## Guinea: Poverty Reduction Strategy Paper—Second Annual Progress Report — Joint Staff Advisory Note

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---

### Overview
- PRSP distributed to the Executive Boards of IDA and IMF early in 2002.
- Original joint staff assessment: PRSP provides an adequate framework with well-defined but ambitious poverty reduction objectives, gaps in poverty-related information, and significant risks including factors outside government control.
- Second Annual Progress Report (APR) substantially completed in December 2005 and covers 2004 outcomes; this JSAN also discusses policies beyond 2004, particularly macroeconomic policies.
- Key staff judgment: despite some progress since early 2005 (notably on macroeconomic stabilization), administrative capacity remains weak and the political situation is fragile, creating a difficult and volatile environment for PRS implementation.
- APR has strengthened the role of the PRS in policy discussions and has enjoyed strong ownership since inception.

### Accelerating Economic Growth — Findings and Risks
- Drivers of 2004 deterioration:
  - Relaxed fiscal and monetary discipline.
  - Weaker export prices.
  - Worsening subregional security.
  - Approaching national elections.
- Key indicators:
  - Poverty incidence increased from 49.3 percent in 2002 to 50.1 percent in 2004.
  - Annual average inflation rose from 12.9 percent in 2003 to 17.5 percent in 2004.
  - Fiscal deficit (excluding grants) declined from 5.9 percent of GDP in 2004 to 1.4 percent of GDP in 2005 following tighter policies in early 2005 supported by an SMP.
- Medium-term macroeconomic targets (2006–08) in the APR:
  - Achieve economic growth above 5 percent.
  - Single-digit inflation.
  - A sustainable external position.
- Planned fiscal impact of revenue reforms:
  - Fiscal revenues expected to rise from 10.4 percent of GDP in 2004 to an average of about 13 percent of GDP over 2006–2008.
- Risks to the medium-term program:
  - Dependence on donor financing and debt relief (HIPC and MDRI).
  - Need for an IMF PRGF arrangement.
  - Additional risks from volatile political situation, poor governance, weak implementation capacity, and regional instability.
- Sectoral growth constraints:
  - Agriculture: limited access to credit; transport and storage constraints; natural events and health-related plagues; inadequate support for training, research dissemination, extension services. APR lacks policy guidance on responses.
  - Mining: APR omits discussion of fiscal revenue losses from wide-ranging tax exemptions, distortions from abundant regulatory discretion, and discriminatory impact on non-mining investment. Staffs recommend urgent review of the legal framework and administration for mining.
  - Export diversification: APR did not explicitly reference Diagnostic Integrated Trade Studies recommendations; staffs recommend full integration of those recommendations into the updated PRSP.

### Public Finance, Revenue Mobilization, and Expenditure Management
- APR emphasis: strengthen management of public resources and align the national budget with PRS objectives.
- Specific needs identified:
  - Improve budget formulation, execution, and control.
  - Strengthen governance and domestic/external debt management.
  - Step up MTEF efforts and better link PRSP priorities with annual budgets.
  - Improve quality of spending via program budgeting, strict adherence to budgetary procedures, strengthened financial accountability.
- Concern: APR falls short of specifics on these measures.
- Technical assistance from donors is needed to strengthen revenue collection and related reforms.

### Monitoring of the Poverty Reduction Strategy
- Current monitoring is inadequate due to lack of intermediate input/output indicators linking policies and budget allocations in education, health, and agriculture.
- Recommendation: the second PRSP (planned for late 2006) should incorporate monitoring and performance indicators consistent with the MTEF and clearly results-based.
- Statistical capacity: simplification and updating of poverty indicators based on the 2002 household survey is recommended; urgent assistance is required to strengthen the Permanent Secretariat for the Poverty Reduction Strategy and the National Statistical Office.
- Public expenditure tracking:
  - 2003 PETs for health and education were important first steps but need to be repeated regularly.
  - A PET in agriculture would also be useful.
  - APR should report PET conclusions in the next edition.

### Promoting Access to Basic Services — Education, Health, Water, Electricity
- Education:
  - Staff estimate gross primary enrollment in 2004–05 at 82 percent overall and 72 percent for girls.
  - Guinea could achieve 100 percent gross enrollment by 2015 but is unlikely to meet the education MDG (100 percent completion rate by 2015).
  - Education expenditures: declined from 2.3 percent of GDP in 2003 to 1.5 percent of GDP in 2004, recovering to about 2 percent of GDP in 2005 (compared to an average 3 percent of GDP for sub-Saharan African countries).
  - Pupil-teacher ratio deteriorated from 42 in 2001–2002 to 45 in 2003–2004.
  - Risks: lack of transparency and predictability in resource allocation and difficulty financing additional teachers could undermine progress and PRS targets; more resources and better allocation needed to improve quality.
- Health:
  - APR does not respond to questions from the PER and prior JSA; PER found public financial management in health to be a major concern.
  - PRS target: spending on health of 10 percent of public expenditures.
  - Actual public spending: decreased from 3.4 percent of total expenditures in 2003 to 1.7 percent in 2004, recovering to 3.8 percent in 2005.
  - Only about 20 percent of budgeted nonsalary expenditures intended for health centers reached their target.
  - Staffing imbalance: recruitment of administrative staff disproportionate relative to health care workers.
  - HIV/AIDS: government reduced antiviral medicine price from GNF 240,000 to GNF 35,000; with HIV prevalence about 1.5 percent, APR should have assessed prevention policies, numbers of HIV orphans, program costs and financing, decentralized expenditures, and progress on clean blood supply and opportunistic infection reduction.
- Water and Electricity:
  - Access rates since 2002: water access generally steady at 64.3 percent of the population; electricity access at 18.8 percent of the population.
  - APR does not explain lack of progress or discuss quality and management shortcomings causing stagnation.
  - Needed: discussion of economic viability of water and electricity enterprises, improved cost recovery, and tariff reforms in upcoming APR and PRSP.

### Agriculture and Rural Development
- APR highlights progress in food security:
  - Smallholder adoption of new varieties and farming practices, increased productivity, strengthened services, targeted support to vulnerable households, promotion of offshore fishing and commercial farming, improved market access.
- Shortcomings:
  - Many poverty reduction programs crucial for long-term smallholder productivity remain largely unfunded.
  - APR presents quantitative outputs (crop/livestock production figures, kilometers of rural roads maintained/renovated) but lacks analysis of impact on productivity and poverty reduction.
  - Forestry outcomes are not explained; staffs recommend evaluating forestry policies to prepare a revised strategy linking policies to poverty objectives.
- Staff recommendation: renewed emphasis on productivity-enhancing measures for smallholders.

### Promoting Governance
- APR provides a broad discussion of governance weaknesses and corruption issues; staffs welcome this focus and recommend future APRs discuss progress on governance.
- Positive government actions:
  - Adherence in May 2005 to the Extractive Industries Transparency Initiative (EITI); mining accounts for about 25 percent of Guinea’s public revenues.
  - Important reforms underway to improve public expenditure management, including procurement (the APR could have noted these reforms).
- Staff emphasis: need for better and more effective control of the budget and for sanctions against corrupt officials; APR should focus on these issues and on improving the business climate by tackling corruption and poor governance.

### Governance and institutional capacity (paragraph 21)
- Staffs support APR’s call for a stronger role for governance in current and future PRSs and call on the government to seek development partner assistance to make sound improvements in governance.
- APR notes institutional capacity to improve governance and combat corruption needs reinforcement.
- Authorities are working to strengthen financial and human capacity of the National Agency to Combat Corruption (ANLC) so it can fully execute its functions as coordinator of national policy on fighting corruption and improving governance.
- Other institutions, like the State Inspection Unit (IGE), will also need strengthening to become more effective in improving governance.
- Government planning a comprehensive reform of the legal system—including training judges, which the APR considers a priority—but has limited financial resources.
- Staffs recommend the government seek assistance of the donor community in tackling this issue.

### Conclusion and staff recommendations (paragraph 22)
- APR highlights many results achieved by the current PRS and some weaknesses and implementation constraints; APR is comprehensive, warns of main risks ahead, and points to areas for further improvement, especially in economic management and governance.
- Staff recommendations:
  - Avoid stop-and-go macroeconomic policies and ad hoc decisions, while ensuring that the composition of expenditure is shifted toward sound pro-poor expenditures.
  - Use the APR process to identify policy weaknesses related to governance and public service delivery, especially access to basic services like electricity and water, and set out appropriate policy responses. As part of this process, seek a dialogue with civil society and development partners to identify measures to improve governance in Guinea.
  - Improve policy implementation in the health and education sectors, including by strengthening the budget management process and by allocating an appropriate level of resources.
  - Clearly link policies and poverty-reduction strategies to policy targets and outcome indicators. The upcoming discussion of the second PRSP should provide for a more comprehensive framework in this regard, as well as an opportunity to make progress in costing the MDGs.
  - Strengthen capacity to monitor policy and PRS outcomes to facilitate the central role of the PRS as both policy document and tool to coordinate policies. To do so, it will be necessary to upgrade the national statistical system.

*Source: _cr06348 - Section 2*

### Section 1

### Guinea: Poverty Reduction Strategy Paper—Second Annual Progress Report — Joint Staff Advisory Note (Section 1)

### Overview
- The PRSP was distributed to the Executive Boards of IDA and IMF early in 2002.  
- The original joint staff assessment found the PRSP to provide an adequate framework, with: well-defined but ambitious poverty reduction objectives, gaps in poverty-related information, and significant risks including factors outside government control.  
- The second Annual Progress Report (APR) was substantially completed in December 2005 and covers 2004 outcomes; this JSAN also discusses policies beyond 2004, particularly macroeconomic policies.  
- Key staff judgment: despite some progress since early 2005 (notably on macroeconomic stabilization), administrative capacity remains weak and the political situation is fragile, creating a difficult and volatile environment for PRS implementation.  
- The APR has strengthened the role of the PRS in policy discussions and has enjoyed strong ownership since inception.

### Accelerating Economic Growth — Findings and Risks
- Deterioration in 2004 linked to relaxed fiscal and monetary discipline, weaker export prices, worsening subregional security, and approaching national elections.  
- Poverty incidence: increased from 49.3 percent in 2002 to 50.1 percent in 2004.  
- Inflation: annual average inflation rose from 12.9 percent in 2003 to 17.5 percent in 2004.  
- Fiscal deficit (excluding grants): declined from 5.9 percent of GDP in 2004 to 1.4 percent of GDP in 2005 following tighter policies in early 2005 supported by an SMP.  
- Medium-term macroeconomic targets (2006–08) in the APR: achieve economic growth above 5 percent, single-digit inflation, and a sustainable external position.  
- Planned fiscal impact of revenue reforms: fiscal revenues expected to rise from 10.4 percent of GDP in 2004 to an average of about 13 percent of GDP over 2006–2008.  
- Risks to the medium-term program: dependence on donor financing and debt relief (HIPC and MDRI), need for an IMF PRGF arrangement; additional risks from volatile political situation, poor governance, weak implementation capacity, and regional instability.  
- Sectoral growth constraints noted:
  - Agriculture: problems include limited access to credit, transport and storage constraints, natural events and health-related plagues, and inadequate support for training, research dissemination, extension services—APR lacks policy guidance on responses.  
  - Mining: APR omits discussion of fiscal revenue losses from wide-ranging tax exemptions, distortions from abundant regulatory discretion, and discriminatory impact on non-mining investment; staffs recommend urgent review of the legal framework and administration for mining.  
  - Export diversification: APR did not explicitly reference Diagnostic Integrated Trade Studies recommendations; staffs recommend full integration of those recommendations into the updated PRSP.

### Public Finance, Revenue Mobilization, and Expenditure Management
- APR emphasis: strengthen management of public resources and align the national budget with PRS objectives.  
- Specific needs identified:
  - Improve budget formulation, execution, and control.  
  - Strengthen governance and domestic/external debt management.  
  - Step up MTEF efforts and better link PRSP priorities with annual budgets.  
  - Improve quality of spending via program budgeting, strict adherence to budgetary procedures, strengthened financial accountability.  
- Concern: APR falls short of specifics on these measures.  
- Technical assistance from donors is needed to strengthen revenue collection and related reforms.

### Monitoring of the Poverty Reduction Strategy
- Current monitoring is inadequate due to lack of intermediate input/output indicators linking policies and budget allocations in education, health, and agriculture.  
- Recommendation: the second PRSP (planned for late 2006) should incorporate monitoring and performance indicators consistent with the MTEF and clearly results-based.  
- Statistical capacity: simplification and updating of poverty indicators based on the 2002 household survey is recommended; urgent assistance is required to strengthen the Permanent Secretariat for the Poverty Reduction Strategy and the National Statistical Office.  
- Public expenditure tracking: 2003 PETs for health and education were important first steps but need to be repeated regularly; a PET in agriculture would also be useful. The APR should report PET conclusions in the next edition.

### Promoting Access to Basic Services — Education, Health, Water, Electricity
- Education:
  - Staff estimate gross primary enrollment in 2004–05 at 82 percent overall and 72 percent for girls.  
  - Guinea could achieve 100 percent gross enrollment by 2015 but is unlikely to meet the education MDG (100 percent completion rate by 2015).  
  - Education expenditures: declined from 2.3 percent of GDP in 2003 to 1.5 percent of GDP in 2004, recovering to about 2 percent of GDP in 2005 (compared to an average 3 percent of GDP for sub-Saharan African countries).  
  - Pupil-teacher ratio: deteriorated from 42 in 2001–2002 to 45 in 2003–2004.  
  - Risks: lack of transparency and predictability in resource allocation and difficulty financing additional teachers could undermine progress and PRS targets. More resources and better allocation needed to improve quality.  
- Health:
  - APR does not respond to questions from the PER and prior JSA; PER found public financial management in health to be a major concern.  
  - PRS target: spending on health of 10 percent of public expenditures. Actual public spending: decreased from 3.4 percent of total expenditures in 2003 to 1.7 percent in 2004, recovering to 3.8 percent in 2005.  
  - Only about 20 percent of budgeted nonsalary expenditures intended for health centers reached their target.  
  - Staffing imbalance: recruitment of administrative staff disproportionate relative to health care workers.  
  - HIV/AIDS: government reduced antiviral medicine price from GNF 240,000 to GNF 35,000; with HIV prevalence about 1.5 percent, APR should have assessed prevention policies, numbers of HIV orphans, program costs and financing, decentralized expenditures, and progress on clean blood supply and opportunistic infection reduction.  
- Water and Electricity:
  - Access rates since 2002: water access generally steady at 64.3 percent of the population; electricity access at 18.8 percent of the population.  
  - APR does not explain lack of progress or discuss quality and management shortcomings causing stagnation.  
  - Needed: discussion of economic viability of water and electricity enterprises, improved cost recovery, and tariff reforms in upcoming APR and PRSP.

### Agriculture and Rural Development
- APR highlights progress in food security:
  - Smallholder adoption of new varieties and farming practices, increased productivity, strengthened services, targeted support to vulnerable households, promotion of offshore fishing and commercial farming, improved market access.  
  - Many poverty reduction programs crucial for long-term smallholder productivity remain largely unfunded. Staffs recommend renewed emphasis on productivity-enhancing measures for smallholders.  
- APR shortcomings: presents quantitative outputs (crop/livestock production figures, kilometers of rural roads maintained/renovated) but lacks analysis of impact on productivity and poverty reduction; forestry outcomes are not explained—staffs recommend evaluating forestry policies to prepare a revised strategy linking policies to poverty objectives.

### Promoting Governance
- APR provides a broad discussion of governance weaknesses and corruption issues; staffs welcome this focus and recommend future APRs discuss progress on governance.  
- Positive government actions noted:
  - Adherence in May 2005 to the Extractive Industries Transparency Initiative (EITI); mining accounts for about 25 percent of Guinea’s public revenues.  
  - Important reforms underway to improve public expenditure management, including procurement (the APR could have noted these reforms).  
- Staffs emphasize need for better and more effective control of the budget and for sanctions against corrupt officials; APR should focus on these issues and on improving the business climate by tackling corruption and poor governance.

*Prepared by the Staffs of the International Development Association and the International Monetary Fund; approved August 23, 2006.*

### Section 2

### _cr06348 - Section 2

### Governance and institutional capacity (paragraph 21)
- The staffs thoroughly support the APR’s call for a stronger role for governance in the current and future PRSs; they call on the government to seek the assistance of its development partners to help the authorities to make sound improvements in governance.
- The APR notes that institutional capacity to improve governance and combat corruption needs to be reinforced.
- The authorities are working to strengthen the financial and human capacity of the National Agency to Combat Corruption (ANLC) so that it can fully execute its functions as coordinator of national policy on fighting corruption and improving governance.
- Other institutions, like the State Inspection Unit (IGE), will also need strengthening to become more effective in improving governance.
- The government is planning a comprehensive reform of the legal system—including training judges, which the APR considers a priority—but has limited financial resources.
- The staffs recommend that the government seek the assistance of the donor community in tackling this issue.

### Conclusion and staff recommendations (paragraph 22)
- The APR highlights many of the results achieved by the current PRS and some of its weaknesses and implementation constraints. The APR is comprehensive in its coverage; it warns of the main risks ahead; and it points to areas for further improvement, especially in economic management and governance. Because these areas should form the agenda for future work, the staffs recommend the following:
  - Avoid stop-and-go macroeconomic policies and ad hoc decisions, while ensuring that the composition of expenditure is shifted toward sound pro-poor expenditures.
  - Use the APR process to identify policy weaknesses related to governance and public service delivery, especially access to basic services like electricity and water, and set out appropriate policy responses.  As part of this process, seek a dialogue with civil society and development partners to identify measures to improve governance in Guinea.
  - Improve policy implementation in the health and education sectors, including by strengthening the budget management process and by allocating an appropriate level of resources.
  - Clearly link policies and poverty-reduction strategies to policy targets and outcome indicators. The upcoming discussion of the second PRSP should provide for a more comprehensive framework in this regard, as well as an opportunity to make progress in costing the MDGs.
  - Strengthen capacity to monitor policy and PRS outcomes to facilitate the central role of the PRS as both policy document and tool to coordinate policies. To do so, it will be necessary to upgrade the national statistical system.

*Source: _cr06348 - Section 2*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06348.pdf_