## _cr04392 ## Source details **Canonical URL:** [_cr04392](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04392.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04392.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04392.pdf.json) --- ### Recent developments - Real GDP growth slowed to 1.2 percent in 2003 (from an average of about 4 percent during 2001–02). - Real GDP growth is projected at around 2.6 percent for 2004. - Inflation (CPI-based, 12-month) reached 14.8 percent in December 2003 (from 6.1 percent in December 2002). - Inflation eased to 9.4 percent year-on-year in May 2004, reflecting temporary factors including an unsustainable freeze on domestic petroleum product prices. - Private investment declined to about 6 percent of GDP compared with over 9 percent during 2001–02. - Guinea became the worst performer among regional peers in 2003. ### Fiscal developments and public finances - Fiscal outcome 2003: - Revenue shortfall of 1 percent of GDP. - Overrun in current spending of 1½ percent of GDP. - Fiscal deficit (commitment basis, including grants) widened to 5.1 percent of GDP in 2003 from 4.4 percent in 2002. - Financing and arrears: - In absence of external budgetary assistance, deficit financed by accumulation of arrears and increased borrowing from the banking system. - External arrears at end-2003 amounted to US$18 million and increased further in early 2004. - 2004 budget and implementation: - 2004 budget envisaged a primary surplus of 2.1 percent of GDP and reduced borrowing from the banking sector. - Q1 2004 budget implementation: revenue registered a 0.6 percent of annual GDP shortfall; accommodated by curtailing domestically-financed investment and nonwage social spending. - Defense accounted for about 50 percent of overruns; almost 0.5 percent of GDP shortfall in nonwage current spending in social sectors. - Medium-term fiscal projections (2004–07): - Total revenue projected to increase by 0.6 percent of GDP between 2004 and 2007. - Total primary current spending projected to increase by only 0.3 percent of GDP over the same period. - Primary balance path includes almost a 1 percentage point of GDP increase in domestically-financed investment during 2004–07. - Staff and authorities projected a 0.8 percentage point of GDP decline in the overall fiscal deficit (commitment basis, excluding grants) during 2004–07. - Revenue projected to increase by 1.2 percent of GDP over 2004–07 (driven by nonmining sector collections in staff-authority projection noted elsewhere). ### Monetary developments and financial sector - Monetary aggregates and reserve money: - Broad money increased to 35.3 percent (annual percent change) at end-2003. - Reserve money rose to 27.4 percent (annual percent change) at end-2003. - Reserve money increased by 25 percent on a twelve-month basis to March 2004. - On a monthly average in Q1 2004, currency accounted for 87 percent of reserve money. - Central bank financing and interest rates: - Monetary policy was highly expansionary in 2003 and Q1 2004; substantial government deficit financing came from central bank credit with limited use of T-bills. - Issuance of sterilization bills fell from 60.8 (Dec.02) to 34.5 (Dec.03), a difference of -26.3 (units as per Table 5). - Net foreign assets of the central bank were negative at end-December 2003, at US$ -10.4 million. - Real interest rates were negative for most of 2003. - Provisioning of nonperforming loans improved from 83.7 percent in December 2003 to 86.6 percent in March 2004. - Banking sector soundness: - Soundness ratios for the seven banks remained above prudential limits except for the ratio of risk concentration. - Share of nonperforming loans in total loan portfolios remained around 30 percent over the last three years. - Large exposure of banks to the government is a risk; foreign exchange exposure of domestic banks is low. - Monetary policy recommendations: - Tighter monetary policy to control inflation, including better use of T-bills and sterilization instruments. - Central bank should stop accommodating the Treasury and cease financing the government through central bank advances. - Foster better bank intermediation and promote sale of treasury bills to the nonbank sector to absorb liquidity outside the banking sector. - Strengthen central bank supervisory capacity and adopt revised banking and microfinance laws. ### Exchange rate and external sector - Exchange rate regime and market developments: - Authorities continued to de facto peg the official exchange rate of the Guinean franc against the US dollar; official rate depreciated only marginally until July 2004. - Spread between the official and parallel exchange rates remained above 20 percent during H2 2003 and widened to around 25 percent by mid-2004. - Absence of a mechanism to prevent divergence greater than 2 percent between official and parallel markets, and administrative allocation of foreign exchange, gave rise to a new multiple currency practice (MCP). - Staff do not recommend Board approval of Guinea’s MCP. - On July 14, 2004, the official rate depreciated by 20 percent in the first foreign exchange auction since November 2003; later discussion reports a 25 percent depreciation when auctions resumed and parallel premium fell from 25 percent to almost 10 percent. - Staff view: adopt floating exchange rate determined through interbank trading with central bank disseminating indicative rates. - External current account, reserves, and investment: - External current account deficit (excluding official transfers) narrowed to 4 percent of GDP in 2003, from 5.6 percent in 2002. - Narrowing mainly due to decline in imports of intermediate and capital goods associated with sharp fall in investment; exports fell reflecting continued downward trend of bauxite shipments despite increased shipments of alumina and diamonds. - Foreign direct investments fell to very low levels. - Gross international reserves dropped to US$138 million (1.5 months of imports) at end-2003 compared with US$170 million at end-2002. - Official reserves projected to decline further to 1.2 months of imports in 2004 (from 1.5 months in 2003). - External outlook projections (selected staff projections): - External current account balance (excl. official transfers) (percent of GDP): 2004: -3.7; 2005: -3.3; 2006: -2.6; 2007: -2.3 - Gross official reserves (months of imports): 2004: 1.2; 2005: 1.5; 2006: 2.8; 2007: 3.9 - Exports (annual changes in percent): 2004: 1.2; 2005: 5.6; 2006: 9.3; 2007: 9.3 - Imports (annual changes in percent): 2004: 0.0; 2005: 7.0; 2006: 8.1; 2007: 9.1 ### Structural reforms, PRS, and governance - Progress on structural reforms slowed in 2003. - Authorities finalized first PRS progress report following a participatory process; progress noted in education and health but sustained strong growth is needed to achieve PRS goals. - Ex-post assessment (EPA) highlighted needs for: - Commitment at the highest level to a long-term development strategy. - Early and decisive progress in implementing structural reforms. - Improving governance. - Setting realistic macroeconomic objectives and incorporating ex ante contingency plans. - Governance and anticorruption: - Mission emphasized need for significant progress in the fight against corruption. - Progress noted on publication of the 2002 CNLC progress report and launching bids for auditing government procurement contracts. - Concern that change in CNLC reporting channels may impair independence; authorities stated change intended to reinforce CNLC. ### Policy response, emergency program, and reengagement conditions - Emergency recovery program (March 2004) key elements: - Cuts in expenditure, respecting expenditure commitment procedures. - Improve revenue collection by curtailing exemptions and strengthening fiscal administration. - Tighten monetary policy. - Original 2004 budget revised to limit overall deficit (commitment basis, including grants) to 2.6 percent of GDP. - Mission urged strict expenditure control since April and using unprogrammed resources to reduce government indebtedness to the banking sector. - Preconditions for initiating a staff-monitored program (SMP) and reengagement with donors/IMF include: - Evidence that emergency program is restoring fiscal and monetary discipline. - Adoption of a floating exchange rate system. - Immediate implementation of three critical measures from the 2002 safeguards assessment mission. - Strong commitment to structural reforms, including adoption of WAEMU’s CET and restructuring public utilities. - Staff and Executive Board view: - Emergency program is "a step in the right direction but is not sufficient." - SMP would require the emergency program to show results, be vigorously pursued, and be augmented by floating exchange rate adoption and safeguards implementation. ### Risks, vulnerabilities, and medium-term outlook - Key downside risks: - Political vulnerabilities and regional insecurity could hinder rebound and deter private investment. - Lack of diversification: dependence on agriculture and mining; vulnerability to world mineral markets and oil price fluctuations. - Possible shortfalls in donors’ support; absence of Fund program limits budgetary and HIPC support. - Balance sheet vulnerabilities: domestic debt increased from 4.5 percent of GDP in 2000 to 12.2 percent at end-2003; risk of crowding out other expenditure and limiting issuance of needed T-bills. - Medium-term scenarios (with sound policies, improved security, larger donor support): - Economy could, after transition period (2004-05), return to growth path of 5 percent beginning in 2006, with inflation falling back to single digits from 2006 onward. - Private savings rate could improve from about 7.7 percent of GDP in 2003 to above 10 percent in 2007. - Gross domestic investment could rise from 10 percent of GDP in 2003 to 15½ percent in 2007, driven by private sector and renewed FDI. - Debt sustainability (selected indicators and projections): - End-2003 external public debt: US$3.4 billion nominal, including arrears; after traditional debt relief, stock reduced to US$2.5 billion. - End–2003 NPV of debt-to-exports ratio under new projection: 201.4 percent. - An unchanged HIPC debt relief of US$545 million in NPV terms would reduce NPV of debt-to-exports ratio below 150 percent (end-2003 ratio ~133 percent). - Baseline projection assumptions: real GDP growth averaging 5 percent during 2005–09 and 7 percent afterwards if private investment materializes. - Medium-term balance of payments (selected staff projections repeated): - External current account balance (excl. official transfers) (percent of GDP): 2004: -3.7; 2005: -3.3; 2006: -2.6; 2007: -2.3 - Gross official reserves (months of imports): 2004: 1.2; 2005: 1.5; 2006: 2.8; 2007: 3.9 ### Key policy recommendations (selected) - Fiscal: - Implement much tighter fiscal policies and reinforce fiscal tightening since April. - Improve revenue performance, contain defense spending, and keep nonproductive outlays minimal. - Fully implement the WAEMU’s CET in 2005 and adopt FAD technical assistance measures on fiscal administration. - Strengthen customs administration and implement PER recommendations to increase spending efficiency. - Monetary and financial sector: - Central bank to focus monetary policy on containing inflation and pursue proactive liquidity management based on MFD recommendations. - Ensure budget deficit finance through treasury bills rather than central bank advances. - Continue strengthening bank supervision and adopt revised banking and microfinance laws. - Exchange rate and external: - Liberalize the exchange rate so it remains market-determined; abandon administrative allocation of foreign exchange. - Adopt floating exchange rate determined through interbank trading with central bank disseminating indicative rates. - Structural and governance: - Accelerate structural reforms to improve infrastructure, address governance, enhance financial intermediation, and advance privatization and trade liberalization. - Rapidly restructure public utilities, tackle mining sector operational difficulties, and step up fight against corruption and judicial reform. - Statistics and capacity-building: - Improve statistics in public finances, real sector, balance of payments, and external debt. - Continue closure of non-project extra budgetary accounts, implement computer-based budget monitoring, consolidate government cash flows, and launch new consumer price index (March 2004) improvements. ### Selected key statistics (2000–2004 and snapshots) - Real GDP growth (annual percentage changes): 2000: 1.9; 2001: 4.0; 2002: 4.2; 2003: 1.2; 2004 (Proj.): 2.6 - Consumer prices (annual average): 2000: 6.8; 2001: 5.4; 2002: 3.0; 2003: 12.9; 2004 (Proj.): 16.6 - Inflation (CPI-based, end-2003): 14.8 percent - Exports, f.o.b. (US$ millions): 2000: 666.6; 2001: 722.8; 2002: 708.5; 2003: 724.5; 2004 (Proj.): 733.0 - Imports, f.o.b. (US$ millions): 2000: 583.3; 2001: 561.9; 2002: 596.2; 2003: 578.1; 2004 (Proj.): 578.1 - Current account balance, excl. official transfers (US$ millions): 2000: -225.6; 2001: -145.8; 2002: -180.5; 2003: -147.0; 2004 (Proj.): -130.1 - Current account balance (percent of GDP): 2000: -7.2; 2001: -4.8; 2002: -5.6; 2003: -4.0; 2004 (Proj.): -3.7 - Gross official reserves (US$ millions): 2000: 150.3; 2001: 208.4; 2002: 170.0; 2003: 138.3; 2004 (Proj.): 90.2 - Gross official reserves (months of imports): 2000: 2.1; 2001: 2.7; 2002: 2.3; 2003: 1.5; 2004 (Proj.): 1.2 - Overall fiscal balance (commitment basis, excluding grants, percent of GDP): 2000: -5.5; 2001: -7.5; 2002: -6.2; 2003: -7.9; 2004 (Proj.): -4.1 - Government revenue (percent of GDP): 2000: 10.9; 2001: 11.3; 2002: 12.0; 2003: 10.5; 2004 (Proj.): 10.9 - Debt service (percent of exports): 2000: 9.6; 2001: 12.2; 2002: 9.0; 2003: 12.5; 2004 (Proj.): 11.1 - End-2003 external public debt (nominal): US$3.4 billion (including arrears); after traditional relief: US$2.5 billion - NPV of external debt (percent of GDP) selected: 2003: 50.9; 2004: 44.3; 2005: 45.6; 2006: 44.4; 2007: 41.9; 2008: 38.1; 2013: 19.4 - NPV of external debt (percent of exports) selected: 2003: 208.2; 2004: 201.4; 2005: 197.4; 2006: 183.7; 2007: 166.6; 2008: 149.9; 2013: 64.2 - Selected monetary indicators: - Broad money increase (annual) end-2003: 35.3 percent. - Reserve money increase (annual) end-2003: 27.4 percent. - Net foreign assets of central bank at end-December 2003: US$ -10.4 million. - Millennium Development Goal indicator excerpt: - 1. Population below US$ 1 a day (percent): 40.3 *Source: _cr04392 - Executive Summary and selected excerpts from IMF staff report and appendices (Guinea, 2004).* ### Executive Summary ...................................................................................................... ### Executive Summary ### Recent developments - Real GDP growth slowed to 1.2 percent in 2003 (from an average of about 4 percent during 2001–02). - Inflation (CPI-based, 12-month) reached 14.8 percent in December 2003 (from 6.1 percent in December 2002). - Private investment declined to about 6 percent of GDP compared with over 9 percent during 2001–02. - Real GDP growth is projected at around 2.6 percent for 2004. - Inflation eased to 9.4 percent year-on-year in May 2004, reflecting temporary factors including an unsustainable freeze on domestic petroleum product prices. - Guinea’s performance moved to the bottom of regional peers in 2003, becoming the worst performer in the regional context (Box 1). ### Fiscal developments and public finances - A one percent of GDP revenue shortfall, coupled with a 1½ percent of GDP overrun in current spending, widened the fiscal deficit (commitment basis, including grants) to 5.1 percent of GDP in 2003 from 4.4 percent in 2002. - In the absence of external budgetary assistance, the deficit was financed by an accumulation of arrears and increased borrowing from the banking system. - The 2004 budget envisaged a tightening of fiscal policy with a primary surplus of 2.1 percent of GDP and reduced borrowing from the banking sector. - Budget implementation in Q1 2004 was poor: revenue registered a 0.6 percent of annual GDP shortfall; the shortfall was accommodated by curtailing domestically-financed investment and nonwage spending in the social sectors. - Defense accounted for about 50 percent of the overruns; the balance included spending associated with the run-up to the December 2003 presidential elections. There was an almost 0.5 percent of GDP shortfall in nonwage current spending in social sectors. ### Monetary developments and financial sector - Broad money increased to 35.3 percent (annual percent change) at end-2003; reserve money rose to 27.4 percent (annual percent change) at end-2003. - Monetary policy was highly expansionary in 2003 and Q1 2004; substantial government deficit financing came from central bank credit with limited use of T-bills. - Issuance of sterilization bills was inadequate; sterilization bills fell from 60.8 (Dec.02) to 34.5 (Dec.03), a difference of -26.3 (units as per Table 5). - Net foreign assets of the central bank were negative at end-December 2003, at US$ -10.4 million. - Reserve money increased by 25 percent on a twelve-month basis to March 2004. - Real interest rates were negative for most of 2003. - Banking-sector soundness ratios for the seven banks remained above prudential limits except for the ratio of risk concentration. - The share of nonperforming loans in total loan portfolios remained around 30 percent over the last three years. - Provisioning of nonperforming loans improved from 83.7 percent in December 2003 to 86.6 percent in March 2004. - Large exposure of banks to the government is a risk despite government remaining current on obligations; foreign exchange exposure of domestic banks is low. ### Exchange rate and external sector - Authorities continued to de facto peg the official exchange rate of the Guinean franc against the US dollar; the official rate depreciated only marginally until July 2004. - The spread between the official and parallel exchange rates remained above 20 percent during H2 2003 and widened to around 25 percent by mid-2004. - The absence of a mechanism to prevent divergence greater than 2 percent between official and parallel markets, and recent administrative allocation of foreign exchange, gave rise to a new multiple currency practice (MCP). - The staff do not recommend Board approval of Guinea’s MCP. - During the 12-month period ended April 2004, the nominal effective exchange rate depreciated on average (as reported). ### Structural reforms, PRS, and governance - Progress on structural reforms slowed in 2003. - The medium-term framework should include sustained reform efforts to secure strong growth and poverty reduction. - The ex-post assessment report highlights the need for: - commitment at the highest level of government to a long-term development strategy, - early and decisive progress in implementing structural reforms, - improving governance, - setting realistic macroeconomic objectives. - The authorities finalized their first PRS progress report following a participatory process involving civil society; progress was noted in social sectors, in particular education and health, but sustained strong growth will be needed to achieve PRS goals. - The revised, more realistic macroeconomic framework in the PRS progress report is welcomed. ### Outlook and policy recommendations - The emergency program adopted in March 2004 will be insufficient to ease inflationary pressures. - Growth is expected to remain relatively weak at around 2.6 percent in 2004. - With sound policies, staff and the authorities agreed the economy could return to a growth path of 5 percent by 2006, in line with PRS objectives. - Key policy actions recommended: - rigorous fiscal policy to increase revenue collection, gear expenditures toward social outlays, and strengthen public expenditure management; - tighter monetary policy to control inflation, including better use of T-bills and sterilization instruments; - liberalizing the exchange rate so it remains market-determined; - accelerating structural reforms to improve basic infrastructure, address governance issues, enhance financial intermediation, and advance privatization and trade liberalization to promote private sector-led growth. ### Risks and vulnerabilities (summary) - Important downside risks cast a shadow on the 2004 outlook. - Macroeconomic instability impaired poverty reduction efforts. - The combination of fiscal slippages, accommodative monetary policy, loss of reserves, and a widening official-parallel exchange rate spread heightens vulnerability. *Source: _cr04392 - Executive Summary* ### 11.8 percent, largely because of the depreciation of the US dollar against the euro. ### 11.8 percent, largely because of the depreciation of the US dollar against the euro. ### External current account, reserves, and investment - The external current account deficit (excluding official transfers) narrowed to 4 percent of GDP in 2003, from 5.6 percent in 2002. - Narrowing mainly due to a decline in imports of intermediate and capital goods associated with the sharp fall in investment; exports fell reflecting continued downward trend of bauxite shipments, despite increased shipments of alumina and diamonds. - Foreign direct investments fell to very low levels because mining and other investments were deterred by corruption and bureaucratic inefficiency. - Gross international reserves of the central bank dropped to US$138 million (1.5 months of imports) at end-2003 compared with US$170 million at end-2002. - External arrears at end-2003 amounted to US$18 million and increased further in early 2004. - Official reserves’ liquidity questioned; need to implement safeguards assessment mission recommendations. ### Inflation, money, and short-term outlook for 2004 - Real effective exchange rate depreciated by only 0.4 percent reflecting the acceleration in inflation. - Economic performance in 2004 projected weaker than at 2003 Article IV consultation: real GDP growth at 2.6 percent. - To get inflation on a clear downward path in 2004, base money growth should not exceed 10 percent, implying a bank financing of the budget deficit limited to 1.2 percent of GDP. - End-2004 inflation expected to rise somewhat reflecting pass-through of exchange rate depreciation and upward adjustment of administered prices. - External current account excluding grants projected to narrow further to 3.7 percent of GDP. - Official reserves projected to decline further to 1.2 months of imports, from 1.5 months in 2003. ### Policy response and emergency recovery program (March 2004) - Authorities adopted an emergency recovery program in March 2004 with key elements: - Cuts in expenditure, respecting rigorously the expenditure commitment procedures. - Improving revenue collection by curtailing exemptions and strengthening fiscal administration. - Tightening monetary policy. - Original 2004 budget revised to extend the revenue shortfall and spending curtailment to the year as a whole; overall deficit (commitment basis, including grants) would be limited to 2.6 percent of GDP. - Mission urged strict expenditure control since April and using unprogrammed resources to reduce government indebtedness to the banking sector. - Mission and authorities agreed monetary policy should be significantly tightened by active open market operations and ensuring budget deficit financed through issuance of treasury bills to avoid direct expansion of base money by central bank advances. - Acknowledgement that making up for the revenue shortfall of the first quarter would be very difficult. ### Structural reforms, governance, and safeguards - Progress in structural reform slowed: draft legislation for adoption of WAEMU’s common external tariff (CET) prepared; closure of most extra budgetary accounts and transfer of non-project accounts to central bank. - Banking and microfinance laws not yet adopted; computerization of banks’ accounting plan not completed though most background actions implemented. - Recapitalization of the only bank in difficulty still pending. - Delays in implementation of main recommendations of the safeguards assessment mission: special audit of central bank’s reserves, set up of an audit committee, financial audit of the central bank. - Authorities finalized first PRSP progress report in April 2004; updated medium-term macroeconomic framework in June 2004. Report notes deterioration in macroeconomic environment has significantly impaired achievement of PRS targets. - Ex-Post Assessment (EPA) main lessons: ensure ownership and commitment at highest government level; encourage early and decisive progress in raising fiscal revenue and structural reforms; pay more attention to poor governance; set realistic macroeconomic objectives and incorporate ex ante contingency plans. ### Exchange rate policy and foreign exchange market - Since mid-2003 government limited availability of foreign exchange in the official market to particular categories of importers and tolerated banks to finance other imports at negotiated exchange rates diverging by more than 2 percent from official rate — creating new exchange restrictions and a new MCP subject to Fund jurisdiction under Article VIII. - De facto fixed official exchange rate resulted in a large parallel market premium and overvaluation of official rate. - Parallel market premium of almost 25 percent by mid-2004 indicative of overvaluation of official rate. - Staff urged adoption of a more flexible exchange rate and abandonment of administrative allocation of foreign exchange for imports; recommended liberalized and flexible system. - Authorities agreed more flexibility necessary but feared speculative rapid depreciation; staff noted credibility of public policies as best guarantee. - On July 14, 2004, in first foreign exchange auction since November 2003, the official rate depreciated by 20 percent. - Staff view: adopt floating exchange rate determined through interbank trading with central bank disseminating indicative rates. ### Way forward and conditions for reengagement with donors/IMF - Authorities stressed normalizing relations with Fund and other donors important to implement development strategy and enter into a track-record SMP as soon as possible. - Entering SMP would imply going beyond short-term fiscal tightening and include: - Disciplined implementation of fiscal and monetary tightening. - Adoption of a floating exchange rate system, with rate determined through interbank trading and central bank disseminating indicative rates. - Immediate implementation of the three critical measures recommended by 2002 safeguard assessment mission to limit vulnerabilities in central bank financial reporting and internal control system. - Strong commitment to structural reforms, notably preparing adoption of WAEMU’s CET and restructuring public utility enterprises to alleviate shortages in electricity and water supply. ### Medium-term prospects, growth scenarios, and vulnerabilities - With sound policies, improved security, and larger donor support, economy could after transition period (2004-05) return to growth path of 5 percent beginning in 2006, with inflation falling back to single digits from 2006 onward. - Private savings rate could improve from about 7.7 percent of GDP in 2003 to above 10 percent in 2007. - Gross domestic investment could rise from 10 percent of GDP in 2003 to 15½ percent in 2007, driven by private sector and renewed foreign direct investment, particularly in mining. - Achieving the Millennium Development Goals would require more ambitious macroeconomic performance and more financial resources than envisaged. - Box 2 — Four main vulnerabilities: - Political vulnerabilities and private investment variations: political instability and/or regional insecurity could hinder rebound; fear of social unrest may delay reforms; fight against corruption may encounter resistance. - Lack of diversification: large share of agriculture in GDP; dependence on mining sector and world mineral markets; vulnerability to oil price fluctuations as Guinea imports all petroleum products. - Possible shortfalls in donors’ support: deteriorating performance and absence of Fund program will limit budgetary and HIPC support; continued debt service difficulties may lead donors to suspend project assistance. - Balance sheet vulnerabilities: domestic debt of government increased from 4.5 percent of GDP in 2000 to 12.2 percent at end-2003; risk of crowding out other expenditure and central bank refraining from issuing needed volume of T-bills. ### Fiscal policy medium-term projections and measures - Staff and authorities projected a 0.8 percentage point of GDP decline in the overall fiscal deficit (commitment basis, excluding grants) during 2004–07, predicated on an increase in revenue that outweighs the increase in spending. - Revenue projected to increase by 1.2 percent of GDP over 2004–07, driven by collections from the nonmining sector. - Increasing revenue collection hinges on strengthening tax administration, progress in the fight against corruption, and implementation of WAEMU’s CET. - Expenditure policy geared toward raising development and social outlays while curtailing other expenditures; medium-term budget framework envisages greater share of spending allocated to social sectors. - Current nonwage primary spending on social sectors is projected to increase by almost [text ends here]. *Excerpted from IMF staff report text (Guinea, 2004) embedded in the supplied content.* ### 0.6 percent of GDP between 2004 and 2007, while total primary current spending would ### _cr04392 - 0.6 percent of GDP between 2004 and 2007, while total primary current spending would ### Fiscal projections and primary balance - Total revenue projected to increase by 0.6 percent of GDP between 2004 and 2007. - Total primary current spending projected to increase by only 0.3 percent of GDP over the same period. - Overall, the primary balance is projected to increase only marginally because part of the revenue increase would be absorbed by higher domestically-financed development spending. - The primary balance path encompasses an almost 1 percentage point of GDP increase in domestically-financed investment during 2004-07. - The projected revenue increase over the medium-term is conservative relative to a 2002 FAD technical assistance projection that adoption of the WAEMU’s CET would yield a positive revenue impact of 0.4 percent of GDP by 2005, mostly from the suppression of ad hoc exemptions. ### Expenditure management and poverty reduction spending - Increased spending on social programs should be coupled with an improved public expenditure management system to benefit the poverty reduction agenda. - Recommendations to improve budget execution and tracking, including at decentralized levels where most poverty reduction expenditures are executed: - Improve management of the externally-funded part of the development budget to ensure alignment with the poverty reduction strategy. - Implement PER-recommended measures to improve expenditure management for social sectors. - Specific PER measures include: - Tighter control of the budget share of wages through reduction of staff in central services. - Inclusion in the medium-term expenditure framework of budget ceilings for defense spending and a more transparent review process for such spending. - Introduction of more robust procedures for transfer of funds to local levels and improved controls by the General Finance Inspectorate. - Tracking externally financed development expenditures is difficult; some donors make direct transfers to decentralized services or pay suppliers abroad, forcing government to record commitments ex-post. ### Monetary and financial policies - Keeping inflation under control should be the primary focus of monetary policy over the medium term. - The central bank indicated it would stop accommodating the Treasury and would pursue active liquidity management, based on MFD technical assistance recommendations. - Staff noted the central bank’s limited capacity to absorb liquidity through auctions because of the composition of reserve money. - Staff encouraged: - Fostering better bank intermediation. - Promoting the sale of treasury bills to the nonbank sector to absorb liquidity outside the banking sector. - Banking sector assessment and supervision: - Guinea’s banking sector appears relatively sound, but continuous efforts to enforce supervisory rules are needed. - Authorities committed to rapid adoption of the new banking law and the law on microfinance. - Strengthening central bank supervisory capacity is needed; difficulties exist in recruiting qualified experts for bank supervision. - In microfinance, four major institutions have been accredited by the central bank and on-site audits undertaken since 2003; further strengthening of supervisory capacity is required. - Reserve money composition: - On a monthly average in the first quarter of 2004, currency accounted for 87 percent of reserve money. ### External sector outlook and debt sustainability - Guinea’s external accounts could improve markedly over the medium term provided: - Envisaged foreign direct investments in the mining sector are undertaken starting in 2005. - Measures are implemented to diversify the export base, notably to respond to growing regional demand for agricultural products. - To help achieve export diversification, staff pointed to benefits of further trade liberalization— notably full implementation of the WAEMU’s CET in 2005—limiting government interference in export regulation, combating corruption, and streamlining bureaucracy. - Liberalization would facilitate: - Introduction of reciprocal trade opening under the EU’s Economic Partnership Agreement. - Taking full advantage of the Africa Growth and Opportunity Act (AGOA). - AGOA status: - So far, Guinea has not yet taken advantage of AGOA; interest remains high. AGOA action committee identified potential export products including shea butter, fresh fruit, artisanal goods, and textiles. - External debt: - External debt indicators have deteriorated owing mainly to lower-than-projected exports since reaching the HIPC decision point in 2000. - Difficulties in servicing external debt would continue unless the country gains access to more of the HIPC relief it qualified for at the decision point. - Completion point timing: staff indicated completion point could be reached at best in late 2005/early 2006 after meeting all completion point triggers, rigorous policy implementation under an SMP, and satisfactory track record including completion of one review under a new PRGF-supported program covering at least six months of policy implementation. - Authorities emphasized need to enter into an SMP as soon as possible, noting envisaged timing of completion point would be costly to implementation of their poverty reduction strategy. ### Medium-term balance of payments (selected staff projections as presented) - External current account balance (excl. official transfers) (in percent of GDP) 2004 2005 2006 2007: - -3.7 -3.3 -2.6 -2.3 - Gross official reserves (in months of imports) 2004 2005 2006 2007: - 1.21.52.83.9 - Exports (annual changes in percent) 2004 2005 2006 2007: - 1.25.69.39.3 - Imports (annual changes in percent) 2004 2005 2006 2007: - 0.07.08.19.1 - Note: Table labeled "Medium-Term Balance of Payments (Annual changes in percent)" with source attribution to staff projections. ### Regional integration and policy stance on monetary unions - Authorities reaffirmed commitment to: - Adopt the WAEMU’s CET in January 2005. - Adhere to the WAMZ monetary union when launched on July 1, 2005, despite deterioration in Guinea’s performance on WAMZ convergence criteria. - Staff views: - Encouraged planned adoption of the CET, which would reduce Guinea’s trade restrictiveness index from 3 to 2. - Expressed skepticism about joining the WAMZ monetary union due to lack of progress toward economic convergence and difficulties in adjusting to asymmetric exogenous shocks. ### Governance and anticorruption - Mission emphasized need for significant progress in the fight against corruption. - Progress noted on two HIPC completion point triggers on governance: - Publication of the 2002 progress report of the Anti-Corruption Committee (CNLC). - Launching of bids for auditing of government procurement contracts (bids due to be opened on July 30, 2004). - Concern expressed that change in CNLC status from independent structure under the Presidency to being part of a new Ministry may impair independence and effectiveness. - Authorities stated change in reporting channels intended to reinforce CNLC by giving it a say within government. *Source: Fund staff projections.* ### Box 3. Guinea’s Position Relative to the Convergence Criteria for the ### Box 3. Guinea’s Position Relative to the Convergence Criteria for the Second Monetary Zone in West Africa (WAMZ) ### Convergence Criteria and Guinea's Status - The convergence framework comprises four primary and six secondary criteria. - Primary criteria (regional objectives and Guinea's status): - Budget deficit (Commitment basis; in percent of GDP): Regional objective "< 4.0 percent by 2002"; Status in Guinea at End-2002: "-6.2"; Status in Guinea at End-2003: "-7.9" - Inflation (end-of-period; in percent): Regional objective "≤ 3 percent by 2003"; Status in Guinea at End-2002: "6.1"; Status in Guinea at End-2003: "14.8" - Central bank financing of budget deficit (percent): Regional objective "≤ 10 percent of previous year’s tax receipts by 2003"; Status in Guinea at End-2002: "26.5"; Status in Guinea at End-2003: "17.2" - International reserves (months of imports): Regional objective "≥ 4"; Status in Guinea at End-2002: "2.3"; Status in Guinea at End-2003: "1.5" - Secondary criteria (objectives and Guinea's status): - Domestic arrears: Objective "No new accumulation and reduction of existing stock"; Status in Guinea at End-2002: "Met"; Status in Guinea at End-2003: "Not met" - Tax revenue/GDP (percent): Objective "≥ 20"; Status in Guinea at End-2002: "9.8"; Status in Guinea at End-2003: "9.0" - Wage bill/tax revenue (percent): Objective "≤ 35"; Status in Guinea at End-2002: "38.3"; Status in Guinea at End-2003: "39.9" - Real exchange rate: Objective "Broad stability"; Status in Guinea at End-2002: "-2.3"; Status in Guinea at End-2003: "-0.5" - Interest rates: Objective "Positive real interest rates"; Status in Guinea at End-2002: "Met"; Status in Guinea at End-2003: "Not met" - Self-financed investment/tax revenue (percent): Objective "≤ 20"; Status in Guinea at End-2002: "12.7"; Status in Guinea at End-2003: "14.4" ### Staff Findings and Macroeconomic Assessment - Policy implementation in 2003 was characterized as "very weak." - Fiscal and monetary outcomes and consequences: - Government adopted an expansionary fiscal stance and retained de facto control of the official exchange rate. - Absence of structural reform progress weakened economic performance; economic growth was "very low" and savings and investment "declined sharply." - In the absence of external budgetary assistance, the increasing fiscal deficit was financed by accumulation of arrears and increased recourse to bank financing. - Resulting monetary overhang associated with accelerating inflation, described as "harmful to the poor." - Exchange rate and multiple currency practices (MCPs): - Multiple currency practices intensified in 2003 and H1 2004. - Lack of a mechanism preventing divergence between official and parallel market rates by more than 2 percent constitutes an MCP. - Administrative allocation of foreign exchange in 2003 created new exchange restrictions and a new MCP requiring Fund approval under Article VIII. - Staff did not recommend approval of these MCPs due to absence of a clear timetable for elimination. - Staff welcomed a July 2004 depreciation of the official rate; recommended abandoning the auction system and moving toward a floating exchange rate determined through interbank trading. - Emergency recovery program (March 2004): - Described as "a step in the right direction but is not sufficient" to restore a solid growth trajectory. - Program proposes substantial tightening of policies but not sufficient for a rapid decline in inflation. - Initiating a track-record SMP would require the emergency program to show results, be vigorously pursued, and be augmented by: - Adopting a floating exchange rate system. - Implementing 2002 safeguards assessment recommendations. - Initiating urgently needed structural reforms. ### Policy Recommendations - Fiscal policy and public finances: - Implement much tighter fiscal policies and reinforce fiscal tightening since April. - Improve revenue performance and contain defense spending. - Keep nonproductive outlays to a strict minimum to free resources for domestically financed investment and social outlays. - Fully implement the WAEMU’s CET in 2005. - Adopt measures proposed by the recent FAD technical assistance mission on fiscal administration. - Continue strengthening the customs administration to enhance revenue. - Implement recommendations of the 2003 public expenditure review to increase spending efficiency. - Monetary and financial sector policy: - Central bank should focus monetary policy on containing inflation. - Liquidity management must become much more proactive, based on MFD technical assistance recommendations. - Central bank should stop accommodating the Treasury and cease financing the government through issuance of treasury bills. - Continue strengthening bank supervision and pursue adoption of revised banking and microfinance laws by Parliament. - Structural and governance reforms: - Rapidly restructure public utility enterprises to alleviate electricity and water shortages. - Tackle operational difficulties in the mining sector and promote export diversification. - Rapidly and forcefully step up the fight against corruption. - Show determined progress in reforming the judicial system. - External sector and debt: - Implement structural reforms and reduce interventionist policies to diversify the export base. - Pursue reform efforts to regain access to more HIPC Initiative relief; without this, debt will remain unsustainable. - Endeavor to eliminate external debt arrears to normalize relations with donors. - Statistical and capacity-building needs: - Improve statistics in public finances, real sector, balance of payments, and external debt. - Continue closure of most non-project extra budgetary accounts, use of a computer-based budget monitoring system, and consolidation of government cash flows under a unified accounting framework. - Launch of a new consumer price index in March 2004 to improve price statistics; authorities to continue improved GDP accounting methodology. - Draw on technical assistance from STA, West AFRITAC, and donor agencies; continue implementing recommendations of prior TA missions. ### Key Risks and Medium-term Outlook - The medium-term prospects depend on continued political will to adopt and pursue sound, pro-growth, and poverty-reducing policies. - Staff welcomed cautious growth assumptions in the revised PRSP macroeconomic framework but noted that achieving targets requires strong commitment to structural reforms to elicit supply response. - Identified risks to successful policy reform: - Political and security tensions. - Lack of diversification of the economy. - Shortfalls in donors’ support. - Balance sheet vulnerabilities linked to growing domestic debt. - Staff urged the government to demonstrate unwavering commitment to sound policies, resist pressures from entrenched interests, and improve institutions to move the reform agenda forward. ### Selected Key Statistics from the Box (as reported) - Budget deficit (commitment basis; percent of GDP): End-2002: "-6.2"; End-2003: "-7.9" - Inflation (end-of-period; percent): End-2002: "6.1"; End-2003: "14.8" - Central bank financing of budget deficit (percent of previous year’s tax receipts): End-2002: "26.5"; End-2003: "17.2" - International reserves (months of imports): End-2002: "2.3"; End-2003: "1.5" - Tax revenue/GDP (percent): End-2002: "9.8"; End-2003: "9.0" - Wage bill/tax revenue (percent): End-2002: "38.3"; End-2003: "39.9" - Real exchange rate (broad stability): End-2002: "-2.3"; End-2003: "-0.5" - Interest rates (positive real interest rates): End-2002: "Met"; End-2003: "Not met" - Self-financed investment/tax revenue (percent): End-2002: "12.7"; End-2003: "14.4" - Domestic arrears: End-2002: "Met"; End-2003: "Not met" *IMF staff report excerpt: Box 3 on Guinea’s position relative to WAMZ convergence criteria (End-2002 and End-2003 statuses).* ### 1. Population below US$ 1 a day (percent).. 40.3.. .. 30 ### _cr04392 - 1. Population below US$ 1 a day (percent).. 40.3.. .. 30 ### Millennium Development Goals — Key Indicators (Guinea) - 1. Population below US$ 1 a day (percent): 40.3.. .. 30 - 2. Poverty gap ratio at US$ 1 a day (percent): .. .. .. .. - 3. Share of income or consumption held by poorest 20 percent (percent): 6.4.. .. .. - Target 2 (Hunger): Halve, between 1990 and 2015, the proportion of people suffering hunger - 4. Prevalence of child malnutrition (percent of children under 5): .. 33.. .. - 5. Population below minimum level of dietary energy consumption (percent): 40.. 32.. .. - Goal 2 (Universal primary education) — Target 3: Ensure that, by 2015, children will be able to complete a full course of primary schooling - 6. Net primary enrollment ratio (percent of relevant age group): 36.547.. 100 - 7. Percentage of cohort reaching grade 5: 58.854.184.4.. .. - 8. Youth literacy rate (percent age 15-24): .. .. .. .. - Goal 3 (Gender equality) — Target 4: Eliminate gender disparity in primary and secondary education preferably by 2005 and to all levels of education by 2015 - 9. Ratio of girls to boys in primary and secondary education (percent): 43.148.6.. 75.4.. - 10. Ratio of young literate females to males (percent ages 15-24): .. .. .. .. - 11. Share of women employed in the nonagricultural sector (percent): .. .. .. .. - 12. Proportion of seats held by women in the national parliament (percent): 799.. - Goal 4 (Reduce child mortality) — Target 5: reduce by two-thirds between 1990 and 2015, the under-five mortality rate - 13. Under-five mortality rate (per 1,000): 240208169.. 70 - 14. Infant mortality rate (per 1,000 live births): 145129109105.350 - 15. Immunization against measles (percent of children under 12-months): 356152.. .. - Goal 5 (Improve maternal health) — Target 6: Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio - 16. Maternal mortality ratio (modeled estimate, per 100,000 live births): 1200.. .. 200 - 17. Proportion of births attended by skilled health personnel: 30.5.. 34.8.. .. - Goal 6 (Combat HIV/AIDS, malaria and other diseases) — Target 7: Halt by 2015, and begin to reverse, the spread of HIV/AIDS - 18. HIV prevalence among females (percent ages 15-24): .. 1.4.. .. - 19. Contraceptive prevalence rate (percent of women ages 15-49): 2.. 6.2.. .. - 20. Number of children orphaned by HIV/AIDS: .. 30000.. .. - Target 8: Halt by 2015, and begin to reverse, the incidence of malaria and other major diseases - 21. Prevalence of death associated with malaria: .......... - 22. Share of population in malaria risk areas using effective prevention and treatment: .......... - 23. Incidence of tuberculosis (per 100,000 people): .. 270.4.. .. - 24. Tuberculosis cases detected under DOTS (percent): 3840.. .. - Goal 7 (Environmental sustainability) — Target 9: Integrate the principles of sustainable development into policies and programs. Reverse the loss of environmental resources - 25. Forest area (percent of total land area): 29.6.. 28.2.. .. - 26. Nationally protected areas (percent of total land area): 0.70.70.7.. - 27. GDP per unit of energy use (PPP $ per kg oil equivalent): .. .. .. .. - 28. CO2 emissions (metric tons per capita): 0.20.20.2.. .. - 29. Proportion of population using solid fuels: .......... - Target 10: Halve by 2015 proportion of people without access to safe drinking water - 30. Access to improved water source (percent of population): 45.. .. 64.3100 - Target 11: Achieve by 2020 significant improvement for at least 100 million slum dwellers - 31. Access to improved sanitation (percent of population): 55.. 58.. .. - 32. Access to secure tenure (percent of population): .. .. .. .. .. - Goal 8 (Global partnership) — Target 16: Develop and implement strategies for productive work for youth - 45. Unemployment rate of population ages 15-24 (total): Female.. .. .. .... Male.......... - Target 17: Provide access to affordable essential drugs - 46. Proportion of population access with access to affordable essential drugs: .......... - Target 18: Make available new technologies, especially information and communications - 47. Fixed line and mobile telephones (per 1,000 people): 1.510.1.. 15 - 48. Personal computers (per 1,000 people): 1.44.. .. ### Relations with the Fund (Appendix I) — Institutional and Financial Overview (As of May 31, 2004) - I. Membership: Joined on September 28, 1963; Article VIII - II. General Resources Account: - Quota: 107.10 100.00 - Fund holdings of currency: 107.03 99.93 - Reserve position in Fund: 0.08 0.07 - III. SDR Department: - Net cumulative allocation: 17.60 100.00 - Holdings: 0.01 0.05 - IV. Outstanding Purchases and Loans: - Poverty Reduction and Growth Facility (PRGF) arrangements: 86.11 80.41 - V. Financial Arrangements (selected): - PRGF: Approval date 05/02/2001, Expiration date 05/01/2004, Amount approved (SDR million): 64.26, Amount drawn (SDR million): 25.70 - ESAF/PRGF: Approval date 01/13/1997, Expiration date 01/12/2001, Amount approved: 70.80, Amount drawn: 62.94 - ESAF: Approval date 11/06/1991, Expiration date 12/19/1996, Amount approved: 57.90, Amount drawn: 46.32 - VI. Projected Payments to the Fund (without HIPC Assistance) (SDR million; based on existing use of resources and present holdings of SDRs): - Overdue May 31, 2004 Principal: 1.16 - Forthcoming 2004 Principal: 9.64 - Forthcoming 2005 Principal: 14.20 - Forthcoming 2006 Principal: 13.09 - Forthcoming 2007 Principal: 13.98 - Forthcoming 2008 Principal: 11.83 - Charges/interest forthcoming: 0.57 (2004), 0.65 (2005), 0.58 (2006), 0.51 (2007), 0.45 (2008) - Total forthcoming (2004 onward): 10.21 (2004), 14.85 (2005), 13.67 (2006), 14.49 (2007), 12.27 (2008) - VII. Implementation of HIPC Initiative: - A. Commitment of HIPC assistance: Enhanced Framework - Decision point date: 12/20/2000 - Assistance committed by all creditors (US$ million): 545.00 - Of which: IMF assistance (US$ million): 31.40 (SDR equivalent in millions): 24.24 - Completion point date: Floating - B. Disbursement of IMF assistance (SDR million): - Amount disbursed to the member (Interim assistance): 5.17 - Completion point balance: 0.00 - Additional disbursement of interest income: Total disbursements: 0.00 / 5.17 - Note: The PRGF went off track as of end-December 2002. - VIII. Safeguards Assessments: - On-site safeguards assessment of the BCRG completed on July 11, 2002; concluded substantial risks existed in the central bank’s external audit mechanism, financial reporting framework, and system of internal controls. Authorities have yet to implement all corrective actions recommended. - IX. Exchange Arrangements: - De jure managed floating exchange rate with no preannounced path; reclassified as a de facto peg because of the central bank’s de facto fixing of the exchange rate. - Official exchange rate determined monthly in auction market. Due to lack of liquid foreign exchange, no auctions were held between late 2003 and July 2004; official rate remained at GF 2,000 per U.S. dollar. - Auction held on July 14, 2004: rate depreciated to GF 2,500 per U.S. dollar; auction on July 21, 2004: official rate remained unchanged. - Multiple currency practice arises from lack of mechanism preventing divergence between official and parallel markets by more than 2 percent and administrative allocation of foreign exchange to finance specific imports. - X. Article IV Consultation: - Guinea is on the 12-month cycle. The last consultation was concluded by the Executive Board on July 16, 2003. - XI. Technical Assistance (selected entries with timing): - FAD: Advise on customs reform. March 1999 - FAD/resident advisor: Assist on treasury management. January-June 1999 - FAD/resident advisor: Advise on customs reform. Sep. 1999-Oct. 2000 - FAD: Advise on introduction of WAEMU common external tariff. September 2002 - FAD: Advise on tax administration. June 2004 - MFD/resident advisor: Advise the governor of the BCRG. 1998-2000 - MFD: Advise on monetary operations. June 21-30, 2000 - MFD: Examine foreign exchange auctions system at the BCRG. October 10-24, 2000 - MFD: Advise on liquidity forecasting, review foreign exchange operations, and advise on supervisory framework for microfinance institutions. End-November 2001 - MFD: Advise on liquidity management. Nov.-Dec. 2002 - MFD: Advise on bank supervision. March 2003 - MFD: Advise on bank liquidity management, exchange operations, and supervision. May 2004 - STA: Examine the overall compilation of real sector statistics. March 2000 - STA: Review the coverage of the monetary Statistics, as well as data collection and compilation practices. November 2000 - XII. Resident Representatives: - Mr. Jones has been Resident Representative since July 2003. ### Relations with the World Bank Group — Strategy and Collaboration (Appendix II) - Guinea’s development strategy set out in the PRSP endorsed by the Bank on July 25, 2002; PRSP rests on three pillars: sustain faster economic growth and create income-earning and employment opportunities (particularly for rural poor); increase and extend access to basic services; improve governance and strengthen institutional and human capacity. - World Bank Country Assistance Strategy (CAS 2004-06) presents three scenarios: - High-case scenario: increase budget support through the PRSC and provide project financing to power and water sectors; PRSC provides time frame and resources for medium- and long-term reforms in decentralization, governance, and divestiture. - Base-case scenario: support PRSP aspects approved by authorities in March 2002 and prepare for programmatic lending and more efficient allocation and utilization of external aid. - Low-case scenario: government unable to make significant progress on macroeconomic, fiscal and governance issues; assistance limited to safeguarding progress in priority sectors; no budget support nor infrastructure financing. - Context and recent performance: - Macroeconomic management began to deteriorate seriously in mid-2002; PRGF program went off track in December 2002. - Key contributing factors to deterioration: overspending related to security outlays, a highly expansionary fiscal stance, a lax monetary policy and fixing of the exchange rate leading to rising inflation and a serious decline in gross reserves. - Exogenous risks: lower prices for bauxite and other commodities, regional instability. - GDP growth in 2003 projected to reach 2.1 percent. - Given continuing poor macroeconomic performance, Guinea may be considered as reflecting the CAS’ low-case scenario; Bank support limited to protecting sectors vital to poverty reduction. - IDA and Bank lending and portfolio (selected figures): - As of June 29, 2004, IDA approved 62 credits for Guinea; total value about US$1,420 million equivalent, of which US$1,287 million has been disbursed. - Current Bank portfolio in Guinea comprises eight projects totaling US$204.3 million, of which US$20.3 million is in the form of a grant, and US$132.2 million remains undisbursed. - FY04-06 proposed World Bank lending program under low-case CAS: second Health Sector Project (US$15 million) in FY04, second Village Community Support Program (US$35 million) in FY05, second Capacity Building for Service Delivery Program (US$10 million) in FY 06. - Bank-Fund collaboration areas: - Public Expenditure Management: Fund leads dialogue on tax policy; Bank focuses on strategic resource allocation and operational efficiency; Bank assisted with MTEF and strengthening budget process; CPAR in 2002 and PER in 2003 with Fund collaboration. - Poverty and Social Impact Analysis: Bank and Fund teams discussing analyses including impacts of government spending in health and education, adoption of WAEMU Common External Tariff, exchange rate flexibility on consumer prices, trade reforms, and taxation on growth and income distribution. - Household survey: 2003 household survey should be completed as soon as possible to identify key determinants of poverty and enable tracking poverty impact over time. *Sources: World Bank; and Fund staff estimates.* ### APPENDIX II ### APPENDIX II–IV (Selected Extracts) ### Public Service Reform and Service Delivery - Recent initiatives launched by the government of Guinea, with Bank and donor support, include: - The Public Finance Management Reform Program. - The National Anti-Corruption Strategy and Action Plans for Guinea. - The public service reform program’s objective: improve accountability, transparency, and resource management for service delivery. - The program is closely linked with public finance and decentralization reforms. - Bank–Fund cooperation focuses on areas where public sector reform directly impacts fiscal stability and public sector financial management. ### Trade Reforms - Fund role: lead reforms in the tariff regime. - Bank role: foster trade through the Integrated Trade Framework and engage in regional trade dialogue within WAEMU. - World Bank contact listed: Mr. Ezzeddine Larbi (Phone: 458-2996). ### Financial Relations With the World Bank Group — Statement of Loans and Credits (As of June 29, 2004; in millions of U.S. dollars) - IBRD and IDA Operations Portfolio: - Closed Projects: 54 - Total disbursed (active): 86.65 - Of which: has been repaid: 0.00 - Total disbursed (closed): 1,200.38 - Of which: has been repaid: 218.95 - Total disbursed (active + closed): 1,287.02 - Of which: has been repaid: 218.95 - Total undisbursed (active): 132.24 - Total undisbursed (closed): 0.09 - Total undisbursed (active + closed): 132.33 - Active Projects — Original Amount in US$ Million (selected entries): - P049716 Capacity Building for Service Delivery — Fiscal Yr. 2000 — IBRD 19.0 — IDA 13.5 - P050046 Education for All Project — Fiscal Yr. 2002 — IBRD 70.0 — IDA 62.1 - P074288 Guinea: Decentralized Rural Electrification — Fiscal Yr. 2003 — IBRD 5.0 — IDA 5.3 - P050732 Village Community Support Program — Fiscal Yr. 1999 — IBRD 22.0 — IDA 4.4 - P073378 Multi-Sectoral Aids Project (MAP) — Fiscal Yr. 2003 — IBRD 20.3 — IDA 19.5 - P001075 Third Water Supply — Fiscal Yr. 1997 — IBRD 50.0 — IDA 19.9 - P001074 Urban III — Fiscal Yr. 1999 — IBRD 18.0 — IDA 7.5 - Overall Result*: IBRD 204.3 — IDA 132.2 - IFC and MIGA Program, FY2000–2004: - IFC Approvals (US$m) for 2001–2004: 0.00, 0.00, 0.00, 0.00 (sector and instrument percentages not provided in extract). - MIGA Guarantees (US$m) for 2001–2004: 51.46, 39.41, 17.49, 17.49 ### Statistical Issues — Overview - Persistent serious statistical problems remain, particularly in the compilation of real sector and balance of payments statistics. - Changes in the financial system have affected the quality of data for deposit money banks. - A law on statistics was approved in 1995 to organize decentralized statistical production; however, the National Council of Statistics and its technical committee have not noticeably improved statistical quality. - Guinea participates in the General Data Dissemination System (GDDS); metadata first posted on the DSBB on December 12, 2003. - Economic and financial data provided to the Fund are generally adequate for program monitoring, though internal consistency issues between fiscal and monetary data are frequently encountered. ### Real Sector Statistics — Findings and Actions - Weaknesses: - Only the consumer price index (CPI) is published regularly; other real sector statistics are irregular, poorly distributed, and often unreliable. - No regular survey on mining and industrial production; no statistics on employment and population. - Data on agriculture have been published only sporadically via FAO/UNDP surveys; no data on employment or labor costs. - Historical work and updates: - 1990–93: extensive work produced final national accounts tables for 1986–1988, provisional data for 1990–1991, and an input-output table for 1990. - 1994: comprehensive household survey prepared. - Provisional national accounts for 1992–96 had serious shortcomings and did not fully use the 1994 household survey. - October 2000: authorities presented final national accounts for 1995–96 and provisional accounts for 1997–98; all national accounts data were significantly revised. - A program to reinforce national accounts is underway with AFRISTAT and GTZ technical assistance; expected outcome: production of input-output matrices on an annual basis. - CPI and price measures: - The consumer price index for Conakry is available monthly with a one-month lag. - Export prices estimated from mining companies; import prices based on weighted average of partner countries’ export prices. - Exchange rates reported monthly. - STA mission (March 2000) recommendations: - Identified lack of budget for compilation of current statistics and poor professional training as main causes. - Guinea developed an action plan; many measures lack identified financial resources. ### Balance of Payments Statistics — Findings and Actions - Implemented measures since May 1995 BOP mission: - Expanded coverage of trade in services, private transfers, and capital flows by surveying service providers and large companies annually; survey not comprehensive and lacks sanctions for nonresponse. - Quarterly compilation recommendation not yet implemented. - Merchandise trade statistics reported in Harmonized System, net of diplomats and transit trade; nonetheless, data are inconsistent with actual country developments: - Possible causes: smuggling (exports of gold and diamonds subject to modest export taxes; imports subject to import duties). - Reported significant exports of aluminum products despite no domestic production per Ministry of Mining and Energy; data are substantially adjusted prior to publication. - Impact on national accounts: - National accounts use trade data that include transit trade and imports by diplomats, leading to overestimation of openness. - National accounts use estimates of trade in services below central bank survey estimates. - Authorities requested additional STA technical assistance for balance of payments statistics. - Since December 2002, authorities have not reported monthly data on international reserves to the IMF Statistics Department. ### Government Finance Statistics — Findings - Central government budgetary data compiled monthly by Ministry of Finance: - Revenue on cash basis; expenditure on commitment and cash bases. - AFR receives preliminary data within 15 days and main final data within one month. - Budgetary data often not internally consistent. - Budget coverage issues: - Budget excludes several “satellite” accounts not directly incorporated. - Significant differences exist between national definition of general government and GFSM definition. - Autonomous funds (e.g., Road Fund) are only partly incorporated in the budget: - For the Road Fund, 100 percent of resources are “committed” through the budget and transferred from the budget to the fund; actual disbursements made at Road Fund’s discretion and monitored through its central bank account. - Fuel tax is not expressly earmarked for the Road Fund; it is received by general budget and transferred to the Road Fund through the budget. - Publication and reporting: - Latest data published in the GFS Yearbook are for 1999. - Guinea does not report fiscal data for publication in International Financial Statistics (IFS). ### Monetary Accounts Statistics — Findings and Reporting - Monthly data on monetary authorities, deposit money banks, and interest rates are available. - Recent financial system developments (liquidation and restructuring of banks) not fully reflected due to data collection, classification, and sectorization problems. - A monetary and financial statistics mission visited Conakry in November 2000; key recommendations summarized in a report and action plan left with authorities. - Authorities have made good progress implementing measures, notably strengthening commercial banks’ reporting practices and classification of nonperforming loans. - Beginning 2001, authorities resumed regular reporting of monetary data for IFS publication. - Timeliness of monetary data reporting has been uneven since 2003. - Most recent data for monetary authorities and deposit money banks to be published in August 2004 IFS edition refer to December 2003. ### Core Statistical Indicators (As of May 31, 2004) — Metadata Snapshot - Date of latest observation examples: - Exchange Rates: 3/31/04 (received 4/05/04) - International Reserves: 2/28/04 (received 4/05/04) - Interest Rates: 3/12/04 (received 3/30/04) - Consumer Price Index: 2003 (received 5/15/04) - Exports/Imports: 2003 (received 5/15/04) - Overall Government Balance: 12/31/03 (received 5/15/04) - Frequency and source codes provided (e.g., M = monthly, A = annual; BCRG = Central Bank of the Republic of Guinea; MEF = Ministry of Economy and Finance). ### Debt Sustainability Analysis — Key Findings and Projections - End-2003 external public debt: - US$3.4 billion in nominal terms, including arrears. - Creditor composition: 62 percent multilateral; quasi-totality of remainder bilateral. - Paris Club accounts for almost 70 percent of debt owed to bilaterals. - After full use of traditional debt relief mechanisms, stock of debt at end–2003 reduced to US$2.5 billion. - Nominal debt service due: - US$146 million in 2002. - US$184.2 million in 2003. - After Paris Club reschedulings and interim enhanced HIPC assistance: - Debt service to be paid in 2002: US$88 million. - Debt service to be paid in 2003: US$103 million. - Amount actually paid in 2003: US$85 million because of accumulation of arrears of US$18 million. - HIPC Decision Point (December 2000) context: - NPV of debt-to-exports after full use of traditional relief: 219 percent at end-1999; projected to decline to 166 percent by end–2003. - With HIPC debt relief of US$545 million in NPV terms: ratio reduced to 150 percent at end-1999 and 133 percent at end-2003 (projected to remain under 150 percent throughout projection period at that time). - Baseline projections (assumptions and outcomes): - Assume implementation of sound macroeconomic policies as described in section II, C of the staff report. - Real GDP growth: projected to average 5 percent of GDP during 2005–09 and 7 percent afterwards as new private investment materializes, conditional on reforms and policies. - Scenario depends critically on regional security, climatic conditions, and evolution of bauxite, alumina, and gold prices. - Overall fiscal balance: projected to record deficits until 2015. - External current account: projected to improve gradually and become roughly balanced after 2015. - External debt assumptions in baseline: - Full use of traditional debt relief mechanisms in NPV computations. - Borrowing on concessional terms for all new loan disbursements. - Based on these, Guinea’s external debt ratios would remain at unsustainable levels under the debt-to-exports criterion. - End–2003 NPV of debt-to-exports ratio under new projection: 201.4 percent (compared with 166 percent estimated for same year at decision point). - Increase explained by a 2 percentage point decline in the discount rate (from over 7 percent to 5 percent) and an almost 30 percent shortfall in exports. - HIPC relief impact and vulnerabilities: - An unchanged HIPC debt relief of US$545 million in NPV terms would reduce NPV of debt-to-exports ratio below 150 percent; end-2003 ratio would be reduced to about 133 percent. - Guinea remains vulnerable to policy slippages and exogenous shocks affecting output and exports. - Sensitivity analyses: - If key variables (real GDP and export growth) are affected by adverse shocks, debt indicators worsen. - Alternative scenario with key variables at historical averages from 2004 onward yields a higher NPV of debt-to-exports ratio than baseline from 2006 onward; difference reaches almost 31 percentage points in 2008. - Bound tests: if export growth from 2004 onward is one standard deviation below historical averages permanently, deterioration in NPV of debt-to-exports ratio is substantially larger. *Source: IMF staff report appendices (excerpts).* ### APPENDIX IV - 53 - ### _cr04392 - APPENDIX IV - 53 - ### Indicators of Public and Publicly Guaranteed External Debt (2003-2023) - NPV of debt-to-GDP ratio, NPV of debt-to-exports ratio, and Debt service-to-exports ratio are presented under three scenarios: Baseline, Historical scenario, Most extreme stress test (charts shown for 2003–2023). - NPV of external debt (percent of GDP) series (selected values shown): - 2003: 50.9 - 2004: 44.3 - 2005: 45.6 - 2006: 44.4 - 2007: 41.9 - 2008: 38.1 - 2013: 19.4 - NPV of external debt (percent of exports) series (selected values shown): - 2003: 208.2 - 2004: 201.4 - 2005: 197.4 - 2006: 183.7 - 2007: 166.6 - 2008: 149.9 - 2013: 64.2 - Debt service-to-exports ratio (in percent) series (selected values shown): - 2003: 24.6 - 2004: 20.0 - 2005: 18.6 - 2006: 23.0 - 2007: 21.2 - 2008: 20.0 - 2013: 3.0 - Total gross financing need (billions of U.S. dollars) selected values: - 2000: 0.4 - 2001: 0.3 - 2002: 0.3 - 2003: 0.3 - 2004: 0.3 - 2005: 0.3 - 2006: 0.3 - 2007: 0.4 - 2013: 1.0 ### Identified Net Debt-Creating Flows and Dynamics (actuals and projections) - Change in external debt (selected years): - 2000: 6.1 - 2001: 1.4 - 2002: -9.2 - 2003: -13.0 - 2004: -0.1 - 2005: -3.6 - 2006: -5.7 - 2007: -7.0 - 2008 average: -0.6 - Identified net debt-creating flows (selected values): - 2000: 18.2 - 2001: 6.5 - 2002: 0.7 - 2003: 3.3 - 2004: 3.3 - 2005: 2.1 - 2006: 2.3 - 2007: 2.9 - 2008 average: 7.2 - Non-interest current account deficit (selected series): - 2000: 5.5 - 2001: 1.3 - 2002: 5.3 - 2003: 5.4 - 2004: 1.5 - 2005: 3.5 - 2006: 4.5 - 2007: 5.4 - 2008 average: 6.4 - 2013: 6.7 - 2023: 8.1 - 2023 (another listed value): 9.6 - Exports (percent of GDP) series (selected values): - 2000: 23.6 - 2001: 26.6 - 2002: 24.5 - 2003: 22.0 - 2004: 23.1 - 2005: 24.2 - 2006: 25.2 - 2007: 25.4 - 2013: 30.2 - Imports (percent of GDP) series (selected values): - 2000: 27.9 - 2001: 27.9 - 2002: 28.4 - 2003: 24.6 - 2004: 25.0 - 2005: 26.0 - 2006: 26.5 - 2007: 26.5 - 2013: 29.9 - Net current transfers (negative = inflow) selected values: - 2000: -0.3 - 2001: -1.7 - 2002: -0.9 - 2003: 0.4 - 2004: 1.3 - 2005: -0.1 - 2006: -0.1 - 2007: -0.3 - 2008 average: -0.4 - 2013: -0.3 - 2023: 0.4 - later series: 0.2 - Other current account flows (negative = net inflow) selected values: - 2000: 1.6 - 2001: 1.7 - 2002: 2.2 - 2003: 1.1 - 2004: 2.7 - 2005: 4.0 - 2006: 5.5 - 2007: 5.9 - 2013: 8.0 - Net FDI (negative = inflow) series (selected values): - 2000: 1.5 - 2001: 1.9 - 2002: -1.0 - 2003: -0.3 - 2004: 1.2 - 2005: -0.5 - 2006: -0.5 - 2007: -1.8 - 2008 average: -1.9 - 2013: -1.5 - 2023: -0.4 - later series: -0.6 - Endogenous debt dynamics (selected values): - 2000: 11.2 - 2001: 3.2 - 2002: -3.7 - 2003: 0.3 - 2004: -0.6 - 2005: -1.5 - 2006: -2.2 - 2007: -2.3 - 2008 average: -0.5 - Contribution from nominal interest rate (selected values): - 2000: 1.8 - 2001: 1.1 - 2002: 1.2 - 2003: 1.2 - 2004: 1.2 - 2005: 1.0 - 2006: 0.9 - 2007: 0.8 - 2008 average: 0.3 - Contribution from real GDP growth (selected values): - 2000: -1.8 - 2001: -3.7 - 2002: -3.6 - 2003: -0.9 - 2004: -1.8 - 2005: -2.6 - 2006: -3.1 - 2007: -3.0 - 2008 average: -0.8 - Residual (3-4) (selected values): - 2000: -12.1 - 2001: -5.1 - 2002: -9.8 - 2003: -16.3 - 2004: -3.4 - 2005: -5.7 - 2006: -7.9 - 2007: -9.9 - 2008 average: -7.8 - Exceptional financing component examples: - 2000: -0.6 - 2001: -2.3 - 2002: -1.2 - 2003: -2.2 - 2004: -0.5 - 2005: -0.9 - 2006: -0.8 - 2007: -0.7 - 2008 average: 0.0 ### Key Macroeconomic Assumptions (selected) - Real GDP growth (in percent) series (selected values): - 2000: 1.9 - 2001: 4.0 - 2002: 4.2 - 2003: 4.3 - 2004: 19.6 - 2005: 1.2 - 2006: 2.6 - 2007: 3.8 - 2008: 5.0 - 2009: 5.6 - 2013: 3.6 - 2023: 7.1 - later: 6.7 - GDP deflator in US dollar terms (change in percent) (selected values): - 2000: -11.7 - 2001: -6.1 - 2002: 1.4 - 2003: -3.2 - 2004: 5.8 - 2005: 11.7 - 2006: -5.8 - 2007: -2.2 - 2008: -0.1 - 2009: 2.8 - 2013: 1.3 - 2023: 0.1 - later: -0.3 - Effective interest rate (percent) 5/ (selected values): - 2000: 1.9 - 2001: 1.2 - 2002: 1.4 - 2003: 1.6 - 2004: 0.4 - 2005: 1.6 - 2006: 1.7 - 2007: 1.5 - 2008: 1.4 - 2009: 1.4 - 2013: 1.5 - 2023: 2.4 - later: 2.1 - Growth of exports of G&S (US dollar terms, in percent) (selected values): - 2000: -1.9 - 2001: 10.1 - 2002: -2.9 - 2003: -0.2 - 2004: 6.5 - 2005: 1.8 - 2006: 1.3 - 2007: 6.3 - 2008: 9.1 - 2009: 9.8 - 2013: 5.7 - 2023: 7.7 - later: 7.4 - Growth of imports of G&S (US dollar terms, in percent) (selected values): - 2000: -3.7 - 2001: -2.1 - 2002: 7.4 - 2003: 0.8 - 2004: 58.8 - 2005: -2.3 - 2006: -1.6 - 2007: 5.3 - 2008: 7.0 - 2009: 8.8 - 2013: 3.5 - 2023: 7.2 - later: 7.2 - Grant element of new public sector borrowing (in percent) assumed constant: - 56.9 repeated for projection years through 2013 and beyond. - Memorandum item: Nominal GDP (billions of US dollars) selected: - 2000: 3.1 - 2001: 3.0 - 2002: 3.2 - 2003: 3.6 - 2004: 3.5 - 2005: 3.6 - 2006: 3.7 - 2007: 4.1 - 2013: 11.1 ### Sensitivity Analyses for Key Indicators (2003-23) - Table of scenario outcomes (selected highlights): - Baseline NPV of debt-to-GDP ratio examples: 2003: 44, 2004: 46, 2005: 46, 2006: 44, 2007: 42, 2008: 38, 2013: 28, 2023: 19 - Alternative scenario A1 (key variables at historical averages in 2004-23) NPV of debt-to-GDP ratio examples: 2003: 44, 2004: 44, 2005: 44, 2006: 43, 2007: 42, 2008: 35, 2013: 26 - Alternative scenario A2 (new public sector loans on less favorable terms in 2004-23) NPV of debt-to-GDP ratio examples: 2003: 44, 2004: 46, 2005: 46, 2006: 44, 2007: 41, 2008: 39, 2013: 35, 2023: 31 - Bound tests B1–B6 and resulting indicator levels are reported for NPV of debt-to-GDP ratio, NPV of debt-to-exports ratio, and debt service ratio (percent). Selected B6 (one-time 30 percent nominal depreciation relative to the baseline in 2004) outcomes: - NPV of debt-to-GDP ratio: 44, 67, 65, 61, 56, 52, 41, 28 (series shown in table) - Other scenario outcomes for exports and debt-service ratios are listed in the table. ### Statement by the IMF Staff Representative (August 27, 2004) — Key Findings and Developments - General: - This statement reports on information that has become available since the staff report was issued and does not change the thrust of the staff appraisal. - Inflation: - Year-on-year inflation declined from double digits during most of 2003 to 9.8 percent in June 2004. - The decline appears to be driven by seasonal factors given that stabilization efforts are very recent. - Fiscal performance and government operations (comparison Q1 2004 – Q2 2004): - Overall revenue in Q2 2004 was about 30 percent higher than in Q1 2004 due to efforts in collecting nonmining revenue. - For the first semester, total revenue was slightly below target, mainly because mining revenue was lower-than-projected. - Social spending accelerated in Q2 compared with Q1, although commitments fell short of projections. - Spending overruns were driven by domestically-financed investment and transfers. - The fiscal deficit exceeded projections by 0.4 percent of GDP and was financed by higher-than-projected arrears accumulation and recourse to bank financing. - Government operations (In billions of Guinean francs, cumulative) — 2004 projections and estimates: - March projections vs. estimates: - Revenue: Proj. 241.4, Est. 188.0 - o/w non mining revenue: Proj. 199.0, Est. 155.1 - Total expenditure: Proj. 335.7, Est. 281.1 - o/w current nonwage social spending: Proj. 13.9, Est. 1.5 - Primary balance (in percent of GDP): Proj. 0.3, Est. 0.3 - Overall balance, cash basis (In percent of GDP) examples given: -91.5, -1.1, -120.9, -1.4, -136.7, -1.6, -172.8, -2.0 (table entries shown) - June projections vs. estimates: - Revenue: Proj. 437.9, Est. 434.2 - o/w non mining revenue: Proj. 362.5, Est. 369.3 - Total expenditure: Proj. 615.5, Est. 636.6 - o/w current nonwage social spending: Proj. 30.1, Est. 21.8 - Primary balance (in percent of GDP): Proj. 0.8, Est. 0.5 - Monetary and liquidity developments: - Broad money grew by 37.9 percent over the 12-month period ended June 2004, largely driven by banking system credit to the government. - The central bank increased use of sterilization bills to control liquidity, but effectiveness was limited due to large government financing needs. - Net foreign assets of the central bank improved slightly but remained negative. - Exchange rate management: - Authorities resumed foreign exchange auctions in July (following staff recommendation to stop de facto fixing of the official exchange rate), allowing the official rate to depreciate by 25 percent. - The parallel market premium fell from 25 percent in June to almost 10 percent thereafter. - Domestic prices and social measures: - Official price of rice increased by 51 percent. - Prices of petroleum products increased by about 70 percent. - Public transportation costs were increased proportionately; government announced a doubling of the transportation allowance for civil servants to offset impacts. - External arrears: - Arrears accumulated in 2003 amounted to US$18 million (as indicated in staff report). - Net arrears accumulated in 2004: US$11.2 million in Q1 2004 and an additional US$8 million in Q2 2004. - Total arrears outstanding at end-June 2004 were almost US$37 million. - Donor relations and political steps: - Government delegation met EU officials in Brussels in late July and presented a memorandum outlining steps to address issues with the EU dating from mid-2002. - Memorandum highlights steps to promote human rights and democracy, including restoring political dialogue, liberalizing the media, organizing free and transparent municipal elections in 2005, and legislative elections in 2005. *Source: Staff projections, staff simulations, and Statement by the IMF Staff Representative, August 27, 2004.* ### 2007. An EU assessment mission will visit Conakry in coming months. A positive ### IMF Concludes 2004 Article IV Consultation with Guinea ### Background and recent developments - In 2003 Guinea’s economic situation deteriorated due to exogenous conditions, poor macroeconomic management, and lack of progress in key structural areas. - Real GDP growth slowed from 4.2 percent in 2002 to an estimated 1.2 percent in 2003. - The 12-month rate of inflation (CPI-based) reached 14.8 percent in December 2003 (from 6.1 percent in December 2002). - Overall fiscal deficit (excluding grants) widened to 7.9 percent of GDP in 2003 from 6.2 percent of GDP in 2002. - Accumulation of payment arrears occurred both domestic and external, linked to the wider deficit and lack of external budgetary assistance. - The external current account deficit (excluding official transfers) declined by over 1½ percentage points of GDP driven by subdued imports of intermediate and capital goods. - The government maintained a de facto fixed exchange rate, keeping the Guinean franc/US dollar rate broadly stable despite rising inflation; the parallel market premium widened to over 20 percent from roughly 2 percent in 2002. - Gross official reserves declined to 1½ months of imports in 2003, from 2.3 months of imports in 2002. - Structural reform progress was mixed: - Strengthened treasury management and preparatory measures for adoption of the common external tariff of the West African Economic and Monetary Union. - Delays in submission of draft banking and microfinance laws and in implementing central bank reporting and audit improvements. - No progress on reform of public utilities, whose poor operations continue to adversely affect economic activity. ### Outlook and staff projections (2004) - Baseline conditional on implementation of the emergency recovery program adopted in March 2004 and no deterioration in exogenous conditions (terms of trade, climate, security). - Real GDP growth projected to accelerate to 2.6 percent in 2004, owing mostly to improved agricultural output and a slight pick up in the secondary sector. - Annual average rate of inflation projected to increase further to almost 16½ percent due to continued government reliance on bank financing of the cash deficit and consequent monetary expansion. - Risks: downside risks are important — both exogenous and policy-related — and performance in early 2004 was poor. ### Executive Board assessment — findings and recommended policies - Directors welcomed the March 2004 emergency economic recovery program but considered it insufficient alone to restore solid growth, reduce inflation materially, and restore foreign exchange reserves. - Preconditions for initiating a staff-monitored program include: - Evidence that the emergency program is restoring fiscal and monetary discipline, - Adoption of a floating exchange rate system, - Implementation of the long delayed recommendations of the 2002 safeguards assessment mission, - Initiation of urgently needed structural reforms. - Fiscal policy: - Fiscal consolidation is the cornerstone to improve macroeconomic performance and reduce domestic debt. - Achieving sound fiscal policy depends critically on improving revenue performance, containing defense spending, and keeping nonproductive outlays to a strict minimum to free resources for domestically financed investment and social outlays. - Monetary policy and banking: - The central bank should stop accommodating government’s expansionary policies and focus on containing inflation. - Proactive liquidity management, including open market operations, is required to contain money supply growth and limit inflationary pressures. - Treasury bills should replace central bank advances as the preferred instrument of budget financing. - Continue strengthening bank supervision and push for adoption of revised banking and microfinance laws. - Exchange rate and external sector: - De facto pegging and administrative allocation of foreign exchange introduced substantial distortions; multiple currency practice emerged with divergence between official and parallel markets. - Directors welcomed depreciation of the official rate since July 2004 and supported adopting a floating exchange rate determined through interbank trading. - Encouraged use of technical assistance to achieve a market-determined exchange rate as soon as possible. - Structural reforms and governance: - Serious risks to medium-term reform include political instability, regional insecurity, lack of economic diversification, possible donor shortfalls, and growing domestic debt. - Urged acceleration of reforms in public enterprise sector, including privatization, and rapid restructuring of public utilities to alleviate electricity and water shortages and address mining sector operational difficulties. - Emphasized forceful action against corruption and reform of the judicial system; stressed importance of ensuring independence of the Anti-Corruption Commission. - Debt and donor relations: - Serious concerns over difficulties servicing external debt and heavy external debt burden; suspension of interim debt relief under the HIPC Initiative noted. - Urged elimination of external debt arrears and normalization of relationships with creditors; welcomed renewed dialogue with the EU. - Stressed decisive action to reverse recurring late payments to the Fund and pursue reforms to regain access to HIPC Initiative relief qualified for at the decision point in 2000. - Poverty reduction and statistics: - Commended efforts to advance the poverty reduction agenda (PRSP-PR) but noted urgent correction of macroeconomic imbalances is needed to sustain poverty reduction and protect social spending. - Called for using more recent poverty data and finalization of the integrated household survey. - Data deficiencies remain in public finance, real sector, balance of payments, and external debt statistics; encouraged collaboration with donors and IMF’s West Africa Technical Assistance Center to strengthen statistical capacity. ### Key statistics and selected economic indicators (2000–04) - Changes in real GDP (annual percentage changes): 2000: 1.9 2001: 4.0 2002: 4.2 2003: 1.2 2004 (Proj.): 2.6 - Changes in consumer prices (annual average): 2000: 6.8 2001: 5.4 2002: 3.0 2003: 12.9 2004 (Proj.): 16.6 - Exports, f.o.b. (in millions of U.S. dollars): 2000: 666.6 2001: 722.8 2002: 708.5 2003: 724.5 2004 (Proj.): 733.0 - Imports, f.o.b. (in millions of U.S. dollars): 2000: 583.3 2001: 561.9 2002: 596.2 2003: 578.1 2004 (Proj.): 578.1 - Current account balance, excluding official transfers (in millions of U.S. dollars): 2000: -225.6 2001: -145.8 2002: -180.5 2003: -147.0 2004 (Proj.): -130.1 - Current account balance (in percent of GDP): 2000: -7.2 2001: -4.8 2002: -5.6 2003: -4.0 2004 (Proj.): -3.7 - Capital and financial account balance (in millions of U.S. dollars): 2000: 33.5 2001: 84.3 2002: 82.4 2003: 54.9 2004 (Proj.): 40.3 - Gross official reserves (in millions of U.S. dollars): 2000: 150.3 2001: 208.4 2002: 170.0 2003: 138.3 2004 (Proj.): 90.2 - Gross official reserves (in months of imports of goods and nonfactor services): 2000: 2.1 2001: 2.7 2002: 2.3 2003: 1.5 2004 (Proj.): 1.2 - Debt service (including to the Fund) (in percent of exports of goods and nonfactor services): 2000: 9.6 2001: 12.2 2002: 9.0 2003: 12.5 2004 (Proj.): 11.1 - Change in real effective exchange rate (in percent; increasing figures indicate an appreciation): 2000: -10.1 2001: -3.0 2002: -2.3 2003: -2.7 - Government revenue (in percent of GDP): 2000: 10.9 2001: 11.3 2002: 12.0 2003: 10.5 2004 (Proj.): 10.9 - Domestic primary balance (in percent of GDP): 2000: 2.5 2001: 0.6 2002: 0.0 2003: -1.6 2004 (Proj.): 1.6 - Overall fiscal balance (commitment basis, excluding grants, in percent of GDP): 2000: -5.5 2001: -7.5 2002: -6.2 2003: -7.9 2004 (Proj.): -4.1 - Velocity (GDP/average M2): 2000: 10.3 2001: 9.4 2002: 8.6 2003: 7.7 2004 (Proj.): 7.2 - Interest rate (Treasury bill rate, end-of-period, in percent): 2001: 13.4 2002: 13.3 2003: 14.1 *Public Information Notice (PIN) No. 04/115 — October 3, 2004. IMF Executive Board discussion concluded August 27, 2004.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04392.pdf_