## Executive Summary (cr0877)

## Source details

**Canonical URL:** [Executive Summary (cr0877)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr0877.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr0877.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr0877.pdf.json)

---

### Background and fragility
- After nearly a decade of conflict and political instability, Guinea-Bissau remains very fragile.
- Real GDP growth: below 2 percent in 2006; estimated to have increased by 2.7 percent in 2007.
- Recent high food prices could push average inflation above 3 percent for 2007.
- Legacy of conflict: deteriorated physical infrastructure, weakened administrative and policy implementation capacity, unsustainable fiscal deficits, and heavy reliance on donor support.
- Political timeline and pressures: parliamentary elections in 2004, presidential elections in 2005, new Prime Minister and cabinet appointed in April 2007, legislative elections scheduled for October 2008, Presidential elections in 2009.

### Recent economic developments (2007)
- Real GDP growth: estimated 2.7 percent (2007), against a projected 3.3 percent.
- Sectoral issues: cashew production in 2007 slightly below projections; rice and other cereals affected by late and inadequate rains.
- Inflation: subdued in WAEMU context but food prices could push year-end inflation above 3 percent.
- External current account balance (excluding official current transfers): expected to narrow to 11 percent of GDP in 2007, from 25 percent in 2006 (reflecting higher cashew exports).
- Monetary developments: broad money grew at moderate rates; pick-up in credit to the economy as commercial banks financed cashew operations and net credit to the government rose.
- Fiscal performance: sharp deterioration in early 2007 followed by marked improvement after the emergency fiscal plan (April 2007); since June tax revenues surged, expenditures kept within budget, and donor disbursements resumed.
- 2007 tax performance (selected):
  - By October cumulative tax revenues of CFAF 15.8 billion were 4 percent higher than in the same period last year.
  - Through June, tax revenues were about 13 percent lower than in 2006.
  - Monthly tax revenues excluding export taxes starting in July averaged about 18 percent higher than in the same period last year; earlier in the year they were 17 percent lower on average than in 2006.
- Fiscal balance pressure:
  - Fiscal deficit (excluding grants) expected to widen from 22 percent of GDP in 2006 to about 25 percent in 2007.
  - Total revenues projected to decline to 16 percent of GDP in 2007, down about 3.5 percent of GDP from 2006, partly because annual fishing compensation from the E.U. (US$9 million) was postponed until early 2008.
  - Current expenditures expected to be lower: down to 27 percent of GDP from 29 percent in 2006.
- Donor support in 2007:
  - External budget support amounted to US$34 million from the E.U.; regional partners (WAEMU and ECOWAS); bilateral partners (France, Portugal, Spain, and China); and nontraditional partners such as Angola.
  - Expected World Bank budget support of US$10 million delayed until early 2008; AfDB budget support of US$1.7 million also delayed until early 2008.
- Commercial debt and arrears:
  - Most commercial debt due in 2007 rescheduled (about US$22 million or 6 percent of GDP).
  - Some domestic arrears accumulation unavoidable: about CFAF 6.6 billion (3.8 percent of GDP).
  - Portion of arrears (about CFAF 3.6 billion related to medical and education supplies) to be paid in early 2008 with delayed World Bank disbursement; considerable amount to be included in an E.U.-financed audit and repaid over time.

### The 2008 program: overview and macroeconomic framework
- Program builds on emergency fiscal program gains and aims to stabilize public finances by improving fiscal management.
- Macroeconomic projections and objectives:
  - Increase real GDP growth to over 3 percent in 2008.
  - Moderate inflation to about 3 percent, consistent with the regional trend.
- Program emphasis:
  - Strengthen revenue collection.
  - Restore effective expenditure control.
  - Rein in the expansion in the wage bill.
- Medium-term context: moving gradually toward fiscal sustainability and more regular relations with external creditors will require continued and increased access to grants and concessional aid inflows over the medium term.

### Fiscal framework and structural measures (2008)
- Key fiscal objective for 2008 and beyond: avoid new domestic arrears.
- Measures to achieve this:
  - Nominal freeze of current expenditures, including the wage bill.
  - Strict control of nonwage discretionary outlays.
- Revenues:
  - Tax revenues as a share of GDP are projected to remain roughly constant.
- Structural measures included in the 2008 program:
  - Strengthen revenue administration.
  - Improve expenditure management and transparency.
- Authorities’ recognition:
  - Achieving fiscal sustainability over the medium term depends critically on reining in nonpriority current spending, intensifying revenue mobilization, and regularizing relations with external creditors.

### Financing and Fund engagement (EPCA)
- EPCA request:
  - Proposed initial Emergency Post-Conflict Assistance (EPCA) purchase: SDR 1.775 million (12.5 percent of quota).
  - Another purchase of SDR 1.775 million envisaged for July 2008, assuming continued good performance.
  - Purchases would support stabilization and reform efforts and could catalyze additional international support.
- Possible follow-on: satisfactory EPCA performance could pave the way for a PRGF arrangement and eventual debt relief under the HIPC Initiative and the MDRI.
- Key program risk: delays in donor support.

### Key 2007 fiscal figures (selected)
- Fiscal financing needs (Art. IV report -September 2007): CFAF 46.5 billions / US$ 93.4 millions.
- Sources of financing (net changes): CFAF 39.9 billions / US$ 80.1 millions.
  - Budget support: CFAF 16.7 billions / US$ 33.5 millions.
    - European Union: CFAF 3.6 billions / US$ 7.2 millions.
    - Regional institutions (ECOWAS and WAEMU): CFAF 5.5 billions / US$ 11.1 millions.
    - Angola support: CFAF 6.5 billions / US$ 13.0 millions.
    - Other bilaterals (France, Portugal, Spain, and China): CFAF 1.1 billions / US$ 2.2 millions.
  - External debt arrears: CFAF 10.7 billions / US$ 21.5 millions.
  - Domestic financing (rescheduling): CFAF 11.1 billions / US$ 22.3 millions.
    - Domestic and regional commercial banks: CFAF 2.9 billions / US$ 5.8 millions.
    - T-bills: CFAF 6.7 billions / US$ 13.5 millions.
    - BCEAO: CFAF 1.5 billions / US$ 3.0 millions.
  - Other net changes (including revenue, expenditure, and other domestic financing items): CFAF 1.4 billions / US$ 2.8 millions.
- Accumulation of domestic arrears (2007): CFAF 6.6 billions / US$ 13.3 millions.

---

### Macroeconomic projections and medium-term scenario

### Key projections (selected)
- Real GDP at market prices: 2005 3.5; 2006 1.8; 2007 2.7; 2008 3.3; 2009 3.2; 2010 3.4.
- Real GDP per capita: 2005 0.3; 2006 -1.1; 2007 -0.4; 2008 0.3; 2009 0.2; 2010 0.4.
- Consumer price index (end of period): 2005 1.0; 2006 3.2; 2007 4.3; 2008 2.4; 2009 2.5; 2010 2.5.
- Gross investment: 2005 14.6; 2006 12.2; 2007 14.1; 2008 15.8; 2009 14.7; 2010 15.0.
- Budgetary revenue: 2005 17.6; 2006 19.6; 2007 16.1; 2008 20.7; 2009 18.0; 2010 18.0.
- Total domestic primary expenditure: 2005 24.5; 2006 27.1; 2007 25.7; 2008 24.9; 2009 21.9; 2010 21.2.
- Domestic primary balance: 2005 -6.9; 2006 -7.5; 2007 -9.6; 2008 -4.1; 2009 -3.9; 2010 -3.2.
- Overall balance (commitment basis) including grants: 2005 -11.9; 2006 -9.7; 2007 -9.7; 2008 0.7; 2009 -4.9; 2010 -4.6.
- Overall balance (commitment basis) excluding grants: 2005 -24.6; 2006 -21.6; 2007 -25.3; 2008 -20.9; 2009 -20.1; 2010 -19.3.
- External current account (including official current transfers): 2005 -5.1; 2006 -11.3; 2007 -1.7; 2008 7.0; 2009 2.8; 2010 2.7.
- Excluding official current transfers: 2005 -9.7; 2006 -24.7; 2007 -11.4; 2008 -12.0; 2009 -7.0; 2010 -6.7.
- Nominal stock of external debt, including arrears (percent of GDP): 2005 440.6; 2006 436.3; 2007 403.2; 2008 389.2; 2009 305.3; 2010 197.3.

### Fiscal framework and policy measures (2008)
- 2008 budget targets:
  - Deficit on a commitment basis (excluding grants) of 21 percent of GDP for 2008 (a decline of nearly 5 percent for the year).
  - Target based on a revenue increase of 5 percent of GDP due to two E.U. disbursements for fishing compensation (compensation for 2008 and delayed compensation for 2007).
  - Nominal freeze of current expenditures on wages and strict control of nonwage discretionary outlays to avoid accumulating domestic arrears.
  - Tax revenues projected to remain roughly constant as a share of GDP, assuming no change in tax rates and limited short-term administrative capacity.
- Key fiscal commitments:
  - Avoid accumulating domestic arrears by strictly controlling expenditures and boosting revenue.
  - If donors provide additional budgetary grants, priorities are: repay audited domestic arrears, fully repay outstanding commercial bank borrowing, and increase spending in social areas (in consultation with the Fund).
  - Expenditures related to parliamentary elections scheduled for October 2008 should be limited primarily to those financed by external assistance specific to this purpose.

### Wage bill and arrears
- Nominal freeze on the wage bill for 2008; informal targets on global personnel expenditures for cash flow management.
- Wage bill noted at some 13 percent of GDP (more than double the regional average).
- No additional hiring planned in health and education for 2008 because salary increases were budgeted in 2007 for 5,000 teachers and 3,000 health care workers converted from contractual to regular staff.
- Domestic arrears:
  - Staff concern about nonconcessional domestic commercial borrowing; urged reliance on grant financing.
  - Authorities intend to repay expensive commercial bank debt as soon as possible and rely on grant assistance in 2008.
  - Domestic arrears estimated at about CFAF 48 billion—28 percent of GDP.
  - External audit contracted for domestic arrears accumulated in 2000–06 (CFAF 44 billion) and a portion of 2007 arrears (about CFAF 4 billion); audit financed by the European Union and expected in the first half of 2008.
  - Pre-2000 audited arrears total CFAF 20 billion; paying off arrears over 2008–10 could require some 8 percent of GDP annually in additional external assistance (assuming about half of 2000–07 arrears will be eliminated after the audit).
  - Government will strive to honor current obligations and avoid accumulating new arrears in 2008.

---

### Financing the 2008 budget and program monitoring

### 2008 financing needs and pledges
- Financing needs for 2008 estimated at about US$92 million or 27 percent of GDP.
- Financing strategy:
  - Financing to be filled mainly by budget support from traditional and nontraditional donors; limited scope for further domestic fiscal adjustment.
  - Firm donor pledges of some CFAF 25 billion (US$50 million) in budget support for 2008.
  - Expected extension of interim debt relief from the World Bank to cover about US$8.5 million (CFAF 4.2 billion) in debt service owed in 2008.
  - Measures to collect more back taxes in 2008 expected to yield CFAF 0.7 billion.
  - Authorities plan to reschedule about CFAF 3.1 billion (roughly a quarter of all debt owed in 2008).
  - Continued accumulation of external arrears in 2008 expected (CFAF 9.7 billion or US$20 million), but authorities committed to finding additional financing.

### Summary financing table (Text Table 6, CFAF billions / US$ millions)
- Fiscal financing needs: 45.3 / 91.5
- Expected budget support: 24.8 / 50.0
  - European Union: 3.6 / 7.3
  - World Bank: 7.9 / 16.0
  - AfDB: 0.8 / 1.7
  - WAEMU: 1.5 / 3.0
  - South Africa: 5.0 / 10.0
  - Japan: 2.0 / 4.0
  - Portugal: 1.5 / 3.0
  - Spain: 1.5 / 3.0
  - Additional regional support: 1.0 / 2.0
- External debt arrears: 9.7 / 19.6
- Additional financing: 10.8 / 21.7
  - EPCA: 2.8 / 5.6
  - World Bank debt relief: 4.2 / 8.5
  - Authorities' measures: 3.8 / 7.7
  - Recovery of tax arrears: 0.7 / 1.4
  - Partial rescheduling of T-bills: 3.1 / 6.3

### Program monitoring, access, and capacity to repay
- EPCA coverage:
  - Proposed initial EPCA purchase: SDR 1.775 million (12.5 percent of quota).
  - Second purchase SDR 1.775 million expected in July 2008 (12.5 percent of quota), for a maximum purchase of 25 percent of quota in 2008.
  - Annual EPCA limit: 25 percent of quota; cumulative maximum over three years: 50 percent of quota.
  - Guinea-Bissau could receive subsidies to lower the annual basic rate of charge on the EPCA purchase to 0.5 percent, if resources are available.
  - EPCA purchase is subject to burden-sharing adjustments to the basic rate of charge, currently 21 basis points annually.
  - With the proposed first-year purchases, Guinea-Bissau’s credit outstanding to the Fund would increase from 23.1 percent of quota in 2007 to 39.3 percent in 2008.
- Monitoring framework:
  - Quantitative indicators and structural indicators for 2008 (Tables 2 and 3); monthly treasury cash-flow plan underpins quarterly quantitative indicators.
  - Definitions, adjusters, and reporting requirements set out in the Technical Memorandum of Understanding (TMU).
  - Staff considers financing for the 2008 program (including continued build up of external arrears) to be adequate for an EPCA request.
  - Staff considers Guinea-Bissau’s capacity to repay the Fund to be adequate; government is current on its Fund obligations; BCEAO has a good record of honoring debt service to the Fund on behalf of WAEMU members.

### Quantitative indicators and quarterly numerical targets (2008, CFAF millions, cumulative)
- Government revenues (cumulative):
  - Mar.: 4,226.6
  - Jun.: 10,413.9
  - Sept.: 17,824.3
  - Dec.: 23,130.4
  - Tax revenues (Direct and indirect taxes (01.00.00 and 02.00.00)): 3,635.0; 9,230.7; 16,049.5; 20,764.0
  - Fishing licenses (03.01.01): 591.6; 1,183.2; 1,774.8; 2,366.4
- Domestic primary deficit (commitment basis) (cumulative):
  - Mar.: -5,050
  - Jun.: -4,862
  - Sept.: -3,522
  - Dec.: -7,464
  - Components (cumulative revenue/current expenditure/dom. capital): Revenue: 5,998; 17,460; 30,187; 37,631. Current expenditure excluding interest: 10,752; 21,503; 32,255; 43,006. Domestically financed capital exp.: 297; 819; 1,454; 2,089.
- New domestic arrears (ceiling):
  - Mar.: 0.0
  - Jun.: 0.0
  - Sept.: 0.0
  - Dec.: 0.0
- Payment of previous years’ domestic arrears (ceiling; includes arrears prior to 2008):
  - Mar.: 1,772
  - Jun.: 3,600
  - Sept.: 3,600
  - Dec.: 3,600
  - Program allows partial payment of 2007 commitments up to a maximum of CFAF 3.6 billion.
- Net domestic financing of the budget (cumulative):
  - Mar.: -239
  - Jun.: -7,446
  - Sept.: -7,684
  - Dec.: -17,332
  - Bank financing breakdown (cumulative): BCEAO: -239; -477; -716; -1,706. Commercial bank(s) (local banks): 0; -5,244; -5,244; -7,161. Regional commercial banks and Treasury bills: 0; -1,724; -1,724; -8,464.
- External non-concessional public borrowing, maturity > 1 year: continuous ceiling set at 0.0 for Mar./Jun./Sept./Dec.

### Prior actions and structural indicators (selected, target dates)
- Prior actions (status):
  - Submission to Parliament of the government budget fully consistent with the fiscal framework presented in this MEFP. (Target date: End-November 2007) — Done.
  - Secure financing assurances from donors to fully cover the 2008 fiscal financing requirements. (Target date: End-November 2007) — Done.
- Structural indicators and target dates:
  - Approve and adopt by Council of Ministers legal framework for new state budget classification system in line with WAEMU regulations. (End-March 2008)
  - Create Information Technology (IT) Department in Ministry of Finance and start training staff. (End-March 2008)
  - Launch financial audit, by a reputable international audit firm, of outstanding domestic arrears for 2000-2007. (End-April 2008) — Audit financed by E.U.
  - Finalize merger of two payroll databases of Ministry of Finance and Ministry of Public Administration. (End-June 2008)
  - Improve proper accounting and information flows of all Treasury transactions, including nonregularized expenditures and bank financing. (End-June 2008)

---

### Risks, technical assistance, and staff appraisal

### Key risks to the program
- High risk of shortfalls and delays in donor disbursements.
- Absence of donor support could lead to more wage arrears, reigniting political instability, and to delays in reforms crucial to fiscal sustainability (e.g., civil service and security reforms).
- Parliamentary elections scheduled for October 2008 could jeopardize fiscal discipline due to pressures to exceed budgeted outlays.
- Donors may take a wait-and-see approach in the period leading up to the elections, which could delay disbursements.
- Limit on EPCA access incorporates risk to Fund resources; further purchases subject to updated risk assessment.

### Technical assistance and external support
- IMF to provide technical assistance, including support from West AFRITAC and AFRISTAT, to firm up budget management, tax collection, and economic statistics.
- World Bank support through LICUS, including financing a long-term resident fiscal advisor.
- Other donors (EU and bilaterals) providing technical assistance to government revenue and expenditure departments.

### Staff appraisal — findings and policy priorities
- Erosion of institutional and administrative capacity seriously impedes economic management and recovery.
- New government commitment and improved fiscal performance in the second half of 2007 provide foundation for stability.
- Priorities:
  - Keep current spending, particularly wages, within available resources; resist pressures to reverse the nominal freeze on the wage bill.
  - Implement structural measures to improve payroll management and reduce the share of wages in public expenditures.
  - Ensure Treasury remains in sole charge of managing all government accounts and effectively applies the cash flow plan.
  - Find a lasting resolution to domestic arrears.
  - Enhance revenue collection through improved tax administration to ensure resources for core expenditure needs.
- Viability of the 2008 budget depends critically on significant concessional external assistance; governance and institutional improvements are essential to secure and maintain donor support.

_Italic: IMF staff and Guinea-Bissau authorities (Executive Summary, IMF Country Report; Memorandum on Economic and Financial Policies and MEFP attachments, cr0877)._

### Executive Summary ......................................................................................................

### Executive Summary

### Background and fragility
- After nearly a decade of conflict and political instability, Guinea-Bissau remains very fragile.
- Real GDP growth: below 2 percent in 2006; estimated to have increased by 2.7 percent in 2007.
- Recent high food prices could push average inflation above 3 percent for 2007.
- Legacy of conflict: deteriorated physical infrastructure, weakened administrative and policy implementation capacity, unsustainable fiscal deficits, and heavy reliance on donor support.
- Political timeline and pressures: parliamentary elections in 2004, presidential elections in 2005, new Prime Minister and cabinet appointed in April 2007, legislative elections scheduled for October 2008, Presidential elections in 2009.

### Recent economic developments (2007)
- Real GDP growth: estimated 2.7 percent (2007), against a projected 3.3 percent.
- Sectoral issues: cashew production in 2007 fell slightly below projections; rice and other cereals affected by late and inadequate rains.
- Inflation: subdued in WAEMU context but food prices could push year-end inflation above 3 percent.
- External current account balance (excluding official current transfers): expected to narrow to 11 percent of GDP in 2007, from 25 percent in 2006 (reflecting higher cashew exports).
- Monetary developments: broad money grew at moderate rates; pick-up in credit to the economy as commercial banks financed cashew operations and net credit to the government rose.
- Fiscal performance: sharp deterioration in early 2007 followed by marked improvement after the emergency fiscal plan (April 2007); since June tax revenues surged, expenditures kept within budget, and donor disbursements resumed.
- 2007 tax performance (Box 1 highlights):
  - By October cumulative tax revenues of CFAF 15.8 billion were 4 percent higher than in the same period last year.
  - Through June, tax revenues were about 13 percent lower than in 2006.
  - Monthly tax revenues excluding export taxes starting in July averaged about 18 percent higher than in the same period last year; earlier in the year they were 17 percent lower on average than in 2006.
- Fiscal balance pressure:
  - Fiscal deficit (excluding grants) expected to widen from 22 percent of GDP in 2006 to about 25 percent in 2007.
  - Total revenues projected to decline to 16 percent of GDP in 2007, down about 3.5 percent of GDP from 2006, partly because annual fishing compensation from the E.U. (US$9 million) was postponed until early 2008.
  - Current expenditures expected to be lower: down to 27 percent of GDP from 29 percent in 2006.
- Donor support in 2007:
  - External budget support amounted to US$34 million from the E.U.; regional partners (WAEMU and ECOWAS); bilateral partners (France, Portugal, Spain, and China); and nontraditional partners such as Angola.
  - Expected World Bank budget support of US$10 million delayed until early 2008; AfDB budget support of US$1.7 million also delayed until early 2008.
- Commercial debt and arrears:
  - Most commercial debt due in 2007 rescheduled (about US$22 million or 6 percent of GDP).
  - Some domestic arrears accumulation unavoidable: about CFAF 6.6 billion (3.8 percent of GDP).
  - Portion of arrears (about CFAF 3.6 billion related to medical and education supplies) to be paid in early 2008 with delayed World Bank disbursement; considerable amount to be included in an E.U.-financed audit and repaid over time.

### The 2008 program: overview and macroeconomic framework
- Program builds on emergency fiscal program gains and aims to stabilize public finances by improving fiscal management.
- Macroeconomic projections and objectives:
  - Increase real GDP growth to over 3 percent in 2008.
  - Moderate inflation to about 3 percent, consistent with the regional trend.
- Program emphasis:
  - Strengthen revenue collection.
  - Restore effective expenditure control.
  - Rein in the expansion in the wage bill.
- Medium-term context: moving gradually toward fiscal sustainability and more regular relations with external creditors will require continued and increased access to grants and concessional aid inflows over the medium term.

### Fiscal framework and structural measures
- Key fiscal objective for 2008 and beyond: avoid new domestic arrears.
- Measures to achieve this:
  - Nominal freeze of current expenditures, including the wage bill.
  - Strict control of nonwage discretionary outlays.
- Revenues:
  - Tax revenues as a share of GDP are projected to remain roughly constant.
- Structural measures included in the 2008 program:
  - Strengthen revenue administration.
  - Improve expenditure management and transparency.
- Authorities’ recognition:
  - Achieving fiscal sustainability over the medium term depends critically on reining in nonpriority current spending, intensifying revenue mobilization, and regularizing relations with external creditors.

### Financing and external support for 2008; Fund engagement
- Authorities have secured a significant amount of donor financial and technical assistance for 2008.
- EPCA request:
  - Proposed initial Emergency Post-Conflict Assistance (EPCA) purchase: SDR 1.775 million (12.5 percent of quota).
  - Another purchase of SDR 1.775 million envisaged for July 2008, assuming continued good performance.
  - The purchases would support stabilization and reform efforts and could catalyze additional international support.
- Possible follow-on: satisfactory EPCA performance could pave the way for a PRGF arrangement and eventual debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI).
- High among program risks: delays in donor support.

### Key 2007 fiscal figures (selected)
- Fiscal financing needs (Art. IV report -September 2007): CFAF 46.5 billions / US$ 93.4 millions.
- Sources of financing (net changes): CFAF 39.9 billions / US$ 80.1 millions.
  - Budget support: CFAF 16.7 billions / US$ 33.5 millions.
    - European Union: CFAF 3.6 billions / US$ 7.2 millions.
    - Regional institutions (ECOWAS and WAEMU): CFAF 5.5 billions / US$ 11.1 millions.
    - Angola support: CFAF 6.5 billions / US$ 13.0 millions.
    - Other bilaterals (France, Portugal, Spain, and China): CFAF 1.1 billions / US$ 2.2 millions.
  - External debt arrears: CFAF 10.7 billions / US$ 21.5 millions.
  - Domestic financing (rescheduling): CFAF 11.1 billions / US$ 22.3 millions.
    - Domestic and regional commercial banks: CFAF 2.9 billions / US$ 5.8 millions.
    - T-bills: CFAF 6.7 billions / US$ 13.5 millions.
    - BCEAO: CFAF 1.5 billions / US$ 3.0 millions.
  - Other net changes (including revenue, expenditure, and other domestic financing items): CFAF 1.4 billions / US$ 2.8 millions.
- Accumulation of domestic arrears (2007): CFAF 6.6 billions / US$ 13.3 millions.

*Source: IMF staff and Guinea-Bissau authorities (Executive Summary, IMF Country Report).*

### 10.      Guinea-Bissau meets the Fund’s conditions for EPCA support. First, its

### Guinea-Bissau meets the Fund’s conditions for EPCA support

### Eligibility and rationale for EPCA support
- Institutional and administrative capacity has been severely undermined by the protracted conflict, and the country is not yet able to implement a comprehensive program supportable by a PRGF or other Fund arrangement.
- Despite weaknesses, there are signs of sufficient capacity for policy planning and implementation, evidenced by the new government’s commitment to restore fiscal stability.
- Urgent need to meet essential external payments, including payments to multilaterals.
- Concerted international support for Guinea-Bissau has re-emerged.
- Authorities view an EPCA-supported program as essential to restabilizing the economy, restoring confidence, catalyzing donor support for structural reforms (security and civil service), and reducing the burden of domestic arrears.
- Authorities hope EPCA support could pave the way to a PRGF arrangement, completion point for HIPC, and MDRI relief; a PRGF arrangement is anticipated for 2010 after successive EPCA-supported programs establish a performance track record.

### Macroeconomic framework and projections (medium-term scenario)
- Framework based on the 2007 Article IV consultation, which envisages gradual recovery of annual real GDP growth to above 3 percent over the medium term.
- Assumptions supporting the outlook:
  - government’s continued commitment to policy reform and sustained donor support;
  - steady rebuilding of infrastructure and institutional capacity;
  - return of investor confidence.
- Key projections and macro indicators:
  - Real GDP growth projected to increase to 3.3 percent in 2008.
  - Real per capita income expected to rise slightly (reversing recent trends).
  - Average inflation projected at about 3.3 percent.
  - External current account deficit (excluding official current transfers) expected to widen slightly to 12 percent of GDP in 2008.
  - Broad money expected to increase by 8 percent in 2008.
- Selected figures from the medium-term scenario (annual percent change or percent of GDP as indicated):
  - Real GDP at market prices: 2005 3.5; 2006 1.8; 2007 2.7; 2008 3.3; 2009 3.2; 2010 3.4.
  - Real GDP per capita: 2005 0.3; 2006 -1.1; 2007 -0.4; 2008 0.3; 2009 0.2; 2010 0.4.
  - Consumer price index (end of period): 2005 1.0; 2006 3.2; 2007 4.3; 2008 2.4; 2009 2.5; 2010 2.5.
  - Gross investment: 2005 14.6; 2006 12.2; 2007 14.1; 2008 15.8; 2009 14.7; 2010 15.0.
  - Government investment (of which): 2005 14.1; 2006 10.8; 2007 13.4; 2008 13.9; 2009 13.3; 2010 13.3.
  - Gross national savings: 2005 9.5; 2006 0.9; 2007 12.4; 2008 22.7; 2009 17.5; 2010 17.7.
  - Budgetary revenue: 2005 17.6; 2006 19.6; 2007 16.1; 2008 20.7; 2009 18.0; 2010 18.0.
  - Total domestic primary expenditure: 2005 24.5; 2006 27.1; 2007 25.7; 2008 24.9; 2009 21.9; 2010 21.2.
  - Domestic primary balance: 2005 -6.9; 2006 -7.5; 2007 -9.6; 2008 -4.1; 2009 -3.9; 2010 -3.2.
  - Overall balance (commitment basis) including grants: 2005 -11.9; 2006 -9.7; 2007 -9.7; 2008 0.7; 2009 -4.9; 2010 -4.6.
  - Overall balance (commitment basis) excluding grants: 2005 -24.6; 2006 -21.6; 2007 -25.3; 2008 -20.9; 2009 -20.1; 2010 -19.3.
  - Overall balance, including grants (cash basis): 2005 -10.2; 2006 -4.7; 2007 -6.3; 2008 0.0; 2009 -3.8; 2010 -4.6.
  - External current account (including official current transfers): 2005 -5.1; 2006 -11.3; 2007 -1.7; 2008 7.0; 2009 2.8; 2010 2.7.
  - Excluding official current transfers: 2005 -9.7; 2006 -24.7; 2007 -11.4; 2008 -12.0; 2009 -7.0; 2010 -6.7.
  - Nominal stock of external debt, including arrears (percent of GDP): 2005 440.6; 2006 436.3; 2007 403.2; 2008 389.2; 2009 305.3; 2010 197.3.

### Fiscal framework and policy measures
- 2008 budget targets:
  - Deficit on a commitment basis (excluding grants) of 21 percent of GDP for 2008 (a decline of nearly 5 percent for the year).
  - Target based on a revenue increase of 5 percent of GDP due to two E.U. disbursements for fishing compensation (compensation for 2008 and delayed compensation for 2007).
  - Nominal freeze of current expenditures on wages and strict control of nonwage discretionary outlays to avoid accumulating domestic arrears.
  - Tax revenues projected to remain roughly constant as a share of GDP, assuming no change in tax rates and limited short-term administrative capacity.
- Key fiscal objectives and commitments:
  - Avoid accumulating domestic arrears by strictly controlling expenditures and boosting revenue.
  - If donors provide additional budgetary grants, priorities are: repay audited domestic arrears, fully repay outstanding commercial bank borrowing, and increase spending in social areas (in consultation with the Fund).
  - Expenditures related to parliamentary elections scheduled for October 2008 should be limited primarily to those financed by external assistance specific to this purpose.
- Structural measures for 2008 (post-conflict appropriate):
  - Build capacity in revenue administration, public expenditure, and cash management.
  - Strengthen intelligence and audit activities and improve information flows for better cash flow management.
  - Support from a new Ministry of Finance management information system.
  - Revenue administration: update taxpayer databases to improve compliance of large taxpayers and broaden the tax base.
  - Expenditure side: ensure government transactions are properly accounted for and closely monitored.
- Wage bill management:
  - Nominal freeze on the wage bill for 2008.
  - Informal targets on global personnel expenditures (including benefits, pensions, and retrenchment) for cash flow management.
  - Wage bill noted at some 13 percent of GDP (more than double the regional average).
  - For 2008, no additional hiring planned in health and education because salary increases were budgeted in 2007 for 5,000 teachers and 3,000 health care workers converted from contractual to regular staff.
  - Steps in 2008 to clean up public sector payroll to reduce fraud and duplication; finalize merger of separate payroll databases of the ministries of Finance and Public Administration.
  - Some 2,300 civil servants and 1,000 military who were removed from the government’s payroll will continue to be paid by the Ministry of Public Administration pending full reintegration to the private sector.
- Domestic commercial borrowing and arrears:
  - Staff expressed concern about nonconcessional domestic commercial borrowing and urged reliance on grant financing.
  - Authorities intend to repay expensive commercial bank debt as soon as possible and rely on grant assistance in 2008.
  - Domestic arrears estimated at about CFAF 48 billion—28 percent of GDP.
  - External audit contracted for domestic arrears accumulated in 2000–06 (CFAF 44 billion) and a portion of 2007 arrears (about CFAF 4 billion); audit financed by the European Union and expected in the first half of 2008.
  - Pre-2000 audited arrears total CFAF 20 billion; paying off arrears over 2008–10 could require some 8 percent of GDP annually in additional external assistance (assuming about half of 2000–07 arrears will be eliminated after the audit).
  - Meanwhile, government will strive to honor current obligations and avoid accumulating new arrears in 2008.
- Medium-term fiscal outlook:
  - Continued reform commitment expected to improve fiscal position; overall fiscal balance (excluding grants) projected to decline to below 20 percent of GDP in 2010.

### Financing the 2008 budget
- Financing needs for 2008 estimated at about US$92 million or 27 percent of GDP.
- Some financing needs arise from rescheduling of domestic debt owed to commercial banks and the BCEAO, and rescheduling of Treasury bills expected to be repaid in 2008.
- Financing strategy and pledges:
  - Financing to be filled mainly by budget support from traditional and nontraditional donors; limited scope for further domestic fiscal adjustment.
  - Firm donor pledges of some CFAF 25 billion (US$50 million) in budget support for 2008.
  - Expected extension of interim debt relief from the World Bank to cover about US$8.5 million (CFAF 4.2 billion) in debt service owed in 2008.
  - Measures to collect more back taxes in 2008 expected to yield CFAF 0.7 billion.
  - Authorities plan to reschedule about CFAF 3.1 billion (roughly a quarter of all debt owed in 2008).
  - Continued accumulation of external arrears in 2008 expected (CFAF 9.7 billion or US$20 million), but authorities committed to finding additional financing.
- Text Table 6 summarized financing (CFAF billions / US$ millions):
  - Fiscal financing needs: 45.3 / 91.5
  - Expected budget support: 24.8 / 50.0
    - European Union: 3.6 / 7.3
    - World Bank: 7.9 / 16.0
    - AfDB: 0.8 / 1.7
    - WAEMU: 1.5 / 3.0
    - South Africa: 5.0 / 10.0
    - Japan: 2.0 / 4.0
    - Portugal: 1.5 / 3.0
    - Spain: 1.5 / 3.0
    - Additional regional support: 1.0 / 2.0
  - External debt arrears: 9.7 / 19.6
  - Additional financing: 10.8 / 21.7
    - EPCA: 2.8 / 5.6
    - World Bank debt relief: 4.2 / 8.5
    - Authorities' measures: 3.8 / 7.7
    - Recovery of tax arrears: 0.7 / 1.4
    - Partial rescheduling of T-bills: 3.1 / 6.3

### Program monitoring, access, and capacity to repay
- Fiscal framework underlying EPCA covers calendar 2008 to demonstrate a track record of credible policies and avoid domestic arrears for the full period.
- MEFP contains quantitative indicators through December 2008 and a few structural indicators critical for fiscal sustainability; prior actions and structural indicators listed in MEFP Table 3.
- Authorities, with Fund staff, formulated a monthly treasury cash-flow plan for 2008 on which quarterly quantitative indicators are based (MEFP Tables 2 and 4).
- Definitions, adjusters of financial indicators, and data transmission requirements described in the Technical Memorandum of Understanding (Appendix II, Attachment II).
- External arrears and creditor relations:
  - Guinea-Bissau has sizable payment arrears to sovereign and multilateral creditors and external arrears are expected to accumulate further during the EPCA-supported program.
  - Authorities received assurances that there are no objections to EPCA from Paris Club creditors to whom Guinea-Bissau is currently in arrears; non-Paris Club creditors have been informed of continued servicing difficulties.
  - Given financing commitments from donors and the authorities’ actions, staff considers financing for the 2008 program (including continued build up of external arrears) to be adequate for an EPCA request.
- Capacity to repay the Fund:
  - Staff considers Guinea-Bissau’s capacity to repay the Fund to be adequate.
  - Government is current on its Fund obligations.
  - BCEAO has a good record of honoring debt service to the Fund on behalf of WAEMU members, despite significant arrears to other creditors.

*Source: IMF staff report (Guinea-Bissau EPCA program documentation, 2008).*

### 28.      The proposed initial EPCA purchase is for SDR 1.775 million, equivalent to

### The proposed initial EPCA purchase is for SDR 1.775 million, equivalent to

### EPCA purchases and financing details
- The proposed initial EPCA purchase is for SDR 1.775 million, equivalent to 12.5 percent of quota.
- A second purchase of SDR 1.775 million (12.5 percent of quota) is expected in July 2008, assuming performance is satisfactory, for a maximum purchase of 25 percent of quota in 2008.
- The authorities would continue to make EPCA purchases (up to an annual limit of 25 percent of quota for a cumulative maximum of 50 percent of quota over three years) until they have capacity to move to a PRGF arrangement.
- The purchases in 2008 are beyond repayment of PRGF resources during the year.
- Guinea-Bissau could receive subsidies to lower the annual basic rate of charge on the EPCA purchase to 0.5 percent, if resources are available.
- The EPCA purchase is subject to burden-sharing adjustments to the basic rate of charge, currently 21 basis points annually, which are not covered by the subsidies.
- With the proposed first-year purchases, Guinea-Bissau’s credit outstanding to the Fund would increase from 23.1 percent of quota in 2007 to 39.3 percent in 2008.

### Key risks to the program
- High risk of shortfalls and delays in donor disbursements.
- Absence of donor support could lead to more wage arrears, reigniting political instability, and to delays in reforms crucial to fiscal sustainability (e.g., civil service and security reforms).
- Parliamentary elections, currently scheduled for October 2008, could jeopardize fiscal discipline due to pressures to exceed budgeted outlays.
- Donors may take a wait-and-see approach in the period leading up to the elections, which could delay disbursements.
- The limit on access to EPCA incorporates the risk to Fund resources; any further purchases would be subject to an updated risk assessment.

### Technical assistance and external support
- The EPCA program will be supported with technical assistance (MEFP Table 1).
- The IMF will continue to provide support, including technical assistance from West AFRITAC and AFRISTAT, to firm up budget management and tax collection and improve economic statistics.
- The World Bank is helping through support to low-income countries under stress (LICUS), including financing a long-term resident fiscal advisor.
- Other donors, including the EU and bilaterals, are also providing technical assistance to government revenue and expenditure departments.

### Staff appraisal — findings and policy priorities
- Guinea-Bissau faces enormous challenges: erosion of institutional and administrative capacity seriously impedes economic management and recovery.
- The fragile political situation reflects the population’s impatience with the country’s difficult financial situation.
- The new government has demonstrated determined commitment in beginning to address these challenges; its emergency fiscal program and the improved fiscal performance in the second half of 2007 are a solid foundation for stability.
- Focus on stabilizing public finances and improving economic management and transparency aims to catalyze financial and technical assistance from donors, indispensable for rebuilding capacity and putting the country on a path to sustained economic growth.
- Keeping current spending, particularly wages, within available resources is essential to the stability of public finances and the sustainability of reforms; authorities must resist pressures to backtrack on the nominal freeze of the wage bill.
- Structural measures are crucial to improve payroll management and ensure that the share of wages in public expenditures gradually decreases.
- Ensuring that the Treasury remains in sole charge of managing all government accounts and effectively applying the cash flow plan are crucial to restore confidence in management of the economy.
- It is critical that the government finds a lasting resolution to its domestic arrears.
- Efforts to enhance revenue collection, including improving tax administration, are necessary to boost revenues on a lasting basis and ensure resources for core expenditure needs and basic public services.
- The viability of the 2008 budget depends critically on significant concessional external assistance; the authorities must improve governance, strengthen institutional capacity, and implement credible reforms, as slippage could jeopardize external assistance.

*Source: _cr0877 - 28.*

### 37.      Staff considers that Guinea-Bissau meets the requirements for Fund EPCA. Help

### _cr0877 - 37.      Staff considers that Guinea-Bissau meets the requirements for Fund EPCA. Help

### Staff assessment and recommendation
- Staff considers that Guinea-Bissau meets the requirements for Fund EPCA.
- Rationale:
  - Help in meeting current external payments is urgently needed.
  - The country’s capacity has been so disrupted that the authorities are not yet able to carry out a comprehensive program that could be supported by a different Fund arrangement.
  - Recent progress demonstrates that the authorities have the capacity to implement the proposed program, which would be part of a concerted international effort.
  - The authorities are determined to establish the track record necessary for a PRGF-supported program and for reaching the HIPC Initiative completion point.
  - Policy implementation should therefore improve under the proposed program, especially in the fiscal area.
- Staff recommendation:
  - Recognizing the role that the proposed program would play in stabilizing the economy and catalyzing international support, the staff recommends approval of the authorities’ request for Emergency Post-Conflict Assistance.

### Political developments (selected timeline, 1998–2007)
- June 1998: Power struggle between President Vieira and military escalates into broader conflict; fighting concentrated in Bissau; thousands of deaths; widespread damage; departure of many better-educated citizens.
- January 1999: National transition government set up (January 1999–February 2000).
- January 1999: Post-conflict strategy supported by the PRGF and interim HIPC Initiative debt relief negotiated with the IMF.
- May 1999: President Vieira is ousted by a military coup.
- November 1999: Presidential and legislative elections; Koumba Yala becomes president; coalition government of PRS and RGB headed by Caetano Intchama.
- December 2000: PRGF arrangement and the HIPC decision point are approved.
- May 2001: PRGF arrangement goes off track and expires.
- September 2003: Military remove President Yala in a bloodless coup.
- March 2004: Civilian government organizes parliamentary elections; PAIGC wins but without majority.
- October 2004: Military rebellion; army chief of staff killed.
- May 2005: New government headed by Mr. Carlos Gomes (PAIGC).
- July/August 2005: Former President Vieira wins presidential elections.
- October 2005: President Vieira appoints a coalition government headed by Aristides Gomes.
- March 2007: Parliamentary vote of no confidence against Mr. Gomes; new coalition government headed by Mr. Martinho Kabi sworn in.

### Key macroeconomic indicators (selected rows as presented)
- Real GDP at market prices-0.62.23.51.82.73.33.23.4
- Real GDP per capita2-3.4-0.70.3-1.1-0.40.30.20.4
- GDP deflator-2.82.77.7-0.53.63.32.52.5
- Consumer price index (annual average)3 1.60.83.42.03.83.32.52.5
- Consumer price index (end of period)3 0.72.21.03.24.32.42.52.5
- Exports, f.o.b. (based on US$ values)16.121.818.2-32.553.6-4.08.48.5
- Imports, f.o.b. (based on US$ values) 0.217.227.913.97.65.3-4.28.4
- Domestic revenue (excluding grants)4 -4.117.714.112.4-12.536.6-7.96.2
- Total expenditure 13.833.3-4.7-1.37.06.6-2.94.0
- Broad money7 -65.344.020.65.316.08.34.05.9
- Gross investment12.613.214.612.214.115.814.715.0
- Gross domestic savings-1.6-3.0-2.3-19.0-4.4-4.9-1.3-0.6
- Budgetary revenue4 15.217.217.619.616.120.718.018.0
- Total domestic primary expenditure4 20.224.824.527.125.724.921.921.2
- Domestic primary balance-5.0-7.6-6.9-7.5-9.6-4.1-3.9-3.2
- Overall balance (commitment basis) Including grants-12.9-15.0-11.9-9.7-9.70.7-4.9-4.6
- Overall balance (commitment basis) Excluding grants-23.3-32.2-24.6-21.6-25.3-20.9-20.1-19.3
- External current account (including official current transfers) -2.82.4-5.1-11.3-1.77.02.82.7
- Net present value of external debt/exports of goods and nonfactor services (percent) 0.00.0788.5683.2481.3505.4481.2220.3
- Nominal stock of external debt, including arrears474.5487.7440.6436.3403.2389.2305.3197.3
- Memorandum: Current account balance (including official current transfers)-6.66.4-15.3-34.8-5.825.610.811.4
- Memorandum: Overall balance of payments-121.0-10.8-21.0-38.8-15.6-32.1-6.7-5.7
- Memorandum: Nominal GDP at market prices (CFAF billions)137.1142.6158.8160.8171.1182.5192.9204.4
- Memorandum: Nominal stock of external debt (end of period; excluding arrears)915.21024.01002.1993.31012.71038.31077.1820.2
- Memorandum: Nominal stock of external arrears, end of period206.4293.8327.0349.8371.0392.0113.80.0

### Balance of payments (selected figures as presented)
- Goods and services -19.4-23.1-26.8-50.1-31.6-37.7-30.8-31.9
- Exports, f.o.b36.140.047.231.646.3 44.347.851.6
  - Of which: cashew nuts 32.338.444.729.042.5 40.243.547.0
- Imports, f.o.b-41.1-43.8-55.9-63.2-64.8-68.0-64.9-70.0
- Services (net) -14.4-19.3-18.1-18.6-13.1-14.0-13.8-13.5
- Current transfers (net) 22.832.525.036.833.1 54.539.941.3
  - Official2,3,4 9.416.812.121.616.7 34.618.919.2
  - Of which: balance of payments support grants 4.812.05.110.216.7 24.814.214.2
  - Of which: EU fishing compensation 4.84.84.84.80.0 9.8 4.85.1
- Current account Including official transfers -3.83.4-8.0-18.2-2.9 12.75.35.6
- Capital and financial balance -66.4-9.0-3.0-2.1-4.9 -28.7-9.2-8.3
- Overall balance-70.2-5.7-11.1-20.3-7.8 -15.9-3.9-2.7
- Financing 70.25.711.120.37.8 15.93.92.7
- Net foreign assets (increase -)6 43.5-18.9-10.33.0-6.7 -5.3 -8.2-5.0
  - Of which: net IMF credits7 -2.8-2.8-1.1-2.2-1.9 -0.9 -0.81.5
- Debt relief5.14.55.35.43.8 0.7 0.711.1
- Change in debt-service arrears (decrease -) 21.620.017.211.910.6 9.7 8.00.0
- Memorandum: Export volume growth (percent) 7.412.10.2-17.749.3 -7.3 6.06.0
- Memorandum: Scheduled debt service Percent of exports and service credits 64.056.448.947.832.3 33.228.725.4
- Memorandum: Current account balance (percent of GDP) Including official transfers -2.82.4-5.1-11.3-1.7 7.0 2.82.7
- Stock of external arrears, end of period 119.9140.0157.2169.1179.7 189.4 197.4197.4
- Overall balance (percent of GDP) -51.2-4.0-7.0-12.6-4.6 -8.7 -2.0-1.3

### Monetary survey (selected lines as presented)
- Total assets43.452.455.264.069.371.576.4
- Net foreign assets 32.536.743.248.456.161.065.4
  - Central bank 26.636.933.940.645.954.159.1
  - Deposit money banks5.9-0.29.37.810.26.96.4
- Net domestic assets10.915.712.015.613.210.611.0
- Net domestic credit12.015.918.623.817.316.617.0
- Credit to the economy2.33.46.310.312.413.615.0
- Broad money44.020.65.316.08.33.26.1
- Velocity (GDP/M2)3.33.02.92.72.62.72.7

### Central government operations (selected fiscal projections, CFAF billions and percent of GDP as presented)
- Revenue and grants35.149.148.250.654.376.763.967.0
- Revenue20.824.528.031.527.537.634.736.8
  - Tax revenue11.911.818.318.519.720.822.624.0
  - Nontax revenue8.912.79.613.07.816.912.112.8
- Grants14.324.520.219.126.839.129.330.2
  - Of which: expected budget support 4.812.05.110.216.724.814.214.2
- Total expenditure52.870.467.166.270.875.573.476.3
  - Current expenditure34.942.144.046.646.847.745.546.7
  - Wages and salaries13.616.221.320.521.821.320.720.7
  - Capital expenditure and net lending17.928.323.119.723.927.827.929.6
- Overall balance, including grants (commitment)-17.7-21.4-18.9-15.6-16.51.2-9.4-9.3
- Overall balance, excluding grants (commitment)-32.0-45.9-39.1-34.8-43.3-37.9-38.7-39.5
- Net domestic arrears 14.81.5-0.15.53.0-3.60.00.0
- Overall balance, including grants (cash)-4.0-13.3-16.2-7.5-10.70.0-7.3-9.3
- Financing4.013.316.27.510.70.07.39.3
  - Domestic financing-5.4-1.69.3-1.80.1-17.3-1.8-0.8
  - Foreign financing (net)9.414.96.99.310.76.56.612.8
- Gross financing gap (+ = financing needs)0.00.00.00.00.010.82.5-2.7
- Domestic primary balance-6.8-10.8-11.0-12.1-16.4-7.5-7.5-6.6
- Memo item: Effective plus identified budget support 4.812.05.110.216.735.514.214.2

### Indicators of capacity to repay the Fund (selected)
- Fund credit outstanding1 SDR millions3.28 3.81 2.79 1.78 1.11 0.22
- Fund credit outstanding1 CFAF billions 2.48 2.87 2.10 1.34 0.84 0.17
- Percent of quota23.13 26.83 19.65 12.54 7.82 1.55
- Percent of exports of goods and services5.34 6.48 4.39 2.59 1.50 0.28
- Percent of fiscal revenue8.99 7.63 6.06 3.63 2.13 0.40
- Percent of gross official reserves4.28 4.61 2.73 1.68 1.03 0.20
- Percent of GDP1.45 1.57 1.09 0.65 0.38 0.07
- Includes EPCA purchase of SDR 1.775 millions (12.5 percent of quota) in January 2008.

_Italic: Sources: Guinea-Bissau authorities, BCEAO, and IMF staff estimates and projections._

### 1.      Guinea-Bissau is slowly recovering from a decade of conflict and political instability.

### Guinea-Bissau is slowly recovering from a decade of conflict and political instability.

### Context and objectives
- Post-conflict deterioration: physical infrastructure destroyed; administrative capacity severely weakened; fiscal situation unsustainable; relations with international community suffered.
- New government (appointed April 2007) adopted an emergency program to restore fiscal stability and improve economic management.
- Government objectives for 2008: stabilize the fiscal position, build capacity for policy implementation, regularize relations with donors, revive growth, reduce poverty, and achieve fiscal and external sustainability.
- Government request: first purchase of SDR 1.775 million (12.5 percent of quota) under the Fund’s Emergency Post-Conflict Assistance (EPCA); a second EPCA purchase will be requested later in 2008.

### Recent economic developments (2007)
- Real GDP growth: preliminary projection for 2007 of 2.7 percent.
- Inflation: could be pushed to slightly above the 3 percent target due to recent high food prices; generally subdued in the WAEMU area.
- Current account (excluding grants): expected to narrow to 11 percent of GDP in 2007, from 25 percent in 2006.
- Fiscal deterioration in early 2007:
  - Tax revenues declined 13 percent in the first half of 2007 compared to the same period in 2006.
  - Accumulated substantial domestic arrears, including four months of civil service salaries; overall domestic arrears in 2007 about CFAF 6.6 billion (3.8 percent of GDP).
- Improved fiscal performance after April 2007 emergency program:
  - July–October tax revenues some 28 percent higher than same period last year.
  - Ceased payment of previous years’ domestic arrears and reduced extrabudgetary expenditures (DNT).
- Sectoral developments:
  - Cashew: 2007 domestic reference price CFA 200/kilo agreed; production and exports slightly lower than expected.
  - Cereals: rice and other cereals severely affected by late and inadequate rains.
- External budget support resumed in 2007: CFAF 17 billion (US$34 million) from EU, WAEMU, ECOWAS, Spain, Portugal, France, China, Angola. World Bank US$10 million delayed to early 2008; AfDB US$1.7 million delayed to early 2008.
- Rescheduling of domestic commercial debt in 2007:
  - CFAF 3 billion (US$5.7 million) in debt service on commercial bank loans.
  - CFAF 1.5 billion (US$3 million) owed to the BCEAO.
  - CFAF 6.7 billion (US$13.5 million) in Treasury bills due in February 2007.
- Partial payment plan for 2007 arrears: about CFAF 3.6 billion related to medical and education supplies to be paid with World Bank disbursement expected in early 2008; remaining 2007 arrears to be audited by EU and repaid over time.

### Fiscal measures implemented (emergency program, April 2007)
- Revenue measures:
  - Limited exemptions to situations foreseen in law (NGOs, embassies, ex-combatants, projects).
  - Abolished tax compensation system for customs (DGA) and corporate taxpayers (DGCI); only the Treasury may grant tax compensations.
  - Returned tax rates to previous levels on 14 of 18 products lowered in May 2006.
  - Enforced collection of stamp tax (cigarettes, bank checks, credit cards, airline tickets, insurance companies).
  - Contracted commercial banks to manage tax collection for DGA and DGCI.
  - Pursued collection of tax arrears.
- Expenditure measures:
  - Closed ministry/public entity accounts at the BCEAO and opened accounts at the Treasury; Treasury now holds one account, the Treasury Current Account, at the BCEAO.
  - Process all payment orders through the Budget Directorate (DGO).
  - Restrict extrabudgetary expenditures (DNT) only to emergency situations and regularize them within 48 hours.
  - Standardize budget execution procedures.
  - Require pre-approval by Ministry of Finance’s Financial Control Department for purchases of goods and services.
  - Cease Treasury issuance of checks in names of finance managers of ministries for direct payment of goods and services.
  - Computerize payment system at the Treasury.
  - Place a ceiling of CFAF 300,000 on expenditures payable in cash.
- Transparency and financial management measures:
  - Improved transparency of the Treasury Committee by inviting civil society, armed forces, Ministry of Interior, ex-combatants, and donor representatives as observers.
  - Dismantled internal nontariff barriers on transporting cashews within the country.
  - Require government suppliers to have taxpayer identification numbers and bank accounts; payments only after goods/services verification.

### 2007 fiscal outturn and 2008 baseline projections
- 2007 fiscal stance: overall balance (excluding grants) expected to widen to about 25 percent of GDP, from 22 percent in 2006.
- 2007 totals projected:
  - Total revenues projected to decline to 16 percent of GDP (some 3.5 percent of GDP lower than in 2006).
  - Current expenditures expected to decline to 27 percent of GDP from 29 percent in 2006.
- 2008 macro projections:
  - Real GDP growth projected at 3.3 percent in 2008.
  - Inflation expected to converge to moderate levels below 3 percent.
  - Current account deficit (excluding grants) expected to widen slightly to 12 percent of GDP in 2008.
- 2008 fiscal projections and objectives:
  - Government revenues projected to increase by some 5 percent of GDP to about 21 percent of GDP.
  - Nontax revenues expected above normal in 2008 because of two EU disbursements for fishing compensation (2008 annual compensation and delayed 2007 compensation).
  - Tax revenues projected to remain roughly constant as a share of GDP, with efforts to increase revenues by year-end.
  - Current expenditures expected to decline by about 1 percent of GDP in 2008 reflecting a nominal freeze and strict control.
  - Overall balance (excluding grants) expected to decline to about 21 percent of GDP.

### 2008 financing plan and needs
- 2008 financing needs: CFAF 45 billion (US$92 million or 27 percent of GDP).
- Secured/expected financing for 2008:
  - Budget support from traditional and nontraditional donors: CFAF 24.8 billion (US$50 million).
    - Constituents noted: World Bank (US$16 million), European Union (US$7 million), WAEMU (US$3 million), African Development Bank (US$1.7 million). Includes World Bank US$6 million delayed from 2007 and AfDB disbursement similarly delayed. Total also includes South Africa (US$10 million), Japan (US$4 million), Portugal (US$3 million), Spain (US$3 million).
  - Extension of interim debt relief from the World Bank to cover US$8.5 million (CFAF 4.2 billion) in 2008 external debt service obligations.
  - Additional recovery of tax arrears: CFAF 0.7 billion.
  - Partial rescheduling of domestic commercial debt owed in 2008: about CFAF 3.6 billion (US$6 million).
  - Further accumulation of arrears on external debt: CFAF 9.7 billion (US$20 million).
  - Two EPCA purchases: US$5.6 million (CFAF 2.8 billion).
- If donor grants exceed needs: priority to fully repay outstanding commercial debts and audited domestic arrears, and increase priority social sector spending, in consultation with the Fund.
- Contingency: government committed to further rescheduling domestic debts if external financing shortfalls occur.

### Structural measures and capacity building for 2008 and medium term
- 2008 structural and institutional priorities:
  - Improve accounting and information flows of all Treasury transactions, including nonregularized expenditures and bank financing.
  - Conduct comprehensive audit of outstanding domestic arrears for 2000–06 and a portion of new 2007 arrears. (Audit to be conducted by a reputable international firm financed by the E.U.; expected to be launched before May 2008 and completed later in 2008.)
  - Avoid payment of audited arrears until audit completion and external financing for clearance obtained.
  - First priority: avoid accumulation of new domestic arrears in 2008.
  - Implement integrated management information system linking DGA, DGCI, DGO, and the Treasury.
  - Strengthen inspection capabilities of the General Audit Department and the Financial Control Unit (DGO) through human and technological capacity building.
  - Approve and have the Council of Ministers adopt a new state budget classification system in line with WAEMU regulations and implement it for the 2009 budget process.
  - Finalize merger of payroll databases of the Ministry of Finance and the Ministry of Public Administration.
- Medium-term fiscal outlook:
  - Fiscal position expected to steadily improve as controls are restored and nonpriority expenditures are reined in.
  - Overall fiscal balance (excluding grants) projected to decline to below 20 percent of GDP in 2010.
- Trade and exchange policy stance:
  - Authorities intend to avoid introducing or intensifying exchange and trade restrictions in 2008 and beyond.

### Capacity-building and technical assistance
- Identified technical assistance needs in public financial management and macroeconomic statistics; highest priority: Customs, Treasury, Tax Departments, and the debt unit.
- Support provided or planned:
  - IMF West AFRITAC and AFRISTAT: technical support to strengthen public financial management, tax collection, and statistics.
  - World Bank: assistance through LICUS and financing a long-term resident fiscal advisor.
- Table 1 in the memorandum lists specific priorities identified by recent World Bank and IMF missions.

### Program monitoring
- Government will provide information on a regular basis as detailed in the attached Technical Memorandum.
- Government invites IMF staff to review performance quarterly on the basis of quantitative and structural indicators (Tables 2 and 3 of the MEFP) and overall program implementation.

*Source: Memorandum on Economic and Financial Policies and accompanying letter dated January 9, 2008, Government of Guinea-Bissau (attached to EPCA request).*

### 20.      The monitoring of progress on the program outlined will be based on the

### _cr0877 - 20.      The monitoring of progress on the program outlined will be based on the

### Monitoring framework and institutional arrangements
- Monitoring is based on the quantitative and structural indicators provided in Tables 2 and 3.
- Quantitative indicators are based on the monthly treasury cash flow plan for 2008 (Table 4).
- Specific definitions and explanations are contained in the annexed Technical Memorandum of Understanding (TMU).
- The government will provide, on a timely basis, all necessary data to monitor the program as indicated in the TMU.
- A second EPCA purchase will take place in July 2008.

### Quantitative indicators (as specified in the TMU)
- The quantitative indicators are:
  - cumulative floors on government revenue;
  - cumulative ceilings on the domestic primary fiscal deficit (on a commitment basis);
  - cumulative ceilings on the change in net domestic financing of the budget;
  - cumulative ceiling on new domestic arrears of the government, including wage arrears;
  - ceiling on payments of previous years domestic arrears (before 2008);
  - cumulative ceilings on new nonconcessional external debt contracted or guaranteed by the government.
- Quantitative indicators have been set for end-March, end-June, end-September and end-December 2008, and their values are cumulative from January 1, 2008. Indicative targets for new nonconcessional external debt are continuous.
- For the purposes of the EPCA, "government" is defined as the central government of Guinea-Bissau (excludes public entities with autonomous legal personality whose own budget is not included in the central government budget).

### Quarterly targets and key numerical program targets (2008, cumulative, in millions of CFAF)
- Government revenues (Table 1 / Quarterly Targets for Government Revenues):
  - Mar.: 4,226.6
  - Jun.: 10,413.9
  - Sept.: 17,824.3
  - Dec.: 23,130.4
  - Breakdown (Tax revenues; Fishing licenses):
    - Tax revenues (Direct and indirect taxes (01.00.00 and 02.00.00)): 3,635.0; 9,230.7; 16,049.5; 20,764.0
    - Fishing licenses (03.01.01): 591.6; 1,183.2; 1,774.8; 2,366.4

- Domestic primary deficit (commitment basis) (Table 2 / Estimates of the Quarterly Domestic Primary Balance):
  - Mar.: -5,050
  - Jun.: -4,862
  - Sept.: -3,522
  - Dec.: -7,464
  - Components (cumulative):
    - Revenue: 5,998; 17,460; 30,187; 37,631
    - Current expenditure excluding interest: 10,752; 21,503; 32,255; 43,006
    - Domestically financed capital exp.: 297; 819; 1,454; 2,089

- New domestic arrears (ceiling) (Table 2):
  - Mar.: 0.0
  - Jun.: 0.0
  - Sept.: 0.0
  - Dec.: 0.0

- Payment of previous years’ domestic arrears (ceiling; includes arrears prior to 2008) (Table 2):
  - Mar.: 1,772
  - Jun.: 3,600
  - Sept.: 3,600
  - Dec.: 3,600
  - Program allows partial payment of 2007 commitments up to a maximum of CFAF 3.6 billion.

- Net domestic financing of the budget (Table 3 / Estimates of Domestic Financing by Quarter):
  - Mar.: -239
  - Jun.: -7,446
  - Sept.: -7,684
  - Dec.: -17,332
  - Bank financing (cumulative): -239; -7,446; -7,684; -17,332
    - BCEAO: -239; -477; -716; -1,706
    - Commercial bank(s) (local banks): 0; -5,244; -5,244; -7,161
    - Regional commercial banks and Treasury bills: 0; -1,724; -1,724; -8,464
  - Nonbank financing: 0; 0; 0; 0

- External non-concessional public borrowing, maturity > 1 year:
  - Mar./Jun./Sept./Dec.: 0.0; 0.0; 0.0; 0.0

### Prior actions and structural indicators (January 1, 2008—December 31, 2008)
- Prior actions (status):
  - Submission to Parliament of the government budget fully consistent with the fiscal framework presented in this MEFP. (Target date: End-November 2007) — Done.
  - Secure financing assurances from donors to fully cover the 2008 fiscal financing requirements. (Target date: End-November 2007) — Done.
  - Authorities have received assurances that there are no objections to EPCA from official Paris Club creditors to whom Guinea-Bissau is currently in arrears. Authorities have informed non-Paris Club creditors that they will continue to have difficulties servicing their external debt service obligations, including during the EPCA program period.

- Structural indicators and target dates:
  - Approve and adopt by Council of Ministers legal framework for new state budget classification system in line with WAEMU regulations. (End-March 2008)
  - Create Information Technology (IT) Department in Ministry of Finance and start training staff. (End-March 2008)
  - Launch financial audit, by a reputable international audit firm, of outstanding domestic arrears for 2000-2007. (End-April 2008) — Audit financed by E.U.
  - Finalize merger of two payroll databases of Ministry of Finance and Ministry of Public Administration. (End-June 2008)
  - Improve proper accounting and information flows of all Treasury transactions, including nonregularized expenditures and bank financing. (End-June 2008)

### Treasury cash-flow plan and methodological definitions (from TMU and Table 4)
- Cash-flow estimates are the basis for the quantitative indicators; government revenue includes direct taxes, indirect taxes, and fishing licenses as defined in the TMU.
- Domestic primary expenditure: current expenditure plus domestically-financed capital expenditure, excluding all interest payments and externally financed capital expenditures.
- Government commitments include: expenditure with commitment vouchers approved by the Ministry of Finance; automatic expenditure (wages and salaries, pensions, utilities, other centralized payments); and expenditure by means of offsetting operations.
- New domestic arrears definitions:
  - At end-March, end-June and end-September: stock of accounts payables (rest-a-payer).
  - At end-December: accounts payables accumulated during 2008 and still outstanding one month after end-December for wages and salaries (including pensions), and three months after end-December for goods and services and transfers.
- Net domestic financing definition:
  - Bank financing: net changes in treasury account balances at the BCEAO and at commercial bank(s)—excluding balances not freely available for budget financing (e.g., donor double-signature accounts)—and outstanding amounts of loans, including T-bills, from BCEAO and commercial banks (local and regional).
  - Domestic nonbank financing: privatization receipts and any other domestic financial debt held outside the banking sector, other than new domestic arrears.

*Source: Attachment II, Technical Memorandum of Understanding; Tables and text provided in the MEFP (Guinea-Bissau, 2008).*

### 9.      The indicators for external debt are cumulative ceilings on new nonconcessional

### _cr0877 - 9.      The indicators for external debt are cumulative ceilings on new nonconcessional

### External debt indicators and definitions
- Indicator: cumulative ceilings on new nonconcessional external debt contracted or guaranteed by the government.
- External debt defined as debt held by creditors outside the WAEMU region.
- Debt definition (per Guidelines on Performance Criteria with Respect to Foreign Debt, Executive Board of the IMF, August 24, 2000):
  - A current (not contingent) liability created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, requiring the obligor to make one or more future payments in assets (including currency) or services to discharge principal and/or interest.
  - Primary forms of debt:
    - Loans: advances of money (including deposits, bonds, debentures, commercial loans, buyers’ credits), and temporary exchanges of assets equivalent to fully collateralized loans (e.g., repurchase agreements and official swap arrangements).
    - Suppliers’ credits: contracts permitting deferred payments after delivery of goods or services.
    - Leases: rights to use property for specified period(s); debt equals the present value (at lease inception) of all lease payments expected during the agreement, excluding payments for operation, repair, or maintenance.
  - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt.
  - Failure to make payment on an obligation not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.
  - For EPCA monitoring, arrangements to pay over time obligations arising from judicial awards to external creditors do not constitute nonconcessional external borrowing.
- Applicability: indicator applies also to commitments contracted or guaranteed for which value has not been received.

### Concessionality assessment
- Loan concessionality assessed using OECD commercial interest reference rates (CIRRs).
- A loan is concessional if, on initial date of contraction, the ratio of present value (calculated using reference interest rates) to nominal value is less than 50 percent (i.e., grant element of at least 50 percent).
- Reference rates by maturity:
  - For debts with maturity exceeding 15 years: ten-year reference interest rate published by the OECD.
  - For shorter maturities: six-month market reference rate.
- Purchases from the IMF are excluded from this limit.

### Concept of government for external debt indicators
- Broader than budget aggregate definition: includes all debt that may ultimately be deemed a liability of the state.
- Included entities beyond central government (paragraph 3 definition):
  - Administrative public institutions
  - Public enterprises authorized to contract, guarantee, or accommodate nonconcessional borrowing
  - Scientific and technical public institutions
  - Professional public institutions
  - Industrial and/or commercial public institutions
  - Local governments

### Adjusters affecting fiscal ceilings and financing
- General: ceilings on domestic primary fiscal deficit, domestic financing, and new domestic arrears adjusted for shortfalls/excesses in specified external receipts.
- E.U. fishing compensation adjuster:
  - The ceiling on the domestic primary deficit (on a commitment basis) will be increased (lowered) by the full amount of any shortfall (excess) in E.U. fishing compensation.
  - Program assumes E.U. fishing compensation (cumulative from January 1, 2008):
    - by end-March CFAF 0 billions;
    - by end-June CFAF 4.9 billions;
    - by end-September CFAF 9.8 billions;
    - by end December CFAF 9.8 billion.
  - TMU exchange rates for purposes of the TMU: CFAF/US$ = 495 and CFAF/Euro = 656.
- External budgetary assistance (including E.U. fishing compensation) adjuster:
  - Ceiling on domestic financing adjusted in line with amount of external budget support; increased (lowered) by full amount of shortfall (excess).
  - Program assumes external budgetary assistance (including E.U. fishing compensation) (cumulative from January 1, 2008):
    - by end-March CFAF 6.8 billions;
    - by end-June CFAF 21.2 billions;
    - by end-September CFAF 31.9 billions;
    - by end December CFAF 34.6 billion.
  - Ceiling on accumulation of new domestic arrears adjusted in line with available domestic financing of the budget; if government cannot increase (decrease) domestic financing by full amount of shortfall (excess) in external budget support, ceiling on accumulation of new domestic arrears of nonpersonnel expenditures will be adjusted upward (downward) by that difference.

### Program monitoring and reporting requirements
- Ministry of Finance reporting to IMF staff (frequency specified):
  - Detailed reports on revenue and expenditure by budget line and completed TOFE (monthly, two weeks after end of month).
  - Data on extra-budgetary expenditure, including (i) incentives to tax collectors; (ii) restitutions to collecting agencies; (iii) other retentions by collecting agencies (monthly, two weeks after end of month).
  - Tables on nonregularized expenditures (DNT) (Monthly, two weeks after end of month).
  - Table on accounts payable (rest-a-payer) broken down by budget category (wages, goods and services, transfers, other) (monthly, two weeks after end of month).
  - Previous years domestic arrears (including 2007): stock and clearance, broken down by budget category (monthly, two weeks after end of month).
  - Monetary survey, central bank balance sheet, commercial banks balance sheet (monthly, within six weeks following end of month).
  - Table with data on Treasury/Central Government outstanding loans (including short-term advances) from/and deposits in local and regional commercial banks (monthly, two weeks after end of month).
  - Treasury Committee monthly reports (monthly, within ten days after end of month).
  - Amount and terms of new external debt (concessional or not) contracted or guaranteed by the government (within four weeks after end of month).
  - Monthly table on disbursements of budget support (grants and loans), by donors (two weeks after end of month).
  - Indicators to assess overall economic trends, such as household consumer price index and exports of cashew nuts (when information becomes available).
  - Table with description of status of implementation of structural indicators in Table 3 of the MEFP (within two weeks after end of month).
  - Information on any type of financial assistance received and not programmed (continuous basis).
- Additional reporting:
  - Ministry of Finance will provide any other information deemed necessary by Ministry or IMF staff for program-monitoring purposes.
  - Data to be provided to the Economist at the local IMF office in Bissau (Mr. Fonseca) for transfer to the African Department of the IMF in Washington, D.C.

### IMF Executive Board decision and EPCA purpose (Press Release No. 08/11, January 29, 2008)
- Approval: amount equivalent to SDR 1.775 million (about US$2.8 million) in Emergency Post-Conflict Assistance (EPCA) for Guinea-Bissau.
- Objectives of EPCA:
  - Help address immediate post-conflict challenges: restoring fiscal stability, building capacity for policy implementation, regularizing relations with donors.
  - Promote strengthening of administrative and institutional capacity to sustain economic recovery and higher level of financial assistance.
- Key messages from Mr. Murilo Portugal, Deputy Managing Director and Acting Chair:
  - Authorities appointed in April 2007 implemented an emergency program to correct large fiscal imbalances; fiscal performance improved in the second half of 2007 and donor disbursements resumed.
  - 2008 program seeks to lay foundation for medium-term fiscal and debt sustainability and normalize relations with external creditors by reining in nonpriority current spending and intensifying revenue mobilization.
  - Wage restraint and reform of civil and military services are critical given large wage bill.
  - Structural measures in 2008 program focus on building capacity in revenue administration and public expenditure management to improve fiscal transparency and boost donor support.
  - Given large external debt burden, Guinea-Bissau will require continued and increased access to grants and concessional aid over the medium term; good 2008 performance could catalyze additional donor support and reduce reliance on domestic borrowing.
  - Satisfactory implementation could pave way for successor program under the IMF’s Poverty Reduction and Growth Facility and for debt relief under the Heavily Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative.

### Statement by Laurean Rutayisire — Executive Director for Guinea-Bissau (January 28, 2008) — Key findings and policy agenda
- Recent economic developments and quantitative outcomes:
  - Real GDP growth for 2007 estimated at 2.7 percent, lower than initially projected 3.7 percent, owing mainly to less than expected production and exports of cashews and adverse agricultural/climate conditions.
  - Inflation: remained low in 2007; continued rise of international oil prices in 2007 and recent surge in food prices could push inflation slightly above WAEMU targeted rate of 3 percent.
  - Tax revenues: some 28 percent higher in July-October 2007 than same period in 2006.
  - Current expenditure reduced to 27 percent of GDP from 29 percent in 2006.
  - Current account deficit expected to widen slightly from 11 percent of GDP in 2007 to 12 percent in 2008, but improved from 25 percent in 2006.
- 2008 macroeconomic targets and projections:
  - Target real GDP growth for 2008: 3.3 percent, based on expected improvement in agriculture (cashew sector) and increased public investments.
  - Inflation expected to decline to levels below the 3 percent regional convergence criteria due to continued prudent monetary policy by BCEAO.
  - Authorities plan to achieve an overall fiscal balance (excluding grants) of about 21 percent of GDP in 2008 (noted as "lower than in previous years").
  - Revenues projected to increase by 5 percent to about 21 percent of GDP compared to 16 percent last year, owing mainly to disbursements of fishing compensation and tax collections projected to remain at same share of GDP as last year.
  - Program aims at nominal freeze of current expenditure, including the wage bill, and maintaining expenditures within available resources.
- Fiscal management and financing measures:
  - Government implemented measures: increase revenue collection, recover tax arrears, control expenditures, abolish tax compensation for tax collectors, reinstate and strengthen Treasury Committee to monitor cash flow, improve transparency and financial management.
  - Authorities secured financial resources to fully cover 2008 financing gap and avoid accumulation of domestic arrears for 2008 as a whole; continue mobilizing donor community for increased support.
  - Plan to renegotiate rescheduling of domestic debts to cover any shortfalls in external financing in 2008.
- Structural reforms and capacity-building priorities:
  - Implement measures recommended by FAD and West AFRITAC technical assistance missions to strengthen public financial management:
    - Improve accounting and information flows for all Treasury transactions.
    - Strengthen inspection capabilities of the General Audit Department of the Ministry of Finance and the Financial Control Unit of the Budget Office.
    - Adopt new state budget classification system in line with WAEMU.
    - Finalize merger of payroll databases.
  - Authorities seek continued international technical assistance from Fund and World Bank for institutional and capacity building in public financial management and macroeconomic statistics.
- Policy intent and expected outcomes:
  - Aim to consolidate gains from emergency fiscal program, shore up donor support to increase international aid inflows, and lay groundwork for structural reforms to revive growth, reduce poverty, and achieve long-term fiscal and external sustainability.
  - Authorities view EPCA-supported program as instrumental to catalyze donor assistance, restore confidence, improve credibility, and build track record for potential successor PRGF-supported program and progress toward HIPC/MDR completion point.
- Acknowledged challenges:
  - Main challenges: build up public institutions, revive economic growth.
  - Identified obstacles: unsustainable fiscal situation; lack of resources for basic public services (infrastructure, legal and judiciary sectors); low skills base of labor force.
  - Approach: urgently restore fiscal sustainability and build fiscal space to address longer-term development challenges.

*Source: _cr0877 - 9. The indicators for external debt are cumulative ceilings on new nonconcessional (IMF content provided).*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr0877.pdf_