. - Financial sector and credit: - Non-performing loan (NPL) ratio increased by 1 percentage point from 2019, reaching 11 percent in the second quarter of 2022. - Profitability in the first half of 2022 was down by about ¼ compared to pre-crisis values. - Private sector credit was 8.8 percent of GDP in December 2021. - Private sector credit growth averaged 13.6 percent in January-August 2022. - Mobile money services had almost 3.2 million active accounts in 2020. - External performance: - Export growth was strong in 2021, driven primarily by gold production and a spike in non-traditional exports. - Positive overall balance in 2021 took international reserves to 2.7 months of prospective imports. - The surge in international commodity prices had a net negative impact on Guinea in 2022 (Text Table 1), leading to a projected reduction in reserve coverage in 2022 and 2023 and the need for balance of payments support. ### Outlook and risks - Short-term outlook: - Mining growth is expected to continue supporting overall growth in 2023, supported by increased production capacity, ongoing investment in new mines, and high demand for bauxite from China. - The non-mining sector is projected to gradually recover as the food and fuel price shock subsides and the political situation normalizes. - Inflation is expected to gradually decline to single digits by 2024 from above 12 percent in 2022, conditional on a continued prudent monetary stance. - Medium-term outlook: - Staff expect growth to continue being supported by the mining sector, especially bauxite production. - The surge in artisanal gold production seen between 2020 and 2022 is expected to gradually stabilize. - The non-mining sector is expected to fully recover by 2024 with enhanced socio-political stability and a more benign international environment. - Reserve accumulation recommendation: - Given dependence on commodity exports (over 90 percent of total exports), staff recommends pursuing gradual accumulation of reserves to reach at least 3 months of prospective imports. ### Key quantitative projections and indicators (selected) - Real GDP Growth (Est./Projection): - 2021: 4.3 - 2022: 4.7 - 2023: 5.6 - 2024: 5.8 - 2025: 5.6 - 2026: 5.5 - 2027: 5.4 - Mining growth: - 2021: 6.6 - 2022: 11.8 - 2023: 11.1 - 2024: 9.3 - 2025: 6.3 - 2026: 5.1 - 2027: 6.3 - Non-mining growth: - 2021: 3.7 - 2022: 2.9 - 2023: 4.1 - 2024: 4.8 - 2025: 5.4 - 2026: 5.6 - 2027: 5.1 - Inflation, average: - 2021: 12.6 - 2022: 12.2 - 2023: 11.4 - 2024: 9.5 - 2025: 8.9 - 2026: 8.3 - 2027: 7.8 - Central government finances (Percent of GDP): - Total revenue and grants: - 2021: 13.6 - 2022: 13.1 - 2023: 13.0 - 2024: 13.9 - 2025: 14.7 - 2026: 15.0 - 2027: 15.3 - Expenditures and net lending: - 2021: 15.3 - 2022: 14.4 - 2023: 15.3 - 2024: 16.5 - 2025: 17.2 - 2026: 17.6 - 2027: 18.1 - Overall balance including grants: - 2021: -1.7 - 2022: -1.3 - 2023: -2.3 - 2024: -2.6 - 2025: -2.5 - 2026: -2.6 - 2027: -2.7 - Basic fiscal balance: - 2021: -0.7 - 2022: 0.1 - 2023: -0.1 - 2024: -0.2 - 2025: 0.3 - 2026: 0.4 - 2027: 0.3 - External sector (selected): - Current account balance (including official transfers), Percent of GDP: - 2021: -2.1 - 2022: -7.4 - 2023: -6.8 - 2024: -4.5 - 2025: -3.0 - 2026: -2.6 - 2027: -1.9 - Overall balance of payments (US$ billion): - 2021: 2.4 - 2022: -0.3 - 2023: 0.4 - 2024: 0.9 - 2025: 0.9 - 2026: 1.2 - 2027: 1.0 - Gross available reserves (months of imports): - 2021: 2.7 - 2022: 2.5 - 2023: 2.4 - 2024: 2.4 - 2025: 2.6 - 2026: 2.7 - 2027: 2.8 - Gross public debt, Percent of GDP: - 2021: 40.4 - 2022: 34.9 - 2023: 35.3 - 2024: 36.5 - 2025: 36.6 - 2026: 36.9 - 2027: 37.3 *Sources: Guinean authorities; and IMF staff calculations.* ### 16. Downside risks remain elevated amid heightened uncertainty, particularly on the ### 16. Downside risks remain elevated amid heightened uncertainty, particularly on the external front ### Downside and upside risk assessment - Downside risks: - Price and supply disruptions related to the Russian invasion of Ukraine and possible further Covid-related global supply chain shocks threaten a more prolonged inflationary period, higher fiscal and balance-of-payments’ financing needs, and more severe food insecurity in 2023. - Higher financing needs could induce a return to monetary financing, which would undermine price and exchange rate stability. - The price shock and global financial tightening could weaken demand for bauxite, reducing exports and revenues. - Upside risks: - Progress in developing the Simandou iron ore project could accelerate, resulting in faster growth, higher exports, and more revenues. - Upside risks could materialize should the authorities’ revenue reforms deliver faster than anticipated. *Authorities’ Views* - The authorities are more sanguine on the outlook. - National accounts for 2020 are expected to be finalized at end-2022. - Authorities indicated preliminary downward revisions for non-mining sector impact may be too pessimistic and project a more rapid recovery in the non-mining sector over 2021-23. - Authorities expect inflation to trend downwards to 10 percent in 2023 and single digits thereafter, citing expected continued GNF appreciation, lower demand amidst fiscal restraint, and a decline in global inflation. ### Fiscal policy: recent outcomes and 2023 plans - 2022 overall deficit: - Expected to be 1.3 percent of GDP, substantially lower than projected in the 2021 Article IV consultation and the authorities’ budget. - Drivers: good non-fuel revenue performance, containment of recurrent expenditure, and under-execution of the domestic capital expenditure program. - Non-mining revenue: - Underperforming relative to projections—reflecting impact of over 2 percent of GDP in foregone revenues from fuel and food subsidies—but better compliance, digitalization efforts, and large one-off royalty payments in the mining and telecom sectors expected to partially compensate. - Public service and recurrent expenditure: - Authorities reduced the size of the public service by consolidating ministries and agencies from 53 to 38 and cleaned up the payroll, reducing the projected ratio of 2022 recurrent expenditure to its lowest level in more than a decade relative to GDP. - Capital expenditure execution: - Domestic capital spending is expected to reach only 60 percent of the amount envisaged at the time of the 2022 initial budget law due to coup-related external financing disruptions and implementation capacity difficulties. - Financing and SDR use: - Lower financing needs, combined with the SDR allocation, helped avoid a recurrence of monetary financing and created space to repay a portion of the domestic arrears accumulated in 2021. - The BCRG converted Guinea’s SDR allocation into USD ($284.5 million) in January 2022 and sold both the asset and liability to government; resources used to repay advances, for capital projects, and to repay domestic arrears accumulated during 2021. - 2023 budget framework: - Prime Minister’s budget framework letter: 2023 budget will devote about ¼ of the spending to infrastructure investment, continue focusing on mobilizing domestic revenue, and prioritize agriculture, rural development, health, and education; will accommodate transition-related expenditure related to election preparations. - Letter suggests the deficit could be 4.5 percent, but after discussions staff understands it would be closer to 3½ percent. - Staff assessment of 2023 fiscal path: - Plan to ramp-up capital expenditure by raising domestic revenues moves in the right direction but should be anchored on available financing. - Staff believes acceleration in infrastructure investments likely to be more gradual given implementation capacity and projected availability of financing, resulting in an overall deficit closer to 2.3 percent of GDP. - Since increased expenditure would be devoted to infrastructure investments—with a high import content—its potential inflationary impact is not expected to be significant. - Staff emphasized avoiding central bank financing given elevated inflation, and ensuring recourse to commercial bank financing—already high by historical levels—does not crowd-out the private sector. - Maximizing the use of concessional financing would be essential. ### Containing the food and fuel price shock and protecting the vulnerable - Food Shock Window (FSW) request: - Will provide financing to cushion the price shock, finance response to food insecurity, and help contain domestic price pressures without compromising availability of domestic financing. - Resource allocation: about 30 percent for direct in-kind food distribution (managed by the WFP), about 40 percent for cash transfers, and the rest to help import fertilizers. - Staff advice: ensure transparency and effective coordination among entities involved; use FSW resources to strengthen the broader social protection system. - Fuel price subsidies: - Have cushioned the shock but imposed a significant, non-targeted drain on resources. - Foregone revenue estimated at about 2 percent of GDP. - Less than 2 percent of this subsidy will directly benefit the poorest 20 percent of the population (staff calculations based on Guinea’s 2018/2019 household survey). - Staff recommendation: prepare a plan to gradually remove fuel subsidies and transition to an automatic fuel pricing mechanism with smoothing, supported by IMF TA, combined with a communication campaign and building a more resilient social protection system. - Social protection and safety nets: - Targeted safety net programs would be more efficient to protect the vulnerable, but the social protection system needs strengthening. - Guinea lags peers in social protection spending; historically inefficient with negligible impacts on reducing poverty and inequality. - National Agency for Economic and Social Inclusion (ANIES) is working on scaling up interventions and building capacity with a Covid-related cash transfer program supported by the World Bank. - Recommended actions: build a sustainable framework for adaptive social protection by integrating it into the medium-term budget framework (cash transfers are currently entirely donor-financed), increase coordination between responsible ministries and agencies, and continue developing a comprehensive social registry to target transfers to vulnerable populations in urban and rural areas. *Authorities’ Views on food and fuel measures* - Authorities concurred on the urgent need to address food and fuel price shocks. - Acknowledged high cost of fuel subsidies but cautioned that fully removing them immediately would generate second-round effects detrimental to short-run growth and inflation. - Expressed interest in working with the Fund and called for international community support to deal with the food price shock. ### Mobilizing revenue and mining sector reforms - Revenue mobilization remains a key priority. - Despite a significant spike in bauxite volumes produced since 2015, mining revenues did not increase and have declined relative to production and value-added, leading to an overall decline in tax revenue-to-GDP. - Mining contracts often undermined Guinea’s Mining Code by providing generous tax privileges; addressing transfer pricing in bauxite contracts could provide substantial resources—previous analysis shows a modest reform could mobilize nearly 4 times the size of the agriculture budget. - Recent steps: - July 2022 decree to limit profit shifting arising from transfer mispricing in the bauxite industry. - Ongoing audits of major mining companies; these should be pursued and enforced in line with the 2013 Mining Code. - New mining contracts should adhere to Mining Code provisions; tax exemptions and exonerations limited to those provided under the Code. - Artisanal gold sector surge in 2021 and 2022 could provide additional revenue; June 2022 agreement with the Gold Miners’ Union includes an export tax of $200 per kilogram of raw gold. Box 2: Bauxite transfer pricing reform (key points) - Mining sector: 90 percent of Guinea’s exports and 21 percent of its GDP, but generated barely 2 percent of GDP in revenues in 2021, primarily due to profit shifting from bauxite mispricing. - July 2022 decree: set a reference price formula for domestic bauxite to determine the minimum price at which Guinea’s bauxite should be sold for fiscal reporting purposes; applies to companies selling to affiliates and to companies with customers in low-tax jurisdictions. - Price index considerations: physical characteristics and quality, market circumstances, and other transaction costs (such as shipping costs). - Administrative price acts as a safe harbor and is not compulsory; companies selling at a lower price must justify by presenting economic and legal case to the tax authority and undergo audits. - The reform aligns with the Mining Code and current contracts and is expected to allow mobilization of a share of resources—potentially close to 1 percent of GDP. ### Non-mining revenue and tax administration - New Tax Code: - Came into force in January 2022, prepared with IMF TA; expected to support revenue mobilization starting next fiscal year. - Improves progressivity by adding a new 20 percent tax bracket (previous highest being 15 percent) and closes loopholes. - Revenue administration improvements (September 2022 TADAT mission): - Establishment of a unique taxpayer identifier and digitalized tax declaration and payment. - Need to continue modernizing revenue administration following a strategic multi-year plan. - Key priorities to enhance revenue mobilization: - (i) expanding digital tax management to all taxpayers, - (ii) matching tax and customs databases, - (iii) applying a risk-based approach to detecting non-compliance. - A medium-term strategy to prioritize revenue administrative reforms is envisaged, with technical support from the IMF. ### Improving quality of expenditure: energy and human capital priorities - Energy sector issues: - Longstanding regressive electricity sector subsidies are absorbing an increasingly large share of the budget. - Completion of Souapiti hydropower dam in 2020 boosted generation capacity but transmission infrastructure remains incomplete; authorities continue importing expensive fuel products and pay for total agreed output of the dam. - Tariffs cover only half the cost of supply and distribution; household tariffs were between 1-3 USc/kWh in 2020, compared to an estimated average cost of supply of 19 USc/kWh. - Collection rates hover around 60 percent. - Policy recommendations: align tariffs to costs (with a subsidized rate/social tariff for low-usage customers to prevent negative impacts on poorest households), complete transmission infrastructure to utilize Souapiti, and improve EDG collection capacity through greater use of pre-paid metering. - These reforms would provide fiscal space to expand and strengthen the grid, which currently provides access to less than half of the population. - Human capital and infrastructure spending: - Best use of fiscal space from higher revenue mobilization and expenditure efficiency is to boost human capital and infrastructure investment. - Persistently high poverty partly explained by low human capital; priority recommendations: infrastructure investments (particularly rural), increased education expenditure, and social protection interventions. - IMF staff research shows the combination of investments would have highest impact on growth, poverty, and equity. - Gender disparities: - Investments should address key gender disparities; Guinea’s low human capital is exacerbated by disparities in access to services by gender, with lingering pandemic impacts expected to affect women disproportionately. - Female-headed households tend to be more affected by food insecurity. - Authorities should prioritize human capital expenditure that effectively targets women to close gender disparities. ### Public Financial Management (PFM) progress and priorities - Key reform areas: - Increasing investment efficiency to better address infrastructure needs and persistent under-execution. Progress: PIM Manual prepared with IMF TA but finalization delayed; calls for thorough review of institutional structure and responsibilities. Multi-year budgeting and commitment of investment projects need to be effective. A forthcoming PIMA and Climate-PIMA mission expected to support this work. - Identifying and clearing the stock of domestic arrears and preventing new accumulation. An audit of expenditure arrears from 2014-20 is ongoing with AFD support; completing audits and adopting a clearance plan are important first steps. Improvements needed in recording of expenditure arrears, cash management, and expenditure controls. - Medium-term fiscal framework: authorities’ 2023-25 medium-term fiscal framework followed a thorough and transparent participatory process and was discussed by the transitional parliament. - Treasury Single Account: authorities upgraded financial reporting and implemented the Treasury Single Account, expanding its coverage to 80 percent of autonomous public entities in Conakry. *International Monetary Fund staff summary based on the Guinea Article IV consultation text provided.* ### 32. Work is ongoing to improve debt management, following Guinea’s first long-term ### 1ginea2023001 - 32. Work is ongoing to improve debt management, following Guinea’s first long-term ### Debt management and public financial management (PFM) - Work is ongoing to improve debt management following Guinea’s first long-term auctions of 5- and 3-year bonds in April and August 2022, respectively. - Auction experience highlights: - Importance of preparing a clear issuance calendar and communicating the government’s intentions well. - Absence of such calendar might have limited commercial banks’ participation amidst uncertainty about future investment options. - Authorities are working with IMF TA to prepare an action plan to strengthen issuance planning and stakeholder coordination to ensure proper financing of the budget. - Additional efforts to develop a secondary market would be useful over the medium-term. - Strengthening PFM and developing debt management capacity can support designing and implementing a fiscal anchor tailored to Guinea’s medium-term development strategy. - Current near-term budgeting rule: overall deficit including grants not exceeding 3 percent of GDP (based on WAEMU convergence criteria). - Remaining at moderate risk of debt distress is a guiding principle. - Enhanced fiscal reporting, investment-efficiency reforms, and debt management improvements would facilitate adoption of a more customized fiscal anchor, potentially with IMF TA support. ### Medium-term outlook and debt sustainability - Revenue mobilization and fiscal balances: - Revenue mobilization efforts expected to increase tax revenue by about 2.8 percent of GDP over 2022–27. - Grants are expected to decline due to the shift toward long-term loans in Guinea’s IDA-20 allocation. - Infrastructure spending would increase, but more moderately than planned before the pandemic. - Overall balance expected to average 2.4 percent of GDP over 2023–27. - Basic fiscal surpluses averaging 0.2 percent of GDP over 2023–27. - Debt dynamics and risks: - Guinea remains at moderate risk of debt distress, with some space to absorb shocks but limited space for new borrowing. - Public and external debt ratios declined in 2021, reaching 40.4 percent of GDP, and 22.8 percent, respectively, after their 2020 Covid-related surge. - Decline reflected a temporary pause in key financing partner support after the coup, amid exchange rate appreciation; disbursements in 2022 have been subdued. - There has been a shift toward external loans with less concessional conditions; debt remains sensitive to significant risks. - Maintaining a realistic envelope for externally financed investment projects is critical to maintain the moderate risk of debt distress rating. - Maximizing recourse to concessional borrowing will be essential. ### Authorities’ fiscal views - Authorities generally agreed with main fiscal policy advice. - On revenues: - Highlighted importance of the new transfer pricing decree and expansion of digital tax collection. - Undertaking a survey of the artisanal gold sector. - On expenditures and reforms: - Emphasized efforts to streamline recurrent expenditure and maintain PFM reform momentum. - On gender: - Emphasized sound gender policies and laws that are not fully implemented; cited insufficient resources as a key constraint. - On financing: - Agreed on importance of seeking concessional financing to remain at moderate risk of debt distress. - Noted concessional financing is not available at the scale needed to finance large infrastructure needs. ### Monetary policy and financial sector (findings and recommendations) - Inflation and monetary stance: - Inflation remained contained at around 12 percent in 2022—similar to levels in 2021. - Positive factors: (i) appropriately tight monetary stance supported by decline in central bank net credit to the government; (ii) application of the FX intervention rule improving exchange rate flexibility; (iii) introduction of price controls for fuel and food shocks; (iv) the SDR allocation releasing financing pressures. - Central bank lowered reserve requirements from 16 to 15 percent in March 2022; commercial banks used liquidity to provide additional funding to the government. - Monetary Policy Committee decision in September 2022 kept reserve requirement and main reference rates unchanged at 15 and 11.5 percent, respectively. - Staff policy advice (monetary): - Monetary policy should remain tight to withstand delayed pass through and second-round price pressures from a 20 percent fuel price increase in June 2022 and global supply shocks. - Important actions: - Ensure no lending to the government beyond statutory limit; outstanding advances are remunerated and repaid in time. - Actively manage liquidity to maintain a broadly contractionary monetary stance, especially when fiscal stance becomes more expansionary. - Delay further reductions in commercial banks’ reserve requirement until risks from international price pressures subside. - Stick to the rule-based foreign intervention policy. - Time fuel subsidy reform to avoid exacerbating inflation. - CPI rebasing and statistics: - INS working to expand CPI beyond Conakry and update weights from 2002 to 2019 using WAEMU and AFRISTAT methodologies. - Staff advised gradual transition: start with new headline Conakry index and main sub-components, then transition to national index once enough data exists to calculate annual variations. - IMF stands ready to provide TA. - Transition toward inflation targeting: - Preconditions and recommended steps: - Sustained reduction in monetary financing of the fiscal deficit. - Transparent monetary decision-making. - Increased scope and availability of public data (e.g., infra-annual activity measures and interest rate information). - Increased exchange rate flexibility (possibly by increasing threshold for FX interventions). - Gradual reduction in reserve requirements to reduce intermediation costs and facilitate financial deepening. - Financial sector reform and supervision: - Implementation of 2019 FSSR recommendations is accelerating: emergency liquidity assistance framework, revision of banking law targeted for near-term, work on amending central bank statute, TA on IFRS and Basel II/III, supervisory stress testing TA. - Authorities should adopt a risk-based, sequential approach: - Priority: finalize banking law, enhance supervisory capacity, incentivize banks to better manage liquidity. - Establish legal and operational framework for dealing with weak banks (e.g., those with elevated NPLs). - Support prompt recovery from unviable and insolvent debtors via expedited court actions. - Put in place a financial safety net and contingency plans. - Address weaknesses from the 2021 safeguards assessment promptly. - Resolve legal dispute over proceeds from three tons of the central bank’s gold with Affinor. - Medium-term priorities: enhance financial inclusion, develop debt markets and secondary markets, address obstacles to increased private sector borrowing (e.g., collateral and credit registries). - Credit deepening and business environment: - Partial repayment of government arrears in 2022 freed room for banks to provide new credit. - New commercial court and SME loan guarantee fund should help legal certainty and longer-term credit intermediation. - Need operationalization of risk analysis tools and a credit registry; absence of secondary debt markets, legal uncertainties, and lack of collateral hinder credit expansion—especially to agriculture. - More work needed to make the credit information system fully operational to enable the Credit Information Bureau and better manage credit risk. - Banks’ capital ratios remain broadly robust, but a recent increase in NPLs (especially net of provisioning) calls for heightened supervisory attention to asset quality. - Authorities’ monetary and financial views: - Broad concurrence with advice; support for prudent monetary stance until inflation declines to single digits, then possible adjustment of rates to support commercial bank credit expansion. - Digitalization, investment in payment systems, and interoperability of banks seen as helpful for financial deepening. - TA seen as critical for resilience and policy effectiveness. - Developing the domestic debt market is a key priority. - Authorities would like to transition to the new CPI index as soon as possible, noting it generally shows lower inflation rates. ### Diversification, resilience, governance, AML/CFT - Diversification: - Pursuing economic diversification while addressing concentration risk (mining reliance) remains a key priority. - Staff analysis suggests exploring diversification in agriculture, services, and activities with more complex backward linkages to mining (Annex VIII). - Build sufficient reserve buffers to manage external sustainability risks from price or production swings. - Climate resilience and adaptation: - Ukraine crisis highlighted need to build resilience to external shocks, climate change could exacerbate risks (Annex IX). - Prioritize investments in climate adaptation leveraging natural endowments. - Fast-track Souapiti hydropower dam’s full connection to the grid to reap production benefits. - Expand agricultural production to lower import reliance and boost rural incomes; modernize land use planning and monitoring; link farmers to banking and insurance services. - Ensure mining sector emissions are gradually reduced, in line with Guinea’s 2021 Nationally Determined Contribution. - Simandou project (strategic priority): - Progress accelerated in 2022: framework agreement in March 2022 by Rio Tinto, WCS, and the Guinean government to codevelop Simandou. - Proposed developments: four mine sites, a 670-km multi-purpose and multi-user railway, and a new deep-water port at a reported cost of about $15 billion. - Government will get a free and non-dilutable 15 percent stake in the mines and infrastructure joint venture. - Authorities pushing for construction finalized in 2024 for production as early as 2025; industry analysts view 2027 as more realistic. - WCS progress over 2021-22 includes construction of buildings, rails, and roads; WCS committed to respect ESG standards. - Expected output and impact (not incorporated in baseline projections due to uncertainty): - Once operational, Simandou could produce over 100 million tons of iron ore annually, with a value of approximately $10 billion—more than half the country’s 2021 GDP—resulting in a doubling of exports. - IMF staff’s baseline macroeconomic projections only include a portion of FDI and growth related to construction of a railway and port; Simandou is treated as a medium-term upside risk. - Governance and anti-corruption: - Continued reforms needed to enhance anti-corruption system. - Creation of the Cour de Répression des Infractions Économiques et Financières (CRIEF) to prosecute embezzlement, corruption, and financial crimes; CRIEF prosecuting the former Prime Minister over allegedly embezzling more than US$40 million of pandemic response financing, and other former officials. - Recommendations: provide firmer legal basis for National Anti-Corruption Agency; increase number of specialized judges in the Commercial Court (only four for the entire country); strengthen judicial system via training and infrastructure. - Coup slowed IMF-supported reform efforts on the asset declaration regime, currently at a legal impasse. - AML/CFT: - Authorities preparing updated compendium of AML/CFT regulations and procedures manual for oversight bodies. - Recommended actions: continue harmonizing laws/regulations per AML/CFT national plan; issue implementing decrees for the 2021 AML/CFT law; boost resources and capacity for BCRG and the Financial Investigation Unit (CENTIF). - Guinea addressed significant weaknesses in the AML/CFT framework at the technical compliance level with IMF support, but further improvements required at the level of effectiveness ahead of GIABA mutual evaluation. - Safeguards and central bank governance: - Progress in implementing previous safeguards recommendations has been slow. - Key outstanding recommendations: timeliness of IFRS financial statements; strengthen independence of the Audit Committee; complete capacity building plans for accounting, risk management, and internal audit departments. - Filling vacancies in these departments and divestment from the National Investment Bank of Guinea are critical. - Staff will continue engagement with the BCRG to accelerate implementation of remaining recommendations. *International Monetary Fund staff summary based on content unit 1ginea2023001* ### 51. The authorities highlighted their ambitious structural reform agenda reflected in their ### 1ginea2023001 - 51. The authorities highlighted their ambitious structural reform agenda reflected in their ### Structural reforms and priorities - Authorities highlighted an ambitious structural reform agenda reflected in their PRI and PRE and pointed to several recent successes. - Key reforms and actions cited: - Strong stance in the Simandou project. - Recently approved local content legislation. - 2021 publication of their Nationally Determined Contribution to plan investments in climate adaptation and mitigation. - Focus on diversification efforts on forward linkages of the mining sector, particularly alumina refining. - Commitment that reforms to enhance anti-corruption and rule of law should be a key priority. ### IMF assistance modalities and Food Shock Window (FSW) request - The authorities requested assistance from the Food Shock Window under the RCF with: - access of 25 percent of quota (SDR 53.55 million). - Rationale for the request: - To address an urgent balance-of-payments need associated with a situation of acute food insecurity stemming from the global food and fuel price shocks. - The UN Global Report on Food Crisis identified Guinea as a country experiencing a food crisis, with over 1.2 million people in acute food insecurity (i.e. in “crisis or worse” situation). - Projected impact on import coverage ratio with FSW resources versus without IMF support: - With FSW: 2.5 months of imports in 2022 and 2.4 in 2023. - Absent IMF support: decline to 2.4 in 2022 and 2.3 in 2023. - These figures compared with the recommended 3-month coverage ratio. - Other considerations: - The balance-of-payments need cannot be addressed with a regular UCT program at this time, given its urgent nature and longer negotiation time. - Authorities are working with development partners to mobilize additional financing, including the AfDB and bilateral partners. ### Intended use of FSW resources and safeguards - Authorities intend to use the FSW as budget support to: - respond to needs while avoiding crowding out the private sector or turning to monetary financing. - contribute to mitigate inflationary pressures and support private sector credit growth. - A Memorandum of Understanding (MoU) between the Ministry of Economy and Finance and the central bank has been prepared to establish responsibilities for servicing financial obligations to the IMF and will be signed prior to the on-lending. - Transparency and management commitments: - US$20 million will be managed by the WFP and used for food distribution. - Authorities will create a subaccount within the Treasury Single Account for the spending. - Proper expenditure procedures and controls, including normal procurement processes, will be enforced and all related contracts published. - Authorities agree to publish comprehensive monthly, quarterly, and annual execution reports as funds are spent. - A complete audit on the use of the emergency resources will be carried out at the end of 2023. - Authorities agreed to implement recommendations made by the Court of Auditors to promptly address PFM vulnerabilities identified in the audit of the Covid-19 response plan and will prepare an action plan by June 30, 2023. - Authorities agreed to update their safeguards assessment after the FSW disbursement. ### Capacity to repay and debt assessment - Guinea’s capacity to repay the Fund is assessed as adequate and the risk of debt distress as moderate. - Projected totals and ratios: - Total outstanding credit based on existing and prospective drawings to the IMF is projected at about 167 percent of quota by end-2022. - Equivalent to 5 percent of exports. - Equivalent to about 27 percent of gross official reserves (Table 6). - Contributing factors to repayment capacity: - Prudent fiscal and monetary policies. - Guinea’s strong track record of meeting its obligations to the Fund. - Debt sustainability risks: - Assessed as moderate, with some space to absorb shocks. ### Data, capacity development (CD), and statistics - Data provision: - Broadly adequate for surveillance, but important gaps exist. - Priority areas for improvement: finalizing the transition to GFS 2014, rebasing of national accounts data, and strengthening debt and external sector data. - Guinea remains an intense user of IMF capacity development. - CD priorities include: - Strengthening domestic revenue mobilization, especially in the mining sector. - Increasing efficiency in public expenditure. - Reducing fiscal risks. - Strengthening the monetary policy framework and improving banking supervision. - Strengthening debt management. - Improving collection and dissemination of macroeconomic and financial statistics. ### Staff appraisal: shocks, policy measures, and recommendations - Recent context: - The Guinean economy affected by several severe shocks in the last two years: pandemic aftermath, spike in commodity prices triggered by the war in Ukraine, and socio-political uncertainty and civil unrest. - The mining sector remained resilient. - Authorities’ initiatives noted by staff: - Recurrent expenditure rationalization. - Fast-tracking revenue mobilization, including bold reform to bauxite transfer pricing. - Introduction of a new, rebased CPI. - Launch of the first medium-term domestic debt security issuance. - Emphasis that perseverance, transparency, and proper implementation of reforms are critical. - Fiscal and monetary policy observations: - 2022 budget management: lower financing needs and shift from central bank advances to commercial bank borrowing helped keep inflation in check. - Efforts to expand the share and maturity of domestic financing are welcome. - Need to continue improving cash management, coordination among stakeholders, developing debt markets, and limiting accumulation of domestic arrears. - Clearing audited domestic arrears should be part of a comprehensive debt strategy. - Energy subsidies: - Identified as a significant, regressive drag on the budget that need to be addressed. - Staff advised preparing a plan to gradually eliminate fuel subsidies and transition to an automatic pricing mechanism, with smoothing. - Electricity subsidy reform should resume. - Reduction in energy subsidies, combined with revenue mobilization, can create space for investment in infrastructure, human capital, and social protection without jeopardizing debt sustainability. - Monetary policy and CPI rebasing: - Monetary policy interventions have been appropriately tight. - Transition to the new rebased, updated CPI should be gradual; monetary policy should react to new information only gradually to preserve a tight stance. - Coordination between fiscal and monetary policy will be important as energy subsidies are removed to contain inflation. - Investment and debt considerations: - Ambitions to scale-up infrastructure investment must be matched with absorption and implementation capacity and debt sustainability considerations. - Enhancing public investment management (PIM) remains critical. - Encouragement to maximize recourse to concessional financing and continue prudent external borrowing policies. - Social protection and diversification: - Strengthening social protection remains a key priority given Guinea’s vulnerability and high poverty level. - Use of FSW resources should contribute to strengthening systems and processes as part of a broader social protection strategy. - Efforts to diversify the economy are necessary over the medium-term: consider exploiting potential in agriculture, the mining value chain, and services, while building human capital and infrastructure. ### Staff support and operational recommendation - Staff support the authorities’ request for the FSW and their plan to use resources to mitigate the impact of the shock on the most vulnerable. - Recommended urgent interventions: - Distribute food and scale-up cash transfers. - Mobilize fertilizers to support the agricultural sector. - Working with the WFP to facilitate prompt and efficient implementation of the package. *GUINEA — INTERNATIONAL MONETARY FUND (excerpt).* ### 67. Staff recommends that the next Article IV consultation with Guinea be held on the ### 67. Staff recommends that the next Article IV consultation with Guinea be held on the standard 12-month cycle. ### Recommendation - Staff recommendation: the next Article IV consultation with Guinea be held on the standard 12-month cycle. ### Key economic and financial indicators (selected) - GDP at constant prices: 5.6 4.9 4.3 4.7 5.6 5.8 5.6 5.5 5.4 - Mining (growth): 3.5 28.3 6.6 11.8 11.1 9.3 6.3 5.1 6.3 - Non-mining (growth): 6.0 0.3 3.7 2.9 4.1 4.8 5.4 5.6 5.1 - GDP deflator: 9.4 4.7 11.5 12.2 10.2 8.8 8.5 7.6 7.7 - GDP at market prices: 15.5 9.8 16.3 17.5 16.4 15.1 14.6 13.5 13.5 - Consumer prices (average): 9.5 10.6 12.6 12.2 11.4 9.5 8.9 8.3 7.8 - Net foreign assets (percent of M2, beginning of period): 10.5 8.6 6.5 5.9 3.6 4.6 5.3 7.0 6.5 - Broad money (M2) (annual change): 22.9 23.0 8.4 10.2 17.6 17.4 17.0 13.3 13.2 - Net claims on government (percent of M2): 4.0 19.3 -0.4 0.8 7.1 8.3 6.0 5.0 4.8 ### External sector and balance of payments (selected) - Current account balance (including official transfers, US$ millions): -2,085 -2,288 -340 -1,570 -1,612 -1,149 -828 -762 -612 - Current account balance (percent of GDP): -15.5 -16.1 -2.1 -7.4 -6.8 -4.5 -3.0 -2.6 -1.9 - Exports, f.o.b. (US$ millions): 3,945 8,931 10,239 9,765 10,042 10,444 11,066 11,811 12,665 - Mining products (US$ millions): 3,519 8,385 8,572 9,006 9,186 9,488 10,040 10,715 11,490 - Imports, f.o.b. (US$ millions): -4,799 -7,527 -8,029 -8,727 -8,804 -8,667 -8,425 -8,872 -9,430 - Services trade balance (US$ millions): -755 -2,521 -697 -820 -895 -940 -990 -1,044 -1,108 - Overall balance of payments (US$ millions): 258 -121 388 -729 722 726 234 732 1 - Net foreign assets of the central bank (US$ millions): 828 876 1,042 1,325 1,393 1,591 1,835 2,134 2,412 - Gross available reserves (US$ millions): 1,245 1,365 1,774 1,755 1,776 1,923 2,116 2,394 2,653 - Gross available reserves (months of imports): 2.1 2.5 2.7 2.5 2.4 2.4 2.6 2.7 2.8 ### Public finances (selected) - Total revenue and grants (percent of GDP): 14.7 13.9 13.6 13.1 13.0 13.9 14.7 15.0 15.3 - Revenue (percent of GDP): 14.0 12.8 13.0 12.6 12.8 13.7 14.6 14.9 15.3 - Non-mining revenue (percent of GDP): 12.1 11.1 10.8 10.5 10.5 11.4 12.1 12.3 12.5 - Grants (percent of GDP): 0.7 1.1 0.6 0.5 0.2 0.2 0.1 0.1 0.1 - Total expenditure and net lending (percent of GDP): 15.0 17.0 15.3 14.4 15.3 16.5 17.2 17.6 18.1 - Current expenditure (percent of GDP): 11.2 13.5 13.0 10.6 10.7 11.2 11.0 10.9 10.9 - Capital expenditure and net lending (percent of GDP): 3.7 3.5 2.3 3.7 4.5 5.2 6.1 6.6 7.1 - Interest payments (percent of GDP): 0.5 0.7 0.6 0.8 0.8 1.0 1.1 1.1 1.1 - Overall budget balance including grants (percent of GDP): -0.3 -3.1 -1.7 -1.3 -2.3 -2.6 -2.5 -2.6 -2.7 - Overall budget balance excluding grants (percent of GDP): -1.0 -4.3 -2.3 -1.8 -2.5 -2.7 -2.6 -2.7 -2.8 - Basic fiscal balance (percent of GDP): 0.6 -1.5 -0.7 0.1 -0.1 -0.2 0.3 0.4 0.3 - Total public debt, incl. IMF (percent of GDP): 38.2 47.1 40.4 34.9 35.3 36.5 36.6 36.9 37.3 - External public debt, incl. IMF (percent of GDP): 20.0 27.9 22.8 21.2 21.9 22.9 23.0 23.2 23.4 - Nominal GDP (GNF billions): 123,458 135,612 157,725 185,329 215,692 248,234 284,565 322,860 366,399 ### Fiscal operations (selected nominal projections, GNF billions) - Total revenue and grants: 18,166 18,860 21,457 24,229 27,963 34,508 41,723 48,378 56,158 - Revenue: 17,305 17,321 20,486 23,329 27,600 34,103 41,481 48,381 55,888 - Tax revenue: 15,868 16,587 19,011 20,316 25,124 31,067 37,585 43,454 50,415 - Total expenditures and net lending: 18,498 23,086 24,168 26,661 32,943 40,904 48,867 56,851 66,218 - Current expenditures: 13,830 18,309 20,467 19,731 23,066 27,819 31,429 35,330 39,919 - Capital expenditure: 4,545 4,703 3,594 6,810 9,745 12,941 17,282 21,351 26,117 - Overall balance including grants (GNF billions): -332 -4,226 -2,711 -2,431 -4,980 -6,396 -7,144 -8,473 -10,060 - Financing (GNF billions): 777 4,262 2,901 2,431 4,379 6,396 7,144 8,473 10,060 - Domestic financing (GNF billions): -1,372 -5,410 1,141 -1,465 -1,084 127 2,408 2,400 3,311 - External financing (net, GNF billions): 2,148 9,672 1,760 3,896 5,462 6,269 4,736 6,073 6,749 ### Money and financial sector (selected) - Broad money (M2, GNF billions): 30,416 37,421 40,582 44,711 52,562 61,727 72,205 82,334 95,344 - Reserve money (GNF billions): 13,805 16,455 17,457 18,007 20,120 21,557 25,647 29,137 33,179 - Net foreign assets (GNF billions): 9,563 12,179 14,620 17,026 18,615 21,031 24,280 29,336 34,651 - Claims on private sector (GNF billions): 12,044 13,009 13,887 15,541 17,344 20,753 25,552 32,154 41,639 - Money multiplier (M2/reserve money): 2.2 2.3 2.3 2.5 2.6 2.9 2.8 2.8 2.9 - Velocity (GDP/average M2): 4.5 4.0 4.0 4.3 4.4 4.3 4.2 4.2 4.1 ### Financial soundness and banking sector (selected) - Regulatory capital to risk-weighted assets (Q1–Q2 2022 examples): 16.48 (Q2 2022) - Nonperforming loans to total gross loans (Q2 2022): 10.89 - Return on assets (Q2 2022): 3.06 - Liquid assets to total assets (Q2 2022): 55.03 - Net open position in foreign exchange to capital (Q2 2022): 117.41 ### Indicators of capacity to repay the IMF (SDR millions; selected) - Total obligations based on existing and prospective credit — Credit outstanding: 324.97 356.64 322.30 284.73 246.68 195.65 150.13 97.35 51.45 21.42 10.71 0.00 - Total obligations (percent of quota): 151.71 166.50 150.46 132.93 115.16 91.34 70.09 45.45 24.02 10.00 5.00 0.00 - Total payments to the IMF (annual, SDR millions): 36.68 22.28 34.89 38.10 38.60 51.57 46.06 42.62 35.73 19.86 0.54 0.54 - Percent of exports of goods and services (IMF payments): 0.5 0.3 0.4 0.4 0.4 0.6 0.5 0.4 0.3 0.1 0.00 0.00 - Gross available reserves (months of imports, projections): 2.8 2.6 2.5 2.5 2.6 2.8 2.9 3.0 3.1 3.1 3.1 *Sources: Guinean authorities; and Fund staff estimates and projections.* ### Annex I. Implementation of 2021 Article IV Recommendations ### Annex I. Implementation of 2021 Article IV Recommendations ### Fiscal policy - A decree establishing a reference price for bauxite was recently signed and is expected to help mobilize significant mining revenue. - Work continues to expand the reach of cash transfers to support vulnerable households. - Non-priority spending is contained. - Public investment management remains a challenge, resulting in continued low execution of public investment. - Authorities remain committed to maintaining the rating of moderate risk of debt distress; however, a push for a more ambitious public investment plan could present challenges to debt sustainability if new non-concessional loans are contracted. ### Monetary policy - The authorities continue to implement the rule-based FX intervention policy. - Pandemic-related relaxation of prudential measures has been normalized. - The BCRG avoided further monetary financing in 2022. ### Financial sector - The 2020-23 National Strategy for Financial Inclusion (NSFI) was adopted in July 2021 with the support of the World Bank. - Authorities finalized Basel framework-compliant new capital adequacy ratio legislations with Fund technical assistance to help strengthen the financial sector stability framework. - Continued growth in mobile money services has improved access to finance. ### Structural reforms and business environment - Authorities continue efforts to improve Guinea’s business climate through digitalization to support the private sector and measures to ease commercial and financial legal issues. - A digital portal for foreign trade and a one-stop shop for online business registration are fully operational. - The 2022 General Tax and Tax Procedure Codes were adopted, representing a significant achievement toward improving the business environment. - The one-stop shop for land registration (created in 2015-16) continues to face operationalization challenges owing to onerous digitalization pre-requisites. - A one-stop shop for building construction permits has been made operational. - Reliable supply of electricity remains a challenge; authorities are investing in electricity generation and distribution. - A vocational school was recently connected to the electrical grid due to the opening of an electricity substation in the city of Boke, allowing the city and its surroundings to have 24-hour access to electricity produced by the Kaleta-Souapiti hydroelectric complex. This is part of authorities’ plans to electrify many unelectrified vocational schools. ### Governance - Progress has been made on governance, but challenges remain. - Authorities fully implemented their 2020 RCF commitments. - The military junta created a court to pursue economic and financial crimes, which may contribute to reducing the perception of impunity. - Governance remains fragile; regime change has hampered reform efforts on asset declaration. - A new AML/CFT law was adopted in 2021 but the implementing decrees have not yet been issued. *Source: Annex I. Implementation of 2021 Article IV Recommendations (Guinea).* ### Annex IV. Artisanal Gold Mining and Regional Trends ### Annex IV. Artisanal Gold Mining and Regional Trends ### Overview and importance of ASM in Guinea - Artisanal or small-scale mining (ASM) is subsistence mining undertaken by individuals or groups not officially employed by a mining company, exploiting minerals using manual and traditional methods and process. - ASM tends to be ineffectively monitored and less regulated than industrial mining. - Gold (both ASM and industrial) comprises more than half of Guinea’s total export revenue and was worth more than 25 percent of GDP in 2021. - Authorities estimated more than 220,000 people worked in the artisanal gold sector in 2017 and 12 percent of the population rely on ASM for income. - ASM production comprised nearly 71 percent of total gold production in Guinea in 2021—the highest among African countries that report ASM production statistics. ### Drivers and pandemic-related dynamics - ASM increased markedly with the onset of the Covid-19 pandemic as gold prices rose (double-digit percentage increases in the LBMA gold price in both 2019 and 2020), helping vulnerable households generate income amid supply-side bottlenecks and lockdowns. - Guinea’s artisanal gold exports surged five-fold year-over-year in 2020; in 2021 they remained nearly 4 times their 2013-19 average, driven by an increase in ASM exports. - Pandemic-related border closures in 2020 may have contributed to a surge in ASM gold exports due to increased smuggling into Guinea from neighboring countries. - Guinea maintained a direct flight to Dubai in 2020—Dubai being the predominant trading hub for West Africa’s gold supply chain—which coincided with Guinea’s gold exports to the UAE increasing by 132 percent year-over-year in 2020 while most regional peers recorded double-digit declines. - UAE’s gold imports from Guinea and Niger in 2020 exceeded their total reported gold production, implying smuggling or significant underreporting of production. ### Regional tax, production, and security trends - Persistence of elevated ASM exports in 2021 (Guinea exported 83 metric tonnes of artisanal gold in 2021) suggests the ASM “gold rush” may endure beyond pandemic closures. - Increased mechanization of ASM (e.g., wider use of metal detectors) may help explain persistence in production. - Ghana’s gold exports declined by 12 percent in 2020 and an estimated 24 percent in 2021, with the share of ASM in Ghana’s total gold production falling by an estimated 25 percentage points over the same period. - Ghana introduced a 3 percent export tax on small-scale gold producers in 2020 and replaced it with a 1.5 percent tax on unprocessed gold in 2022 due to concerns about smuggling. - Guinea removed its 3 percent export tax on artisanal gold in 2016 to formalize the sector and mobilize foreign exchange; removal may have contributed to Guinea becoming a destination for smuggled gold. - While ad valorem royalties on industrial gold have seen some harmonization across West Africa, export taxes and taxes applied to small-scale producers vary across countries. - In the Sahel, the booming ASM gold sector is attracting the attention of armed groups, providing a new source of funding and potential recruits—underscoring the importance of regional cooperation on ASM gold issues. ### Policy responses, data improvements, and revenue implications - Guinea’s National Statistics Office is implementing a survey on the ASM gold sector to improve understanding of the sector and inform formalization and support measures for small-scale miners. - In June 2022, authorities agreed with the Gold Miners’ Union to tax artisanal gold exports at a rate of $200 per kilogram of raw gold. - IMF staff assess revenues from the $200/kg measure—up to about $17 million in 2022—to be far too low to meaningfully provide needed services for the sector. - IMF staff estimate that a 1 percent increase on the tax rate of artisanal gold could raise as much as $44 million (¼ percent of GDP) in additional revenue in 2022, without accounting for smuggling. ### Key statistics and exact figures from the annex - ASM comprised nearly 71 percent of total gold production in Guinea in 2021. - Authorities estimated more than 220,000 people worked in the artisanal gold sector in 2017. - 12 percent of the population rely on ASM for income. - Guinea’s artisanal gold exports surged five-fold year-over-year in 2020. - In 2021, artisanal gold exports remained nearly 4 times their 2013-19 average. - Guinea exported 83 metric tonnes of artisanal gold in 2021. - Guinea’s gold exports to the UAE increased by 132 percent year-over-year in 2020. - Agreement to tax artisanal gold at $200 per kilogram of raw gold (June 2022). - Estimated revenue from $200/kg tax: up to about $17 million in 2022. - IMF staff estimate a 1 percent increase on the tax rate could raise as much as $44 million (¼ percent of GDP) in additional revenue in 2022. *Prepared by Rachel Lyngaas and Alexander Massara (AFR); Annex IV text as provided in the source PDF.* ### 2. Guinea’s persistently high poverty can be partly explained by the cycle of low human ### 2. Guinea’s persistently high poverty can be partly explained by the cycle of low human capital, with limited fiscal support – which engenders poverty that in turn hinders faster human capital accumulation. ### Human capital, health, and education: drivers of persistent poverty - Nearly 60 percent of the households in which the head has no education are poor (Guinea’s 2018/2019 Household Survey). - The share of the poor is substantially lower among household heads with higher levels of education. - Guinea ranks among the 12 countries with the lowest human capital in the world and ranks seventh lowest when it comes to outcomes for women (World Bank Human Capital Index). - Child mortality: one in 10 children will die before age five; this reflects the fifth lowest child survival rate worldwide and has shown no improvement since 2010. - Guinea lags Sub-Saharan Africa (SSA) and Low-Income Developing Countries (LIDCs) in education and health expenditure and efficiency outcomes. ### Rural poverty and agriculture - 93 percent of Guinea’s rural poor work in agriculture (crop and livestock production). - Binding constraints for rural poor: low skills and limited road infrastructure that impede productivity and market access. ### Mining sector revenue potential and current shortfalls - Mining constitutes nearly 90 percent of Guinea’s total exports and 21 percent of its GDP as of end-2021. - Guinea’s bauxite reserves are estimated at 7.4 billion tons (world’s largest bauxite reserves); Simandou iron ore mine remains unexploited (the world’s largest of its kind). - Estimated tax gap in mining revenues: 7.3 percent of GDP over 2000-2019. - Authorities introduced a transfer pricing rule that came into effect in September (positive step), but effective and transparent implementation is critical. ### Policy simulations: mobilizing additional mining revenue and use options - Modeling framework: - A macro model generates a Laffer curve to estimate revenue impacts of additional taxation on mining. - A calibrated dynamic general equilibrium model (Guinea Multisector Incomplete Markets Macro Inequality App) simulates policy reform scenarios over 30 years; features incomplete markets, heterogeneous agents, multiple sectors, calibrated to match Guinea’s labor markets, urban-rural inequality, household inequality, external sector, and extractive industry responses. - Five policy scenarios (assumed carried out for 30 years): 1) close the tax gap on mining by raising its effective rate from 14.4 to 34.4 percent; 2) in addition to policy (1), increase investment in education to 0.5 percent of GDP annually; 3) in addition to policy (1), increase investment in infrastructure by an additional 1 percent of GDP annually compared to the baseline; 4) combine policies (2) and (3); 5) in addition to policy (4), transfer any additional mining revenues in equal lump sums to all households. - Revenue raising potential: - Increasing the baseline combined effective tax rate on mining by 20 percentage points can achieve additional revenues equivalent to 2.6 percentage points of GDP. - Growth impacts (over 30 years): - Investments in education on their own increase output by the equivalent of 0.41 percent of GDP. - Investments in infrastructure on their own increase output by the equivalent of 0.71 percent of GDP. - Combining education and infrastructure increases GDP growth by 1.18 percentage points (more than the sum of individual impacts). - Adding cash transfers to the education-infrastructure package further increases economic return on education in rural areas by increasing food demand, formalization, and agricultural productivity. - Poverty and inequality impacts (long-term): - The three-way combination (education + infrastructure + transfers) can reduce the poverty rate by 17.9 percentage points. - Investments in infrastructure alone may not substantially reduce poverty or inequality; they are most effective when combined with investments that build human capital. - Principal conclusions from simulations: - Additional mining revenues, if properly invested in a combined package including infrastructure, education, and transfers, produce the most beneficial long-term impacts on growth, poverty, and inequality. - Education and infrastructure investments are complementary: their combined impact exceeds their separate sums. - Policymakers should prioritize combining infrastructure investments with social investments that build human capital to maximize long-term gains. ### Annex VII — Inflation and Monetary Policy: trends and implications - Inflation context: - Inflation in Guinea averaged more than 12 percent in the last two decades. - Inflation reduced to close to single digits in 2012-19 but remained among the top 10 percentile of SSA countries. - Food inflation dominates overall CPI inflation, while food accounts for about 40 percent of the CPI basket (compared to 45-50 percent in similar-income countries). - Inflation persistence: - Based on monthly inflation regressions controlling for exchange rate variation, Guinea’s AR(1) coefficient estimate is about 0.8 over 2005-21 (half-life of shocks slightly above 3 months), compared with the SSA average AR(1) of 0.2. - Monetary regime and monetary financing: - Guinea operated under a base money targeting regime with a (crawl-like) managed exchange rate and a monetary financing bias over the last two decades. - Central bank funding of the general government amounts to 40 percent of total credit. - Private sector credit to GDP ratio below 10 percent (shallow credit market). - Average broad money growth: 17 percent; average base money growth: 13 percent. - Central bank net credit to the government (NCG) accounted for about ¾ of base money growth, consistent with monetary financing. - Role of monetary policy: - Tight monetary policy has recently contributed to an appreciation of the exchange rate (Guinean franc among best performing currencies in early 2022). - In the short term, resisting pressures to finance the budget remains important as global price pressures persist. - Over the medium term, further reform progress toward an inflation targeting regime is recommended, as such regimes have performed better on inflation in SSA. - VAR analysis and shock decomposition: - A VAR (quarterly 2004Q1-21Q4) includes base money (BM), broad money (M2), nominal effective exchange rate (NEER), petrol price at the pump (P@P), CPI inflation, and output growth; exogenous variables include Baltic Dry index and global non-fuel commodity price index. - Decomposition findings: - Monetary policy accounts for about 20 percent of the variation in inflation on average, with its contribution rising at certain times. - Adjustments to petrol price at the pump have a similarly important effect on inflation over time. - International commodity price shocks are dominant on impact but decline in importance over the medium term. - Independent FX shocks play a minor role in this specification. - Historical decomposition indicates that since 2019Q4, increases in global commodity prices and transport costs put upward pressure on inflation (averaging some additional 8 percentage point above normal), while contractionary monetary policy helped contain inflation, keeping the rate five percent lower compared to a counterfactual with average monetary policy. ### Annex VIII — Export diversification and complexity - Export concentration and complexity: - Guinea’s export basket is highly concentrated in gold and bauxite. - Guinea ranks low in the IMF diversification index and positioned 131 out of 133 in the 2020 Economic Complexity Index (ECI). - Exports are limited in number and low in product complexity; recent export growth mainly came from dominant, non-complex exports. - Exports are concentrated in a few partners. - Economic risks and benefits of diversification: - High export concentration and low complexity entail high macroeconomic risks (vulnerability to price fluctuations and commodity depletion). - Diversification and higher complexity are associated with: (i) high growth; (ii) reduced macro instability; and (iii) high income. - Complexity/product-space approach to diversification: - The product space identifies “nearby” products with greater interconnections and higher complexity that a country could feasibly diversify into. - Guinea’s current exports lie in less dense regions of the product space with few interconnections, indicating limited nearby diversification opportunities. *International Monetary Fund.* ### 4. Given limited nearby opportunities to diversify, Guinea may need some coordinated ### 4. Given limited nearby opportunities to diversify, Guinea may need some coordinated ### Strategic diversification opportunities and approach - Balance considerations of "distance" (proximity to current exports), "complexity" (Product Complexity Index), and "opportunity" (bringing Guinea closer to more and complex products). - Potential opportunities identified include several agricultural products, chemical and machinery industries. - Products are considered feasible because countries that export items similar to Guinea’s current exports also export these products, signaling shared capabilities. ### Mining linkages and prioritized products - The approach highlights opportunities in backward and forward linkages of the mining sector. - Authorities are pursuing a coordinated jump into alumina and aluminum as part of a medium-term development strategy. - Additional products with mining linkages that could contribute more to complexity (PCI Rank out of 1-1046): - Other moving, excavating machinery — 792 - Other floating structures — 845 - Prepared explosives — 995 - Unwrought aluminum — 1040 - Services and logistics are also noted as prospective opportunities. ### Existing exports, services, and logistics potential - Exports excluding stones and minerals were $313 million and were below their level in 1995; they accounted for just about 5 percent of total classified exports in 2020. - These exports include relatively complex items in chemical (e.g., acyclic alcohols, acids) and machinery industries (e.g., machinery for working minerals, self-propelled bulldozers). - Guinea’s mining infrastructure and geographical position could position it as a potential services exporter (e.g., a logistics hub in the subregion). ### Public-private dialogue - Public-private dialogue is essential to understand sector potential and policy needs, including employment creation, energy consumption, and competitiveness considerations. - Authorities should engage the private sector to identify sectors with the greatest potential and associated policy requirements. - The annex references successful country examples of dialogue, e.g., Peru’s “mesas ejecutivas” (Ghezzi, 2019). *Source: The Growth Lab at Harvard University. The Atlas of Economic Complexity.* ### Annex IX — Agriculture, food security, and climate: Context and challenges - Food represents about 40 percent of the consumer price index basket and about 60 percent of consumption expenditures of households in the four lowest wealth quintiles. - Acute food insecurity estimates and recent developments: - Proportion of acutely food-insecure population expected to be above 11 percent (1.2 million people) by the end of 2022, against 3.76 percent in 2021. - Number of people with insufficient food consumption rose to 8.1 million in November, or 65.3 percent of the population. - Fertilizer and input constraints: - Fertilizer prices increased by 300 percent in the 2022 planting campaign; only 14 percent of the need was covered. - Government imported 50,000 tons of fertilizer using non-concessional financing, covering only a portion of the need. - Structural agriculture constraints: - Irrigation covers 8 percent of arable land. - Subsistence agriculture accounts for 90 percent of production. - Guinea imports twice as much food as it exports. - Only 11.4 percent of bank credit was granted to the agricultural sector over 2016-2020. - Less than two-thirds of the population has access to clean water; less than one-third has access to basic sanitation services. - Climate vulnerability and fiscal implications: - A low-income country like Guinea will need to spend an estimated 4.5 percent of GDP annually by 2030 to meet readiness goals. - Authorities’ updated Nationally Determined Contribution (NDC) aims to reduce Guinea’s carbon footprint by 10 percent by 2030. - Authorities estimate the NDC plan would cost at least $14 billion (more than 70 percent of 2021 GDP) to implement over the medium-term. ### Policy recommendations to bolster food security and climate resilience - Short-term and medium-term measures: - Expand existing social safety nets to mitigate shocks: temporary relief via cash and in-kind transfers; broaden and deepen social programs over time. - Prepare and adopt food and nutrition policies; prioritize reform of land use policies to clarify property rights, develop an inventory of rural land parcels (including protected forests and mangroves), and monitor land transactions. - Consider targeted investments in agricultural technology and food-related infrastructure, including: - Adoption of new technologies (climate smart, gender sensitive, nutrition). - Construction of food production and distribution infrastructure (water infrastructure, rural roads, storage capacity). - Capacity building for producers, extension services, and platforms for dialogue between agriculture and finance sectors. - Continued investment in digitalization to increase access to financial services in rural areas. - Government planning and budgeting should prioritize support to the most vulnerable and crisis-affected groups and strengthen early warning systems. ### IMF support and instruments - The IMF’s Food Shock Window will provide access to emergency financing to help address acute food insecurity. - IMF will conduct technical assistance on the new C-PIMA next year, using a modified Public Investment Management Assessment framework to identify improvements for low-carbon and climate-resilient infrastructure. - The Resilience and Sustainability Trust (RST) provides additional long-term financing for climate-related reforms provided an existing IMF-supported program is in place. *Source: IMF staff analysis and referenced IMF tools and instruments.* ### Annex X — Capacity building: priorities and objectives - Overall context: - Regime change did not significantly impact capacity development priorities and implementation; TA provision saw slight mission delays but overall implementation and priorities remained broadly unchanged. - IMF TA aligns with authorities’ objectives under the transitional government’s draft Interim Reference Program (Program de Reference Intérimaire – PRI). - CD focus areas and objectives (selected highlights): - Domestic Revenue Mobilization: - Widen tax base; reduce fiscal expenditure and improve Tax Department management and governance; finalize digitalization of domestic revenue collection; streamline tax exemptions including in the mining sector; support transfer pricing issues; improve taxation of the mining sector. - Strengthen core functions of customs administration; prepare a medium-term revenue administration plan, following up on the TADAT. - Public Financial Management and Public Investment Management: - Strengthen PFM and PIM practices including climate change aspects; enhance Ministry of Finance capacity for PFM reforms; improve accounting information system (SCIE); introduce multiyear commitment authorizations for investment expenditures; strengthen budget execution and controls; improve fiscal reporting quality and coverage; expand Treasury Single Account coverage; improve central government cash flow forecasts; strengthen capacity to manage fiscal risks from public autonomous entities. - Debt Management: - Improve functioning of government debt market; strengthen debt management capacity and medium-term debt management strategy; improve institutional framework; strengthen understanding of the IMF/WB debt sustainability framework. - Monetary Policy and Central Bank Operations: - Strengthen independence of the central bank; improve BCRG liquidity management and forecasting; support modernization of monetary policy framework. - Establish ELA framework agreement and operational framework, including institutional framework, eligibility criteria, collateral valuation, financing plan, financing conditions and deadlines, and a possible government guarantee model. - Banking supervision, financial regulation, and financial stability: - Complete implementation of Basel II and III standards; modernize Banking Law to incorporate financial safety nets and banking resolution framework; publish regulatory provisions; implement risk-based supervision (RBS) and strengthen macroprudential supervision. - Real Sector and External Statistics: - Strengthen national accounts and price statistics; develop High-Frequency Indicators; develop quarterly GDP estimates (short-to-medium term); improve consistency between IIP, CDIS and external debt statistics; improve source data on gold exports with a survey on gold panning; finalize rebasing; expand inflation coverage beyond Conakry. - Government Finance Statistics and Macro-fiscal analysis: - Finalize migration to GFSM 2014; extend GFS coverage to general government subsectors; improve compilation and dissemination of PSDS; enhance ability of MB and MEF staff to record expenditure arrears. - Enhance revenue and expenditure forecasting tools; strengthen macro-fiscal framework linkages; introduce fiscal risks analysis. *Source: IMF staff assessment of capacity development priorities and alignment with the authorities’ PRI.* ### Appendix I. Letter of Intent ### Appendix I. Letter of Intent ### Context, shocks, and needs - Russia’s war in Ukraine and the Covid-19 pandemic aggravated food insecurity and supply-chain disruptions in Guinea. - Nearly 44 percent of the population live below the poverty line; 20 percent are exposed to food insecurity. - The proportion of the population facing acute food insecurity is expected to reach around 11 percent (1.2 million people) by the end of 2022. - Local fertilizer prices increased by 300 percent compared to 2021; fertilizer use fell by 57 percent in 2022 compared to 2021, indicating a potentially below-average harvest and heightened food insecurity risks in early 2023. - Balance of payments effects: - Forecast balance of payments deficit of US$72 million in 2022. - Projected decline in import coverage rate to just 2.3 months of imports (policy aim: at least 3 months). ### Request and rationale for IMF support - Request: emergency financial support under the Food Shock Window (FSW) of the Rapid Credit Facility (RCF) in the amount of SDR 53.55 million (25 percent of our quota or US$69 million), in the form of budget support. - Purpose: address balance-of-payments need and finance a response plan to food insecurity; IMF assistance expected to catalyze additional donor support. ### Planned use of FSW resources (response plan) - Overall planned uses: - Emergency relief and food distributions. - Fertilizer purchases. - Cash transfers to vulnerable communities. - Specific allocations: - Approximately US$20 million to the World Food Program (WFP) for in-kind food assistance targeting an estimated 1.2 million people (11 percent of the most vulnerable), across all prefectures and the 5 communes of Conakry, aligned with the Harmonized Framework 2022 of the WFP. - WFP activities include school feeding, nutrition, resilience, UN Humanitarian Air Service, and real-time food security monitoring. - US$20 million to purchase and distribute additional fertilizers and agricultural products (in collaboration with Guinea’s Agricultural Development Fund (FODA) and identified by the WFP). - US$25 million in cash transfers to vulnerable communities, to be delivered by the National Agency for Economic and Financial Inclusion (ANIES) using the unified social registry (expansion by the Social Development and Indulgence Fund (FDSI)). - Remaining US$4 million to the FDSI for financial coverage and social and health care for indigent people and vulnerable groups. - Implementation coordination: ensure cooperation among all parties delivering the response plan; leverage World Bank-funded investments in ANIES institutional capacity. ### Complementary financing and policy measures - Secured and sought financing: - US$55 million loan from the Arab Bank for Economic Development in Africa (BADEA) to finance fertilizer imports—this will cover about 37 percent of the estimated consumption of fertilizer needs for 13 million hectares. - Draft loan agreement of 17 million SDRs (about US$22 million) with the African Development Bank to finance seeds and phytosanitary products. - Trade and market measures: - Removal of tariffs on staple foods (including rice, vegetable oil, sugar, and wheat flour). - Measures to increase private sector participation in agricultural production and expand cultivable land. - Fiscal and monetary stance: - Commitment not to introduce new policies that would further aggravate balance of payments difficulties. - Continue to allow exchange rate flexibility, respect rules-based intervention policy, and keep central bank financing of the budget within statutory limits to contain inflation. - Recent measures (petroleum subsidies and delayed electricity tariff reform) led to a 2 percent of GDP decline in internal resources and constrained budget capacity for fertilizer imports. - Petroleum product subsidies estimated at nearly 2 percent of GDP. - Macroeconomic outlook: - Economic growth expected to stand at 5.2 percent in 2023, driven by mining sector performance. - Non-mining sector progress affected by external shocks; agricultural productivity efforts threatened; recovery expected to be gradual. ### Transparency, governance, and fiduciary safeguards - Commitments on transparency and governance for FSW resources: - Implement Court of Auditors (CC) recommendations to improve PFM vulnerabilities identified in the Covid-19 response audit; prepare an action plan by June 30, 2023, with an evaluation at the end of December 2023. - Sign an agreement with the BCRG for a “Food Shock Fund” account within the Treasury Single Account (TSA) to define accounting rules, procedures, and control measures. - Publish comprehensive budget execution reports for expenditures under the “Food Shock Fund”: - Monthly reports no later than 30 days after the end of each month, plus quarterly and annual reports. - Conduct a full audit by the CC at the end of fiscal year 2023 and publish results, using the GFSM 2014 budget nomenclature. - Deposit resources in the TSA and disburse expenditures from the TSA; ensure proper budgeting of targeted programs with specific tagging for visibility and transparency. - Enforce proper expenditure execution procedures and controls (e.g., food distribution verification by a committee of civil society organizations and local community representatives). - Use normal procurement processes and publish all related contracts monthly, including beneficial owner information of winning companies. - Institutional arrangements: - Memorandum of understanding (MoU) between the Ministry of Economy and Finance and the central bank (BCRG) clarifying responsibilities; FSW disbursement will go to the TSA with subsequent sub-accounting; upon receipt of funds, immediate transfer of US$20 million to WFP. - Undertake an updated safeguards assessment before approval of any new IMF disbursement; commit to address remaining recommendations of the 2021 safeguards assessment promptly. - BCRG to expedite implementation of overdue safeguard recommendations, prioritize finalization of 2021 IFRS financial statements, strengthen Audit Committee independence, complete capacity building plans for accounting, risk management and internal audit departments, and fill current vacancies. - Divestment from the National Investment Bank of Guinea identified as critical. - Authorization for IMF staff to discuss with central bank external auditors and access external audit reports. - Publication: - Government authorizes IMF to publish this letter and the staff report for the FSW disbursement request. ### Fiscal strategy and medium-term commitments - Fiscal policy aims: - Strengthen protection for the most vulnerable while not intensifying inflationary pressures, and support the private sector. - Maintain a budget deficit broadly at reasonable levels while allowing an appropriate and temporary response to the food insecurity emergency. - As the crisis subsides, reorient fiscal policy to preserve debt sustainability and target a sustainable and realistic deficit path, including drawing up a plan to eliminate costly fuel subsidies while reinforcing social protection. - Engagement with IMF: - Continue close engagement with the IMF, including advice and TA work, and consider a future formal arrangement to address longer-term structural challenges. ### Debt sustainability highlights (from attached staff report excerpt) - Risk ratings: - Risk of external debt distress: Moderate. - Overall risk of debt distress: Moderate. - Granularity in the risk rating: Some space to absorb shocks. - Application of judgment: No. - Key indicators and observations: - Composite Indicator (CI) for Guinea is 2.47 (October 2022 WEO vintage and CPIA 2021 index), classifying Guinea as at weak debt-carrying capacity. - Public debt declined to 40.4 percent of GDP at end-2021. - External debt declined to 22.8 percent of GDP at end-2021. - Total debt service-to-revenue ratio remains high, underscoring rollover risks. - Under the baseline, all public and external debt burden indicators lie below policy-dependent thresholds; overall public debt ratio remains close to the threshold throughout the projection horizon. - Stress tests indicate vulnerabilities rise substantially under adverse shocks; under an extreme export shock, solvency and liquidity indicators breach thresholds for prolonged periods. - The DSA includes central government debt, central government-guaranteed debt, and central bank debt contracted on behalf of the government; it includes the Souapiti hydropower loan (US$1.2 billion). - Policy implications to preserve medium-term debt sustainability: - Maximize concessionality of new debt. - Tap domestic financing sources. - Strengthen debt management capacity. - Enhance public investment management. - Key downside risks: - Shocks to Guinea’s concentrated mining exports. - Recent shift toward more non-concessional borrowing. - Uncertainty around the stock of unverified domestic arrears and limited debt coverage. *Letter of Intent dated December 8, 2022, signed by Moussa Cissé (Minister of Economy, Finance, and Planning) and Karamo Kaba (Governor of the Central Bank of the Republic of Guinea); excerpted staff report and DSA summary included.* ### 2. The DSA includes a combined contingent liabilities stress test aimed at capturing the ### 2. The DSA includes a combined contingent liabilities stress test aimed at capturing the public sector exposure to SOEs, PPPs and a financial market shock, as well as arrears ### Contingent liabilities stress test - Default DSA parameters imply Guinea’s central government would face a shock to its debt ratio of 11.2 percent of GDP stemming from contingent liabilities. - Composition of the 11.2 percent of GDP shock: - SOE debt: 2 percent of GDP. - PPP stock shock: 35 percent of the PPP stock, equal to 1.33 percent of GDP. - Financial market shocks: 5 percent of GDP. - Arrears: 2.9 percent of GDP. - The PPP stock was calibrated for Guinea based on its 2018 PIMA. - The contingent liabilities test was undertaken conservatively, given limited data availability and in line with the 2021 DSA. ### Recent debt developments (findings) - Public and external debt ratios declined in 2021 after their 2020 surge: - Total public debt in 2021: 40.4 percent of GDP (from 47.1). - External public debt in 2021: 22.8 percent of GDP (from 27.9). - Domestic debt at end-2021: 17.5 percent of GDP (from 19.2 at end-2020). - Share of external debt of total PPG debt decreased to 56.6 percent in 2021 (from 59.2 percent at end-2020). - Multilateral debt remained broadly unchanged from 2020 at about 27 percent of total PPG at end-2021. - Official bilateral debt declined to 25.3 percent of total PPG (from 28.1 percent in 2020). - Commercial debt rose to 4.2 percent of total PPG debt (from 3.8 percent at end-2020), mostly owed to ICBC. - Within domestic debt: - Over 3-percentage point decline in the share of short-term central bank financing. - 2.5-percentage point drop in the share of long-term obligations. - Large accumulation of domestic arrears. ### Central bank advances and arrears - Treasury bills outstanding stock declined to 5.5 percent of GDP in 2021 (from 6.9 percent in 2020), with 87 percent comprised of short-term instruments. - Short-term advances to the central bank declined to 0.8 percent of GDP in 2021 (from 2.5 percent in 2020). - Long-term obligations to the central bank declined to 5.5 percent of GDP in 2021 (from 7.6 percent in 2020). - Domestic arrears: - Audited and validated arrears to suppliers over 1982–2013 plus domestic arrears since then are included in the baseline. - Domestic arrears stock of at least 2.9 percent of GDP at end-2021. - Actual stock subject to verification by ongoing audits for 2014-2020; potential to increase in subsequent years. - Out of the stock of domestic arrears of 2.9 percent of GDP at end-2021, the authorities paid 1.2 percent of GDP by partially using the SDR allocation (GNF 297 billion). Authorities are using the rest of the SDR allocation for infrastructure investment projects. - Staff view arrears as reflecting capacity challenges and account freezes related to the coup, rather than solvency or liquidity issues. ### External arrears and debt service relief - External arrears at end-2021 predate the 2012 HIPC completion point and are due to: - Non-Paris Club official bilateral creditors: $98.6 million. - Commercial creditors: $60.5 million. - These arrears continue to be deemed away under the IMF Policy on Arrears as the underlying Paris Club agreement is adequately representative and authorities are making best efforts to resolve the arrears. - Pandemic-related debt service relief included in the DSA: - SDR 69.2 million in debt service relief from the IMF under the CCRT (April 14, 2020 to April 13, 2022). - Of this, the DSA incorporates the $22 million that the authorities received in 2022 to reduce IMF debt service payments. - DSSI rescheduling: US$89 million in debt service payments falling due from 2020-21 rescheduled to 2022-25 under the DSSI; more than half correspond to rescheduling of C2D loans, which are not included in the DSA. ### SDR allocation treatment - Authorities converted their SDR allocation of US$284.5 million into U.S. dollars in January 2022, with both the asset and the liability sold to the government. - As a result, the SDRs are recorded on the balance sheet of the government and fall under the DSA perimeter. - External debt to the IMF thus increased by US$284.5 million in 2022 (Table 4). - Because Guinea’s net SDR position is negative, its net interest obligation is reflected in future interest expenditures and incorporated as part of the present value of debt in the DSA. - Authorities are using the SDR allocation for infrastructure spending, repayment of central bank advances and some arrears from the 2021 budget. ### Underlying macroeconomic assumptions (key projections and risks) - Real GDP growth: - Estimated at 4.3 percent in 2021 and 4.7 percent in 2022. - Artisanal gold production expected to remain elevated through 2024 before converging to a long-run rate of around 5 percent. - Non-mining sector expected to recover over 2023-24 as domestic political situation normalizes and the price shock of the war in Ukraine abates. - Risks to the outlook: - Slowdown in global growth reducing demand for bauxite and gold. - Lingering impacts of the price shock from the war in Ukraine dampening the non-mining sector recovery. - Slower rollout of authorities’ efforts to mitigate food insecurity. - Upside risks: finalization of agreements related to the Simandou iron ore development. - Inflation: - Projected to remain above 12 percent in 2022. - Decrease to around 11 and ½ percent in 2023. - Gradual decline to the single-digits thereafter. - Fiscal balance: - Overall balance: deficit of 1.3 percent of GDP in 2022, deteriorating to 2.3 percent of GDP in 2023. - Primary fiscal deficit expected to average 1.5 percent of GDP over 2023–27. - Tax revenue expected to increase by about 2.8 percent of GDP over 2022–27 due to revenue mobilization efforts. - Grants: 0.4 percent of GDP in 2021 (from 1.2 percent in 2020); expected to decline to 0.2 percent of GDP by 2023 and around 0.1 percent of GDP in the long-term. - Current account (non-interest, including transfers): - Narrowed to close to 2 percent of GDP in 2021. - Expected to widen to 6.7 percent of GDP on average in 2022-2023. - Expected to drop to 4.1 percent in 2024 and 2.6 percent in 2025. - Strong FDI, including for Simandou-related infrastructure, expected to contribute to financing deficits. ### External financing mix and terms (assumptions) - External borrowing assumed to increase to an average of 3.4 percent of GDP in 2023-24, moderating to 2.4 percent of GDP in 2042. - Average grant element of new external borrowing expected to average 33.2 over 2022-27, gradually decreasing to 22.1 percent by 2042. - Notable items: - $1.2 billion loan signed in September 2018 for Souapiti hydropower project: - First tranche of US$575 million disbursed at end of 2020. - Remaining disbursements expected: US$300 million in 2023 and US$300 million in 2024. - Multilateral borrowing: - IDA-20 envelope from World Bank totaling US$520 million in 2023-25 included in baseline projections. - Authorities requested emergency financing worth 25 percent of Guinea’s quota (SDR 53.55 million) under the IMF’s Food Shock Window (FSW). - Multilaterals excluding World Bank and IMF expected to provide an average of 40.2 percent of external financing mix from 2022-26; Islamic Development Bank expected to provide 20.4 percent of the external financing mix. - Official bilateral creditors: - Expected to account for 20-50 percent of external financing in 2023-2026. - Paris Club creditors expected to provide about 17 percent of total official bilateral loans. - Commercial creditors: - ICBC provided about 16 percent of external financing in 2021 and is expected to provide about 26 percent of projected disbursements in 2022, with a decline thereafter. - Domestic borrowing: - Government continued repaying central bank advances and a significant fraction of verified domestic arrears in early 2022. - Medium-term assumption: government gradually continues repaying outstanding verified arrears in full. - Projected composition of domestic borrowing: mostly short-term debt (75 percent T-bills), remainder medium-term bonds. - In April 2022, authorities issued the first-ever 5-year domestic bond. ### Realism checks and staff assessment - Staff conclude forecasts are realistic based on multiple tools: - Debt-creating flows projected to contribute similarly to the evolution of public and external debt ratios as over the past five years. - For external debt, expected sizable increase in FDI related to Simandou is projected to contribute to a decline in debt, offset by a large debt-creating residual (interpreted to account at least in part for private accumulation of external assets). - For overall public debt, staff projections are more conservative than in the past across debt-creating flows. - Projected three-year fiscal balance lies within more conservative adjustments observed in LICs. - Growth pickup is supported by strong mining prospects rather than fiscal stimulus. - While scaling-up of public investment is expected to support growth, the framework conservatively assumes a relatively weak investment-growth nexus, albeit stronger than historically due to improvements in public investment management supported by IMF technical assistance. *Italic: IMF staff report content as provided in the source document.* ### 11. The Composite Indicator (CI) for Guinea is 2.47 based on the October 2022 WEO ### 11. The Composite Indicator (CI) for Guinea is 2.47 based on the October 2022 WEO ### Composite Indicator (CI) and CPIA - CI score: 2.47 (based on October 2022 WEO vintage and the CPIA 2021 index). - CI rating: Weak. - CI increased from 2.44 in 2021, mainly due to an increase in the real growth rate coefficient. - Overall CPIA score: 3.3 (scale 1-6). - Economic management cluster score: 3.5 (monetary and exchange rate policy, fiscal policy, and debt policy). - Public sector management and institutions cluster score: 3.0. - Table 6 — Calculation of CI Index (components and numeric contributions preserved): - CPIA: Coefficients (A) 0.385, 10-year average values (B) 3.270, CI Score components (A*B) = (C) 1.265, Contribution of components 51% - Real growth rate (in percent): Coefficients (A) 2.719, 10-year average values (B) 5.637, CI Score components (A*B) = (C) 0.156, Contribution of components % - Import coverage of reserves (in percent): Coefficients (A) 4.052, 10-year average values (B) 19.880, CI Score components (A*B) = (C) 0.813, Contribution of components 33% - Import coverage of reserves^2 (in percent): Coefficients (A) -3.990, 10-year average values (B) 3.952, CI Score components (A*B) = (C) -0.16, Contribution of components -6% - Remittances (in percent): Coefficients (A) 2.022, 10-year average values (B) 1.081, CI Score components (A*B) = (C) 0.021, Contribution of components % - World economic growth (in percent): Coefficients (A) 13.520, 10-year average values (B) 2.898, CI Score components (A*B) = (C) 0.391, Contribution of components 16% - CI Score: 2.47 (100%) ### Stress tests and tailored scenarios - Standard stress tests: shocks to GDP, the currency, and financing conditions. - Two tailored stress tests triggered: - Contingent liabilities stress test tailored to reflect Guinea’s PPP stock per the 2018 PIMA and to include risks related to the potential increase in the stock of arrears once the audit is completed. - Standard commodity price shock tailored to reflect Guinea’s top two export products (bauxite and gold): a 31 percent drop in the price of metals and a 19 percent drop in the price of minerals. ### Model risk signals — External Debt - Risk assessment: moderate risk of external debt distress, with some space to absorb shocks. - Baseline scenario: - All external debt ratios remain below their policy dependent thresholds. - PV of external debt-to-GDP is expected to remain mostly within 19-20 percent of GDP throughout the forecast horizon. - Liquidity ratios are expected to remain well below policy dependent thresholds, particularly the debt-service-to-exports ratio. - Under various stress tests and an alternative historical-metrics scenario: - Several indicators of external debt breach their thresholds over the full forecast horizon. - Shocks to exports are the most detrimental, followed by a shock to GDP combined with depreciation. - Under the most extreme shock (involving a shock to exports): - PV of debt-to-GDP ratio would exceed 60 percent. - Debt-to-exports ratio would jump to over 300. - Liquidity ratios would also increase sharply. - Debt ratios also breach thresholds under historical scenarios, except for the debt-service-to-export-ratio. ### Model risk signals — Public Debt - Risk assessment: moderate risk of public debt distress. - Baseline projections: - PV of total public debt-to-GDP remains within the benchmark of 35 percent of GDP. - PV of total public debt-to-GDP ratio peaked in 2021 at 37.7 percent of GDP. - Projected to fall to 32.1 percent of GDP in 2022. - Expected to increase slightly to 33.8 by 2031 before dropping below 30 percent of GDP in the long-term. - Under several stress tests: - PV of overall public debt breaches the 35 percent of GDP threshold. - Most detrimental shocks: exports, followed by fiscal slippage and commodity prices. - Public debt dynamics are generally more favorable under historical scenarios, as baseline projections are more conservative notably as regards the primary balance. ### Risk rating, vulnerabilities, and key risks - Overall assessment: Guinea is assessed to be at moderate risk of overall and external debt distress, with some space to absorb shocks. - Greatest model-identified risk to the debt outlook: a shock to exports. - Additional downside risks: - Recent shift to non-concessional or less concessional external borrowing. - New audits that confirm a higher stock of domestic arrears could worsen the dynamics of total public debt. ### Policy recommendations and staff advice - Staff recommend prudent macro, fiscal, and financial policies, including: - Maximizing the share of concessional borrowing. - Tapping domestic financing sources. - Strengthening debt management capacity. - Enhancing public investment management. - Staff note that these recommendations would contribute to reducing capacity-to-repay risk. ### Capacity to repay the Fund - Guinea’s capacity to repay the Fund: adequate and supported by its strong track record of meeting its obligations to the Fund. - Outstanding obligations to the Fund: SDR 357 million (about 1.8 percent of GDP). *Source: IMF country chapter text as provided.* ### 18. The authorities broadly agreed with the conclusions of the DSA. They underscored their ### 1ginea2023001 - 18. The authorities broadly agreed with the conclusions of the DSA. They underscored their ### Authorities' response and policy stance - The authorities broadly agreed with the conclusions of the DSA and underscored their commitment to maintaining a sustainable level of debt that does not exceed a moderate risk of debt distress. - They concurred with the importance of maximizing concessional financing but noted that financing under these terms is not available at the scale needed to finance their large infrastructure needs. - The authorities are committed to enhancing their public investment management. ### External Debt Sustainability — baseline indicators (selected) - External debt (nominal), percent of GDP: - 2019: 20.0 - 2020: 27.9 - 2021: 22.8 - 2022: 21.2 - 2023: 21.9 - 2024: 22.9 - 2025: 23.0 - 2026: 23.2 - 2027: 23.4 - 2032: 22.9 - 2042: 15.1 - Identified net debt-creating flows (selected years): - 2019: -1.3 - 2020: 5.5 - 2021: -11.8 - 2022: -3.9 - 2023: -3.6 - 2024: -5.6 - 2025: -7.9 - 2026: -7.6 - 2027: -6.7 - 2032: -7.1 - Non-interest current account deficit (percent of GDP), selected: - 2019: 15.4 - 2020: 16.0 - 2021: 1.9 - 2022: 6.9 - 2023: 6.4 - 2024: 4.1 - 2025: 2.6 - 2026: 2.1 - 2027: 1.5 - 2032: 1.3 - Net FDI (negative = inflow), percent of GDP: - 2019: -14.5 - 2020: -9.6 - 2021: -10.5 - 2022: -10.4 - 2023: -9.3 - 2024: -8.9 - 2025: -9.6 - 2026: -9.0 - 2027: -7.5 - 2032: -7.5 - Sustainability indicators (selected): - PV of PPG external debt-to-GDP ratio (selected projection range shown): 21.6, 18.4, 18.4, 19.0, 19.1, 19.2, 19.3, 19.6, 19.0 - PV of PPG external debt-to-exports ratio (selected): 34.0, 39.9, 43.7, 46.9, 47.6, 47.9, 48.2, 49.0, 47.5 - PPG debt service-to-exports ratio (selected years): 1.5, 1.2, 0.6, 2.3, 3.0, 3.2, 3.3, 3.5, 3.5, 3.8, 4.5 - PPG debt service-to-revenue ratio (selected years): 3.2, 6.0, 3.0, 8.3, 9.8, 9.5, 9.0, 9.4, 9.3, 9.8, 11.0 - Gross external financing need (Billion of U.S. dollars), selected: - 2019: 0.2 - 2020: 1.0 - 2021: -1.3 - 2022: -0.5 - 2023: -0.4 - 2024: -0.9 - 2025: -1.6 - 2026: -1.6 - 2027: -1.4 - 2032: -2.1 - 2042: -2.9 ### Key macroeconomic assumptions (selected) - Real GDP growth (in percent) — historical and projections: - 2019: 5.6 - 2020: 4.9 - 2021: 4.3 - 2022: 4.7 - 2023: 5.6 - 2024: 5.8 - 2025: 5.6 - 2026: 5.5 - 2027: 5.4 - 2032: 5.0 - 2042: 5.0 - Average (Actual/Projections noted in table): 6.0, 5.3 (table shows these as averages) - GDP deflator in US dollar terms (change in percent), selected: - 2019: 7.3 - 2020: 0.5 - 2021: 9.3 - 2022: 25.7 - 2023: 6.2 - 2024: 2.1 - 2025: 1.6 - 2026: 1.2 - 2027: 1.8 - 2032: 2.0 - 2042: 2.0 - Effective interest rate (percent) (selected entries): - 2019: 0.9 - 2020: 0.9 - 2021: 0.8 - 2022: 2.8 - 2023: 1.7 - 2024: 1.7 - 2025: 2.0 - 2026: 2.0 - 2027: 2.0 - 2032: 0.7 - 2042: -4.0 - Growth of exports of G&S (US dollar terms, in percent), selected: - 2019: -1.0 - 2020: 122.6 - 2021: 14.1 - 2022: -4.6 - 2023: 2.8 - 2024: 4.0 - 2025: 6.0 - 2026: 6.7 - 2027: 7.2 - 2032: 7.1 - Government revenues (excluding grants, in percent of GDP), selected: - 2019: 14.0 - 2020: 12.8 - 2021: 13.0 - 2022: 12.6 - 2023: 12.8 - 2024: 13.7 - 2025: 14.6 - 2026: 14.9 - 2027: 15.3 - 2032: 15.6 - 2042: 16.1 ### Public Sector Debt — baseline indicators (selected) - Public sector debt (percent of GDP): - 2019: 38.2 - 2020: 47.1 - 2021: 40.4 - 2022: 34.9 - 2023: 35.3 - 2024: 36.5 - 2025: 36.6 - 2026: 36.9 - 2027: 37.3 - 2032: 36.3 - 2042: 23.8 - Change in public sector debt (selected): - 2019: -0.4 - 2020: 8.9 - 2021: -6.7 - 2022: -5.5 - 2023: 0.4 - 2024: 1.2 - Identified debt-creating flows (selected): - 2019: -4.3 - 2020: 0.8 - 2021: -7.1 - 2022: -3.6 - 2023: -0.6 - 2024: 0.2 - Primary deficit (percent of GDP), selected: - 2019: -0.2 - 2020: 2.4 - 2021: 1.2 - 2022: 0.5 - 2023: 1.5 - 2024: 1.6 - Revenue and grants (percent of GDP), selected: - 2019: 14.5 - 2020: 13.9 - 2021: 13.4 - 2022: 13.1 - 2023: 13.0 - Automatic debt dynamics (selected): - 2019: -4.1 - 2020: -1.5 - 2021: -8.2 - 2022: -4.0 - 2023: -2.1 - Sustainability indicators (selected): - PV of public debt-to-GDP ratio (selected projection range shown): 37.7, 32.1, 32.4, 33.3, 33.3, 33.5, 33.7, 33.6, 28.2 - PV of public debt-to-revenue and grants ratio (selected): 280.7, 245.9, 249.6, 239.5, 227.3, 223.6, 220.2, 213.9, 173.9 - Debt service-to-revenue and grants ratio (selected): 74.2, 81.2, 79.1, 80.6, 67.6, 74.2, 75.6, 77.5, 78.1, 70.6, 45.6 - Gross financing need (selected): 10.6, 13.7, 11.8, 10.9, 11.5, 13.0, 12.5, 13.1, 13.6, 12.0, 7.6 ### Stress tests, sensitivity, and risk assessment (high-level) - The DSA presents a range of stress tests and sensitivity analyses (external and public DSAs) covering scenarios such as historical averages, bound tests (Real GDP growth, Primary balance, Exports, Other flows, Depreciation), combinations of shocks, and tailored tests (combined contingent liabilities, commodity price, market financing). - Table 9 and Table 10 present sensitivity results for key indicators (Debt service-to-exports ratio; Debt service-to-revenue ratio; PV of debt-to-exports ratio; PV of debt-to-GDP ratio; PV of Debt-to-Revenue Ratio; Debt Service-to-Revenue Ratio) under alternative scenarios and bound/tailored tests for 2022–32, with breaches of thresholds indicated by bold values in the tables. ### Data, institutions, and operational notes (selected) - Relations with the Fund: - Membership Status: Joined: September 28, 1963 - Article VIII - Outstanding Purchases and Loans (SDR Million; percent of Quota, as listed): - RCF Loans: 117.81 (55.00) - ECF Arrangements: 188.96 (88.21) - Projected payments to Fund (SDR Million; forthcoming by year): - Principal: 2022: 3.67; 2023: 34.35; 2024: 37.56; 2025: 38.06; 2026: 51.03 - Charges/Interest: 2022: 1.21; 2023: 6.58; 2024: 6.58; 2025: 6.58; 2026: 6.58 - Safeguards Assessment: - Last assessment concluded in April 2021. Only four of 18 recommendations implemented to date; progress slowed partially due to coup-related disruptions. - Priority actions include implementing remaining safeguards recommendations and resolving the dispute with Belgian company Affinor over part of BCRG international gold reserves. - Exchange rate arrangement: - De jure: managed floating. - De facto classification: crawl-like arrangement (reference rate can potentially deviate by more than 2% from commercial banks’ purchase and sales rates on a given day). - BCRG FX auction rule: buys (sells) FX when market rate is below (above) 0.25 percent of its 5-day moving average. - Statistical issues and data adequacy: - Data provision broadly adequate for surveillance with shortcomings in national accounts and fiscal statistics. - CPI: monthly CPI covering Conakry published until July 2022; a new national index (starting August 2022) was disseminated in November 2022. - National accounts: plan to implement 2008 SNA with 2018 benchmark year; need to reconcile artisanal gold production with gold export statistics. - Government Finance Statistics: compilation moving toward GFSM 2014 consistent TOFE; TOFE production requires use of data outside the general accounting system due to lack of comprehensiveness and timeliness. - External sector statistics: BOP/IIP compiled in line with BPM6; improvements noted but gaps remain (imports, financial account, artisanal gold sector, Souapiti dam transaction details). *Sources: Country authorities; and staff estimates and projections as presented in the DSA tables and informational annex.* ### Introduction ### 1ginea2023001 - Introduction ### Overview and purpose - Guinean authorities express appreciation for IMF Management and Staff engagement during difficult times and for the formalization of Guinea’s request for emergency financing under the Food Shock Window (FSW). - Authorities view rapid emergency financing under the FSW as essential to the success of their food security agenda and see staff reports as a fair summary of discussions on socio-economic challenges and policies aimed at sustainable long-term growth. - The authorities are requesting IMF budget support under the Rapid Credit Facility’s FSW in an amount equivalent to 25 percent of quota (SDR 53.55 million) to catalyze financial and in-kind assistance and strengthen the government’s policy response to food insecurity and other socio-economic difficulties. ### Recent developments and outlook - Political timeline: On December 4, 2022, the Transition authorities and ECOWAS agreed on a 24-month transitional period leading to presidential elections. - Growth and inflation: - Economic growth should reach 4.7 percent in 2022. - Average inflation is expected to decline to 12.2 percent in 2022 from 12.6 percent in 2021. - Authorities expect inflation to decline to 10.3 percent in 2023 and to single digits thereafter; Staff are more cautious. - Drivers and sectors: - Growth mainly driven by mining (strong bauxite and gold production) and a gradual recovery in the non-mining sector, aided by resumption of fish exports to the EU after a 16-year ban. - Non-mining sector was heavily hit by spillovers from the war in Ukraine and the COVID-19 pandemic. - Risks: - Downside risks include an elusive political consensus on the transitional timeline and uncertainties regarding international food and oil price developments. ### Fiscal policy and public finances - Strategy objectives: - Enhance domestic revenue and rationalize expenditure. - Cushion negative effects of food and fuel price shocks while bolstering support for agriculture, rural development, health, and education. - Revenue performance and measures: - Broadly satisfactory revenue performance in 2022, driven by strong collection in the mining sector. - Authorities committed to reassessing existing mining contracts, rationalizing tax exemptions, and addressing transfer pricing; a July 2022 decree limits profit shifting from transfer mispricing in the bauxite industry. - Non-mining revenue administration improved with digitalized tax declaration and implementation of a single taxpayer identifier. - Petroleum product prices were increased by 20 percent in June 2022 to reflect international oil price developments. - Expenditure and arrears: - Current expenditure was contained; significant reduction in the wage bill via department consolidation, retirement measures, and elimination of fictitious workers. - Repayment of an important part of domestic arrears accumulated in 2021. - Measured subsidies maintained on electricity, fuel, and staple foods to mitigate rising costs of living. - Progress on reforms to strengthen oversight of state-owned enterprises, including Electricité De Guinée (EDG), to enhance control of contingent liabilities and reduce subsidies. - Fiscal outcomes and commitments: - Overall fiscal deficit for 2022 projected at 1.3 percent of GDP, somewhat lower than in 2021. - Authorities committed to keeping the budget deficit on a sustainable trajectory while accommodating emergency relief and development needs. - Continued IMF TA to enhance public financial and debt management capacities; focus on investment efficiency, domestic debt issuance management, and arrears accounting and clearance. - Authorities welcome Staff DSA assessment of overall moderate risk of debt distress and plan to mainly resort to concessional financing despite scarcity. ### Monetary and financial sector policies - Monetary stance and inflation: - Upward price pressures from international food and oil price hikes were counteracted by GNF appreciation and a tight monetary policy stance. - Inflation remained at 12.2 percent in 2022. - Domestic debt and banking sector: - Launched first medium-term domestic debt security issuance to expand share and maturity of domestic borrowing and deepen financial markets. - Banking sector remains resilient and profitable after phased-out COVID-related prudential relaxations. - Financial inclusion: - Improvements noted, notably steady increases in mobile money account openings in rural and urban areas. - External buffers and FX management: - Surging food and energy bills widened the BoP deficit in 2022; reserves’ coverage of imports expected to decline to 2.5 months in 2023 from 2.7 months in 2021. - BCRG intervened to facilitate FX access to SONAP to avoid fuel supply disruptions. - BCRG issued an order in January 2022 requiring exporters to sell a significant part of their foreign-exchange proceeds to local banks. ### Negative spillovers on food security - Fertilizer availability and use: - Fertilizer prices rose by 300 percent in 2022 compared to 2021 and resulted in a 57 percent drop in their use. - Food insecurity: - Global cereal shortages and higher food prices, coupled with reduced fertilizer use and depressed incomes, have strained food security. - Around 1.2 million Guineans (11 percent of the population) are currently exposed to acute food insecurity. ### Policy responses to rising food insecurity - Immediate household support: - Removed tariffs on staple foods (rice, vegetable oil, sugar, and wheat flour) and reduced VAT on fuel imports. - Provided cash transfers to the most vulnerable households via programs implemented by ANIES with help from local telephone companies. - Took measures to limit price hikes on essential goods and services, including urban and interurban transportation. - Agricultural support: - Maintained fertilizer subsidies at 50 percent. - Secured additional financing from BADEA to step up support to the sector. - Finalizing a loan agreement with the African Development Bank to purchase additional fertilizers and other inputs. - Use of FSW resources: - Authorities welcome Guinea’s eligibility to the FSW given food insecurity affecting more than 11 percent of the population. - FSW resources intended to support emergency relief and food distributions in urban and rural areas in collaboration with WFP; increase purchases of fertilizers and phytosanitary products for rural distribution via FODA; facilitate cash transfers using ANIES experience; and implement special social and health care programs for the most indigent households with FDSI. ### Maintaining the reform momentum and governance - Economic diversification and mining sector reforms: - Policies to foster economic diversification and socioeconomic transformation. - Strengthening measures for higher revenue mobilization from the mining sector, including Simandou iron ore project, and catalyzing synergies between mining and the rest of the economy. - Urging mining companies to move up the value chain and act on large scale alumina production. - Data and statistics: - Increased resources for the National Statistical Institute (INS); finalized a new updated CPI index with larger and improved coverage with AFRISTAT technical assistance. - Authorities plan to introduce the updated index once sufficient historical data are available to calculate annual variations and value IMF support for implementation. - Anti-corruption and governance: - Created the Cour de Répression des Infractions Économiques et Financières (CRIEF) to prosecute economic and financial crimes; CRIEF is prosecuting several former high-profile officials for corruption and illicit enrichment. ### Conclusion and request - Authorities have maintained reform momentum amid difficult circumstances and mitigated effects of rising food and energy prices. - Fund emergency assistance through the Food Shock Window would provide additional leverage to address food insecurity caused by high food and fertilizer prices. - Ongoing strengthening of fiscal policy stance would support macroeconomic stability and advance structural reforms. - Authorities request Directors’ support for their request for support under the Rapid Credit Facility’s Food Shock Window given large budget needs and strong commitment to macroeconomic stability and structural reforms. *Source: 1ginea2023001 - Introduction* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1ginea2023001.pdf_