## 1gnbea2023001 — Executive Summary

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### Context
- Guinea-Bissau described as a fragile state with limited fiscal space, debt vulnerabilities, and poor governance.
- Key structural features and vulnerabilities:
  - Heavy reliance on exports of unprocessed cashew nuts, exposing households to price shocks and climate change.
  - High poverty and low human development.
  - High levels of corruption, weak judicial system, illicit drug trade, and weak business environment.
- Recent IMF engagement and support:
  - Rapid Credit Facility (RCF) disbursement of SDR 14.2 million (50 percent of quota) approved January 2021.
  - Nine-month SMP with three quarterly reviews approved July 2021 and completed satisfactorily in May 2022.
  - August 2021 SDR 27.2 million allocation helped address pandemic impacts and improved transparency.
- Political and health context:
  - By December 2022: 8,931 confirmed COVID-19 cases and 176 deaths; about 58 percent of the adult population vaccinated.
  - Political environment relatively stable since 2020 with a putsch attempt in February 2022; President dissolved parliament mid-May 2022; elections scheduled June-2023 and December-2024.
- Authorities’ request:
  - Request for a three-year ECF arrangement to support fiscal consolidation, debt sustainability, anti-corruption, AML/CFT effectiveness, governance, and transparency reforms.

### Recent economic developments
- Growth and inflation:
  - Growth: 2020: 1.5 percent; 2021: 6.4 percent; 2022 expected to moderate to 3.5 percent.
  - Average inflation expected to increase to 7.8 percent in 2022.
  - 2022 growth affected by lower-than-expected cashew exports and commodity price surges from the war in Ukraine.
- Fiscal outcomes:
  - Overall fiscal deficit (commitment basis): 2020: 9.6 percent of GDP → 2021: 5.7 percent of GDP (reduced).
  - First half 2022 deficit higher than projected by 0.4 percent of GDP due to expenditure overrun:
    - Wage spending exceeded forecast by 0.3 percent of GDP (irregular hiring).
    - Other current expenditures higher by 0.3 percent of GDP (election-related).
    - Tax revenue was 0.2 percent of GDP higher than projected.
  - France and Portugal each provided CFAF 3.3 billion in 2022.
- External sector and public debt:
  - Current account deficit: 2020: 2.7 percent of GDP (deficit) → 2021: 0.8 percent of GDP (improved) → 2022 projected to worsen to 5.9 percent of GDP.
  - Public debt stock increased to 81 percent of GDP in 2022 due to higher financing needs, new government guarantees on EAGB, and recognition of legacy arrears.
  - Public debt increased by 2.0 percent of GDP with an increase corresponding to the SDR allocation on-lent by the BCEAO.
- Financial sector:
  - BCEAO pandemic-related measures improved liquidity; credit grew by 7.3 percent in 2021.
  - Except for one large undercapitalized bank, banking sector met regional prudential criteria.
  - Gross NPLs declined in 2022 but remain high; banks are well provisioned.
  - Financial vulnerabilities from sovereign debt and exchange rate exposures in the banking sector assessed as low.

### Outlook and risks
- Near-term projections:
  - Growth expected to recover to 4.5 percent in 2023 assuming cashew export volumes return to 2021 levels and private investment continues.
  - Average inflation expected to peak as global prices normalize but remain at 5 percent due to persistence in key items such as rice.
- Medium-term projections:
  - Growth expected to reach 5 percent per year through greater dynamism in agriculture, mining, tourism, and fisheries.
  - Inflation expected to gradually converge to about 2 percent as the security crisis in Europe subsides.
  - Current account deficit expected to improve with sustained fiscal consolidation and more favorable terms-of-trade.
  - Overall fiscal deficit projected to converge to 3 percent by 2025 with higher revenue mobilization, wage bill control, and increased concessional financing.
- Risks (Annex II summary):
  - Downside risks: domestic political risks and weak state capacity; disappointing cashew exports; war in Ukraine affecting food and oil prices and donor support; climate change and climate shocks; lack of political support for reforms; worsening debt risks; financial stress in SOEs (Annex III) and banking fragilities generating contingent liabilities.
  - Policy responses if downside risks materialize: further rationalize non-priority expenditures and domestically financed investment and seek additional IFIs’ support.
  - Upside: stronger cashew sector performance and successful reform implementation could underpin a faster recovery.

### Program objectives and financing strategy
- ECF arrangement focus:
  - Support credible fiscal consolidation and ensure debt sustainability.
  - Improve governance and transparency through a parsimonious structural agenda.
  - Meet protracted BOP needs triggered by worsened current account deficits and reliance on portfolio investments until fiscal consolidation and better terms-of-trade improve external positions.
- Financing strategy and targets:
  - Remaining financing needs expected to be met by issuance of Treasury securities in regional markets, reduced from 6.3 percent of GDP in 2021 to 2.3 percent of GDP by 2024.
- Program pillars:
  - Fiscal consolidation and debt sustainability:
    - Stronger revenue mobilization and expenditure containment including wage bill measures to protect social spending and key infrastructure investments.
    - Strengthening SOE oversight, especially EAGB, and mitigating fiscal risks.
    - Assisting authorities to seek additional grants and concessional financing.
  - Governance, AML/CFT effectiveness, and transparency reforms:
    - Strengthening expenditure control, mobilizing revenues, fighting corruption, and enhancing fiscal transparency.

### Fiscal outturn and 2022 developments (detailed)
- Overall fiscal deficit projected higher by 1.3 percentage points of GDP compared to the 2022 Article IV report due to:
  - Higher wage spending from irregular hiring.
  - Higher other current expenditures related to parliamentary elections, security and defense, and social and diplomatic services.
- Corrective actions taken in 2022:
  - Containment of the wage bill in the second half of 2022.
  - Rationalization of non-priority spending in last three months of 2022.
  - Authorities intend to clear wage arrears due to irregular hiring by end-2022.

### Wage bill overrun: scale, causes, corrective measures (Box 1)
- Irregular hiring generated higher wage spending of CFAF 7.4 billion or 0.7 percent of GDP in 2022.
- Total irregular workers and budget impact by sector (2022):
  - Health: 1,147 healthcare workers; started Feb-21; stopped in end-Aug 2022; Impact on Budget 2022 (CFAF billions) 1.3
  - Education: 2,849 primary/secondary level teachers; started Jan-22; Yes (Regularized); Impact 5.0
  - Education (seasonal): 2,006 primary/secondary level teachers (seasonal); started Jan-22; Stopped in end-Jul 2022; Impact 0.4
  - Education (seasonal tertiary): 611 tertiary teachers (seasonal); started Nov-21; Stopped in end-Jul 2022; Impact 0.2
  - Justice Administration: 13 MP delegates; started Feb-21; Yes (Regularized); Impact 0.1
  - Justice Administration: 25 Judges; started Jan-21; Impact 0.2
  - Justice Administration: 153 Justice officials; started Oct-21; Impact 0.3
  - Total: 6,804 workers; Total Impact CFAF 7.4 billion; Percent of GDP (2022) 0.7
- Corrective measures implemented or planned:
  - Dismissal of irregular workers (except those regularized in education and justice).
  - Total freezing of promotion, hiring and salary increases.
  - Capping salary expenses for key ministries.
  - Full inventory of health and education facilities to assess personnel needs and identify ghost workers.
  - New decree: contracts require vacancies authorized by the Ministry of Labor and the Ministry of Finance.
  - Elimination of two-thirds of advisor positions at the Presidency, Prime Minister’s Office, the Presidency of the Parliament, and the Presidencies of the Constitutional and Audit Courts.
- Additional 2023 measures:
  - Update inventory of existing health and schooling facilities and check staff assignments.
  - Conduct a new census of public administration within the World Bank capacity building project.
  - Implement IMF wage bill management TA recommendations.

### Fiscal consolidation strategy, targets, and composition
- Objective: ensure medium-term fiscal sustainability while supporting economic recovery.
- Debt and deficit trajectories:
  - Stock of public and publicly guaranteed debt projected to increase to 81 percent of GDP in 2022.
  - Staff will recommend containing the domestic primary deficit below the 2021 outturn and implementing measures to bring the fiscal deficit and debt ratio within 3 percent and 70 percent of GDP by 2025 and 2027 respectively.
- Expected fiscal savings and composition:
  - Domestic primary expenditure projected to decline by about 2.3 percentage points of GDP by 2025, of which 1.3 percentage points come from wage bill management measures.
  - Estimated fiscal saving of wage bill and expenditure control about 1.9 percent of GDP by 2027.
  - In 2023, VAT implementation expected to generate about 2.6 percent of GDP by 2027.
  - Revenue mobilization measures should increase revenue by about 1 percentage point of GDP by 2025.
- Program safeguards:
  - Floor on social and priority spending proposed as a quantitative target.
  - Social and priority spending projected to increase by 0.7 percentage points of GDP during 2022-27 compared to 2010-19.
  - Capital expenditure projected average: about 9 percent of GDP per annum during 2020-21 → projected 7.4 percent of GDP per annum during 2022-27.

### Financing, arrears, and debt sustainability
- Additional financing needs and gap:
  - Additional financing needs of 1.9 percent of GDP over next three years to reduce financing costs and preserve debt sustainability.
  - Staff estimates financing gap of CFAF 8.1 billion each year—around 0.6 percent of GDP—to be covered by the ECF arrangement.
- Arrears:
  - Plan to clear all audited and recognized domestic arrears during program period; addressing legacy external arrears.
  - Legacy external arrears totaled US$5.7 million at end-2022 to Brazil, Russia, and Pakistan.
  - Agreement reached with Russia (US$1.5 million); negotiating with Pakistan (US$2.2 million); negotiations with Brazil (US$1.9 million) pending Brazilian parliament approval.
- Debt risk assessment:
  - Guinea-Bissau at high risk of external and overall debt distress but debt assessed as sustainable conditional on policies and donor engagement.
  - External debt reached 40 percent of GDP at end-2021.
  - QPC: zero ceiling on new non-concessional borrowing (with exception for certain BOAD Development and Cohesion Fund projects).
  - IMF TA support for debt management will be provided.

### Financial sector stability measures
- NPLs and undercapitalized bank:
  - NPLs decreased since 2012 but remain high because of a large undercapitalized bank.
  - Government approved an offer of a strategic investor to buy its stake and capitalize the institution to comply with WAEMU regulatory standards.
  - If transaction does not materialize, authorities will implement an additional SB by end-December 2023.
- Specific recommended actions:
  - Provide financial information requested by IMF including assessment of bank’s financial position and a full independent audit of all loan portfolios including NPLs by a third-party auditing firm to be performed by end-December 2023.
  - Prepare a reconsidered viable new government plan for disengaging from the undercapitalized bank by 2024.
  - Implement recommendations of the Banking Commission.

### Structural reforms and governance priorities
- Program priorities:
  - Implement and complete reforms initiated under the SMP to strengthen fiscal consolidation and governance.
  - SBs are parsimonious, prioritized, sequenced, and anchored in capacity development support.
- PFM reforms:
  - Strengthen wage bill controls and cash management.
  - Quarterly reconciliation between personnel and payroll records.
  - Deploy IMF-supported blockchain project to safeguard payroll data and employment contracts and flag irregular hiring.
  - Action plan for TSA implementation and coordination with revenue-generating entities.
- Audits and procurement:
  - Continued audit work on COVID-19 related spending; external Audit Court audits planned.
  - Audit Court to complete by end-2023 an audit of irregular hiring process in 2021-22 requested by MoF.
  - Publication of crisis-related contracts including beneficial ownership information; guidelines for 2022 decree on beneficial ownership to be issued.
- AML/CFT and anti-corruption:
  - Prepare national AML/CFT policy and action plan; require beneficial owner identification for legal persons registering at the Registry; prepare action plan to strengthen risk-based AML/CFT supervision.
  - Resubmit law reforming asset declaration regime as soon as new Parliament operational.
  - Broader measures per 2020 Governance Diagnostic report to improve rule of law and market regulations.

### Program modalities, monitoring, and financing outlook
- ECF arrangement request:
  - Three-year ECF arrangement with access of SDR 28.4 million (100 percent quota).
  - Phasing: a third of the access per year.
  - All disbursements on-lent to the government (budget support).
- Monitoring framework:
  - Program performance monitored via two quarterly reviews followed by five biannual reviews.
  - Proposed QPC: ceiling on wage bill expenditures.
  - Prior actions include approval by Council of Ministers of 2023 budget in line with program parameters and measures to enforce executive order ending irregular hiring.
  - SBs focus on PFM reforms, tax framework reforms, anti-corruption measures, beneficial ownership implementation, and transparency in charges and fees.
- Financing prospects:
  - Program fully financed in first twelve months; good prospects for adequate financing throughout duration.
  - ECF-supported program expected to catalyze budget support grants with at least CFAF 3.8 billion included in the 2023 budget.
  - IMF support over program period would amount to 12 percent of the total grants and project loans to address external financing needs.

### Capacity to repay the Fund and safeguards
- Capacity to repay:
  - Outstanding obligations to the Fund based on existing and prospective drawings would peak in 2025 at 3.0 percent of GDP.
  - Peak outstanding obligations would be 16.3 percent of gross official reserves.
  - Debt service would peak at 2.3 percent of revenues (excluding grants) in 2030.
  - Debt service would peak at 2.1 percent of exports in 2030.
- Downside risks and mitigants:
  - Capacity to repay subject to significant downside risks.
  - Risks mitigated by authorities’ strong track record of servicing the Fund, envisaged policy measures, and membership of the currency union.
  - Policy recommendation: continue to pursue highly concessional financing and fiscal adjustments.
- Safeguards assessment:
  - The BCEAO implemented all recommendations from the 2018 safeguards assessment.
  - Assessment found broadly appropriate governance arrangements and a robust control environment.
  - Update assessment of the BCEAO planned for 2023.

### Annex III — Update on Fiscal Risks in EAGB (summary)
- Background:
  - EAGB switched to a power ship (Karpower) in 2019; generation capacity: 17 MW (pre-2019) → 24 MW in 2021 → 30 MW in 2022.
  - Power ship pricing driven by capacity rather than usage, increasing purchase costs and worsening EAGB’s finances.
- Financials and liabilities:
  - Monthly deficits: about 0.3 billion CFAF in 2021; 1.1 billion CFAF average Jan–Sep 2022.
  - Revenue covered 60 percent of expenditure in Jan–Sep 2022.
  - Liabilities increased from 3.4 percent of GDP (December 2021) to 4.0 percent of GDP (September 2022).
  - Electricity purchase costs account for 70 percent of EAGB’s expenditure.
- Tariff collection and metering:
  - Monthly tariff collection averaged 1.5 billion CFAF (Jan–Sep 2022); current collection rate around 68 percent.
  - Potential to collect more than 2 billion CFAF per month without tariff changes by improving collection.
  - EAGB sends 0.7 billion CFAF invoices per month to government; government pays 0.5 billion CFAF per month.
  - 35,000 pre and post-paid analog meters acquired; target installation by first quarter of 2023.
  - ERP expected operationalized early 2023.
- Management and operational reforms:
  - Headcount slightly decreased Jan–Sep 2022, but wages increased by 10 percent year-on-year.
  - EAGB lacks functioning finance department and IT system; accounting outsourced.
  - World Bank Emergency Water and Electricity Services Upgrading Project facilitation necessary.
- Reducing purchase costs and OMVG project:
  - OMVG regional hydropower connection crucial to reduce electricity purchase costs to two-thirds.
  - Transmission lines from Guinea-Conakry border to Bissau planned completion first half of 2023 but facing soft ground challenges.
- Financing needs and donor support:
  - Short-run: identify affordable financing to meet gaps not filled by revenue and expenditure measures.
  - Medium-term: donor support needed for distribution lines, rehabilitation, and concessional refinancing/restructuring of past expensive debt.
  - EAGB business strategy (SB, end-September 2023) should articulate donor mobilization plan.

### Appendix I — Letter of Intent (selected commitments)
- Request dated January 12, 2023 for three-year ECF arrangement (January 2023–January 2026) totaling SDR 28.4 million; immediate disbursement of first tranche SDR 2.37 million requested.
- Macroeconomic projections (selected):
  - Real GDP growth: 2020: 1.5 percent; 2021: 6.4 percent; 2022: 3.5 percent (expected); medium-term: around 5 percent; long-term potential about 4 percent per year.
  - Inflation: average inflation expected 7.8 percent in 2022; medium-term convergence to 2 percent.
  - Overall fiscal deficit: 2020: 9.6 percent of GDP; 2021: 5.6 percent of GDP; 2022: expected 5.5 percent of GDP; commitment to 3 percent of GDP by 2025.
  - Public debt: commitment to bring debt ratio to 70 percent of GDP by 2027.
- Fiscal policy commitments and measures:
  - Enhance revenue mobilization, enforce tax collections, strict control on budgetary execution, contain wage bill, rationalize goods and services, avoid non-concessional borrowing.
  - Continue gradual implementation of TSA with World Bank and IMF technical assistance.
  - Clear audited and approved domestic expenditure arrears; address legacy external arrears.
- Governance and transparency:
  - Complete RCF governance safeguards and 2020 Governance Diagnostic recommendations.
  - Improve beneficial ownership transparency and accelerate asset declaration reforms with IMF TA.
- Social protection:
  - Targeted transfers and temporary gasoline tax cuts during shocks; protect social spending while creating fiscal space for infrastructure.

### Tax, PFM, and public administration commitments (selected)
- Tax and non-tax measures:
  - Parliament approved revised general tax code, tax penalty regime, and new VAT bill; revised custom code submitted pending approval.
  - Kontaktu electronic filing fully implemented in 2022.
  - Structural benchmarks: submit revised law on general exemption regime (SB, end-December 2023); submit revised income tax and stamp duties bills (SB, end-June 2025); action plan for register of resource rights holders (SB, end-June 2024).
- Wage bill and expenditure controls:
  - Total freezing of hirings; capping salary expenses for key ministries; full inventory of health and education facilities.
  - Council of Ministers approved 2023 budget proposal consistent with program parameters (Prior Action).
  - Commitment not to incur overspending except in force majeure per WAEMU Directive N°06/2009/CM/UEMOA.
- TSA and cash management:
  - Establish interface between Treasury, BCEAO, and commercial banks; classify public bank accounts (SB, end-September 2023).
  - CMU creation and TSA wage payments foundation (SB, end-December 2023 and SB, end-June 2024 for broader TSA use).
- Payroll integrity:
  - Multiannual staffing plan 2023-25 (SB, end-June 2023); quarterly reconciliation of personnel and payroll records (SB, end-March 2023); deploy IMF-supported blockchain project.

### Debt perimeter, recording, and composition (selected)
- Perimeter limited to central government, central bank, and government-guaranteed debt; SOEs generally excluded except EAGB.
- EAGB non-publicly guaranteed debts estimated at 2.7 percent of GDP in 2021.
- SDR on-lending: end-August SDR 27.2 million transferred by BCEAO as currency repo CFAF 21.6 billion (2.3 percent of GDP) with 20-year maturity and interest 0.05 percent.
- Central government debt stock (selected):
  - Central Government Debt (2019 Act.): 572.7; 65.8 percent of GDP.
  - Central Government Debt (2020 Act.): 684.4; 78.2 percent of GDP.
  - Central Government Debt (2021 Prel.): 754.5; 78.9 percent of GDP.
  - Central Government Debt (2022 Proj.): 859.1; 81.0 percent of GDP.
- Debt holder composition (2021 staff estimates, percent of total external debt): BOAD 32 percent; IDA 26 percent; IMF 7 percent; AfDB 7 percent; Other Multilaterals 8 percent; Angola 8 percent; Kuwait 4 percent; Exim Bank India 4 percent; Other Bilaterals 4 percent.
- Domestic debt composition (2021 staff estimates, percent of total domestic debt): Treasuries 44 percent; BCEAO 35 percent; Loans 11 percent; Arrears 7 percent; Guarantees 3 percent.
- Stock of regional-market treasury securities at end-2021: CFAF 193.3 billion, equivalent to 52 percent of domestic debt or 20.2 percent of GDP.

### Debt sustainability and stress tests (selected)
- Debt-carrying capacity: Composite Indicator score 2.63 → classified as weak.
- Baseline public debt dynamics:
  - Public sector debt: 2019: 65.8 percent of GDP → 2021: 78.9 percent of GDP → 2022: 81.0 percent of GDP → projected to decline to 68 percent of GDP by 2027 under baseline.
- Adverse commodity price stress test (15 percent fall in cashew export prices):
  - After shock, PV of debt-to-GDP reaches 78 percent in 2028 and rises; debt service-to-revenue ratio reaches 116 percent in 2028.
  - Under most extreme commodity shock: PV of debt-to-GDP increases to 81 percent in 2032; PV of debt-to-revenue increases to 453 percent; debt service-to-revenue ratio rises from 56 percent in 2022 to 120 percent in 2027.
- DSA conclusions:
  - Risk of external debt distress: High.
  - Overall risk of debt distress: High.
  - Public debt assessed sustainable conditional on continued fiscal adjustment, full donor re-engagement, and improved debt management.

### Program monitoring calendar and QPC highlights (selected)
- Disbursement schedule (SDR, percent of quota):
  - Jan 30, 2023 — 2.37 — 8.3
  - Apr 17, 2023 — 2.37 — 8.3
  - Jul 17, 2023 — 2.37 — 8.3
  - Oct 17, 2023 — 2.37 — 8.3
  - Apr 17, 2024 — 4.73 — 16.7
  - Oct 17, 2024 — 4.73 — 16.7
  - Apr 17, 2025 — 4.73 — 16.7
  - Oct 17, 2025 — 4.73 — 16.7
  - Total Disbursements — 28.40 — 100.0
- Selected QPCs and targets (cumulative, CFAF billion unless otherwise indicated):
  - Total domestic tax revenue (floor): 100.5 (Dec 2022), 5.4 (Jan), 21.4 (Mar), 53.8 (Jun), 87.1 (Sep), 113.7 (Dec)
  - Wages and salaries (ceiling): 65.5 (Dec 2022), 5.7 (Jan), 14.3 (Mar), 27.8 (Jun), 41.8 (Sep), 59.0 (Dec)
  - Social and priority spending (floor): 55.2 (Dec 2022), 2.5 (Jan), 12.5 (Mar), 26.0 (Jun), 38.8 (Sep), 51.6 (Dec)
  - Domestic primary balance (commitment basis, floor): -30.1 (Dec 2022), -4.3 (Jan), -10.8 (Mar), -6.3 (Jun), -5.7 (Sep), -2.9 (Dec)
  - Ceilings on new non-concessional external debt contracted or guaranteed by central government: 0.0 at all test dates.

### Staff appraisal and concluding observations
- Guinea-Bissau preserved economic and political stability despite significant shocks and a coup attempt in February 2022.
- Corrective actions in 2022: ending irregular hirings, eliminating advisor positions, and other fiscal measures enhanced credibility.
- Program support warranted based on progress under the SMP; IMF to provide tailored TA in cooperation with partners.
- Authorities’ commitments and political support across main parties should help build consensus for fiscal consolidation, debt sustainability, and governance/transparency reforms.

*Italic: IMF staff report — Executive Summary (1gnbea2023001) — January 12, 2023*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- Guinea-Bissau is described as a fragile state with significant development challenges including limited fiscal space, debt vulnerabilities, and poor governance.
- Key structural features and vulnerabilities:
  - Heavy reliance on exports of unprocessed cashew nuts, exposing households to price shocks and climate change.
  - High poverty and low human development.
  - High levels of corruption, a weak judicial system, illicit drug trade, and a weak business environment.
- Recent policy engagement and financial support:
  - A Rapid Credit Facility (RCF) disbursement of SDR 14.2 million (50 percent of quota) was approved in January 2021 to support critical health spending.
  - A nine-month SMP with three quarterly reviews, approved in July 2021, ended with satisfactory performance and built a track record toward an Extended Credit Facility (ECF) arrangement.
  - The August 2021 SDR 27.2 million allocation and reforms under the SMP helped address the pandemic’s adverse impact, improved transparency of government spending, and mitigated debt vulnerabilities.
- Political and health context:
  - By December 2022 there were 8,931 confirmed COVID-19 cases and 176 deaths; about 58 percent of the adult population has been vaccinated.
  - The political environment has been relatively stable since 2020, with a putsch attempt in February 2022; ECOWAS redeployed a stabilization force. The President dissolved parliament in mid-May 2022. Next legislative and presidential elections are scheduled for June-2023 and December-2024.
- Authorities’ commitment:
  - Request for an ECF to support an ambitious reform agenda, including fiscal consolidation, debt sustainability, corruption fight, and improved AML/CFT effectiveness, governance, and transparency.

### Recent economic developments
- Growth and inflation:
  - Growth accelerated from 1.5 percent in 2020 to 6.4 percent in 2021 driven by record cashew exports, high public investments, and lifting of COVID-19 measures.
  - Growth is expected to moderate to 3.5 percent in 2022 while average inflation is expected to increase to 7.8 percent in 2022.
  - In 2022 growth was negatively affected by lower-than-expected cashew exports due to logistical constraints; commodity price surges associated with the war in Ukraine added inflationary pressures.
- Fiscal outcomes:
  - Overall fiscal deficit (commitment basis) fell to 5.7 percent of GDP in 2021 from 9.6 percent in 2020.
  - In the first half of 2022 the deficit was higher than projected by 0.4 percent of GDP due to an expenditure overrun.
    - Wage spending exceeded forecast by 0.3 percent of GDP because of irregular hiring.
    - Other current expenditures were higher by 0.3 percent of GDP, reflecting election-related spending.
    - Tax revenue was 0.2 percent of GDP higher than projected due to higher inflation and economic activity.
- External sector and public debt:
  - Current account deficit improved to 0.8 percent of GDP in 2021 from 2.7 percent of GDP in 2020 because of record cashew exports.
  - The August 2021 SDR allocation enabled repayment of BOAD debt service due in 2021 and 2022.
  - In 2022 the current account deficit is projected to worsen to 5.9 percent of GDP because of lower cashew exports and higher import prices.
  - The public debt burden increased by 2.0 percent of GDP with an increase corresponding to the SDR allocation on-lent by the BCEAO.
  - The stock of public debt increased to 81 percent of GDP in 2022 due to higher financing needs, new government guarantees on EAGB, and recognition of legacy arrears.
- Financial sector:
  - BCEAO pandemic-related measures improved liquidity; credit to the economy grew by 7.3 percent in 2021.
  - Except for one large undercapitalized bank, the banking sector met regional prudential criteria.
  - Gross NPLs to total loans declined in 2022 but remain high; banks are well provisioned.
  - Financial vulnerabilities from sovereign debt and exchange rate exposures in the banking sector are assessed as low.

### Outlook and risks
- Near-term projections:
  - Growth is expected to recover to 4.5 percent in 2023, assuming cashew export volume reaches 2021 levels and private investment continues.
  - Average inflation is expected to peak as global prices normalize but should remain at 5 percent because of persistence in key items such as rice.
- Medium-term projections:
  - Guinea-Bissau is expected to reach 5 percent growth per year through greater dynamism in agriculture, mining, tourism, and fisheries, and continued strengthening of fiscal management.
  - Inflation is expected to gradually converge to about 2 percent as the security crisis in Europe subsides.
  - The current account deficit is expected to improve with sustained fiscal consolidation and more favorable terms-of-trade.
  - Higher revenue mobilization, wage bill control, and increased concessional financing should make the overall fiscal deficit converge to the 3 percent by 2025.
- Risks (Annex II):
  - Downside risks: domestic political risks and weak state capacity; disappointing cashew nut exports; war in Ukraine affecting food and oil prices and donor support; climate change and climate shocks; lack of political support for reforms; worsening debt risks; financial stress in SOEs (Annex III) and banking fragilities generating contingent liabilities.
  - Policy responses if downside risks materialize: further rationalize non-priority expenditures and domestically financed investment and seek additional IFIs’ support.
  - Upside: stronger cashew sector performance and successful reform implementation could underpin a faster recovery.

### Program objectives
- The ECF arrangement will focus on:
  - Supporting credible fiscal consolidation and ensuring debt sustainability.
  - Improving governance and transparency through a parsimonious structural agenda.
  - Meeting protracted BOP needs triggered by worsened current account deficits and reliance on portfolio investments until fiscal consolidation and better terms-of-trade improve external positions.
- Financing strategy and targets:
  - Remaining financing needs during the program period are expected to be met by issuance of Treasury securities in regional markets, reduced from 6.3 percent of GDP in 2021 to 2.3 percent of GDP by 2024.
- Program pillars:
  - Supporting fiscal consolidation and debt sustainability via:
    - Stronger revenue mobilization and expenditure containment including in the wage bill to generate fiscal space to protect social spending and key infrastructure investments.
    - Strengthening SOE oversight, especially of the public utility company, and mitigating fiscal risks.
    - Assisting the authorities to seek additional grants and concessional financing.
  - Implementing governance, AML/CFT effectiveness, and transparency reforms aimed at:
    - Strengthening expenditure control.
    - Mobilizing revenues.
    - Fighting corruption.
    - Deepening governance reforms for efficient management of fiscal resources and public investment and enhancing fiscal transparency.

### Policy issues and macroeconomic priorities
- Core policy priority: supporting an ambitious fiscal consolidation program to ensure debt sustainability while addressing developmental needs through spending efficiency, enhanced revenue mobilization, and stronger fiscal governance and transparency.
- Key policy challenges highlighted:
  - Staying on track with a credible fiscal consolidation path to catalyze financing from development partners and free up resources for development needs while ensuring debt sustainability.
  - Sustaining inclusive growth requires macroeconomic stability combined with strengthened governance and revenue mobilization to enable priority and infrastructure spending.
  - Addressing high levels of non-performing loans, an undercapitalized bank, and financial weakness in the public utility company to bolster financial intermediation and mitigate fiscal risks.
  - Completing implementation of RCF governance safeguards on COVID-19 spending and recommendations of the 2020 Governance Diagnostic report; improving beneficial ownership transparency and accelerating reforms of the asset declaration regime.
- Program support focuses on:
  - Strengthening governance institutions and public resource management.
  - Mitigating fiscal risks from the SOE sector.
  - Fostering a stronger business environment.
  - Addressing protracted BOP needs.

*IMF staff report — Executive Summary (1gnbea2023001) — January 12, 2023*

### 11.      Despite better-than-expected revenue mobilization, a significant wage overrun has

### 1gnbea2023001 - 11.      Despite better-than-expected revenue mobilization, a significant wage overrun has

### Fiscal outturn and 2022 developments
- Overall fiscal deficit projected to be higher by 1.3 percentage points of GDP compared to the 2022 Article IV report due to:
  - Higher wage spending from irregular hiring of workers.
  - Higher other current expenditures related to preparation for parliamentary elections, security and defense, and social and diplomatic services.
- Budget support and tax revenue:
  - France and Portugual each provided CFAF 3.3 billion in 2022.
  - Lower tax revenue also impacted fiscal goals despite higher-than-expected revenue mobilization.
- Corrective actions taken in 2022:
  - Containment of the wage bill in the second half of 2022 (Box I).
  - Rationalization of non-priority spending in the last three months of 2022.
  - Authorities intend to clear the wage arrears due to irregular hiring by end-2022.

### Wage bill overrun: scale, causes, and corrective measures (Box 1)
- Irregular hiring generated higher wage spending of CFAF 7.4 billion or 0.7 percent of GDP in 2022.
- Total irregular workers and budget impact by sector (2022):
  - Health: 1,147 healthcare workers; started Feb-21; stopped in end-Aug 2022; Impact on Budget 2022 (CFAF billions) 1.3
  - Education: 2,849 primary/secondary level teachers; started Jan-22; Yes (Regularized); Impact 5.0
  - Education (seasonal): 2,006 primary/secondary level teachers (seasonal); started Jan-22; Stopped in end-Jul 2022; Impact 0.4
  - Education (seasonal tertiary): 611 tertiary teachers (seasonal); started Nov-21; Stopped in end-Jul 2022; Impact 0.2
  - Justice Administration: 13 MP delegates; started Feb-21; Yes (Regularized); Impact 0.1
  - Justice Administration: 25 Judges; started Jan-21; Impact 0.2
  - Justice Administration: 153 Justice officials; started Oct-21; Impact 0.3
  - Total: 6,804 workers; Total Impact CFAF 7.4 billion; Percent of GDP (2022) 0.7
- Corrective measures implemented or planned:
  - Dismissal of irregular workers (except those regularized in education and justice).
  - Total freezing of promotion, hiring and salary increases.
  - Capping salary expenses for key ministries.
  - Full inventory of health and education facilities to assess personnel needs and identify ghost workers.
  - New decree: contracts require vacancies authorized by the Ministry of Labor and the Ministry of Finance.
  - Elimination of two-thirds of advisor positions at the Presidency, Prime Minister’s Office, the Presidency of the Parliament, and the Presidencies of the Constitutional and Audit Courts.
- Additional 2023 measures:
  - Update inventory of existing health and schooling facilities and check staff assignments.
  - Conduct a new census of public administration within the World Bank capacity building project.
  - Implement IMF wage bill management TA recommendations to improve efficiency and medium-term wage bill management.

### Fiscal consolidation strategy, targets, and composition
- Objective: ensure medium-term fiscal sustainability while supporting economic recovery.
- Debt and deficit trajectories:
  - Stock of public and publicly guaranteed debt projected to increase to 81 percent of GDP in 2022.
  - Staff will recommend containing the domestic primary deficit below the 2021 outturn and implementing measures to bring the fiscal deficit and debt ratio within 3 percent and 70 percent of GDP by 2025 and 2027 respectively, in line with WAEMU convergence criteria.
- Expected fiscal savings and composition:
  - Domestic primary expenditure projected to decline by about 2.3 percentage points of GDP by 2025, of which 1.3 percentage points come from wage bill management measures.
  - Estimated fiscal saving of wage bill and expenditure control would be about 1.9 percent of GDP by 2027.
  - In 2023, VAT implementation expected to generate about 2.6 percent of GDP by 2027.
  - Revenue mobilization measures should increase revenue by about 1 percentage point of GDP by 2025.

### Specific policy measures and reforms
- Revenue mobilization:
  - Broadening of tax bases, simplifying tax system, strengthening tax administration and compliance (MEFP ¶12).
  - 2022 tax package: revised tax code, tax penalty regime, new VAT law, and full implementation of electronic filing of tax returns.
  - IMF-supported TA and capacity development required for reforms to the general exemptions regime and tax administration (Annex V).
  - Authorities requested IMF support to strengthen tax administration, modernize the income tax regime, draft new legislation for the general exemption regime, and prepare a new legal framework and fiscal regime for exploitation of natural resources.
- PFM and expenditure control:
  - Wage bill rationalization critical to create fiscal space for priority spending.
  - Additional 2023 measures include a new census of public administration and redistribution of staff workload in the Ministry of Education.
  - A prior action and SBs will enhance wage bill control (Table 8-9 and ¶19).
- SOE oversight and fiscal risks:
  - EAGB financial situation is largest source of fiscal risks (Annex III).
  - Measures with World Bank support: installation of 35,000 post and pre-paid electricity meters; progress in OMVG regional project connection to bring hydropower and lower average generation costs.
- Safeguarding social and priority spending:
  - Program will safeguard social and priority spending and public investment.
  - A floor on social and priority spending is proposed as a quantitative target (Table 6).
  - This spending is projected to increase by 0.7 percentage points of GDP during 2022-27 compared to 2010-19.
  - Capital expenditure:
    - Increased to an average of about 9 percent of GDP per annum during 2020-21.
    - Projected to be 7.4 percent of GDP per annum during 2022-27, 1.5 percentage points higher than 2010-19.
    - Domestically financed capital investment projected to increase significantly.

### Financing, arrears, and debt sustainability
- Additional financing needs and gap:
  - Reducing financing costs and preserving debt sustainability entail additional financing needs of 1.9 percent of GDP over the next three years.
  - Staff estimates a financing gap of CFAF 8.1 billion each year—around 0.6 percent of GDP—to be covered by the ECF arrangement.
- Arrears:
  - Authorities plan to clear all audited and recognized domestic arrears during the program period and are addressing legacy external arrears.
  - Legacy external arrears totaled US$5.7 million at end-2022 to Brazil, Russia, and Pakistan.
  - Agreement reached with Russia (US$1.5 million); negotiating with Pakistan (US$2.2 million); negotiations with Brazil (US$1.9 million) pending Brazilian parliament approval.
- Debt risk assessment:
  - Guinea-Bissau at a high risk of external and overall debt distress but debt is assessed sustainable (see DSA).
  - External debt reached 40 percent of GDP at end-2021.
  - Risk of external debt distress is high because debt-service ratio indicators breach indicative thresholds under the baseline.
  - PV of public debt relative to GDP remains well above its indicative benchmark throughout projection period.
  - Assessment of sustainability based on authorities’ commitment to sound policies and strong donor engagement.
  - QPC of the zero ceiling on new non-concessional borrowing (with exception for certain BOAD Development and Cohesion Fund projects).
  - IMF TA support for debt management will be provided.

### Financial sector stability measures
- NPLs and undercapitalized bank:
  - NPLs have decreased since 2012 but remain high because of a large undercapitalized bank.
  - Government approved an offer of a strategic investor to buy its stake and capitalize the institution to comply with WAEMU regulatory standards.
  - Authorities settled arrears owed by the government to borrowers from the bank and are monitoring due diligence to be submitted to WAEMU Regional Banking Commission.
  - If transaction does not materialize, authorities will implement an additional SB in line with 2022 Article IV recommendations by end-December 2023 (MEFP ¶24).
- Specific recommended actions:
  - Provide financial information requested by IMF including assessment of bank’s financial position and a full independent audit of all loan portfolios including NPLs by a third-party auditing firm to be performed by end-December 2023 (LOI, ¶10).
  - Prepare a reconsidered viable new government plan for disengaging from the undercapitalized bank by 2024.
  - Implement recommendations of the Banking Commission.

### Structural reforms and governance priorities
- Program priorities:
  - Implement and complete reforms initiated under the SMP to strengthen fiscal consolidation and governance.
  - SBs are parsimonious, prioritized, sequenced, and anchored in capacity development support (Annex VI).
- PFM reforms:
  - Strengthen wage bill controls and cash management (MEFP ¶18).
  - Quarterly reconciliation between personnel and payroll records.
  - Deploy IMF-supported blockchain project to safeguard integrity of payroll data and employment contracts and flag irregular hiring.
  - Action plan prepared for TSA implementation and coordination with revenue generating entities (Annex V).
- Audits and procurement:
  - Continued audit work on COVID-19 related spending; external Audit Court audits planned.
  - Audit Court to complete by end-2023 an audit of irregular hiring process in 2021-22 requested by MoF.
  - Publication of crisis-related contracts including beneficial ownership information; guidelines for 2022 decree on beneficial ownership to be issued.
- AML/CFT and anti-corruption:
  - Step up efforts to improve AML/CFT effectiveness and anti-corruption framework to address priority recommendations in the 2022 Mutual Evaluation Report (MER).
  - Complementary actions: prepare national AML/CFT policy and action plan; require beneficial owner identification for legal persons registering at the Registry; prepare action plan to strengthen risk-based AML/CFT supervision (Annex V).
  - Resubmit law reforming the asset declaration regime as soon as new Parliament operational.
  - Broader measures to improve rule of law and market regulations per 2020 Governance Diagnostic report (MEFP ¶26-27).

### Program modalities, monitoring, and financing outlook
- ECF arrangement request:
  - Three-year ECF arrangement with access of SDR 28.4 million (100 percent quota).
  - Phasing: a third of the access per year (Table 10).
  - All disbursements will be on-lent to the government (budget support).
- Monitoring framework:
  - Program performance monitored via two quarterly reviews followed by five biannual reviews.
  - Proposed QPC: ceiling on wage bill expenditures (Table 6 and Appendix I ¶4).
  - Prior actions include approval by Council of Ministers of 2023 budget in line with program parameters and measures to enforce executive order ending irregular hiring (Audit Court audit initiation; publication of third-party complementary audit of COVID spending).
  - SBs focus on PFM reforms, tax framework reforms, anti-corruption measures, beneficial ownership implementation, and transparency in charges and fees.
- Financing prospects:
  - Program fully financed in the first twelve months; good prospects for adequate financing throughout duration.
  - Re-engagement with IMF since 2021 led to higher budget support grants in 2021 and 2022.
  - In 2023, ECF-supported program expected to catalyze budget support grants with at least CFAF 3.8 billion included in the budget.
  - IMF support over program period would amount to 12 percent of the total grants and project loans to address external financing needs (Text Table 4).

*Source: Guinea-Bissau country chapter (IMF staff report excerpts).*

### 24.      Guinea-Bissau’s capacity to repay is adequate but subject to significant risks (Table 7).

### Guinea-Bissau’s capacity to repay is adequate but subject to significant risks (Table 7).

### Capacity to repay: baseline indicators and projections
- Outstanding obligations to the Fund based on existing and prospective drawings would peak in 2025 at 3.0 percent of GDP.
- Peak outstanding obligations would be 16.3 percent of gross official reserves.
- Debt service would peak at 2.3 percent of revenues (excluding grants) in 2030.
- Debt service would peak at 2.1 percent of exports in 2030.
- In the medium-term, debt servicing capacity may become strained as financing terms become less generous.

### Downside risks and mitigants
- Capacity to repay the Fund is subject to significant downside risks (Annex I and ¶9 bullet 3).
- Risks are mitigated by:
  - the authorities’ strong track record of servicing their debt obligations to the Fund;
  - policy measures envisaged in the program; and
  - membership of the currency union.
- Policy recommendation: Guinea-Bissau should continue to pursue highly concessional financing and fiscal adjustments to ensure adequate capacity to repay.

### Safeguards assessment
- The BCEAO has implemented all recommendations provided in the 2018 safeguards assessment.
- The assessment found that the BCEAO had broadly appropriate governance arrangements and a robust control environment.
- An update assessment of the BCEAO is planned for 2023.

### Staff appraisal: progress, policies, and program support
- Guinea-Bissau has preserved economic and political stability despite significant shocks and a coup attempt in February 2022.
- The moderate recovery in 2022 has been sustained by higher agricultural production and higher private sector investment.
- Authorities’ corrective actions in 2022 included:
  - ending irregular hirings via enhanced oversight and an audit request by the Audit Court;
  - eliminating more than two-thirds of advisor positions at the Presidency, the Prime Minister’s Office, the Presidency of the Parliament, and the Presidencies of the Constitutional and Audit Courts.
- Political context:
  - Despite upcoming parliamentary elections, there is broad ownership of the Fund-supported reform agenda across main political parties.
  - Broad political support should build national consensus on fiscal consolidation, debt sustainability, and governance/transparency reforms.
- 2023 budget and program alignment:
  - The proposed 2023 budget is consistent with the objectives and parameters of the ECF-supported program.
  - Program measures include wage bill containment, revenue mobilization, and expenditure control.
  - With these measures, the 2023 budget should narrow the domestic primary deficit to an almost balanced position.
  - The 2023 budget limits new infrastructure projects to those financed with concessional borrowing.
- Financial sector and public enterprise measures:
  - Government accepted an offer from a strategic investor to buy the government stake and recapitalize the undercapitalized bank; if this does not materialize, a viable alternative plan to complete divestment by 2024 should be prepared based on IMF recommendations.
  - The undercapitalized bank should achieve recapitalization or otherwise be liquidated or resolved by the end of the ECF-supported program period (December 2025).
  - Authorities should bolster efforts to contain risks from EAGB, the public utility company; a time-bound business strategy is essential.
  - Staff urges cooperation with the World Bank and other IFIs to mobilize financing to reduce EAGB’s dependence on commercial bank borrowing and prevent arrears accumulation.
- Governance, transparency, and anti-corruption:
  - Continue efforts to implement governance and transparency reforms.
  - Complete and publish an external audit of all COVID-19 spending by the Audit Court, following the independent third-party audit.
  - Timely online publication of contract information and beneficial owners for public procurement should continue.
  - Promptly implement reforms to improve AML/CFT effectiveness, the anti-corruption framework, and the revenue administration and PFM.
- Program support and surveillance:
  - Staff supports the authorities’ request for the ECF arrangement, based on strong progress under the SMP program.
  - IMF is supporting the authorities with tailored TA in cooperation with international partners.
  - It is expected that the next Article IV consultation with Guinea-Bissau be held on the 24-month cycle, according to Decision No. 14747-(10/96) on consultation cycles.

*Source: IMF staff projections and assessments in the provided excerpt.*

### 9. Guinea

### 9. Guinea-Bissau

### Proposed Schedule of Disbursements Under the ECF Arrangement, 2023-25
- In millions of SDR; In percent of Quota
- January 30, 2023 — 2.37 — 8.3
  - Executive Board approval of the three-year ECF arrangement.
- April 17, 2023 — 2.37 — 8.3
  - Observance of the performance criteria for January 31, 2023 and completion of the first review under the arrangement.
- July 17, 2023 — 2.37 — 8.3
  - Observance of the performance criteria for March 31, 2023 and completion of the second review under the arrangement.
- October 17, 2023 — 2.37 — 8.3
  - Observance of the performance criteria for June 30, 2023 and completion of the third review under the arrangement.
- April 17, 2024 — 4.73 — 16.7
  - Observance of the performance criteria for December 31, 2023 and completion of the fourth review under the arrangement.
- October 17, 2024 — 4.73 — 16.7
  - Observance of the performance criteria for June 30, 2024 and completion of the fifth review under the arrangement.
- April 17, 2025 — 4.73 — 16.7
  - Observance of the performance criteria for December 31, 2024 and completion of the sixth review under the arrangement.
- October 17, 2025 — 4.73 — 16.7
  - Observance of the performance criteria for June 30, 2025 and completion of the seventh review under the arrangement.
- Total Disbursements — 28.40 — 100.0
- Source: IMF staff estimates and projections.

### Background and Context
- Guinea-Bissau has a high level of political, institutional, and economic fragility.
- Economic growth has been low and volatile for decades, and poverty remains widespread.
- The newly independent state inherited weak public institutions that severely constrain governance.
- The country lacks some basic functions of public financial management (PFM) systems.
- The security sector absorbs a large share of expenditure but faces no external threats or internal conflict.
- Delivery of public goods is limited; public spending is almost exclusively devoted to salaries, with little resources allocated to investment.
- Recent Fund engagement:
  - Rapid Credit Facility (RCF) disbursement in January 2021.
  - Staff-Monitored Program (SMP) completed in May 2022; SMP approved in July 2021 with three quarterly reviews.
  - The RCF provided financing for critical health spending and the SMP supported reforms to stabilize the economy, strengthen governance, and build a track record for an Extended Credit Facility (ECF).

### Sources of Fragility
- An indebted state with low capacity to provide public services:
  - Ranks among the world’s lowest in government effectiveness, controlling corruption, regulatory quality, and the rule of law.
  - Social spending is insufficient and there are large infrastructure gaps.
  - At high risk of debt distress; largest share of debt is external with main holders being multilateral organizations.
- Conflict among elites over state power and public resources:
  - Elites’ competition has contributed to state capture risk, corruption, unproductive public investment, elevated wage bill, and low tax compliance.
  - Illicit activities including drug trafficking contribute to state capture and political instability.
- Poor macroeconomic fundamentals hamper investment in human capital and the private sector:
  - Domestic and foreign investment are among the lowest in the region.
  - Only a quarter of the population has access to electricity.
  - Literacy rates are below the regional average.
  - Financial intermediation is low; banking sector constrained by high levels of non-performing loans (NPLs).
- Economy over-reliant on one commodity:
  - Raw cashew nuts account for over 90 percent of merchandise exports.
  - More than 50 percent of households are thought to be employed in the sector.
- High vulnerability to climate shocks and public health crises:
  - Recent floods and droughts have damaged infrastructure, caused loss of food crops, and forced internal migration.
  - Country has experienced cholera outbreaks and the COVID-19 pandemic.

### Strategy to Escape Fragility
- Macroeconomic stability
  - Implement a credible fiscal consolidation strategy and converge deficit and debt levels to the WAEMU convergence criteria.
  - Use stability to build economic resilience and increase confidence of international donors and private investors.
- Protect and enhance social and priority spending
  - Protecting social spending supports social inclusion and enables capacity building.
  - Greater social spending could crowd in donor support.
- Fiscal management and institutional reforms
  - Enhance revenue mobilization, PFM and expenditure control.
  - Increase tax collection capacity.
  - Enhance PFM to strengthen fiscal transparency and mitigate SOE fiscal risk.
  - Strengthen expenditure control, particularly on the wage bill.
- Debt management
  - Improve capacity for debt recording, monitoring and overall management to avoid payment problems and arrears accumulation.
  - Increase transparency by publishing annual reports covering debt service, disbursements, and agreements.
  - Continue reporting to debt statistics databases.
- Improve quality and timeliness of economic data
  - Address serious shortcomings, particularly in national accounts and balance of payments.
  - Statistics agency needs more resources.

### Priority Actions to Foster Private Sector Development
- Fostering financial intermediation
  - Address NPLs and a successful disengagement from the large, undercapitalized bank to support financial stability and intermediation.
  - Develop digital financial infrastructure and mobile money services to improve transfers, remittances, microcredit, and business creation.
  - Strengthen the credit information bureau.
- Economic diversification
  - Leverage natural endowments for mining and fishing, and coastline for tourism.
  - Prioritize human capital investment, improve regulatory system and natural resources tax regimes, and expand infrastructure projects.
- Agricultural productivity
  - Address infrastructural deficiencies and bottlenecks: outdated land management system, limited access to inputs, and limited market information.
  - Government, working with FAO, IFAP and WFP, can develop policies to improve yields.

### Reforms to Enhance Accountability of Public Servants
- Strengthen horizontal and bottom-up accountability
  - Annual budget execution should be audited by the Supreme Audit Court.
  - Foster participation with civil society on project evaluation and implementation.
  - Promote transparency, information and oversight of community-involved projects, produce documents in Creole, and integrate outreach programs and anticorruption measures.
- Enable political competition
  - Establish stronger functional democratic institutions and political parties.
  - Ensure checks and balances between the three branches of government.
- Improve rule of law, tackle corruption risks, and reduce barriers to justice
  - Disseminate laws, orders, and court decisions at low cost and improve access to courts and registries.
  - Establish clear rules and practices for implementing strengthened legal framework on anticorruption, including expanding competencies of institutions responsible for the asset declaration system and anticorruption efforts.
  - Strengthen budgetary autonomy and support staffing and financial resources of key institutions.
  - Improve protection of witnesses and whistleblowers.

### Fund Engagement
- Focus areas for future engagement:
  - Reforms initiated under the SMP to implement credible fiscal consolidation, foster financial intermediation, and support governance, AML/CFT, and transparency reforms.
- Reforms and initiatives underway:
  - Establishment of a TSA to strengthen debt management and improve government spending efficiency.
  - Review of the debt management framework, wage bill policy, public investment management and SOE supervision.
  - Amendment of procurement legal framework to enable collection and publication of beneficial ownership information.
  - Submission to parliament to reform the asset declaration regime.
- IMF technical assistance (TA) approach:
  - Continue providing TA through a tailored capacity building program prioritizing revenue administration, tax policy, PFM, governance, debt management, bank restructuring, statistics and financial intermediation.
  - Adopt an incremental approach to TA delivery due to absorptive capacity constraints: insufficiently trained staff, undefined work procedures and changing policy priorities.
- Implementation risks and constraints:
  - Lack of proper budget execution and inability to control the wage bill have been major shortcomings in SMP implementation.
  - Absorptive capacity constraints require careful sequencing and prioritization.

### Risks (Risk Assessment Matrix) — External and Domestic
- External Risks
  - Commodity price shocks; Intensifying spillovers from Russia’s war in Ukraine; Deepening geo-economic fragmentation and geopolitical tensions.
    - Expected impacts:
      - Economy hit by supply chain disruptions; increase in inflation, food insecurity and poverty; additional pressure on public expenditure and tax exemptions; balance of payments imbalances.
    - Policies to mitigate:
      - Create fiscal space through wage bill control, spending review and tax mobilization.
      - Prioritize and target public spending towards the most vulnerable people.
      - Review and reprioritize tax exemptions.
      - Mobilize additional grants and concessional loans from development partners.
      - Encourage diversification of the economy.
    - Relative Likelihood / Expected Impact: High / ST; High; High; High / ST (as presented in the RAM).
  - Abrupt global slowdown or recession.
    - Expected impacts:
      - Volatility in cashew nut prices and demand; balance of payments imbalances; higher debt financing costs; reduced fiscal space.
    - Policies to mitigate:
      - Review and reprioritize public spending; create fiscal space; mobilize grants and concessional loans.
    - Relative Likelihood / Expected Impact: High / ST; High.
  - Systemic social unrest from rising inflation, declining incomes, and worsening inequality.
    - Expected impacts:
      - Delayed fiscal adjustment; political instability; limited financing inflows; supply disruptions.
    - Policies to mitigate:
      - Prioritize and target public spending; create fiscal space; mobilize grants and concessional loans.
    - Relative Likelihood: Medium; Expected Impact: High / ST.
  - De-anchoring of inflation expectations and stagflation.
    - Expected impacts:
      - Increase in inflation, food insecurity and poverty; social unrest; delayed fiscal adjustment; tightening financial conditions; deterioration of fiscal position.
    - Policies to mitigate:
      - Prioritize and target public spending; create fiscal space through wage bill control, spending review and tax mobilization.
    - Relative Likelihood / Expected Impact: Medium / High / ST.
  - Further adverse cashew nut price movements.
    - Expected impacts:
      - Private sector incomes pressured; government revenues diminish; balance of payments problems.
    - Policies to mitigate:
      - Control public expenses; step up diversification efforts.
    - Relative Likelihood / Expected Impact: High / ST, MT; Medium.
- Domestic Risks
  - Local Covid-19 outbreaks.
    - Expected impacts:
      - Large adverse impact due to weak health system; disruptions in cashew trade and business.
    - Policies to mitigate:
      - Prioritize spending towards health sector and social protection; accelerate vaccination roll out; mobilize grants and concessional loans.
    - Relative Likelihood / Expected Impact: Medium.
  - Banking instability from high NPLs and bank undercapitalization.
    - Expected impacts:
      - Limited credit, weakened depositor confidence, potential contingent liabilities increasing fiscal pressures.
    - Policies to mitigate:
      - Enhance banking supervision and enforce prudential regulations; improve processes for collection of debts and collateral.
    - Relative Likelihood / Expected Impact: High / ST.
  - Continued weaknesses in state-owned enterprises (notably EAGB).
    - Expected impacts:
      - Limited and expensive electricity and water supply; potential contingent liabilities adding to fiscal pressures.
    - Policies to mitigate:
      - Implement credible strategy to improve management of public enterprises; improve governance, transparency and accountability.
    - Relative Likelihood / Expected Impact: Medium / High / ST.
  - Natural disasters related to climate change.
    - Expected impacts:
      - Harm to cashew production, worsening rural livelihoods, exacerbate extreme poverty and inequalities; higher recovery spending, higher financing costs, lower revenues.
    - Policies to mitigate:
      - Diversify the economy; address infrastructure gaps and regional disparities; institute social safety nets; promote investment in climate resilient infrastructure.
    - Relative Likelihood / Expected Impact: Medium / High / ST, MT.

*Source: IMF staff estimates, projections, and Risk Assessment Matrix as presented in the chapter.*

### Annex III. Update on Fiscal Risks in EAGB

### Annex III. Update on Fiscal Risks in EAGB

### Background and context
- Electricidade e Aguas da Guinee Bissau (EAGB) switched from small diesel generators to a power ship (Karpower) off the coast of Bissau in 2019 as a temporary solution.
- Generation capacity under the amended 2020 PPA increased from 17 MW to 24 MW in 2021 and 30 MW in 2022.
- Electricity price of the power ship is driven mainly by capacity rather than actual usage, increasing electricity purchase costs and worsening EAGB’s financial position.

### Financial performance and liabilities
- In 2021, EAGB incurred about 0.3 billion CFAF of deficits every month (Figure 1).
- In 2022, monthly deficits averaged 1.1 billion CFAF between January and September (Figure 2).
- Revenue covered only 60 percent of expenditure in 2022 (January–September).
- Deficits have been met by accumulation of unpaid invoices owed to Karpower and borrowing from commercial banks.
- Liabilities increased from 3.4 percent of GDP in December 2021 to 4.0 percent of GDP in September 2022.
- Electricity purchase costs account for 70 percent of EAGB’s expenditure.

### Tariff collection, metering, and revenue recovery
- Monthly tariff collection averaged 1.5 billion CFAF between January and September 2022.
- Current collection rate is around 68 percent.
- By improving the collection rate, EAGB should be able to collect more than 2 billion CFAF of tariff per month without changing existing tariffs.
- EAGB sends about 0.7 billion CFAF of electricity invoices per month to the government; the government pays only 0.5 billion CFAF per month, disputing invoiced amounts.
- EAGB acquired 35,000 pre and post-paid analog meters and aims to install them by the first quarter of 2023.
- Installing meters for private and public users as soon as possible is crucial to achieve revenue targets.

### Management, operations, and human resources reforms
- Headcount slightly decreased between January and September 2022, but wages increased by 10 percent from the same period in 2021.
- EAGB lacks a functioning finance department and IT system; accounting functions have been outsourced, complicating budget and financial control implementation.
- Containing personnel and administrative costs requires significant improvements in management and operations.
- Facilitation of the World Bank Emergency Water and Electricity Services Upgrading Project is necessary to support reforms.
- Development and operationalization of EAGB’s new Enterprise Resource Planning (ERP) system is expected in early 2023.

### Reducing electricity purchase costs and the OMVG project
- Even with full implementation of revenue and expenditure measures, eliminating monthly deficits will be challenging without reducing electricity purchase costs.
- Implementation of the OMVG regional project (connection to hydropower plants in Guinea-Conakry) is crucial to restore EAGB’s financial situation.
- By transitioning from the power ship to hydropower, electricity purchase costs are expected to be reduced to the two-thirds.
- Progress on OMVG implementation has been significant, but risks of delay remain.
- Construction of transmission lines from the Guinea-Conakry border to Bissau, planned for completion in the first half of 2023, is facing challenges due to soft grounds in swamp areas.

### Financing needs, donor support, and restructuring of past debt
- In the short run, EAGB must identify affordable financing to meet gaps not filled by revenue and expenditure measures.
- Continued accumulation of arrears risks power supply disruption; reliance on commercial bank borrowing may create macro-financial risks.
- In the medium term, donor support is needed for critical infrastructure rehabilitation, including distribution lines to eliminate very high technical losses.
- Concessional financing is required to refinance/restructure expensive debt accumulated in the past.
- The World Bank’s role includes: (i) improvements to EAGB’s management and operation, (ii) OMVG project implementation, (iii) extension and densification of national grids, and (iv) development of solar off-grid solutions.
- The African Development Bank and the BOAD are supporting development of distribution lines to ensure connectivity to the OMVG project.
- The time-bound business strategy of EAGB (SB, end-September 2023) should articulate how the government will support efforts to mobilize donor funds in coordination with the World Bank and other development partners.

### Key statistics and timelines
- Generation capacity: 17 MW (pre-2019), 24 MW in 2021, 30 MW in 2022.
- Monthly deficits: about 0.3 billion CFAF in 2021; 1.1 billion CFAF on average Jan–Sep 2022.
- Revenue coverage of expenditure (Jan–Sep 2022): 60 percent.
- Liabilities: 3.4 percent of GDP (December 2021) → 4.0 percent of GDP (September 2022).
- Electricity purchase costs share of expenditure: 70 percent.
- Monthly tariff collection (Jan–Sep 2022): 1.5 billion CFAF (average).
- Current collection rate: around 68 percent.
- Potential tariff collection without tariff changes: more than 2 billion CFAF per month.
- Invoices to government: 0.7 billion CFAF per month; government payments: 0.5 billion CFAF per month.
- Meters acquired: 35,000 pre and post-paid analog meters, target installation by first quarter of 2023.
- ERP expected operationalized: early 2023.
- Transmission lines completion planned: first half of 2023 (facing soft ground challenges).
- EAGB business strategy (SB) deadline: end-September 2023.

*Source: Annex III. Update on Fiscal Risks in EAGB, IMF staff report content.*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Context and request
- Letter dated January 12, 2023 requesting approval of a new three-year ECF arrangement for the period January 2023-January 2026 in the total amount equivalent to SDR 28.4 million.
- Request for immediate disbursement of the first tranche totaling SDR 2.37 million.
- Attached documents: Memorandum of Economic and Financial Policies (MEFP) and Technical Memorandum of Understanding (TMU).
- Program monitoring: seven reviews under the ECF arrangement, scheduled quarterly until June 2023 and afterwards on a semi-annual basis.

### Recent developments and shocks
- Domestic and external shocks cited: large drop in cashew prices in 2019, floods, the Covid-19 pandemic in 2020 and 2021, and the increase in food and fuel prices stemming from the war in Ukraine in 2022.
- COVID-19 impact: affected over 8,900 people with over 170 deaths; by end-December 2022 about 58 percent of the adult population had been fully vaccinated.
- Cashew nut export volume: decreased by 21.0 percent in 2020; increased in 2021 to exceed pre-crisis level; lower-than-expected cashew exports contributed to weaker performance in 2022.
- BCEAO measures supported credit: credit grew by 7.3 percent in 2021 and expected to grow at the same rate in 2022.

### Macroeconomic developments and outlook
- Growth:
  - 2020: 1.5 percent
  - 2021: 6.4 percent
  - 2022: expected to slow to 3.5 percent
  - Medium-term: expected to increase to around 5 percent; long-term growth potential conservatively estimated to be around 4 percent per year.
- Inflation:
  - Average inflation expected to increase to 7.8 percent in 2022.
  - Medium-term inflation expected to gradually converge to 2 percent.
- Fiscal balances:
  - Overall fiscal deficit: 9.6 percent of GDP in 2020; 5.6 percent of GDP in 2021; expected to equal 5.5 percent of GDP in 2022.
  - Government commitment to bring the fiscal deficit within 3 percent of GDP by 2025.
- Public debt:
  - Government commitment to bring the debt ratio to 70 percent of GDP by 2027.
- External sector:
  - Current account deficit: improved to 0.8 percent of GDP in 2021 from 2.6 percent of GDP in 2020; projected to worsen to 5.9 percent of GDP in 2022.
  - External financing needs met by smaller growth of net foreign assets and lower debt service.
- Donor support cited: Portugal and France provided budget support of CFAF 3.3 billion each in 2022.
- SDR allocations and previous IMF support:
  - Rapid Credit Facility (RCF) disbursement of SDR 14.2 million (50 percent of quota) approved in January 2021.
  - August 2021 SDR 27.2 million allocation.

### Program objectives
- Secure macroeconomic stability, ensure fiscal and debt sustainability, strengthen social protection, fight corruption, and improve governance and transparency.
- Create fiscal space for social and priority spending and revamp public infrastructure while ensuring debt sustainability and catalyzing donor resources.
- Fiscal consolidation strategy: improve allocation of public expenditures toward infrastructure investments and social programs without accumulation of arrears; avoid expensive non-concessional borrowing.
- Budget posture: 2023 budget approved by the Council of Ministers in December 2022 in line with ECF-supported program parameters; to be submitted to Parliament when it reconvenes in 2023.

### Fiscal policy commitments and measures
- 2023 budget anchored in parameters of the ECF-supported program in terms of overall and domestic primary deficits.
- Measures include:
  - Enhancing revenue mobilization (including new fees on bunking services for industrial fishing; impact uncertain and to be assessed over the course of the ECF-supported program).
  - Enforcing tax collections and exercising strict control on budgetary execution to avoid accumulation of arrears.
  - Adhering to strict limits for wages and salaries; addressing wage spending overruns due mainly to irregular hiring (already addressed).
  - Rationalization of goods and services and other expenditures; reallocating resources to support priority spending.
  - Not contracting non-concessional borrowing to ensure debt sustainability.
  - Strengthening debt management practices, wage bill policy, public investment management and SOEs supervision.
  - Continued gradual implementation of the Treasury Single Account with technical assistance from the World Bank and the IMF.
  - Developing a strategy to prevent arrears accumulation and clear the stock of audited and approved domestic expenditure arrears.
- Actions to improve financial sustainability and mitigate fiscal risks of the national utility company EAGB.

### Governance and transparency commitments
- Complete implementation of the RCF’s governance safeguards on COVID-19 spending and the recommendations of the 2020 Governance Diagnostic report.
- Continue improving beneficial ownership transparency and accelerating asset declaration regime reforms with IMF technical assistance.
- Program success dependent on meeting strong governance commitments aimed at enhancing public finance transparency, accountability, and efficiency.

### Social protection and mitigation measures
- Policies to protect the most vulnerable: targeted transfers and temporary cuts of gasoline taxes during shocks.
- Goal to generate fiscal space to protect social spending while undertaking key infrastructure investments.

### Program implementation and monitoring
- MEFP and TMU convey understandings reached with IMF staff during the November 8-22 mission.
- Implementation to be monitored through quantitative performance criteria and indicative targets as described in the TMU.
- Authorities commit to provide timely information for monitoring economic developments and program implementation, as agreed in the TMU or upon staff request.
- Authorities authorize IMF publication of the letter, the MEFP, the TMU, and the IMF staff report on the request for an ECF arrangement, subject to Executive Board approval; documents to be posted on the official website of the Bissau-Guinean government.

_Source: Letter of Intent and attached MEFP and TMU (Appendix I), January 12, 2023._

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

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

### Tax and non-tax measures
- Parliament approved a series of the new tax legislation under the SMP, including:
  - the revised general tax code and tax penalty regime
  - the new VAT bill
- The revised custom code has been submitted and is pending approval by Parliament.
- In 2022:
  - a tax package was promulgated to simplify and enhance transparency of the tax system
  - the Kontaktu system for electronic filing of tax returns was fully implemented
- Expected supporting actions and timelines:
  - submit to Parliament the revised law on the general exemption regime (SB, end-December 2023)
  - submit revised income tax and stamp duties bills (SB, end-June 2025)
  - implement the new VAT law and action plans for improving the custom and tax administrations with continued IMF technical assistance
  - prepare an action plan to develop a register of resource rights holders and undertake diagnosis of the fiscal regime for natural resources (SB, end-June 2024)

### Wage bill and expenditure controls
- Government commitments and corrective actions to rationalize public expenditures and control wage bill:
  - total freezing of hirings
  - capping salary expenses for key ministries
  - full inventory-taking of health and education facilities to assess personnel needs and identify irregular workers
  - streamlined advisor positions by two-thirds (i.e., 51 people) at the Presidency, the Prime Minister’s Office, the Presidency of the Parliament, the Presidencies of the Supreme and Audit Courts, and Prosecutor’s Office
  - dismissed health and education workers also working in the private sector
  - strengthen payroll integrity, including deployment of the blockchain solution (as discussed in ¶18)
- Budget actions:
  - Council of Ministers approved the 2023 budget proposal consistent with the program parameters (Prior Action)
  - the budget includes measures for rationalization of the wage bill, containment of non-priority expenditures, tax expenditures controls, and suspensions of new infrastructure projects financed by non-concessional borrowing
  - commitment not to incur overspending except in the case of force majeure as mentioned in the WAEMU Directive N°06/2009/CM/UEMOA on Finance Laws

### Safeguarding priority spending and public investments
- Commitment to safeguard priority spending on health, education and social sectors and public investments while rationalizing wages and non-priority expenditures
- Medium-term projection:
  - social priority spending is projected to increase by 0.7 percentage points of GDP compared to the average of pre-Covid-19 period, as reflected in the program floor on social and priority spending
- Public investment management reforms:
  - accelerate reforms including creation of an excel-based medium-term Public Investment Project (PIP) database and centralization of all quantitative information included in the Fichas de Projecto (SB, end-December 2023)

### Mitigating fiscal risks (SOE oversight and EAGB)
- Establish and implement the Technical Unit for Monitoring SOEs (UTAM) under the MoF to monitor and supervise SOEs (SB, end-March 2023)
- Increase transparency in the SOE sector by preparing and publishing quarterly and annual reports on SOEs performance, starting with the most relevant SOEs (SB, end-June 2023 and end-December 2024)
- EAGB-specific actions:
  - prepare a report with strategies and action plans to reestablish the financial situation of EAGB
  - internalize accounting and record-keeping functions and avoid outsourcing (SB, end-September 2023)
  - receive World Bank assistance to revamp EAGB’s management and operations and enhance the performance of the electricity sector

### Measures to mitigate debt vulnerabilities
- Debt context and targets:
  - total public debt of Guinea-Bissau is estimated to be 79 percent of GDP in 2021
  - share of credits from the Fund, World Bank, and African Development Bank in total external public debt was 40 percent of GDP in 2021
  - share of all multilateral creditors in total external public debt was 79 percent in 2021
- Policy commitments:
  - sustained fiscal consolidation and prudent borrowing policy
  - reduce past reliance on non-concessional borrowing from the BOAD during the program
  - zero ceiling on new non-concessional borrowing (except for the BOAD Development and Cohesion Fund)
- Projected outcomes by 2027:
  - total public debt will decline to 68 percent of GDP by 2027
  - external debt will decline to 30 percent of GDP by 2027

### Domestic and external arrears
- Domestic arrears:
  - plan to start clearing remaining stock of domestic arrears accumulated between 1974 and 1999 amounting to CFAF 12.2 billion in the coming years
  - with external technical support, intend to determine the true amount of any outstanding domestic arrears through further auditing, verifying full tax compliance of all creditors, and determining net government arrears after correcting for any tax obligations
  - strategy to clear all outstanding domestic arrears over the medium term will be decided based on these results
- External arrears:
  - agreements or settlements reached with Libya, Taiwan Province of China, Angola, and [Russia]
  - negotiations with Brazil pending final approval from the Brazilian authorities
  - requests sent to Pakistan in November 2021 to attempt resolving remaining external arrears
  - joined the Debt Service Suspension Initiative (DSSI) and intend to explore debt reprofiling and restructuring with development partners if downside risks materialize

### Strengthening debt management and transparency
- Seek long-term technical assistance to improve capacity for debt recording, monitoring and overall debt management including arrears and extrabudgetary and social security funds
- Publishing practices and enhancements:
  - started publishing annual reports on debt (both external and domestic) covering debt service, disbursements and agreements
  - continue reporting to international debt statistics databases
  - expand coverage of the published annual debt bulletin to cover debt from the two largest SOEs that pose the largest fiscal risks (EAGB and the civil aviation authority)
  - publish quarterly debt bulletins that include central government debt and guarantees
- Institutional coordination:
  - hold weekly coordination meetings between the Directorate Generals of Treasury and Debt
  - implement decree that reinforces their organizations

### Investment planning and borrowing terms
- New investments and future debt contracting principles:
  - carefully plan new investments and contract future debt only on highly concessional terms
  - rank investments based on cost-benefit analysis, including social considerations and impact on macroeconomic stability
  - consult with the IMF regarding evaluation of the financial terms of new proposed loans
  - commitment not to contract non-concessional loans
  - used the 2021 IMF SDR allocation to repay non-concessional debt

### Governance and Management of Public Resources — Public Financial Management (PFM) reforms
- Overall aim: bolster PFM reforms to strengthen accountability in the use of public resources

### Cash management and Treasury Single Account (TSA)
- Progress under the SMP:
  - resumption of weekly Treasury Committee meetings
  - issuance of an order to define cash payment priorities
  - stock-taking of all public bank accounts
  - requirement of MoF authorization for opening a bank account
- Planned actions and timelines:
  - establish an interface between the systems of the Treasury, BCEAO, and commercial banks and classify public bank accounts into those to be closed, maintained, or integrated into the TSA (SB, end-September 2023)
  - lay the foundation for MoF to pay all budgetary expenditure, particularly wages, from the TSA (SB, end-June 2024)
  - create a Cash Management Unit (CMU) and revise the Treasury Committee’s mission to approve cash forecasts with a quarterly or longer horizon (SB, end-December 2023)
  - revise cash forecasting methodologies and process by incorporating lessons learnt from the CMU’s experience (SB, end-June 2025)

### Coordination with revenue-generating entities and fee transparency
- Issue a ministerial order on the revised membership of the Treasury Committee including active participation of the Ministry of Fisheries to monitor forecasted and actual revenue collection (SB, end-March 2023)
- Roll out coordination mechanism to all revenue generating entities in a sequenced manner
- Issue a ministerial order to require all government entities to submit a tariff schedule of their fees and charges (including court and registry fees) (SB, end-March 2023)
- Publish a list of rates, scales and tariffs of all fees and charges collected by ministries and government agencies including the Judiciary and registers as part of the 2024 budget (SB, end-December 2023)
- Require ministries and government agencies to publish the same list on their own websites and report the actual collection of their fees and charges during 2024
- Ultimately require all fees and charges to be approved in the General State Budget and deposited into the TSA

### Payroll integrity and human resource reforms
- Approved additional measures to enforce the executive order to end irregular hiring through requirements of authorization by the Ministries of Public Administration and Finance for all hiring (Prior Action)
- Approve a multiannual staffing plan for 2023-25 in line with program parameters and publish a report with results of the full census of public servants and implementation of remedial actions on irregular workers (SB, end-June 2023)
- Conduct quarterly reconciliation between the personnel and payroll records held by the Ministries of Finance and Public Administration (SB, end-March 2023)
- Deploy the IMF-supported blockchain project to ensure integrity of the reconciliation process
- Integrate personnel and payroll records through development of the integrated human resource management system to be operationalized in the medium-term
- Revise the chart of accounts to classify compensation of employees in accordance with the Government Finance Statistics Manual 2014
- Strengthen financial controls for non-wage spending, including approval of the new Manual on Public Expenditure Procedures and pilot of a new process to certify delivery of goods and services before issuing payment orders; roll out certification to all ministries and government agencies

### Public procurement reforms
- Reforms during the pandemic included publication of beneficial ownership and other key information of all crisis-related contracts on the websites of the General Directorate for Public Tenders (DGCP) and the High Commission for COVID-19
- Approval of the decree on beneficial ownership of bidders of public procurement in April 2022
- Next steps:
  - implement the new decree expanding publication of beneficial ownership information to all public contracts on the DGCP website
  - issue guidelines for implementing the decree, including formats for beneficial ownership information to be submitted in the bidding process (SB, end-March 2023)
  - hold training sessions to sensitize suppliers and procurement officers in ministries
  - develop mechanisms to ensure the DGCP’s access to all signed public contracts, including emergency procurement and direct purchases

### External audits and accountability
- Actions taken:
  - High Commissioner for COVID-19 requested an audit of COVID-19 related spending between June 2020 and August 2021 completed by the Audit Court, which published the audit report in June 2022
  - an independent third-party auditor completed an audit of all COVID-19 related spending between June 2020 and December 2021 with support of the Inspector-General of Finance and published the audit report on the website (Prior Action)
- Planned audits:
  - Audit Court will undertake an external audit of all COVID-19 related spending using the independent third-party audit as technical inputs in accordance with the Organic Law on the Audit Court
  - Ministry of Finance requested an audit of the irregular hiring process in 2021-22 (Prior Action); Audit Court will plan to complete in 2023
  - Audit Court will undertake priority audits with full government support
  - Audit Court will undertake a follow-up audit of EAGB by updating the results of the previous audit and publish the audit report by the end 2023
  - MoF will finalize and submit the consolidated financial statements for 2017-2022 to the Audit Court, which will complete their audits in the medium-term

### Strengthening AML/CFT effectiveness
- Context:
  - In the February 2022 Mutual Evaluation Report (MER), GIABA gave Guinea-Bissau low effectiveness ratings in all 11 criteria
- Priority actions and timelines:
  - prepare the national AML/CFT policy and action plan that addresses risks identified in the national risk assessment (NRA) and the MER key findings by March 2023
  - require all legal persons registering at the Centre for Formalization of Enterprises (CFE) and at the Directorate General of Civil Identification, Registry and Notary (DGICRN) to submit a BO identification form similar to the one submitted as part of the tender process by end-June 2024
  - prepare an action plan to strengthen risk-based AML/CFT supervision for financial institutions and designated non-financial businesses and professions (DNFBPs) by June 2023

### Anti-corruption framework reforms
- Short-term priorities:
  - revamp the asset declaration regime to facilitate identification of potential corruption cases
  - resubmit to Parliament the law that reforms the asset declaration regime with broader coverage and strengthened enforcement (SB, end-September 2023)
  - issue guidelines for submission and publication of asset declarations, including formats, by end-2023
- Institutional strengthening:
  - enhance independence and capacity of anti-corruption institutions including the Judicial Police, the Supreme Anti-Corruption Inspectorate, and the Prosecutor’s Office
  - prepare a national anti-corruption strategy in 2024 based on updating the diagnosis of corruption risks; the strategy will prioritize legal and other reforms and inform medium-term resource planning of these institutions

### Rule of law, market regulations, and registries
- PFM reform for extrabudgetary revenue to improve access to judicial services and public registries and control fees
- Center for Access to Justice (CAJ):
  - roll out CAJ’s offices to two main provinces by the end 2023 to ensure equal access, particularly for rural populations
  - develop an online platform and sensitization programs to improve access to legislation and judicial decisions and enhance public understanding of the law
- Property registration and company registers:
  - prepare a medium-term action plan to improve cadaster coverage by surveying broader land areas and digitalization of property registers to improve public access
  - prepare an action plan to complete digitalization of the companies’ register maintained by the CFE to improve public access and support beneficial ownership disclosures

*Source: 1gnbea2023001 - 12. The government is committed to the following measures to mobilize domestic (PDF chapter/section).*

### 28.      The government will continue to make efforts that preserve the stability of the

### 1gnbea2023001 - 28.      The government will continue to make efforts that preserve the stability of the

### Financial sector stability and disengagement from undercapitalized bank
- The government is committed to a successful disengagement strategy for a large, undercapitalized bank.
- The council of ministers approved an offer of a strategic investor to:
  - buy the government stake and
  - capitalize the institution to comply with regulatory standards.
- The government is monitoring:
  - the due diligence process on the offer and
  - the timeline of the recapitalization by the investor, which will subsequently be submitted to the Regional Banking Comission for evaluation.
- The government settled arrears owed by the government to borrowers from the undercapitalized bank.
- Contingency if investor operation does not materialize: the government is committed to an additional SB to implement the 2022 Article IV recommendations by end-December 2023, including:
  - (i) providing the financial information requested by the IMF including to request an assessment of the bank’s financial position and a full independent audit of all loan portfolio including NPLs from a third-party auditing firm;
  - (ii) preparing a report that reconsiders a viable government’s plan for disengaging from the undercapitalized bank by 2024; and
  - (iii) implementing the recommendations of the Banking Commission.

### Risks and contingencies
- The government stands ready to adjust policies if risks materialize.
- Downside risks to the program include:
  - growth and inflation setbacks from domestic political risks and weak state capacity;
  - disappointing cashew nut exports;
  - materialization of climate and health hazards;
  - extreme tightening financial conditions in the regional market;
  - geopolitical tensions which could further impact food and oil prices and donor support.
- Additional risk channels:
  - further tightening of global financial conditions and worsening of debt risks would further constrain access to financing;
  - financial stress in SOEs and fragility in the undercapitalized bank could generate contingent liabilities.
- Potential policy responses (to be undertaken in close consultation with IMF staff) include:
  - further rationalization of non-priority expenditures;
  - domestically financed investment; and
  - requests for additional support from development partners.

### Improving economic statistics and transparency
- Institutional commitment:
  - Approve the bylaw that implements the new statistics law to strengthen the National Statistical Institute (INE) and enhance organizational structure and human and technological resources.
- Data quality and dissemination:
  - Follow IMF technical assistance recommendations to improve the quality and timeliness of economic data.
  - Implement the Enhanced General Data Dissemination System (e-GDDS) to support timely publication of key macroeconomic and financial data aligned with IMF surveillance common indicators.
  - e-GDDS participation will contribute to enhancing interagency coordination and statistical development in support of program objectives.

### Program design, monitoring, and financing
- Program oversight:
  - Ultimate responsibility of program monitoring and coordination rests with the Ministry of Finance (MF).
  - MF will consult with other public institutions to track progress and will provide oversight to ensure public spending complies with budget limits.
- IMF monitoring schedule:
  - Monitored by the IMF Executive Board: quarterly basis until June 2023 and thereafter semi-annual using bi-annual performance criteria (end-June and end-December) and continuous performance criteria for end-January 2023, end-March 2023, end-June 2023, and end-December 2023, and indicative targets for end-December 2022 and end-September 2023 as presented in Table 1.
  - First three reviews will take place on or after April 17, 2023; July 17, 2023; and October 17, 2023.
- Government commitments under the program:
  - (i) Refrain entering new external borrowing contracts at non-concessional rates, except for disbursements from the Development and Cohesion Fund of the West African Development Bank as mentioned in TMU ¶5;
  - (ii) Adhere to quantitative performance criteria (QPC) including floors on domestic tax revenues, the domestic primary budget balance and social and priority spending; ceilings on wages and salaries; and zero ceilings on new non-concessional external debt contracted or guaranteed by the public sector (continuous criterion), new external payments arrears (continuous criterion), new domestic payments arrears, and non-regularized expenditures;
  - (iii) Prepare an external borrowing plan to facilitate assessment of the QPCs on external debt;
  - (iv) Agree not to: (1) introduce or intensify restrictions on payments and transfers for current international transactions; (2) introduce or modify multiple currency practices; (3) enter into bilateral payment agreements inconsistent with Article VIII of the IMF Articles of Agreement; and (4) introduce or intensify import restrictions for balance of payments purposes; and
  - (v) Adopt any new financial or structural measures necessary for the success of its policies, in consultation with the IMF.
- Financing outlook:
  - Financing needs for the 2023 are fully covered.
  - The government expects the ECF-supported program will catalyze additional sources during the rest of the program, and expects additional budget support from other development partners including from the World Bank and the African Development Bank over the program period.
- Request to IMF:
  - The government is requesting Board approval of the policies set forth in the MEFP, and disbursement of the first loan installment, totaling SDR 2.37 million, out of a total three-year arrangement of SDR 28.4 million.

### Quantitative performance criteria and targets (high-level)
- Table 1 (QPCs, cumulative from beginning of calendar year to end of month indicated, CFAF billion, unless otherwise indicated) highlights selected target values:
  - Total domestic tax revenue (floor): 100.5 (Dec 2022), 5.4 (Jan), 21.4 (Mar), 53.8 (Jun), 87.1 (Sep), 113.7 (Dec)
  - Wages and salaries (ceiling): 65.5 (Dec 2022), 5.7 (Jan), 14.3 (Mar), 27.8 (Jun), 41.8 (Sep), 59.0 (Dec)
  - Ceiling on new non-concessional external debt contracted or guaranteed by the central government (US$ millions): 0.0 at all test dates
  - New external payment arrears (US$ millions, ceiling): 0.0 at all test dates
  - New domestic arrears (ceiling): 0.0 at all test dates
  - Social and priority spending (floor): 55.2 (Dec 2022), 2.5 (Jan), 12.5 (Mar), 26.0 (Jun), 38.8 (Sep), 51.6 (Dec)
  - Domestic primary balance (commitment basis, floor): -30.1 (Dec 2022), -4.3 (Jan), -10.8 (Mar), -6.3 (Jun), -5.7 (Sep), -2.9 (Dec)
  - Non regularized expenditures (DNTs, ceiling): 0.0 at all test dates
  - Memorandum item: New concessional borrowing: 20.7 (Dec 2022), 7.0 (Jan), 11.7 (Mar), 18.7 (Jun), 21.0 (Sep), 23.4 (Dec)
- Note: The ceiling on new non-concessional external debt will be adjusted upward by the amount of financing from the BOAD Development and Cohesion Fund in accordance with TMU ¶7.

### Technical Memorandum of Understanding (TMU) — definitions and reporting
- Program exchange rates:
  - Program exchange rates for converting foreign currency denominated values into CFAF are CFAF 554.2 (2022) and 659.0/US$ (2023) using cross rates as of end-December 2022 and 2023.
- Key definitions (selected):
  - Total Domestic Tax Revenue: includes direct and indirect taxes as presented in the central government financial operations table.
  - Wage Bill: includes personnel expenditure (“despesas de pessoal“) and 50 percent of transfers to embassies.
  - New Non-Concessional External Debt Contracted or Guaranteed by the Central Government: all forms and maturities of new non-CFAF denominated debt contracted or guaranteed by the central government and CFAF denominated debt contracted with BOAD; applies on a continuous basis.
  - Concessionality threshold: grant element of at least 35 percent; unified discount rate of 5 percent; program reference rate for six-month USD SOFR is 1.56 percent.
  - New External Payment Arrears: debt service payments unpaid 30 days after due dates (taking into account contractual grace periods); certain legacy arrears and litigation amounts excluded.
  - New Domestic Arrears: CFAF-denominated accounts payable unpaid by one month after the quarter for wages and salaries, and three months for goods, services and transfers; includes CFAF-denominated debt service unpaid 30 days after due dates.
  - Social and Priority Spending: spending by the Ministries of Health, Education and the Ministry of Women, Family and Social Cohesion.
  - Domestic Primary Balance (commitment basis): government revenue minus domestic primary expenditure on commitment basis; excludes external grants and interest; excludes capital expenditure financed by project loans or grants.
  - Non-Regularized Expenditure (DNTs): any treasury outlay not properly accounted for by the National Budget Directorate and/or not included in the budget.
- Reporting requirements:
  - Government will report any new external borrowing and its terms to Fund staff as soon as external debt is contracted or guaranteed, but no later than within two weeks of such external debt being contracted or guaranteed.
  - Government will report any non-regularized expenditures on a continuous basis within one week of realization.
- Program monitoring calendar:
  - Performance criteria test dates and expected review completion:
    - January 31, 2023 — review expected by mid-April 2023
    - March 31, 2023 — review expected by mid-July 2023
    - June 30, 2023 — review expected by mid-October 2023
    - December 31, 2023 — review expected by mid-April 2024
    - June 30, 2024 — review expected by mid-October 2024
    - December 31, 2024 — review expected by mid-April 2025
    - June 30, 2025 — review expected by mid-October 2025

### Debt sustainability assessment (summary)
- Risk ratings:
  - Risk of external debt distress: High
  - Overall risk of debt distress: High
  - Granularity in the risk rating: Sustainable
  - Application of judgment: No
- Key observations:
  - Guinea-Bissau’s risks of external and overall debt distress remain high, in line with the June 2022 Debt Sustainability Analysis (DSA).
  - GDP growth accelerated in 2021 due to gradual lifting of COVID containment measures and record high cashew nut production, with positive fiscal and external spillovers.
  - Baseline assumptions: gradual economic recovery in 2022-24 and sustained medium-term growth supported by improved terms of trade, more stable socio-political environment, and ongoing governance and structural reforms.
  - Baseline fiscal path assumes convergence of the fiscal deficit to the WAEMU convergence criterion of 3 percent of GDP by 2025.
  - The ratio of public debt to GDP increased in 2021 but is projected to start falling in 2023 and converge to below the 70 percent of GDP debt ceiling by 2027.
- Conditional conclusion on debt sustainability:
  - Public debt is assessed as sustainable conditional on:
    - continued commitment to ambitious fiscal adjustment toward the 3 percent of GDP WAEMU convergence criterion by 2025;
    - full multilateral donor re-engagement and a shift towards concessional debt would further improve the downward trend;
    - authorities following IMF/WB advice on improving debt management and resolving legacy external arrears.

*IMF/World Bank joint staff assessment as presented in the MEFP and TMU.*

### 1.      The perimeter of public debt is limited to the central government, the central bank and

### 1gnbea2023001 - 1.      The perimeter of public debt is limited to the central government, the central bank and

### Perimeter and coverage of public debt
- Perimeter limited to the central government, the central bank, and government-guaranteed debt.
- Data limitations preclude inclusion of other units of general government and state-owned enterprises (SOEs).
- SOEs generally not likely to represent a major contingent public liability; exception:
  - Eletricidade e Águas da Guiné-Bissau (EAGB) has non-publicly guaranteed debts estimated at 2.7 percent of GDP in 2021.
- Government guarantees and transfers related to EAGB:
  - Government clearance of EAGB debt: CFAF 6.6 billion in 2017, CFAF 2.5 billion in 2018, CFAF 5.9 billion in 2019, CFAF 3.6 billion in 2020, and no transfers in 2021.
  - Government-guaranteed loans to EAGB: CFAF 5.6 billion in 2020 and CFAF 7.4 billion in 2021; guarantees increased to CFAF 11.9 billion in 2022. These guarantees are included in the DSA.

### Debt recording, management, and institutional reforms
- Reforms and systems:
  - Debt management was strengthened after approval by the Council of Ministers in July 2021 of decrees related to: creation of a National Committee of Debt Policy; organization and functioning of the Debt Directorate.
  - Authorities use the Debt Management and Financial Analysis system (DMFAS) to record external debt and seek to start incorporating domestic debt.
  - First annual debt bulletin published in 2021; improved version in 2022 which will partially cover debt held by SOEs.
  - World Bank implemented a Debt Management Performance Assessment (DeMPA) in 2022 identifying needed reforms.
  - Guinea-Bissau continues to receive technical assistance from the IMF and the World Bank to improve debt reporting to the International Debt Statistics (IDS) and the Quarterly External Debt Statistics (QEDS).
  - IMF statistics department technical assistance planned for 2022-23 aims at expanding data coverage and improving public debt data according to international guidance.
- Institutional arrangements:
  - Directorate Generals of Treasury and Debt hold weekly coordination meetings.
  - Biannual meetings of the National Committee of Public Debt start in 2022.
  - World Bank supports publication and expansion of the debt bulletin and supports EAGB on a Management Improvement Plan and a financial restructuring plan.
  - IMF Statistics Department planned two technical assistance missions during 2022–23 to support debt recording and data coverage expansion.

### Debt classification and composition
- Hybrid classification approach:
  - Debt to the West African Bank for Development (Banque Ouest Africaine de Développement or BOAD) classified as external.
  - Bonds issued in the regional market (treasuries issued in CFA francs in the regional market) classified as domestic.
  - Debt denominated in CFA francs to BOAD amounting to 12.8 percent of GDP at end-2021 is classified as external.
  - Treasuries issued in CFA francs in the regional market remain treated as domestic for this DSA.
- Stock of regional-market treasury securities at end-2021: CFAF 193.3 billion, equivalent to 52 percent of domestic debt or 20.2 percent of GDP.
- Debt holder composition (2021 staff estimates, percent of total external debt):
  - BOAD 32 percent, IDA 26 percent, IMF 7 percent, AfDB 7 percent, Other Multilaterals 8 percent, Angola 8 percent, Kuwait 4 percent, Exim Bank India 4 percent, Other Bilaterals 4 percent.
- Domestic debt composition (2021 staff estimates, percent of total domestic debt):
  - Treasuries 44 percent, BCEAO 35 percent, Loans 11 percent, Arrears 7 percent, Guarantees 3 percent.

### Recent developments, drivers of debt changes, and stock levels
- Public debt ratio:
  - Public debt rose to 78.9 percent of GDP in 2021, an increase of 0.7 percentage points with respect to 2020.
- Drivers of the 2021 increase:
  - Increase observed in domestic debt, mostly explained by the Special Drawing Rights (SDR) allocation on-lent by the regional central bank (BCEAO).
  - External debt broadly stable in 2021 as on-lent SDR resources were used to pre-pay non-concessional external debt to BOAD due in 2022, offsetting IMF RCF budget support and World Bank project financing.
- SDR on-lending details:
  - End-August SDR 27.2 million allocation transferred by the BCEAO as a currency repo of CFAF 21.6 billion (2.3 percent of GDP) with 20-year maturity and a single bullet payment at end-period.
  - Interest rate fixed at 0.05 percent; operation equivalent to a loan with a grant element of 62 percent.
  - Present value of the loan is calculated in the DSA to incorporate its highly concessional nature.
- Central government debt stock (Billions of CFAF and percent of GDP, selected rows from Text Table 2):
  - Central Government Debt (2019 Act.): 572.7; 65.8 percent of GDP.
  - Central Government Debt (2020 Act.): 684.4; 78.2 percent of GDP.
  - Central Government Debt (2021 Prel.): 754.5; 78.9 percent of GDP.
  - Central Government Debt (2022 Proj.): 859.1; 81.0 percent of GDP.
  - External (2021 Prel.): 382.7; 40.0 percent of GDP.
  - Domestic (2021 Prel.): 371.8; 38.9 percent of GDP.
  - Treasury Securities held by regional banks (2021 Prel.): 179.2; 18.7 percent of GDP.
  - BCEAO (domestic) (2021 Prel.): 130.5; 13.6 percent of GDP.
  - Treasury Securities held by local banks (2021 Prel.): 14.2; 1.5 percent of GDP.
  - Payment Arrears (2021 Prel.): 22.8; 2.4 percent of GDP.
  - Guarantees (2021 Prel.): 13.1; 1.4 percent of GDP.
- Non-concessional domestic borrowing:
  - Excluding the SDR allocation, central government domestic debt amounted to 36.6 percent of GDP at end-2021.
  - Treasury securities stock rose by 5 percentage points of GDP between 2020 and 2021, with the bulk purchased by commercial banks from elsewhere in the WAEMU region.
- External borrowing:
  - Debt to BOAD decreased by 3 percentage points of GDP in 2021.
  - Concessional external borrowing increased by 2.4 percentage points of GDP in 2021.
  - Multilaterals held 80 percent of Guinea-Bissau’s external debt at end-2021.
  - Legacy arrears reduced from 3.4 percent of GDP in 2020 to 0.3 percent of GDP at end-2021 following agreement with Angola.

### Debt service burden and financing
- Debt service to revenue excluding grants:
  - Increased from 78.7 percent in 2020 to 101 percent in 2021.
  - 9.7 percent of revenues corresponds to debt service to BOAD originally due in 2022 (pre-paid in 2021).
  - Payment of domestic arrears accumulated in 2019-20 represented 8.4 percent of revenues (4.3 percentage points above the corresponding amount in 2021).
  - Catastrophe Containment and Relief Trust (CCRT) grant amounted to 1.3 percent of revenues and helped alleviate the burden.
- Financing mix and use of resources:
  - SDR on-lent resources were used largely to pre-pay non-concessional external debt to BOAD due in 2021–2022 and to finance part of the emergency pandemic response.
  - Out of the total SDR on-lent amount, CFAF 14.8 billion (69 percent) used to pre-pay BOAD principal due in September 2021–December 2022, CFAF 2 billion (9 percent) to pre-pay BOAD interest due in the same period, and CFAF 4.8 billion (22 percent) to finance COVID-related expenditures.
- Policy commitments to improve sustainability:
  - Commitment to limit non-concessional borrowing to levels agreed under IMF programs and the International Development Association’s Sustainable Development Finance Policy.
  - Commitment to disclose all public sector financial commitments involving debt.
  - Authorities requested to join the Debt Service Suspension Initiative (DSSI) by end-2020 and again in 2021; authorities declined to suspend the small debt service involved (0.7 percent of revenues) and some creditors did not respond.

### Role of regional institutions and market access
- WAEMU regional institutions (BCEAO and UMOA-Titres) manage debt issued in the regional sovereign treasury securities market and debt held by the central bank.
- These two components account for almost 90 percent of Guinea-Bissau’s domestic debt at end-2021.
- Guinea-Bissau’s borrowing through the WAEMU sovereign securities market is expected to account for an insignificant share of available regional financing to the eight countries in the currency union.

### Baseline macroeconomic assumptions and outlook (selected)
- Real GDP growth:
  - 2020: 1.5 percent (modest GDP growth).
  - 2021: 6.4 percent (estimated acceleration).
  - 2022: 3.5 percent (projected moderation).
  - 2024–2027: gradually reach 5 percent.
  - Long-term growth projected at 4 percent.
- Inflation:
  - Average price inflation reached 3.3 percent in 2021.
- Risks:
  - Near-term outlook projects a moderate recovery and sustained growth over the medium term, but risks are tilted to the downside.
  - Main changes relative to previous DSA (June 2022) include an upward revision on inflation, a reduction in GDP growth, and a depreciation of the currency in 2022 and 2023.

*Source: Guinea-Bissau IMF staff report (extract).*

### 7.8   percent. This is

### 1gnbea2023001 - 7.8   percent. This is

### Inflation and macro drivers
- CPI inflation: "7.8   percent. This is substantially above the 3   percent convergence WAEMU criteria", driven by:
  - persistent inflationary pressures due to supply chain disruptions,
  - the impact of the war in Ukraine on global commodity prices,
  - a stronger dollar.
- Note: "The WAEMU’s CFA is pegged to the euro, which is expected to depreciate by 10.7 percent against the US dollar in 2022."

### Fiscal deficit, revenue, and expenditure developments
- Overall fiscal deficit evolution:
  - "reduced the overall fiscal deficit from 9.6 percent in 2020 to 5.6 percent of GDP in 2021."
  - "the overall fiscal deficit in 2022 is expected to reach 5.5   percent of GDP, higher than the 2022 Article IV report by 1.3   percentage points of GDP mainly due to higher-than-expected expenditures."
- Drivers of 2022 fiscal slippage:
  - wage spending overrun caused mainly by irregular hiring of workers (which "has already been addressed"),
  - "other current expenditure is higher mainly due to spending on the upcoming election as well as higher spending related to security and defense, social and diplomatic services,"
  - "lower tax revenue has also impacted fiscal goals."
- External budget support in 2022: "France and Portugual each providing CFAF 3.3 billion in 2022."

### Medium-term fiscal consolidation and policy measures
- Convergence target: "In the medium-term, the overall deficit is expected to converge to the WAEMU regional target of 3 percent of GDP by 2025."
- Projected adjustment: "an annual average of 1.1 percentage points of GDP adjustment in the domestic primary balance (on a commitment basis) is projected over three years (2022-25)."
- Recommended and planned measures:
  - Enhancing revenue mobilization:
    - "Tax revenues increased by 2.0 percentage points of GDP in 2021 compared to 2020 and are expected to further increase around 0.7 percentage points by 2025."
    - 2022 reforms: "promulgated a tax package to simplify and enhance transparency of the tax system and fully implemented a digital tax filling platform (the Kontaktu system)."
    - Planned legislative actions (structural benchmarks): "revised law on the general exemption regime (SB, end-December 2023)" and "revised income tax and stamp duties bills (SB, end-June 2025)."
    - "Implement the new VAT law" and associated admin action plans; "fiscal yield from the implementation of VAT is expected to be 2.6 percent of GDP by 2027."
    - Natural resources transparency: "prepare an action plan to develop a register of resource rights holders and undertake diagnosis of the fiscal regime for natural resources (SB, end-June 2024) with IMF technical assistance (TA) support."
  - Strengthening PFM and expenditure control:
    - Target: "decrease domestic primary expenditures by around 2.3 percentage points of GDP between 2022 and 2025, of which 1.3 percentage points come from wage bill management measures."
    - Corrective actions already taken to address wage overrun:
      - "(i) the dismissal of irregular hirings; (ii) total freezing of hirings; (iii) capping salary expenses for key ministries; (iv) full inventory-taking of health and education facilities to assess the personal needs and identify irregular workers; (v) a new decree ... that all contracts should be carried out by submitting the vacancies authorized by the Ministry of Labor and the Ministry of Finance; and (vi) elimination of two-thirds of advisor positions at the Presidency, Prime Minister’s Office, the Presidency of the Parliament, and the Presidencies of the Constitutional and Audit Courts."
    - Additional 2023 measures: "conducting new census of public administration" and "redistribution of staff workload in the Ministry of Education - the ministry with the largest number of civil servants."
    - PFM reforms: "reconcile the personnel and the payroll records", "implementation of a Treasury Single Account (TSA) and executing expenditure from the TSA, starting with the wage bill."
    - Estimated fiscal saving from wage bill and expenditure control: "about 1.9 percent of GDP by 2027."
  - Improving SOE oversight and mitigating fiscal risks:
    - IMF TA identified "the national utility company, EAGB, as one of the biggest sources fiscal risks amongst the four SOEs."
    - Measures for EAGB:
      - "installation of 35,000 post- and pre-paid electricity meters" to improve customer management and revenue collection,
      - progress connection to the OMVG regional hydropower project to "lower the average generation costs and diversify Guinea-Bissau’s sources of power generation,"
      - World Bank support for "revamping EAGB’s management and operations, including a financial restructuring plan."
  - Safeguarding social and priority spending and investment:
    - "During 2022-27, social and priority spending is projected to increase by 0.7 percentage points of GDP compared to pre-COVID-19 period (2010-19)."
    - "Public investment is projected to average around 7.4   percent of GDP per annum during 2022-27, 1.5   percentage points higher than pre-COVID-19 period (2010-19)."

### Current account and external sector
- "The non-interest current account deficit is estimated to have remained broadly stable in 2021 and is projected to widen by 5.5 percentage points in 2022, reaching 5.2 percent of GDP."
- Deterioration drivers: "higher import prices and lower private transfers."
- Outlook: "Improvements in the trade balance, driven by an improvement in the terms of trade and a rebound in export volumes, are expected to reduce the current account deficit to 3.2 percent of GDP by 2025."

### Public debt dynamics and borrowing strategy
- 2022 debt changes:
  - "Public debt to GDP is expected to increase by 2.1 percentage points in 2022."
  - "The stock of domestic debt is projected to increase by 0.8 percentage points of GDP compared to 2021."
  - "The stock of securities (held by local and regional commercial banks) is projected to further grow by 3.3   percentage points of GDP."
  - "Debt to the regional central bank (BCEAO), loans from local commercial banks and domestic payment arrears are projected to jointly drop by 2.8 percentage points of GDP."
  - "The stock of external debt is projected to increase by 1.2 percentage points of GDP, mostly driven by a revaluation effect from the weaker domestic currency."
- Borrowing strategy and assumptions:
  - "Medium-term investment-related borrowing is projected to prioritize concessional financing."
  - "Gross annual project disbursements from loans and grants are assumed to between 65 and 75 percent of capital expenditure, which is expected to average 5.3 percent of GDP in the next five years."
  - "Borrowing from BOAD, which is almost entirely non-concessional, is projected to decline significantly."
  - Disbursement estimates: "For 2022, staff estimate that only 34 percent of contracted BOAD loans were disbursed. For 2023, staff project that 41 percent of contracted BOAD loans will be disbursed. BOAD accounted for 20 percent of external disbursements in 2022."
  - Treasury securities role: "Treasury securities with longer maturities are expected to fill most non-investment-related financing needs in the medium-term (2023 onwards)."
  - Interest rate projections:
    - "Interest rates are projected to increase to 6.2 percent for bonds with maturities of one to three years, to 6.5 percent for bonds with maturities of four to seven years, and to 6.7 percent for bonds with maturities beyond seven years."
    - "interest rates on short-term T-bills are projected to increase to 6 percent from 2023 onwards."

### Debt sustainability assessment and stress testing
- Debt-carrying capacity classification:
  - "Guinea-Bissau is assessed to have weak debt carrying capacity, unchanged from the June 2022 DSA."
  - "The Composite Indicator (CI) score for Guinea-Bissau is 2.63" and "This score is below the 2.69 cutoff, thus resulting in a weak debt-carrying capacity."
- Contingent liability shock:
  - "This DSA runs a stress test with a contingent liability shock for SOE debt of 6.7 percent of GDP instead of the default value of 2 percent."
  - Rationale: captures potential liabilities from a systemic bank recapitalization, fiscal costs of EAGB operational losses, increased public guarantees, and possibility that domestic arrears exceed included stock ("2.4 percent of GDP at end-2021").
- Risk of external debt distress:
  - "Guinea-Bissau’s risk of external debt distress remains high, in line with the June 2022 DSA."
  - External debt: "External debt reaches 40 percent of GDP at end-2021."
  - Indicators:
    - "The external debt indicators based on PV ratios remain below the relevant indicative thresholds throughout the projection period (2022–42) under the baseline scenario (except for a one-year breach of the PV of debt-to-exports ratio in 2022, which becomes below the threshold in 2023)."
    - "However, the indicators based on the debt-service ratios breach their indicative thresholds under the baseline, which implies a mechanical ‘high’ risk rating."
  - Context note: "since Guinea-Bissau is in a currency union with FX reserve pooling, the effective impact of these indicators is rather limited."

### Key macro projections and figures (selected from Text Table 3 and related text)
- Real GDP growth (Current DSA): 2020: "1.5", 2021: "6.4", 2022: "3.5", 2023: "4.5", 2024: "5.0", 2025: "5.0", 2026: "5.0", 2027: "5.0", Long Term: "4.2"
- CPI inflation (Current DSA): 2020: "1.5", 2021: "3.3", 2022: "7.8", 2023: "5.0", 2024: "3.0", 2025: "2.0", 2026: "2.0", 2027: "2.0", Long Term: "2.0"
- Primary fiscal balance (Current DSA): 2020: "-8.1", 2021: "-4.0", 2022: "-4.2", 2023: "-1.7", 2024: "-1.0", 2025: "-0.9", 2026: "-0.9", 2027: "-0.8", Long Term: "-0.6"
- Overall fiscal balance (commitment, Current DSA): 2020: "-9.6", 2021: "-5.6", 2022: "-5.5", 2023: "-3.9", 2024: "-3.2", 2025: "-3.0", 2026: "-3.0", 2027: "-3.0", Long Term: "-3.1"
- Tax revenues (Current DSA): 2020: "7.7", 2021: "9.8", 2022: "9.5", 2023: "9.9", 2024: "10.2", 2025: "10.5", 2026: "10.7", 2027: "11.0", Long Term: "11.7"
- Domestic primary expenditures (Current DSA): 2020: "16.0", 2021: "14.7", 2022: "14.9", 2023: "12.9", 2024: "12.4", 2025: "12.6", 2026: "12.8", 2027: "12.9", Long Term: "13.5"
- Non-interest current account balance (Current DSA): 2020: "-1.7", 2021: "0.3", 2022: "-5.2", 2023: "-3.5", 2024: "-3.3", 2025: "-3.2", 2026: "-3.0", 2027: "-2.8", Long Term: "-2.6"
- External debt (Current DSA): 2020: "41.1", 2021: "40.0", 2022: "41.2", 2023: "38.4", 2024: "36.1", 2025: "34.1", 2026: "31.6", 2027: "29.4", Long Term: "21.7"
- Domestic debt (Current DSA): 2020: "37.1", 2021: "38.9", 2022: "39.7", 2023: "39.8", 2024: "39.3", 2025: "38.6", 2026: "38.6", 2027: "38.5", Long Term: "40.0"

*Source: Bissau-Guinean authorities and staff estimates.*

### 18.      The adverse commodity price stress test was designed to reflect Guinea-Bissau’s

### 1gnbea2023001 - 18.      The adverse commodity price stress test was designed to reflect Guinea-Bissau’s

### Adverse commodity price stress test and export shock
- The stress test was designed to reflect Guinea-Bissau’s vulnerability to cashew price fluctuations.
- In 2020, cashew prices fell by 33 percent amid the global slowdown.
- The analysis shows debt sustainability prospects after a hypothetical 15 percent fall in cashew export prices in the first year of the projection.
- For the standard export shock, nominal export growth is set to its historical average (5.5 percent) minus 0.5 standard deviation (SD), instead of 1 SD (default parameter, which amounts to 28 percent in Guinea-Bissau).
- Ten-year lagged standard deviation of export growth (excluding the covid-shock of 2020) is half of the historical standard deviation.
- This scenario results in an annual drop of 8.6 percent in exports both in 2023 and 2024 (as opposed to 5.8 percent average export growth in the baseline).

### Breakdown of specific contingent liabilities and adjustments
- Breakdown of the SOE shock: bank recapitalization (2 percent), EAGB debt (2.7 percent) and domestic arrears (2 percent).
- Other elements of the general government not captured in 1.0 percent of GDP: 0
- SoE's debt (guaranteed and not guaranteed by the government): 2 percent of GDP
- Increased from 2 to 6.7 to reflect potential liabilities linked to bank recapitalisation needs (2 percent), EAGB debt (2.7 percent) and domestic arrears (2 percent).
- PPP: 35 percent of PPP stock 0.00
- Financial market (the default value of 5 percent of GDP is the minimum value): 5 percent of GDP 5
- Total (2+3+4+5) (in percent of GDP): 11.7

### Public Debt Sustainability Analysis — risk assessment and shock impacts
- Guinea-Bissau’s overall risk of debt distress is assessed as high.
- The PV of total public debt-to-GDP ratio stays above its indicative benchmark (35 percent) through 2032, a substantial and prolonged breach.
- Debt service as a percentage of revenues and grants increases to 74 percent in 2028 from 66 percent in 2022.
- After a 15 percent drop in cashew prices:
  - The present value of the debt-to-GDP ratio reaches 78 percent in 2028 and keeps rising.
  - The debt service-to-revenue ratio reaches 116 percent in 2028 before stabilizing at around 90 percent.
- Under the most extreme (commodity price) shock:
  - The PV of debt-to-GDP ratio increases to 81 percent in 2032.
  - The PV of debt-to-revenue increases to 453 percent.
  - The impact on debt service-to-revenue increases this ratio from 56 percent in 2022 to 120 percent in 2027.

### Baseline projection and conditional sustainability
- Under staff’s baseline scenario, overall public debt burden falls below the regional convergence criterion of 70 percent by 2027.
- Baseline path: total public debt declines from 78.9 percent of GDP estimated at end-2021 to 68 percent of GDP by 2027, if the policy agenda is successfully executed and barring resurgence of the pandemic or unexpected external shocks.
- A Fund-supported program and strong multilateral donor engagement are expected to underpin the policy actions necessary for achieving the baseline projection.

### Key policy recommendations and actions identified
- Continued fiscal consolidation efforts including revenue enhancement measures.
- Containing current spending below nominal GDP growth.
- A sharp reduction in the wage bill.
- Robust implementation of growth-enhancing reforms.
- Prudent borrowing policies, including the avoidance of non-concessional project financing.
- Enhanced debt management, with more rigorous compilation and monitoring of debt statistics, upgraded procedures and publication of regular debt reports to improve transparency.
- Improved management of the existing loan pipeline and application of recognized assessment procedures to ensure criticality of investment projects.
- Baseline debt dynamics could further improve with full donor re-engagement leading to:
  - (i) a substantial scaling up of grants by multilateral institutions; and
  - (ii) a reprofiling of selected debt obligations to extend maturities and reduce interest rates when financing terms are favorable.

### Downside risks and vulnerabilities
- Significant downside risks to the baseline scenario exist; strong and sustained political commitment is needed to deliver the envisaged medium-term fiscal adjustment.
- Vulnerabilities include:
  - Weaker economic recovery.
  - Materialization of unexpected contingent liabilities.
  - Potential wage-bill overrun.
  - Renewed political conflict after the parliamentary elections.
- Since the June 2022 DSA, downside risks from a deteriorating global outlook have intensified.
- Additional risks: further tightening of financial conditions in the regional bond market, weakening global demand, continued pressure on exchange rate, high global food and oil prices, protracted political security crisis in Europe, climate change-related natural disasters.
- Financial stress in state-owned enterprises could generate contingent liabilities, adding to fiscal pressures.
- If these risks materialize, social tensions could increase, triggering political instability that may constrain fiscal adjustment and increase debt vulnerabilities.
- The debt outlook is also contingent on the limited impact of the pandemic, mitigated by a relatively high vaccination rate (about 58 percent of the adult population vaccinated as of December 2022; by December 2022, there were 8,931 confirmed cases and 176 deaths).

### Authorities’ views
- Authorities broadly concur with staff’s views on debt sustainability and the recommendations.
- They emphasize:
  - Commitment to the agreed fiscal path and reforms, while relying on concessional borrowing.
  - Need to carefully calibrate financing of the public investment plan and select investment projects with critical contributions to growth aligned with budget targets.
  - Improved coordination among agencies involved in the Debt Committee.
- Authorities expect that satisfactory performance during the Extended Credit Facility (ECF) will contribute to mitigating the country’s high risk of debt distress.

*Source: IMF staff estimates, projections, and staff analysis as presented in the Guinea-Bissau DSA excerpt.*

### 5. Guinea

### Guinea-Bissau

### External Debt Sustainability — Baseline Scenario (2019–42)
- External debt (nominal) (percent of GDP):
  - 2019: 37.3
  - 2020: 41.1
  - 2021: 40.0
  - 2022: 41.2
  - 2023: 38.4
  - 2024: 36.1
  - 2025: 34.1
  - 2026: 31.6
  - 2027: 29.4
  - 2032: 22.7
  - 2042: 18.9
- Change in external debt (percent of GDP): 3.0 (2019), 3.8 (2020), -1.1 (2021), 1.2 (2022), -2.8 (2023), -2.3 (2024), -2.0 (2025), -2.5 (2026), -2.2 (2027), -1.0 (2032), -0.2 (2042)
- Identified net debt-creating flows (percent of GDP): 5.1 (2019), 0.0 (2020), -5.5 (2021), 2.7 (2022), 0.9 (2023), 0.7 (2024), 0.6 (2025), 0.5 (2026), 0.4 (2027), 0.7 (2032), 0.7 (2042)
- Non-interest current account deficit (percent of GDP): 8.1 (2019), 1.7 (2020), -0.3 (2021), 5.2 (2022), 3.5 (2023), 3.3 (2024), 3.2 (2025), 3.0 (2026), 2.8 (2027), 2.8 (2032), 2.5 (2042)
- Deficit in balance of goods and services (percent of GDP): 14.2 (2019), 13.6 (2020), 10.6 (2021), 13.9 (2022), 12.1 (2023), 11.8 (2024), 11.5 (2025), 11.2 (2026), 10.9 (2027), 10.5 (2032), 9.0 (2042)
- Exports (percent of GDP): 19.6 (2019), 15.3 (2020), 19.4 (2021), 15.9 (2022), 18.4 (2023), 17.9 (2024), 17.2 (2025), 16.5 (2026), 16.0 (2027), 14.8 (2032), 12.7 (2042)
- Imports (percent of GDP): 33.8 (2019), 28.9 (2020), 30.0 (2021), 29.9 (2022), 30.6 (2023), 29.7 (2024), 28.7 (2025), 27.7 (2026), 26.9 (2027), 25.4 (2032), 21.7 (2042)
- Net current transfers (negative = inflow) (percent of GDP): -3.8 (2019), -9.4 (2020), -8.8 (2021), -7.4 (2022), -7.3 (2023), -7.1 (2024), -6.9 (2025), -6.5 (2026), -6.4 (2027), -6.0 (2032), -5.0 (2042)
  - of which: official (percent of GDP): -1.1 (2019), -3.2 (2020), -2.6 (2021), -2.1 (2022), -2.4 (2023), -2.4 (2024), -2.3 (2025), -2.0 (2026), -2.1 (2027), -2.1 (2032), -1.8 (2042)
- Net FDI (negative = inflow) (percent of GDP): -4.8 (2019), -1.4 (2020), -1.0 (2021), -1.3 (2022), -1.3 (2023), -1.3 (2024), -1.3 (2025), -1.3 (2026), -1.3 (2027), -1.3 (2032), -1.3 (2042)
- Endogenous debt dynamics (percent of GDP): 1.8 (2019), -0.3 (2020), -4.2 (2021), -1.3 (2022), -1.3 (2023), -1.3 (2024), -1.3 (2025), -1.3 (2026), -1.1 (2027), -0.8 (2032), -0.5 (2042)
  - Contribution from nominal interest rate (percent of GDP): 0.2 (2019), 0.6 (2020), 0.6 (2021), 0.1 (2022), 0.5 (2023), 0.4 (2024), 0.3 (2025), 0.3 (2026), 0.3 (2027), 0.2 (2032), 0.2 (2042)
  - Contribution from real GDP growth (percent of GDP): -1.6 (2019), -0.5 (2020), -2.3 (2021), -1.4 (2022), -1.8 (2023), -1.8 (2024), -1.7 (2025), -1.6 (2026), -1.5 (2027), -1.0 (2032), -0.7 (2042)
- Residual (percent of GDP): -2.1 (2019), 3.8 (2020), 4.4 (2021), -1.5 (2022), -3.8 (2023), -2.9 (2024), -2.6 (2025), -3.0 (2026), -2.6 (2027), -1.7 (2032), -0.8 (2042)
- Sustainability indicators:
  - PV of PPG external debt-to-GDP ratio (percent): 24.5 (2023), 26.2 (2024), 25.3 (2025), 23.8 (2026), 22.5 (2027), 21.0 (2032), 19.5 (2042), 14.9 (2032 memo), 12.4 (2042 memo)
  - PV of PPG external debt-to-exports ratio: 126.0 (2023), 164.5 (2024), 137.1 (2025), 133.2 (2026), 131.1 (2027), 127.0 (2032), 122.0 (2042), 100.2 (2032 memo), 97.1 (2042 memo)
  - PPG debt service-to-exports ratio (percent): 3.1 (2019), 14.1 (2020), 17.8 (2021), 5.1 (2022), 12.8 (2023), 12.8 (2024), 11.5 (2025), 10.4 (2026), 11.4 (2027), 9.2 (2032), 6.8 (2042)
  - PPG debt service-to-revenue ratio (percent): 5.0 (2019), 18.9 (2020), 27.1 (2021), 6.7 (2022), 18.7 (2023), 17.6 (2024), 14.9 (2025), 12.7 (2026), 13.2 (2027), 9.7 (2032), 5.7 (2042)
- Gross external financing need (Million of U.S. dollars): 58.5 (2019), 37.5 (2020), 37.2 (2021), 81.1 (2022), 82.9 (2023), 83.8 (2024), 82.1 (2025), 79.9 (2026), 83.5 (2027), 97.3 (2032), 125.3 (2042)

### Key Macroeconomic Assumptions (selected)
- Real GDP growth (in percent): 4.5 (2019), 1.5 (2020), 6.4 (2021), 3.5 (2022), 4.5 (2023), 5.0 (2024), 5.0 (2025), 5.0 (2026), 5.0 (2027), 4.5 (2032), 4.0 (2042), 3.5 (average), 4.6 (memo)
- GDP deflator in US dollar terms (change in percent): -8.5 (2019), 0.9 (2020), 6.5 (2021), -4.3 (2022), 1.0 (2023), 3.1 (2024), 3.4 (2025), 3.5 (2026), 2.8 (2027), 2.0 (2032), 2.0 (2042), 0.8 (average), 1.8 (memo)
- Effective interest rate (percent): 0.7 (2019), 1.6 (2020), 1.7 (2021), 0.4 (2022), 1.2 (2023), 1.2 (2024), 1.0 (2025), 1.0 (2026), 1.1 (2027), 1.1 (2032), 1.3 (2042), 1.1 (average), 1.0 (memo)
- Growth of exports of G&S (US dollar terms, in percent): -24.8 (2019), -20.2 (2020), 44.0 (2021), -18.7 (2022), 22.0 (2023), 4.9 (2024), 4.5 (2025), 4.5 (2026), 4.4 (2027), 5.2 (2032), 4.4 (2042), 5.7 (memo), 4.2 (memo)
- Growth of imports of G&S (US dollar terms, in percent): 7.6 (2019), -12.4 (2020), 17.8 (2021), -1.5 (2022), 8.0 (2023), 5.1 (2024), 5.1 (2025), 4.7 (2026), 4.7 (2027), 5.6 (2032), 3.8 (2042), 5.3 (memo), 4.8 (memo)
- Grant element of new public sector borrowing (in percent): 44.3 (2023), 38.9 (2024), 39.4 (2025), 39.9 (2026), 42.0 (2027), 44.9 (2032), 42.7 (2042), 40.5 (memo), 42.6 (memo)
- Government revenues (excluding grants, percent of GDP): 12.1 (2019), 11.4 (2020), 12.8 (2021), 12.1 (2022), 12.7 (2023), 13.0 (2024), 13.3 (2025), 13.5 (2026), 13.7 (2027), 14.2 (2032), 15.1 (2042), 11.1 (memo), 13.4 (memo)
- Aid flows (Million of US dollars): 65.8 (2019), 156.3 (2020), 151.9 (2021), 90.2 (2022), 84.3 (2023), 87.9 (2024), 97.2 (2025), 101.5 (2026), 113.7 (2027), 150.8 (2032), 255.6 (2042)
- Grant-equivalent financing (percent of GDP): 4.8 (2023), 4.8 (2024), 4.8 (2025), 4.7 (2026), 4.1 (2027), 4.2 (2032), 4.2 (2042), 4.1 (memo), 4.4 (memo)
- Grant-equivalent financing (percent of external financing): 81.7 (2023), 75.6 (2024), 75.4 (2025), 75.7 (2026), 81.5 (2027), 82.2 (2032), 82.0 (2042), 81.5 (memo), 80.5 (memo)
- Nominal GDP (Million of US dollars): 1,487 (historical), 1,523, 1,725, 1,710, 1,804, 1,952, 2,119, 2,303, 2,485, 3,420, 6,171
- Nominal dollar GDP growth (percent): -4.4 (2019), 2.4 (2020), 13.3 (2021), -0.9 (2022), 5.5 (2023), 8.2 (2024), 8.6 (2025), 8.6 (2026), 7.9 (2027), 6.6 (2032), 6.1 (2042), 4.3 (average), 6.4 (memo)

### Public Sector Debt — Baseline Scenario (2019–42)
- Public sector debt (percent of GDP): 65.8 (2019), 78.2 (2020), 78.9 (2021), 81.0 (2022), 78.2 (2023), 75.4 (2024), 72.7 (2025), 70.1 (2026), 68.0 (2027), 62.5 (2032), 59.2 (2042), 61.1 (average), 69.8 (memo)
  - of which: external debt (percent of GDP): 37.3 (2019), 41.1 (2020), 40.0 (2021), 41.2 (2022), 38.4 (2023), 36.1 (2024), 34.1 (2025), 31.6 (2026), 29.4 (2027), 22.7 (2032), 18.9 (2042)
- Change in public sector debt (percent of GDP): 6.1 (2019), 12.4 (2020), 0.7 (2021), 2.1 (2022), -2.8 (2023), -2.7 (2024), -2.7 (2025), -2.6 (2026), -2.2 (2027), -0.9 (2032), -0.1 (2042)
- Identified debt-creating flows (percent of GDP): 4.0 (2019), 7.2 (2020), 2.2 (2021), 1.5 (2022), -2.8 (2023), -2.7 (2024), -2.7 (2025), -2.6 (2026), -2.2 (2027), -0.9 (2032), -0.1 (2042)
- Primary deficit (percent of GDP): 2.8 (2019), 8.1 (2020), 4.0 (2021), 4.2 (2022), 1.7 (2023), 1.0 (2024), 0.9 (2025), 0.9 (2026), 0.8 (2027), 0.6 (2032), 0.6 (2042)
- Revenue and grants (percent of GDP): 14.9 (2019), 15.4 (2020), 19.1 (2021), 16.0 (2022), 16.5 (2023), 16.7 (2024), 17.0 (2025), 16.9 (2026), 17.2 (2027), 17.7 (2032), 18.5 (2042)
  - of which: grants (percent of GDP): 2.8 (2019), 4.0 (2020), 6.3 (2021), 4.0 (2022), 3.8 (2023), 3.7 (2024), 3.7 (2025), 3.4 (2026), 3.5 (2027), 3.5 (2032), 3.5 (2042)
- Primary (noninterest) expenditure (percent of GDP): 17.7 (2019), 23.5 (2020), 23.1 (2021), 20.2 (2022), 18.2 (2023), 17.7 (2024), 17.9 (2025), 17.8 (2026), 18.0 (2027), 18.3 (2032), 19.2 (2042)
- Automatic debt dynamics (percent of GDP): 1.2 (2019), -2.1 (2020), -2.1 (2021), -2.6 (2022), -4.5 (2023), -3.7 (2024), -3.7 (2025), -3.5 (2026), -3.0 (2027), -1.5 (2032), -0.8 (2042)
  - Contribution from interest rate/growth differential (percent of GDP): -1.4 (2019), 0.4 (2020), -5.6 (2021), -6.4 (2022), -4.2 (2023), -3.3 (2024), -3.1 (2025), -3.0 (2026), -2.7 (2027), -1.1 (2032), -0.4 (2042)
  - Contribution from average real interest rate (percent of GDP): 1.2 (2019), 1.4 (2020), -0.9 (2021), -3.8 (2022), -0.7 (2023), 0.4 (2024), 0.4 (2025), 0.5 (2026), 0.6 (2027), 1.7 (2032), 1.9 (2042)
  - Contribution from real GDP growth (percent of GDP): -2.6 (2019), -1.0 (2020), -4.7 (2021), -2.7 (2022), -3.5 (2023), -3.7 (2024), -3.6 (2025), -3.5 (2026), -3.3 (2027), -2.7 (2032), -2.3 (2042)
- Other identified debt-creating flows: 0.0 (2019), 1.2 (2020), 0.3 (2021), 0.0 (2022–2042)
- Residual (percent of GDP): 2.1 (2019), 5.2 (2020), -1.5 (2021), 0.5 (2022), 0.0 (2023–2042), 2.2 (average), -0.1 (memo)
- Sustainability indicators:
  - PV of public debt-to-GDP ratio (percent): 63.1 (2023 memo), 65.6 (2024 memo), 63.9 (2025 memo), 62.1 (2026 memo), 60.2 (2027 memo), 58.7 (2032 memo), 57.3 (2042 memo), 54.3 (2032), 52.6 (2042)
  - PV of public debt-to-revenue and grants ratio: 330.6 (2023 memo), 409.1 (2024 memo), 388.4 (2025 memo), 371.0 (2026 memo), 354.5 (2027 memo), 347.4 (2032 memo), 333.1 (2042 memo), 306.7 (2032), 283.9 (2042)
  - Debt service-to-revenue and grants ratio (percent): 54.7 (2019), 58.9 (2020), 67.7 (2021), 56.5 (2022), 53.7 (2023), 46.7 (2024), 56.2 (2025), 71.0 (2026), 84.5 (2027), 53.5 (2032), 49.0 (2042)
  - Gross financing need (percent of GDP): 10.9 (2019), 18.3 (2020), 17.2 (2021), 13.2 (2022), 10.6 (2023), 8.8 (2024), 10.5 (2025), 12.9 (2026), 15.3 (2027), 10.0 (2032), 9.7 (2042)

### Debt Holder Profile and Composition (2021–23)
- Total public debt (US$ million) and shares:
  - Total debt stock (2021): 1,300.1 (100.0 percent of total; 78.9 percent of GDP)
  - External debt (2021): 659.5 (50.7 percent of total; 40.0 percent of GDP)
  - Domestic debt (2021): 640.6 (49.3 percent of total; 38.9 percent of GDP)
- External creditors (2021): Multilateral creditors 522.6 (40.2 percent of total; 31.7 percent of GDP); Bilateral creditors 136.8 (10.5 percent of total; 8.3 percent of GDP)
  - Multilateral breakdown (2021): IMF 45.5; World Bank 168.7; AfDB 47.7; BOAD 210.2; Other Multilaterals 50.5 (o/w: Islamic Development Bank 21.8; BADEA 9.7)
  - Bilateral highlights (2021): Non-Paris Club creditors include Angola 49.1 and Kuwait 28.9
- Domestic composition (2021): Regional T-bills 333.1 (25.6 percent of total; 20.2 percent of GDP); BCEAO 224.9 (17.3 percent of total; 13.6 percent of GDP); Loans from local commercial banks 43.3 (3.3 percent of total; 2.6 percent of GDP); Payment arrears 39.3 (3.0 percent of total; 2.4 percent of GDP)
- Memo items:
  - Contingent liabilities (percent of GDP): 1.7 (22.5 in US$ million)
  - Public guarantees (percent of GDP): 1.7 (22.5 in US$ million)
  - Nominal GDP (US$ million): 1,725.5 (2021), 1,709.7 (2022), 1,803.6 (2023)

### Sensitivity and Other Analyses
- Tables referenced for sensitivity analysis of key indicators of PPG external debt and public debt for 2022–32 are included (Tables 3 and 4), indicating stress-test scenarios and sensitivity outcomes for key indicators (details are in the corresponding tables).
- Annex I provides decomposition of public debt and debt service by creditor for 2021–23, including debt stock and debt service (US$ million and percent of GDP).

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

### INTRODUCTION

### INTRODUCTION

### Recent Economic Developments and Outlook

- Appreciation expressed by the authorities to the IMF Executive Board and Management for support in preserving macroeconomic stability and promoting stronger economic growth and social development.
- Authorities broadly share staff’s assessment and concur with main policy recommendations; commitments renewed to implement reforms under the SMP and policies under an ECF-supported program. Commitments affirmed by the President of Guinea-Bissau, H.E. Umaro Sissoco Embaló, during a discussion with the Managing Director at IMF headquarters on December 15, 2022.

Findings on recent developments
- Real GDP growth is expected to have decelerated to 3.5 percent in 2022, from 6.4 percent in 2021, on account of a decline in cashew production and exports.
- Average inflation is expected to reach 7.8 percent in 2022 against 3.3 percent in 2021 following the rise in commodity prices related to the war in Ukraine.
- The fiscal outcome deteriorated in 2022; the deficit is expected to exceed staff projections by 1.3 percentage points, leading to missed fiscal targets.
  - Deterioration largely reflects acceleration in spending related to critical hiring in health, education, and security sectors, and commitments on preparation of elections.
- Authorities implemented corrective measures to control the public sector wage bill:
  - Drastic reduction in wages and in the number of advisors to senior government officials (including President, Prime Minister, President of the Supreme Court, President of the National Assembly).
  - Freezing of new hires and promotions in the public sector.
  - Dismissal of employees whose recruitment did not follow due process.
  - Ministry of Finance requested an audit by the Court of Auditors on irregular hiring in 2021 and 2022.
  - New decree: all new hiring contracts are the exclusive joint competence of the Ministry of Labor and the Ministry of Finance.
  - Extinction of sovereignty benefits/allowances to high-ranking government officials and travel representation allowances.
- Overall debt was stable in 2021 due to pre-payment with SDR resources of a loan due in 2022 to BOAD.
- Debt level estimated to have risen slightly in 2022 mainly due to increased financing needs, new government guarantees on EAGB, and recognition of legacy arrears.
  - Public debt is anticipated to take a downward path from 2023 onwards and drop below the WAEMU criterion of 70 percent of GDP by 2026.
- Current account deficit projected to have increased to about 5.9 percent of GDP from 0.8 percent of GDP in 2021 due to lower cashew export performance.
- Banking system liquidity and capital levels comfortable given BCEAO measures, in line with regional prudential criteria, except for one undercapitalized bank.
  - Bank credit improved; NPLs, albeit still elevated, declined in 2022 and are better provisioned.

Outlook and risks
- Authorities project growth to rebound to 4.5 percent in 2023—due mostly to a return to 2021 cashew export levels and expected increase in private sector investments.
- Over the medium-term, growth should reach 5 percent, supported by improvements in agriculture, mining, tourism, and fisheries and underpinned by sounder fiscal management.
- Authorities note downside risks from challenging domestic and external environments and vulnerability to shocks; reiterate strong commitment to reforms under the program.

### Policies and Reforms for 2023 and the Medium-Term

Program context
- SMP program successfully completed in June 2022; authorities view the ECF-supported program as the appropriate anchor for fiscal discipline and governance reforms.
- 2023 budget approved in December is the basis of the newly agreed program and sets out critical fiscal and tax reform measures with ambitious targets for tax revenues, wage bill, priority expenditures, domestic primary balance, and financing conditions.

Fiscal reforms and debt policy
- Continued engagement to reduce fiscal deficit-to-GDP and debt-to-GDP ratios starting in 2023 toward WAEMU convergence criteria:
  - Deficit target of 3 percent by 2025.
  - Debt target of 70 percent by 2026.
- Revenue mobilization measures to broaden the tax base and enhance domestic revenue:
  - Tax reform (with Fund technical assistance) enacted a package to enhance tax transparency, improve the tax penalty regime, promote a new VAT law, and ensure full implementation of electronic filing of tax returns.
  - Authorities expect to generate more revenues by implementing VAT in 2023.
  - Request for Fund support on modernizing the general exemptions regime and stepping up tax administration reforms.
- Spending and public financial management measures to contain wage bill growth and improve service delivery:
  - Implementation of the IMF-promoted Blockchain Project to contain the payroll bill, monitor/report resources spent, and address discrepancies between budgeted and executed wage payments.
  - Plan for a more comprehensive and modern civil service census with World Bank support.
  - Action plan to implement a Treasury Single Account (TSA) to improve cash management and cash flow forecasting.
- Fiscal risks from SOEs (especially EAGB) to be addressed:
  - Ongoing restructuring of EAGB with World Bank support to address financial and operational weaknesses.
  - Installation of new pre-paid analog meters starting February 15 (year implied in source) to help increase revenue.
  - Government committed not to intervene financially or issue bank guarantees to fulfill EAGB’s obligations.
  - Restoring EAGB’s financial situation is essential to complete interconnection to the OMVG regional energy project.
- Debt management intentions:
  - Reinforce debt management and pursue concessional resource mobilization to the extent possible.

Strengthening governance and anti-corruption
- Strengthening governance and fighting corruption are top reform priorities.
- Continued Fund support appreciated, including help preparing the decree-law on public procurement.
- Legality and accountability requirements for COVID-19 emergency expenditures (RCF) largely met:
  - Audits by the Audit Court and Inspection General on pandemic-related spending published in June 2022.
  - Ex-post independent audit by a third-party auditor firm published in January 2023.
  - Authorities intend to follow up and implement all independent auditor recommendations promptly.
- Transparency measures:
  - Continued publication of all financial reports, pandemic-related contract information, and beneficial ownership information.
  - Preparation of guidelines to implement the 2022 decree on beneficial ownership to disclose beneficial ownership information on all publicly awarded contracts.
- Institutional measures:
  - Step up efforts to strengthen AML/CFT mechanism and provide more resources to the Audit Court, CENTIF, and the Public Procurement Authority.

Enhancing the financial sector
- Actions to preserve financial system resilience and ensure regulatory compliance, including curbing NPLs and exiting the undercapitalized bank.
  - Due diligences completed with a potential investor to buy the government's stake and inject capital to bring the bank into compliance.
  - Government settled a considerable amount of debt owed to the bank, improving its financial position.
  - If investor operation does not materialize, government ready to implement recommendations from the regional banking supervisory commission and prepare a plan to disengage from the bank by 2024.

### Conclusion

- Authorities intend to pursue economic and structural measures to preserve macroeconomic stability, strengthen governance and transparency, and tackle sources of fragility to enhance resilience.
- Authorities request Executive Directors’ support for Guinea-Bissau’s request for an ECF arrangement.

*Source: INTRODUCTION (1gnbea2023001) — IMF country document.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1gnbea2023001.pdf_