## _cr09236 - 2009. The authorities are requesting a third EPCA purchase to support these policies. ## Source details **Canonical URL:** [_cr09236 - 2009. The authorities are requesting a third EPCA purchase to support these policies.](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09236.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09236.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09236.pdf.json) --- ### Executive summary and request - Authorities request a third EPCA purchase of 12.5 percent of quota (SDR 1.775 million) to support the January–December 2009 program. - Purpose: - Give time to demonstrate a track record of policy performance that could pave the way for a new PRGF arrangement later in 2009. - Fill a small 2009 financing gap (CFAF 2.8 billion ≈ US$5.6 million), with SDR 1.775 million (US$2.8 million) expected from the third EPCA purchase. - Staff position: Support the request conditional on satisfactory performance under the 2009 EPCA-supported program. ### Macroeconomic performance (2008) and near-term indicators - Real GDP growth in 2008: 3.3 percent (from 2.7 percent in 2007). - Inflation: - Peaked at 14.6 percent (year-on-year) in October 2008. - Averaged 10.4 percent for 2008 (versus 4.6 percent in 2007). - February 2009 inflation: 5.8 percent (year-on-year). - External current account deficit (excluding official transfers) in 2008: 14.9 percent of GDP (from 9.3 percent in 2007). - Broad money growth in 2008: about 21 percent (estimated annual rate). - First-quarter 2009: tax revenue in the first two months as expected but generally lower than the same period in 2008; preliminary indications of gradual resumption of business activity since April. - Wages: authorities paid all January and February 2009 salaries using domestic resources and are beginning to pay March salaries. - Remittances: - Account for about 8 percent of GDP. - Expected to be lower by more than 10 percent; preliminary data suggest remittances could decline by 15–20 percent in 2009. - Remittances reached 7.7 percent of GDP in 2008. ### Fiscal performance (2008) and arrears - 2008 domestic primary deficit exceeded the program target by about CFAF 3.9 billion (source also cites CFAF 4 billion). - Government revenues lower than expected by CFAF 2.5 billion: - Nontax shortfall: fishing licenses under-performed by CFAF 1 billion. - Tax revenue shortfall: about CFAF 1.5 billion (partly due to customs disruptions and tax exemptions on rice and fuel). - Pledged donor grants were lower than expected by some CFAF 10 billion (5 percent of GDP). - Sizeable domestic arrears accumulated: - Reaching four months of government salaries (about 4 percent of GDP). - Arrears on wages and goods and services: CFAF 55.6 billion; 27.1% of GDP (end-2008). - Of which arrears accumulated in 2008: CFAF 10.7 billion; 5.2% of GDP. - Other domestic debt (end-2008): - Other domestic debt: CFAF 29.7 billion; 14.4% of GDP. - Treasury bills outstanding since 2006: CFAF 7.2 billion; 3.5% of GDP. - Short-term commercial debt: CFAF 7.2 billion; 3.5% of GDP. - Owed to the BCEAO: CFAF 15.2 billion; 7.4% of GDP. - Total domestic debt/arrears: CFAF 85.3 billion; 41.5% of GDP. - Payments already made in 2009: CFAF 2 billion in 2008 wage arrears to teachers in Q1 2009. - Authorities agreed to postpone payments of domestic arrears and commercial bank debt and to seek additional concessional resources. ### Structural reforms and program implementation (2008–09) - Most EPCA structural benchmarks were met; several benchmarks were delayed: - SIGASPE (payroll/personnel software) installation delayed; now to be implemented by end-October 2009 with technical assistance from Portugal. - ASYCUDA++ upgrade to be implemented by end-October 2009 (missed December 2008 target). - Several other benchmarks implemented with delays but ultimately completed. - Revenue and expenditure management reforms proceeded; efforts made to keep spending within budgeted levels despite revenue shortfalls. - 2009 structural reform agenda highlights and timelines: - ASYCUDA++ implemented by end-October 2009. - Update taxpayer fiscal identification numbers by end-June 2009. - Auction goods in customs warehouses more than 3 months in June 2009. - Enact new investment code by end-September 2009. - Launch biometric survey of civil servants by end-May 2009; finalize by end-July 2009. - Fully implement SIGFIP by end-August 2009; accounting module operational with AfDB assistance. - Implement unified payroll by end-October 2009. ### 2009 outlook and policy framework - Growth and prices: - Real GDP growth projected for 2009: 1–2 percent (Text Table projections list 2009: 1.9 percent). - Cashew export prices expected almost 30 percent lower than last year, constraining growth and the external current account. - Lower food and fuel prices expected to help suppress inflation; CPI projections (end of period) list 2009: 2.1. - Fiscal framework: - Focus: stabilize public finances and avoid new domestic arrears by keeping basic expenditures within available domestic and external resources. - Domestic primary deficit projected to deteriorate to some 8 percent of GDP in 2009 (from an estimated 6 percent in 2008). - Total revenues expected to decline by about 2.7 percent of GDP in 2009; tax revenues lower by 1.3 percent of GDP; nontax revenues lower by about 1.6 percent of GDP. - Current primary expenditures expected to decline by about 0.8 percent of GDP in 2009 due to a nominal freeze of current expenditures, including the wage bill (source text includes both 0.8 percent and 0.5 percent figures in different sections; primary projection summary notes -0.8 percent while III notes -0.5 percent via nominal freeze). - Budget support for 2009: about CFAF 22 billion (US$44 million), higher by about 2.4 percent of GDP than in 2008. - Small financing gap CFAF 2.8 billion (about US$5.6 million) expected to be filled by third EPCA purchase (SDR 1.775 million or US$2.8 million); remainder could be filled by a fourth EPCA purchase or PRGF resources. - Measures to reduce wage bill and payroll fraud: - Enforce “in-person” payment of wages and pensions. - Launch biometric survey of civil servants in April (program documents specify launch by end-May 2009). - Merge payroll databases of Finance and Public Administration ministries. - Arrears and debt management: - No resources in the 2009 budget to pay outstanding domestic debt including commercial bank advances (CFAF 7.2 billion), treasury bills (CFAF 7.2 billion), and debt to BCEAO (CFAF 15 billion). - No resources to pay debt service due to BCEAO in 2009 (CFAF 1.9 billion); to be rescheduled. - Authorities will not make further payments of budgetary arrears for the remainder of 2009 unless additional resources are secured. - Authorities seek donor assistance to prepare a medium-term action plan to clear domestic arrears, starting with finalizing external audit of domestic arrears from 2000–07. - If donor grants in 2009 exceed fiscal gap needs, priority would be repaying commercial debts, wage arrears, audited domestic arrears, and increasing priority social sector spending in consultation with the Fund. ### Risks to the program - Major risks: - Inadequate or delayed donor support could lead to further wage arrears and social instability. - Further political instability, particularly around presidential elections scheduled for June 28, could delay the 2009 program and jeopardize donor support. - Global financial turmoil and reduced aid flows to developing countries could delay donor disbursements. - Mitigation and operational constraints: - Limit on access to EPCA incorporates risk to Fund resources; any further purchases would require updated risk assessment. - BCEAO has a good record of honoring debt service to the Fund on behalf of WAEMU members, reducing acute risk to Fund repayment. ### EPCA purchase and Fund exposure - Proposed third EPCA purchase: SDR 1.775 million, equivalent to 12.5 percent of quota. - Total EPCA purchases after proposed third purchase: SDR 5.325 million (37.5 percent of quota). - Effect on credit outstanding to the Fund: would increase from 42.9 percent of quota in 2008 to 44.6 percent of quota in 2009 (Table 6). - Potential subsidy: Guinea-Bissau could receive subsidies to lower the annual basic charge on the EPCA purchase to 0.5 percent if resources are available. - Staff assessment: Little risk to the Fund from EPCA disbursements given government current on Fund obligations and BCEAO’s record. ### Debt sustainability analysis (DSA) — key findings and scenarios - End-2008 public debt and arrears: - End-2008 external debt: US$1.04 billion, 246 percent of GDP in nominal terms (316 percent in NPV terms); of which US$382 million were arrears. - Domestic debt at end-2008: CFAF 144 billion (70 percent of GDP). - PV of total public sector debt at end-2008 (including domestic): 256 percent of GDP and 807 percent of government revenue and grants. - Status and HIPC background: - Decision point reached in 2000 with creditors pledging 85 percent cancellation in NPV terms; interim relief stopped for many creditors after 2001; AfDB and IDA provided interim relief extended to 2011. - Remaining requirement for HIPC completion point: establish satisfactory PRGF track record; completion point targeted for 2010. - Baseline DSA (no debt relief): - Debt dynamics under the baseline remain unfavorable; external and public debt ratios decline slowly but stay well above indicative sustainable thresholds. - Key macro assumptions include real GDP growth recovering to about 4.5 percent from 2016 onward and grant-heavy financing of fiscal gaps (budget support grants projected at 10 percent of GDP per annum). - Alternative scenario (HIPC completion — Scenario A3): - Assumes total debt relief (HIPC, MDRI and additional rescheduling) of US$620 million in end-2010 PV terms. - MDRI alone about US$100 million in end-2010 PV terms. - Under A3: NPV of external debt to GDP falls significantly; debt service declines by about 5 percent of GDP per year; however many indicators remain above thresholds. - Stress tests: - One-time 30 percent depreciation (Scenario B6) would increase PV of debt by 77 percentage points of GDP in 2010 relative to baseline. - One-standard deviation negative export shock (Scenario B2) would greatly worsen PV debt/exports and debt service/export ratios. - Scenario B1 (negative GDP shock: -3.9 percent for two years) yields a 27 percentage point higher PV debt-to-GDP in 2011 relative to baseline. - Conclusion: Guinea-Bissau remains in debt distress; reaching HIPC completion would substantially reduce debt burden but country would remain at high risk of external debt distress and require additional donor support. ### Key program indicators and operational monitoring - Quantitative indicators set for end-June, end-September, and end-December 2009 (cumulative from January 1, 2009). Selected program targets (CFAF millions): - Government Revenues (floor): End-Jun. Prog.: 17,313.4; End-Sep. Prog.: 24,046.9; End-Dec. Prog.: 29,886.7. - Tax revenues: End-Jun. Prog.: 9,341.2; End-Sep. Prog.: 14,682.9; End-Dec. Prog.: 18,966.2. - Non-tax revenues: End-Jun. Prog.: 7,972.2; End-Sep. Prog.: 9,364.1; End-Dec. Prog.: 10,920.5. - Domestic primary deficit (cumulative): End-Jun. Prog.: -6,736; End-Sep. Prog.: -11,820; End-Dec. Prog.: -17,684. - Domestic primary expenditure (cumulative): End-Jun. Prog.: 24,049; End-Sep. Prog.: 35,867; End-Dec. Prog.: 47,571. - New domestic arrears (ceiling, cumulative): End-Jun. Prog.: 1,308; End-Sep. Prog.: -1,201; End-Dec. Prog.: 0. - Payment of previous years' arrears (ceiling, cumulative): End-Jun. Prog.: 2,031; End-Sep. Prog.: 2,031; End-Dec. Prog.: 2,031. - Domestic financing of the budget (cumulative): End-Jun. Prog.: -387; End-Sep. Prog.: -1,518; End-Dec. Prog.: -2,343. - Nonregularized expenditures (DNTs): End-Jun. Prog.: 200; End-Sep. Prog.: 200; End-Dec. Prog.: 200. - TMU adjusters: - EU fishing compensation assumed cumulative CFAF 4.59 billion by end-Jun., end-Sep., and end-Dec. 2009; ceilings adjust by full amount of shortfall/excess. - External budgetary assistance (incl. EU fishing) assumed cumulative: end-Jun. CFAF 12.41 billion; end-Sep. CFAF 22.73 billion; end-Dec. CFAF 26.0 billion. - Reporting and data submission requirements: monthly fiscal reports two weeks after end of month; monetary survey within six weeks; continuous reporting of donor disbursements and any unprogrammed financial assistance. ### Technical assistance and donor support - IMF technical assistance from West AFRITAC and AFRISTAT to firm up budget management, tax collection, and improve economic statistics. - World Bank: grant from State and Peace-Building Fund (SPF) including financing for a long-term resident fiscal advisor. - Other donors (EU, IDB, AfDB, Portugal, France, etc.) providing TA across customs, tax, PFM, debt management, procurement, and IT systems. - Ongoing TA priorities: customs (ASYCUDA++), SIGFIP and SIGADE rollout, payroll unification, debt management software, tax administration reform, public financial management action plan. ### Staff appraisal, policy imperatives, and recommendations - Current assessment: - Guinea-Bissau faces an extremely difficult fiscal and economic situation with accumulated large domestic arrears. - Important fiscal management reforms were implemented during 2008 but global pressures and political instability weakened fiscal outcomes. - Key imperatives: - Strict implementation of the 2009 EPCA-supported program is critical. - Keep 2009 expenditures within available resources and avoid new domestic arrears. - Resist pressures for additional election-related spending. - Avoid further payment of 2008 wage arrears and outstanding commercial bank debt until additional resources are found. - Urgently seek donor assistance to prepare a medium-term action plan to clear domestic arrears consistent with a sustainable medium-term budget framework. - Secure timely disbursement of external concessional budgetary assistance; seek highly concessional terms, preferably grants. - Conditional progression: - Satisfactory performance under the 2009 EPCA-supported program could permit initiation of PRGF discussions later in 2009 and support progress toward the HIPC completion point. *Source: _cr09236 - 2009. The authorities are requesting a third EPCA purchase to support these policies.* ### 2009. The authorities are requesting a third EPCA purchase to support these policies. ### _cr09236 - 2009. The authorities are requesting a third EPCA purchase to support these policies. ### Executive summary and request - The authorities are requesting a third EPCA purchase of 12.5 percent of quota to support their 2009 economic framework. - A third EPCA purchase would give time to demonstrate a track record of policy performance that could pave the way for a new PRGF arrangement later this year. - Staff support the authorities’ request for a third EPCA purchase, conditional on satisfactory performance on the 2009 EPCA-supported program. ### Macroeconomic performance (2008) and near-term indicators - Real GDP growth in 2008: 3.3 percent (from 2.7 percent in 2007). - Inflation: peaked at 14.6 percent (year-on-year) in October 2008; averaged 10.4 percent for 2008 (versus 4.6 percent in 2007). - External current account deficit (excluding official transfers) in 2008: 14.9 percent of GDP (from 9.3 percent in 2007). - Broad money growth in 2008: about 21 percent (estimated annual rate). - First-quarter 2009: tax revenue in the first two months was as expected but generally lower than the same period in 2008; preliminary indications of gradual resumption of business activity since April. - Wages: authorities paid all January and February 2009 salaries using domestic resources and are beginning to pay March salaries. - Inflation in February 2009: 5.8 percent (year-on-year). ### Fiscal performance and arrears (2008) - The 2008 domestic primary deficit exceeded the program target by about CFAF 3.9 billion. - Government revenues were lower than expected by CFAF 2.5 billion. - Among nontax revenues, fishing licenses under-performed by CFAF 1 billion. - Tax revenue shortfall was about CFAF 1.5 billion (attributed in part to customs disruptions and tax exemptions on rice and fuel). - Pledged donor grants were lower than expected by some CFAF 10 billion (5 percent of GDP). - Sizeable domestic arrears accumulated, reaching four months of government salaries (about 4 percent of GDP). - Treasury bills held by regional financial institutions: CFAF 7.2 billion (3.5 percent of GDP) outstanding since 2006 and could not be repaid as planned. - There were no resources to repay domestic arrears or commercial bank debt; the authorities agreed to postpone payment and seek additional concessional resources. ### Structural reforms and program implementation (2008–09) - Most EPCA structural benchmarks were met; some benchmarks were delayed or not met on schedule: - Installation of new payroll and personnel management software (SIGASPE) was delayed pending formal agreement with the regional partner; now to be implemented by end-October 2009 with technical assistance from Portugal. - Upgrade of automated customs systems to ASYCUDA++ was not met for December 2008; implementation now planned by end-October 2009. - Several other benchmarks were implemented with delays but ultimately completed. - Revenue/expenditure management reforms proceeded, and efforts were made to keep spending within budgeted levels despite revenue shortfalls. ### Outlook and 2009 policy framework - The 2009 fiscal framework focuses on stabilizing public finances and avoiding new domestic arrears by keeping basic expenditures strictly within available domestic and external resources. - Global developments—lower demand and lower export prices, particularly for cashews—are expected to slow growth significantly and put pressure on the balance of payments and public finances. - Satisfactory performance on the 2009 EPCA-supported program could pave the way for discussion of a new PRGF arrangement later in 2009, which is seen as essential to focus on medium-term growth and move toward the HIPC completion point. ### Risks to the program - Major risks include: - Inadequate or delayed donor support, which could lead to further wage arrears and reignite social instability. - Further political instability, particularly around the presidential elections scheduled for June 28, could delay the 2009 program and jeopardize donor support. - The limit on access to EPCA incorporates the risk to Fund resources; any further purchases would be subject to an updated risk assessment. - The BCEAO has a good record of honoring debt service to the Fund on behalf of WAEMU members. ### Key program indicators and operational points - Domestic financing pressures in 2008 led to accumulation of new domestic arrears and missed quantitative targets (four out of seven quantitative indicators of the 2008 EPCA-supported program were missed: revenue, domestic primary balance, accumulation of domestic arrears, and payment of previous years’ arrears). - The authorities agreed to use available resources, domestic and external, to cover current-year expenditures and avoid accumulation of new domestic arrears. - If performance on the 2009 EPCA-supported program is satisfactory, staff envisage beginning discussions for a new PRGF arrangement later in 2009. *Source: _cr09236 - 2009. The authorities are requesting a third EPCA purchase to support these policies.* ### 2009. There are already signs of a drop in remittances, which were lower by nearly ### _cr09236 - 2009. There are already signs of a drop in remittances, which were lower by nearly ### Overview - Achieving a stable fiscal situation in 2009 and avoiding new domestic arrears will be challenging due to weak external trade, pressures to repay outstanding domestic arrears and short-term commercial debt, and increased uncertainties in donor support. - Authorities’ 2009 program (MEFP) agreements: - limit the use of 2009 budget resources, domestic and external, to the payment of current-year expenditures; - postpone payment of domestic arrears and commercial debt until resources are available; - speed up efforts to further strengthen revenue collection and expenditure controls. - Authorities have secured significant donor financial and technical assistance for 2009 and are requesting a third EPCA purchase to support the 2009 program. - Guinea-Bissau meets the Fund’s conditions for EPCA support: - Institutional and administrative capacity remains weak but improving. - Sufficient capacity for policy planning and implementation, evidenced by 2008 structural reform progress. - Urgent need to meet essential external payments, especially to multilaterals. - Concerted international support for Guinea-Bissau (¶ 16). - Contingent on satisfactory performance under the 2009 EPCA-supported program, discussions for a new PRGF arrangement could begin later in 2009. ### Macroeconomic Outlook - Global developments likely to severely weaken real GDP growth in 2009 and over the medium-term. - Cashew prices (main export) expected to be almost 30 percent lower than last year, constraining real GDP growth, affecting the rural poor, and pressuring the budget and external current account. - Remittances: - Account for about 8 percent of GDP. - Expected to be lower by more than 10 percent, with negative impacts on real incomes and the current account. - Preliminary data in Box 1 suggest remittances could decline by 15–20 percent in 2009; remittances reached 7.7 percent of GDP in 2008. - Growth and inflation projections (Text Table 4): - Real GDP at market prices: 2006: 0.6; 2007: 2.7; 2008: 3.3; 2009: 1.9; 2010: 3.2; 2011: 3.7 - Real GDP per capita: 2006: -2.4; 2007: -0.3; 2008: 0.4; 2009: -1.0; 2010: 0.2; 2011: 0.8 - Consumer price index (end of period): 2006: -5.5; 2007: 9.3; 2008: 8.7; 2009: 2.1; 2010: 2.9; 2011: 2.7 - Gross investment (percent of GDP): 2006: 24.2; 2007: 24.3; 2008: 24.8; 2009: 43.1; 2010: 41.1; 2011: 40.3 - Gross national savings: 2006: -0.3; 2007: 16.5; 2008: 8.9; 2009: 27.4; 2010: 26.6; 2011: 25.9 - External current account (includes official current transfers): 2006: -10.2; 2007: 9.4; 2008: -3.1; 2009: -2.8; 2010: -3.1; 2011: -1.7 - Nominal stock of external debt, including arrears: 2006: 306.7; 2007: 254.2; 2008: 245.9; 2009: 247.6; 2010: 94.3; 2011: 85.9 - Projections indicate real GDP growth of 1–2 percent for 2009, much lower than in 2008. - Lower food and fuel prices expected to help suppress inflation. - External current account projected to worsen because of lower cashew export prices, only partially offset by lower import prices for food and fuel. - Provisional projections indicate a slight medium-term pick-up and a return of inflation to trend. ### Fiscal Policy - 2009 fiscal framework aims to meet basic current-year expenditures with available resources and avoid new domestic arrears. - Domestic primary deficit projected to deteriorate to some 8 percent of GDP in 2009, from an estimated 6 percent in 2008. - Revenues and expenditures (Text Table 5, percent of GDP unless indicated): - Revenue and grants (2007–11, EPCA Prel./Prog./Proj./Proj./Proj./Proj.): 29.4; 41.6; 31.8; 53.5; 51.8; 51.1 - Revenue: 14.6; 20.0; 16.8; 14.1; 14.9; 15.4 - Tax revenue: 10.3; 11.0; 10.2; 8.9; 9.1; 9.2 - Grants: 14.9; 21.5; 14.9; 39.4; 36.9; 35.8 - Budget support: 9.3; 13.9; 8.0; 10.4; 10.4; 10.4 - Expenditure: 40.3; 40.9; 38.8; 56.8; 53.9; 52.8 - Current expenditure: 26.9; 26.1; 25.5; 24.4; 23.3; 23.1 - Wages and salaries (of which): 12.0; 11.3; 10.8; 10.4; 10.2; 9.9 - Overall balance, including grants (cash): -6.7; -0.3; -2.4; -2.1; -3.7; -3.3 - Domestic primary balance: -10.4; -4.7; -5.9; -8.3; -7.6; -7.3 - Total revenues expected to decline by about 2.7 percent of GDP in 2009, with tax revenues lower by 1.3 percent of GDP. - Rice imports continue to be exempted from taxes as a social safety net; government may consider removing exemptions later in 2009. - Nontax revenues expected lower by about 1.6 percent of GDP in 2009 as EU fishing compensation returns to a single annual disbursement. - Current primary expenditures expected to decline by about 0.8 percent of GDP in 2009 due to a nominal freeze of current expenditures, including the wage bill. - Measures to save on the wage bill and reduce payroll fraud: - Enforce “in-person” payment of wages and pensions. - Launch biometric survey of civil servants in April. - Merge payroll databases of Finance and Public Administration ministries. - 2009 budget includes a large increase in capital expenditures financed by external grants for a new government office complex and renovation of two hospitals; construction already underway. - Budget support for 2009: - About CFAF 22 billion (US$44 million), higher by about 2.4 percent of GDP than in 2008. - Small financing gap of CFAF 2.8 billion (about US$5.6 million) expected to be filled by the third EPCA purchase (SDR 1.775 million or US$2.8 million). - Remainder could be filled by a fourth EPCA purchase or PRGF resources. - Authorities committed to avoiding new domestic arrears by reducing expenditures or finding additional revenues if shortfalls occur. - Domestic arrears and debt stock (Text Table 6, end-2008): - Arrears on wages and goods and services: CFAF 55.6 billion; 27.1% of GDP - Of which: arrears accumulated in 2008: 10.7; 5.2% of GDP - Other domestic debt: 29.7; 14.4% of GDP - Treasury bills: 7.2; 3.5% of GDP - Short-term commercial debt: 7.2; 3.5% of GDP - Owed to the BCEAO: 15.2; 7.4% of GDP - Total: 85.3; 41.5% of GDP - Payments already made in 2009: CFAF 2 billion in 2008 wage arrears to teachers in Q1 2009. - Authorities agreed to avoid any further payment of arrears for the rest of 2009 until resources are available and intend to reschedule current debt service owed to the BCEAO (CFAF 1.9 billion). - Authorities seek donor assistance to prepare a medium-term action plan to clear domestic arrears, starting with finalizing the external audit of domestic arrears from 2000–07. - If donor grants in 2009 exceed fiscal gap needs, priority will be given to repaying commercial debts, wage arrears, other audited domestic arrears, and increasing priority social sector spending in consultation with the Fund. - Fiscal situation expected to improve over the medium term as revenues recover (though not to 2008 levels) and expenditures decline as a share of GDP, enabling gradual repayment of domestic arrears with continued donor support. ### Structural Reforms - Authorities agreed to revenue and expenditure measures to improve administrative capacity and strengthen fiscal performance (MEFP ¶ 17–19). - Commitments and measures: - Agree on a medium-term action plan for public financial management (PFM), in consultation with the World Bank and the EU, drawing on the EU-financed PEFA study. - Strengthen customs administration by fully implementing ASYCUDA++ and improving control of territorial waters; Ministry of Finance to offer better incentives to patrol agents to apprehend illegal fishing boats. - Interim measure: retain a preshipment inspection agency pending longer-term customs strengthening. - Enact a new investment code to eliminate exemptions for investment projects and replace them with tax credits; new investment code approved by the Council of Ministers, awaiting the signature of the elected president. - Update the PRSP in preparation for possible PRGF discussions later in 2009. ### Debt Sustainability - Guinea-Bissau remains in a situation of debt distress. - End-2008 external debt: US$1.04 billion, 246 percent of GDP in nominal terms (316 percent in NPV terms), of which US$382 million were arrears. - External debt ratios are well above country-specific indicative sustainable thresholds even after assuming full HIPC and MDRI relief. - Domestic debt also unsustainable. - Background on HIPC: - Reached HIPC decision point in 2000 with creditors pledging 85 percent cancellation in NPV terms. - Interim relief from the Fund and Paris Club stopped after 2001 when program went off track. - AfDB and IDA provided interim relief, recently extended to 2011. - Since 2001 Guinea-Bissau has not repaid creditors that did not provide interim relief except the IMF. - Reaching HIPC completion point and receiving debt relief would significantly reduce debt but country would remain at high risk of external debt distress even after HIPC and MDRI; additional donor support needed to reduce domestic debt. - Authorities moving toward satisfying remaining requirements for HIPC completion point; remaining requirement is establishing a satisfactory PRGF track record. - Reaching completion point targeted for 2010, before World Bank and AfDB interim relief expire. ### Program Monitoring, Access, and Capacity to Repay - Fiscal framework underlying EPCA covers calendar 2009 to demonstrate a track record of credible policies to restore fiscal control and avoid domestic arrears. - MEFP contains quantitative indicators through December 2009 and a few structural indicators critical for fiscal sustainability (MEFP Tables 1 and 2); prior actions have been met. - Definitions, adjusters, and data transmission requirements described in the Technical Memorandum of Understanding (Appendix II, Attachment II). - Guinea-Bissau has sizable arrears to sovereign and multilateral creditors, and external arrears are expected to accumulate further during the EPCA-supported program. - Authorities have informed Paris Club and non-Paris Club creditors of difficulties in servicing external debt and are taking steps to reschedule arrears with multilateral creditors. - Given these actions and commitments from other donors, staff considers financing for the 2009 program—which includes a continued build up of external arrears—to be adequate, allowing the authorities to request EPCA. *Source: _cr09236 - 2009.* ### 28. The proposed third EPCA purchase is for SDR 1.775 million, equivalent to ### _cr09236 - 28. The proposed third EPCA purchase is for SDR 1.775 million, equivalent to ### EPCA purchase and quota impact - Proposed third EPCA purchase: SDR 1.775 million, equivalent to 12.5 percent of quota. - Total EPCA purchases after proposed third purchase: SDR 5.325 million (37.5 percent of quota). - Potential subsidy: Guinea-Bissau could receive subsidies to lower the annual basic charge on the EPCA purchase to 0.5 percent if resources are available. - Effect on credit outstanding to the Fund: would increase from 42.9 percent of quota in 2008 to 44.6 percent of quota in 2009 (Table 6). ### Risks to the program - Major risks identified: - Delays in donor disbursements, exacerbated by the global financial turmoil and possible reduced aid flows to developing countries. - Political instability, particularly around the time of the presidential election, which could delay implementation of the 2009 program and jeopardize donor support. - Consequences of absent donor support: - Further wage arrears, potentially reigniting social instability. - Delays in reforms crucial to fiscal sustainability and economic growth (examples given: civil service, security, and energy sector reforms). - Mitigating rule: The limit on access to EPCA incorporates risk to Fund resources; any further purchases would be subject to an updated risk assessment. ### Fund exposure and repayment environment - Assessment: Little risk to the Fund from EPCA disbursements to Guinea-Bissau. - Rationale: - The government is current on its Fund obligations. - The BCEAO has an exemplary record of honoring debt service to the Fund on behalf of WAEMU members, even without reimbursement by the member country. ### Technical assistance and donor support - The 2009 EPCA program will continue to be supported by technical assistance (Table 7). - IMF support will include technical assistance from West AFRITAC and AFRISTAT to: - Firm up budget management and tax collection. - Improve economic statistics. - World Bank support: grant from the State and Peace-Building Fund (SPF), including financing for a long-term resident fiscal advisor. - Other donors (including the EU and bilaterals) are providing technical assistance to government revenue and expenditure departments. ### Staff appraisal: fiscal situation, policy priorities, and recommendations - Current situation: - Guinea-Bissau faces an extremely difficult fiscal and economic situation. - Important fiscal management reforms were implemented during the 2008 EPCA-supported program. - Global pressures and continued political instability resulted in a weaker than expected fiscal situation and the accumulation of large amounts of domestic arrears. - Global economic developments (especially lower export demand and prices) are expected to significantly slow growth and put pressure on the balance of payments and an already tight fiscal situation. - Political context: - The peaceful transition to the presidential election is an encouraging sign of stabilizing political and security conditions. - Program ownership and the direction of economic policy are expected to continue intact following the elections. - The elected president does not play a direct role in economic policy, and the composition of the current government is not expected to change. - Key policy imperatives and recommendations: - Strict implementation of the 2009 EPCA-supported program is critical. - Authorities should keep 2009 expenditures within available resources and avoid domestic arrears. - Resist pressures for additional spending related to the coming presidential election. - Avoid any further payment of 2008 wage arrears and outstanding commercial bank debt until additional resources are found. - Make a strong effort to resolve the large overhang of domestic arrears. - Urgently seek donor assistance to prepare a medium-term action plan to clear domestic arrears consistent with a sustainable and financed medium-term budget framework. - Timely disbursement of external concessional budgetary assistance is critical to avoid new domestic arrears. - Continue to seek additional donor assistance on highly concessional terms, preferably grants, particularly given global uncertainties. - Eligibility note: Guinea-Bissau continues to meet the requirements for Fund EPCA; help in meeting current external payments is urgently needed given pressures from the global economic slowdown. - Overall judgment: Despite difficult circumstances, the country’s progress during 2008 demonstrates capacity to implement the program, and concerted donor support continues. *Source: Excerpt from the IMF staff report contained in the provided content.* ### 36. The authorities are determined to establish the track record necessary for a ### 36. The authorities are determined to establish the track record necessary for a PRGF-supported program and for reaching the HIPC Initiative completion point. ### Program support, staff recommendation, and policy actions - Authorities need to prepare a medium-term policy framework by updating the PRSP and gaining domestic consensus. - Development needs: - A PFM Action Plan. - A medium-term expenditure framework, including a strategy for arrears clearance. - Risk: Delay in moving to a PRGF arrangement could jeopardize continued donor support, reaching the HIPC completion point, and external debt relief. - IMF staff view: - Recognize that a third EPCA purchase could improve policy performance, absorb recent heightened balance of payments strains, and catalyze more international support. - Staff recommends approval of the authorities’ request for the purchase. - Based on improved policy performance, staff would consider initiating discussions for a new PRGF arrangement later this year. ### Key macroeconomic projections and indicators (selected) - Real GDP at market prices: 2.7, 3.3, 3.3, 1.9, 3.2, 3.7 - Real GDP per capita: -0.3, 0.3, 0.4, -1.0, 0.2, 0.8 - GDP deflator: 7.4, 5.8, 8.8, 1.3, 2.1, 1.9 - Consumer price index (annual average): 4.6, 6.3, 10.4, 3.6, 2.5, 2.8 - Consumer price index (end of period): 9.3, 3.5, 8.7, 2.1, 2.9, 2.7 - Exports, f.o.b. (US$ values): 31.3, 49.8, 32.5, -21.6, -3.5, 13.4 - Imports, f.o.b. (US$ values): -6.2, 51.3, 49.4, -14.0, -0.7, 7.4 - Export volume: -7.6, 17.2, -0.5, 9.3, 8.6, 13.4 - Import volume: -15.5, 7.0, 13.3, 12.9, -6.0, 3.1 - Terms of trade (deterioration = -): 30.9, 10.8, 1.2, -4.4, -16.8, -4.2 - Real effective exchange rate (depreciation = -): 3.1, ..., 7.0, 3.3, 1.7, 1.6 - Nominal exchange rate (CFAF per US$; average): 478.6, 478.6, 478.6, 445.7, 498.9, 496.2 ### Public finances and fiscal projections (selected) - Domestic revenue (excluding grants): -15.4, 41.3, 30.0, -13.6, 11.6, 8.8 - Total expenditure: 14.6, 7.7, 8.2, 51.1, 0.0, 3.5 - Current expenditure: 10.4, 3.7, 6.4, -1.3, 0.7, 5.0 - Capital expenditure: 24.1, 15.4, 12.0, 151.5, -0.4, 2.4 - Gross investment: 24.3, 15.3, 24.8, 43.1, 41.1, 40.3 - Of which government investment: 12.8, 13.5, 12.0, 31.9, 29.9, 28.7 - Gross domestic savings: -9.5, -5.6, -8.0, 8.2, 8.9, 11.3 - Of which government savings: -31.6, -12.6, -21.7, -24.2, -20.8, -2.0 - Gross national savings: 16.5, 20.9, 8.9, 27.4, 26.6, 25.9 - Budgetary revenue (percent of GDP): 14.6, 20.0, 16.8, 14.1, 14.9, 15.4 - Total domestic primary expenditure (percent of GDP): 25.0, 24.7, 22.7, 22.4, 22.5, 22.7 - Domestic primary balance: -10.4, -4.7, -5.9, -8.3, -7.6, -7.3 - Overall balance (commitment basis), including grants: -10.9, 0.6, -7.0, -3.3, -2.1, -1.7 - Overall balance (commitment basis), excluding grants: -25.7, -20.9, -22.0, -42.7, -39.0, -37.4 ### External sector and debt metrics (selected) - External current account (including official current transfers): 9.4, 4.5, -3.1, -2.8, -3.1, -1.7 - Excluding official transfers: -9.3, -17.8, -14.9, -16.2, -14.8, -13.4 - Excluding official transfers (other than fishing licenses): -9.3, -11.7, -11.1, -13.1, -13.5, -12.1 - Net present value of external debt/exports of goods and nonfactor services (percent): 682.5, 428.4, 483.4, 385.3, 351.0, 321.0 - Nominal stock of external debt, including arrears: 254.2, 325.0, 245.9, 247.6, 94.3, 85.9 - Nominal GDP at market prices (CFAF billions): 182.8, 187.9, 205.6, 212.2, 223.6, 236.3 - Nominal stock of external arrears, end of period: 353.5, 329.0, 382.8, 402.1, 0.0, 0.0 - Current account balance (US$ millions, including official transfers): 35.8, 17.1, -14.5, -11.8, -14.0, -8.2 - Overall balance of payments (US$ millions): 4.8, -38.4, -17.0, -31.4, -710.4, -10.1 ### Balance of payments (selected percent of GDP items) - Goods and services: -30.4, -41.1, -46.7, -46.6, -46.2 - Exports, f.o.b: 35.1, 43.4, 38.0, 36.5, 41.3 - Of which: cashew nuts: 34.6, 41.8, 35.9, 34.1, 35.5 - Imports, f.o.b: -48.8, -67.9, -65.4, -64.6, -69.1 - Of which: food products: -15.5, -21.7, -17.9, -18.7, -19.6 - petroleum products: -11.0, -16.7, -10.2, -11.1, -12.9 - Current transfers (net): 52.6, 40.7, 45.9, 44.9, 47.5 - Official: 34.1, 24.3, 28.5, 26.2, 27.5 - Of which: balance of payments support grants: 17.0, 16.4, 22.0, 23.2, 24.5 - Private: 18.5, 16.4, 17.4, 18.7, 20.0 - Of which: remittances: 15.8, 14.8, 13.7, 14.1, 14.6 - license fees: 2.5, 1.4, 3.4, 4.4, 5.1 - Current account including official transfers (percent of GDP): 15.8, 17.1, -6.4, -5.9, -7.0, -4.1 - Excluding official transfers (percent of GDP): -16.9, -30.7, -34.4, -33.2, -31.6 ### Monetary developments (selected, CFAF billions) - Total assets: 69.2, 83.6, 92.5 - Net foreign assets: 51.5, 61.0, 63.2 - Central bank: 44.4, 53.0, 55.0 - Deposit money banks: 7.1, 8.0, 8.1 - Net domestic assets: 17.8, 22.5, 29.3 - Net domestic credit: 22.0, 28.4, 25.0 - Net claims on government: 11.5, 15.8, 10.3 - Broad money: 69.2, 83.6, 90.6 - Currency in circulation: 43.8, 54.1, 57.3 - Demand deposits and quasi-money: 25.4, 29.5, 33.3 - Demand deposits: 20.6, 24.0, 27.1 - Quasi-money: 4.8, 5.5, 6.2 - Broad money (annual change as percent of beginning-of-period money stock): 25.5, 20.7, 20.7, 8.5, ... ### Central government operations (CFAF billions and percent of GDP highlights) - Revenue and grants (CFAF billions): 53.8, 78.1, 65.3, 113.5, 115.9, 120.8 - Revenue: 26.6, 37.6, 34.6, 29.9, 33.4, 36.3 - Tax revenue: 18.8, 20.8, 20.9, 19.9, 20.2, 21.7 - Nontax revenue: 7.8, 16.9, 13.7, 10.9, 13.1, 14.6 - Grants: 27.2, 40.5, 30.8, 83.6, 82.5, 84.5 - Budget support: 17.0, 26.1, 16.4, 22.0, 23.2, 24.5 - Project grants: 10.1, 14.4, 14.4, 61.6, 59.3, 60.0 - Total expenditure (CFAF billions): 73.7, 76.9, 79.7, 120.4, 120.5, 124.7 - Current expenditure: 49.3, 49.1, 52.4, 51.7, 52.1, 54.7 - Wages and salaries: 21.9, 21.3, 22.3, 22.0, 22.8, 23.4 - Scheduled interest: 5.8, 4.8, 7.3, 6.2, 5.6, 5.7 - Capital expenditure and net lending: 24.4, 27.8, 27.3, 68.8, 68.4, 70.1 - Public investment program: 23.4, 24.7, 24.7, 67.7, 66.8, 67.9 - Overall balance, including grants (commitment): -19.9, 1.2, -14.4, -7.0, -4.7, -4.0 - Domestic primary balance: -19.1, -8.8, -12.1, -17.7, -17.0, -17.3 - Financing and gaps: - Gross financing gap (+ = financing needs): -12.7, 14.6, 0.0, 2.8, 7.9, 5.6 - Residual financing gap: -12.7, 0.0, 0.0, 2.8, 7.9, 5.6 ### HIPC completion point triggers — progress summary - Poverty Reduction Strategy Paper (PRSP/DENARP): - DENARP finalized in 2006 covering 2006-2008; prepared participatorily; issued to Fund and Bank Executive Boards in April 2007 and discussed by Bank Board on May 10, 2007. - PRSP is being implemented. The first annual progress report of the PRSP is expected in 2009. - Macroeconomic stability: - PRGF–supported program adopted in early 2000 went off track by end-2000. - Two staff-monitored programs in 2005 and 2006 with mixed results. - EPCA-supported program for 2008 approved by IMF Board in January 2008. - Fiscal performance under 2008 EPCA was mixed; a new government in early 2009 requested a third EPCA purchase to support the 2009 program. - Satisfactory 2008 EPCA performance could pave way for PRGF arrangement later in 2009. - Governance and PFM: - Comprehensive budget execution reports produced in 2002 but abandoned in 2003. - An independent treasury committee established to monitor cash flow management. - Two SIGFIP modules (budget preparation and budget execution) installed at Ministry of Finance’s budget department; budget managers and accountants trained; pilot tests ongoing. - Monthly budget execution reports to be produced during the 2009 budget calendar. - Public procurement action plan implemented in five ministries and extended to Defense; efforts to extend to four additional ministries through World Bank SPF grant. - External audit of 1997-99 budgets completed in 2003; findings not yet approved by Parliament or implemented by the executive. - Education sector: - Free primary education introduced in public schools in 2002; tuition and book fees eliminated. - Gross enrollment ratio increased from 53 percent in 1995 to 60 percent in 1999 and 102 percent in 2005; net enrollment rate in primary education is 45 percent. - Health sector: - 62 percent of children under one year were fully vaccinated by end-2007. - Malaria action plan adopted in 2002; survey end-2007: 81 percent of children under 5 and 72 percent of pregnant women slept under insecticide treated bed nets the previous night. - HIV/AIDS: - 87 percent of 15- to 24-year-olds indicated knowledge of HIV transmission (2006 survey). - Demobilization: - DRRP successfully completed in 2006; demobilized about 4,000 ex-combatants by September 2003; final phase reintegration completed in 2006 involving about 7,500 ex-combatants. ### Indicators of capacity to repay the Fund (selected) - Fund obligations based on existing credit (SDR millions) — Principal: 1.3, 1.0, 1.0, 0.9, 1.8, 0.9 - Charges and interest: 0.1, 0.1, 0.1, 0.1, 0.0, 0.0 - Total obligations based on existing and prospective credit (SDR millions): 1.4, 1.1, 1.1, 1.0, 2.3, 1.8 - Outstanding Fund credit (SDR millions): 6.1, 6.3, 5.3, 4.4, 2.2, 0.4 - Net use of Fund credit (SDR millions): 2.3, 0.8, -1.0, -0.9, -2.2, -1.8 - Disbursements: 3.6, 1.8, 0.0, 0.0, 0.0, 0.0 - Repayments and repurchases: 1.3, 1.0, 1.0, 0.9, 2.2, 1.8 - Memorandum items: - Nominal GDP (CFAF billions): 205.6, 212.2, 223.6, 236.3, 251.2, 267.4 - Exports of goods and services (CFAF billions): 43.4, 38.0, 36.5, 41.3, 37.7, 40.1 - Government revenue (CFAF billions): 34.6, 29.9, 33.4, 36.3, 39.1, 43.3 - NFA Central Bank (CFAF billions): 53.0, 55.0, 58.1, 61.8, 65.8, 70.0 - Notes: - Table assumptions include one EPCA purchase of 12.5 percent of quota (SDR 1.775 million) in 2009; values in 2010 and thereafter reflect assumed impact of HIPC debt relief. ### Ongoing technical assistance program (selected areas and providers) - Minister’s Cabinet: - Macrofiscal advisor (long term) — WB / SPF - Legal expert (short term) — WB / SPF - Communication expert (short term) — WB / SPF - Administrative and financial assistant (long term) — WB / SPF - Budget / Public financial management: - Expert public finance (long term) — WB / SPF / EU - IT support to budget (long term and short term) — WB / SPF / E.U - Expert computer systems — IMF/FAD (Public financial management) - Treasury: Advisor to the Treasurer — WB / SPF - Accounting system support — France - Tax and customs: - Expert on tax code (long term) — Portugal/IDB - Computerization of revenue accounting — (TA in place) - Advisor to Directorate of Large Enterprises (6 months) — West AFRITAC - Reform of the sales general tax into a value-added tax — WB / SPF - Customs advisors and ASYCUDA++ implementation support — IDB, EU/WB, AfDB, SPF - External debt and procurement: - Debt management — DRI/IDB/West-AFRITAC - Procurement expert — WB / SPF - Other: - Microfinance advisor — West-AFRITAC - Conjuncture/fiscal analysis advisor and national accounts advisor — IMF/AFRISTAT - Legend notes: - 1 Technical Assistance requested and under consideration. - 2 Technical Assistance in place. - 3 World Bank State and Peace-Building Fund (SPF). *Source: Guinea-Bissau authorities, BCEAO, World Bank updates, and IMF staff estimates and projections (extracted from the provided IMF document).* ### APPENDIX I ### APPENDIX I ### I. Introduction - Government appointed January 2009 intends to restore fiscal control in 2009 by using available resources to meet current-year expenditures and avoid new domestic arrears. - Government requests a third purchase of SDR 1.775 million (12.5 percent of quota) under the Fund’s Emergency Post-Conflict Assistance (EPCA) to support the January–December 2009 program. - Attached documents: Memorandum on Economic and Financial Policies (MEFP) and Technical Memorandum of Understanding (TMU). - Government will provide required information regularly and invites IMF staff to review performance quarterly based on quantitative and structural indicators (Tables 1 and 2 of the MEFP). ### II. Recent developments and performance under EPCA in 2008 - Macroeconomic outcomes: - Real GDP growth: 3.3 percent in 2008, from 2.7 percent in 2007. - 12-month consumer price inflation: 8.7 percent in December 2008; annual inflation averaged 10.4 percent in 2008, up from 4.6 percent in 2007. - External current account deficit (excluding official transfers): estimated 14.9 percent of GDP in 2008, from 9.3 percent of GDP in 2007. - Broad money growth: estimated annual rate of about 21 percent in 2008. - Fiscal performance: - Domestic primary deficit exceeded program target by CFAF 4 billion. - Total government revenues lower than expected by CFAF 2.5 billion; tax revenue shortfalls of CFAF 1.5 billion. - Four out of seven quantitative indicators (revenue, domestic primary balance, accumulation of domestic arrears and payment of previous years’ arrears) missed for end-December 2008. - Financing and arrears: - Pledged donor grants lower than expected by CFAF 10 billion (5 percent of GDP). - Payment of previous years’ arrears exceeded programmed levels by CFAF 2 billion. - Sizeable arrears accumulated: four months of government salaries (about 4 percent of GDP). - Outstanding Treasury bills held by regional financial institutions: CFAF 7.2 billion (4 percent of GDP) could not be repaid as planned. - Scheduled budgetary payments to the BCEAO were not made. - Structural benchmark implementation: - Most EPCA structural benchmarks met; some delays: - SIGASPE (payroll/personnel software) installation delayed pending regional partner agreement; now to be implemented by October 2009 with technical assistance from Portugal. - ASYCUDA++ upgrade delayed to end-October 2009 due to insufficient financial resources. - Remaining unmet benchmarks implemented with delay. - Early 2009 performance: - Preliminary Q1 2009: revenue and expenditure broadly as expected; strong revenues in January–February 2009 offset a sharp drop in customs revenues in March following assassinations; expenditures in line with program. ### III. Outlook, objectives, and policies for 2009 and the medium term - Macroeconomic outlook: - Export prices for cashew nuts expected almost 30 percent lower than last year, constraining real GDP growth. - Remittances (~8 percent of GDP) expected to be lower by more than 10 percent. - Real GDP growth for 2009 expected at 1–2 percent. - External current account expected to worsen; lower food and fuel prices expected to reduce inflation. - Fiscal outlook and targets: - Domestic primary deficit expected to be about 8 percent of GDP in 2009, from an estimated 6 percent in 2008. - Total revenues expected to decline by about 2.7 percent of GDP in 2009; tax revenues lower by 1.3 percent of GDP; nontax revenues lower by about 1.6 percent of GDP as EU fishing compensation returns to one annual disbursement. - Current primary expenditures expected to decline by about 0.5 percent of GDP in 2009 through a nominal freeze of current expenditures, including the wage bill. - Budget support identified for 2009: estimated CFAF 22 billion (US$44 million) from donors. - Small financing gap of CFAF 2.8 billion (about US$5.6 million) for 2009 expected to be filled by the third EPCA purchase (SDR 1.775 million or US$2.8 million); remainder could be filled by a fourth EPCA purchase later in the year or by PRGF resources. - Contingent on satisfactory performance under the 2009 EPCA-supported program, authorities may request a PRGF arrangement later in 2009 and not proceed with a fourth EPCA purchase. - Arrears strategy: - No resources in the 2009 budget to pay outstanding domestic debt, including wage arrears, commercial bank advances (CFAF 7.2 billion), treasury bills (CFAF 7.2 billion), and debt to the BCEAO (CFAF 15 billion). - No resources to pay debt service due to BCEAO in 2009 (CFAF 1.9 billion); to be rescheduled. - Authorities paid CFAF 2 billion in 2008 wage arrears to teachers in early 2009. - For the remainder of 2009, authorities will not make further payments of budgetary arrears unless additional resources are secured. - Authorities will prepare a medium-term action plan to clear outstanding domestic arrears and seek donor assistance to prepare the plan; arrears clearance to be part of a medium-term budget framework potentially supported by a PRGF. - External resource mobilization: - Donor Round Table Conference planned for later in 2009. - If donor grants exceed needs, priority will be given to repaying commercial debts, wage arrears, and audited domestic arrears, and increasing priority spending in social sectors, in consultation with the Fund. - Policy commitment: - Authorities will avoid introducing or intensifying exchange and trade restrictions in 2009 and beyond. ### IV. Structural reforms in 2009 - Revenue collection measures (timelines preserved): - Implement ASYCUDA++ by end-October 2009 with assistance from African Development Bank and Portugal. - Update taxpayer fiscal identification numbers using census data (finalized March 2009) by end-June 2009. - Begin auctioning goods in customs warehouses more than 3 months in June 2009 (WAEMU customs code compliance). - Reinforce control of the Exclusive Economic Zone (ZEE) effective immediately by offering better incentives to patrol agents. - Enact new investment code by end-September 2009 to replace tax exemptions with tax credits. - Strengthen collection of outstanding tax arrears (estimated at CFAF 5 billion) by offering incentives for discounted payment by a specified date. - Start preshipment inspection operations by end-September 2009 with a reputable international agency. - Expenditure control measures (timelines preserved): - Launch biometric survey of civil servants by end-May 2009; finalize by end-July 2009. - Approval by Council of Ministers of Action Plan for Public Financial Management by end-September 2009; preliminary draft completed by end-July 2009. - Implement unified payroll and personnel management by end-October 2009 with technical assistance and software from Portugal. - Secure donor assistance by end-June 2009 to finalize audit of domestic arrears from 2000–07. - Budget formulation and execution capacity building (timelines preserved): - Fully implement SIGFIP by end-August 2009; two modules (budget preparation and budget execution) already operational; accounting module to become operational with African Development Bank assistance. - Implement public debt management software (SIGADE) by end-June 2009 with African Development Bank assistance. - Research Department of Ministry of Finance to produce quarterly fiscal reports starting with 2009 budget (within 45 days of end of quarter) for IMF, donors, parliament, and civil society. - High-level steering committee (Ministries of Finance, Economy, and BCEAO) to monitor IMF program; meets at least once a month. - Starting with the 2010 budget, all government bodies receiving entitlements (restituições) must submit budgets to Council of Ministers and send quarterly budget execution reports to Ministry of Finance; State Budget to include consolidated budgets of these bodies as an attachment. ### V. Capacity building and technical assistance - Priority areas: Customs, Treasury, Tax and Budget Departments, National Statistics Institute, debt unit. - Technical assistance providers: IMF (including West AFRITAC and AFRISTAT), World Bank (with State and Peace-Building Fund), other partners. - Objective: strengthen public financial management, tax collection, and macroeconomic statistics to support fiscal reforms. ### VI. Program monitoring - Authorities will provide regular information as specified in the Technical Memorandum of Understanding. - IMF staff invited to quarterly reviews of program performance using quantitative and structural indicators. *Source: Memorandum on Economic and Financial Policies, Bissau, May 13, 2009.* ### 24. Progress with implementing the program outlined above will be monitored ### _cr09236 - 24. Progress with implementing the program outlined above will be monitored ### Quantitative indicators and quarterly targets (program monitoring basis) - Quantitative indicators (Tables 1 and 2): - (i) a floor on government revenue (tax and nontax) - (ii) a ceiling on the domestic primary deficit - (iii) a ceiling on domestic financing of the budget - (iv) no new domestic arrears - (v) a ceiling on payment of previous years’ arrears - (vi) ceilings on public sector short- and long-term nonconcessional external debt - Specific definitions and explanations are contained in the annexed Technical Memorandum of Understanding (TMU). - Purchases under the EPCA: - The third purchase covers the period January–June 2009, based on completion of a number of prior actions. - A fourth and final purchase, if necessary, would cover the period July–December 2009 based on performance through June 2009. ### Key quarterly numeric targets (cumulative from January 1, 2009; CFAF millions) - Government Revenues (floor) - End-Jun. Prog.: 17,313.4 - End-Sep. Prog.: 24,046.9 - End-Dec. Prog.: 29,886.7 - Tax revenues (direct, 01.00.00, and indirect, 02.00.00) - End-Jun. Prog.: 9,341.2 - End-Sep. Prog.: 14,682.9 - End-Dec. Prog.: 18,966.2 - Non-tax revenues - End-Jun. Prog.: 7,972.2 - End-Sep. Prog.: 9,364.1 - End-Dec. Prog.: 10,920.5 - Domestic primary fiscal balance (commitment basis) — cumulative - Total domestic primary deficit: - End-Jun. Prog.: -6,736 - End-Sep. Prog.: -11,820 - End-Dec. Prog.: -17,684 - Revenue (restate of above totals) - End-Jun. Prog.: 17,313 - End-Sep. Prog.: 24,047 - End-Dec. Prog.: 29,887 - Domestic primary expenditure - End-Jun. Prog.: 24,049 - End-Sep. Prog.: 35,867 - End-Dec. Prog.: 47,571 - New domestic arrears (ceiling, cumulative) - End-Jun. Prog.: 1,308 - End-Sep. Prog.: -1,201 - End-Dec. Prog.: 0 - Payment of previous years' arrears (ceiling, cumulative) - End-Jun. Prog.: 2,031 - End-Sep. Prog.: 2,031 - End-Dec. Prog.: 2,031 - Domestic financing of the budget (cumulative) - End-Jun. Prog.: -387 - End-Sep. Prog.: -1,518 - End-Dec. Prog.: -2,343 - Domestic financing by instrument (cumulative) - Domestic financing (Total) - End-Jun. Prog.: -387 - End-Sep. Prog.: -1,518 - End-Dec. Prog.: -2,343 - Bank financing (component, cumulative) - End-Jun. Prog.: -387 - End-Sep. Prog.: -1,518 - End-Dec. Prog.: -2,343 - BCEAO - End-Jun. Prog.: 1,166 - End-Sep. Prog.: 297 - End-Dec. Prog.: -471 - Commercial banks (including regional banks) - End-Jun. Prog.: -1,554 - End-Sep. Prog.: -1,815 - End-Dec. Prog.: -1,872 - Regional commercial banks and Treasury bills - End-Jun. Prog.: 0 - End-Sep. Prog.: 0 - End-Dec. Prog.: 0 - Non-bank financing - End-Jun. Prog.: 0 - End-Sep. Prog.: 0 - End-Dec. Prog.: 0 - Nonregularized expenditures (DNTs) - End-Jun. Prog.: 200 - End-Sep. Prog.: 200 - End-Dec. Prog.: 200 - External nonconcessional public borrowing, maturity > 1 year - End-Jun. Prog.: 0 - End-Sep. Prog.: 0 - End-Dec. Prog.: 0 ### Prior actions and structural indicators (timing and rationale) - Prior actions (already completed or required as prior conditions): - Approval by Cabinet of Ministers of the 2009 budget consistent with the fiscal framework presented in the MEFP for the 2009 EPCA-supported program — Done. - Macro rationale: The 2009 budget objective is to avoid new domestic arrears. - Firm assurances of donor grants to finance 2009 fiscal framework — Prior action. - Macro rationale: Budget support from donors is critical for budget finance and balance. - Structural indicators (timetable and rationale): - Launch biometric survey for civil servants — End-May 2009. - Rationale: Allows preparation of a strategy for civil servant reform and elimination of “ghost workers”. - Enact new investment code — End-Sep. 2009. - Rationale: Replaces tax exemptions with tax credits, in line with best practices. - Start operations of pre-shipment inspection with a reputable international firm — End-Sep. 2009. - Rationale: Interim measure to improve revenue collection pending development of stronger domestic customs capacity. - Approval by Council of Minister of PRSP progress report and update for 2010-12 — End-Sep. 2009. - Rationale: Requirement for a PRGF program envisaged for later 2009. - Fully implement ASYCUDA++ with financial assistance from African Development Bank and Portugal — End-Oct. 2009. - Rationale: Improve control on valuation of imports. - Approval by Council of Ministers of Action plan for public financial management (PFM) coordinated with World Bank, EU, and African Development Bank — End-Sep. 2009. - Rationale: Improvements on PFM critical for budget control and fiscal policy implementation. - Fully implement computer-based and unified payroll system with technical support from Portugal — End-Oct. 2009. - Rationale: Wage bill is main expenditure; unification and computerization will avoid duplication of payments. ### Technical Memorandum of Understanding (TMU): definitions, adjusters, and computation rules - Coverage and frequency: - Quantitative indicators set for end-June, end-September, and end-December 2009; values are cumulative from January 1, 2009. - Indicative targets for new nonconcessional external debt are continuous. - Government definition for EPCA purposes: - Central government of Guinea-Bissau; excludes public entities with autonomous legal personality whose budget is not included in the central government budget. - For external debt indicators, a broader government concept includes 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; and local governments. - Revenue and expenditure definitions: - Government revenue: direct taxes, indirect taxes, nontax revenues, recovery of tax arrears, and additional revenue efforts; excludes external grants. - 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 Ministry of Finance; automatic expenditure; and expenditure by means of offsetting operations. - New domestic arrears definition and timing: - End-June and end-September 2009: stock of accounts payables (rest-à-payer). - End-December 2009: accounts payable accumulated during 2009 and still outstanding one month after December 31 for wages and other personnel (including pensions) and three months after the end of the year for non-personnel expenditures. - Program allows partial payment of expenditure commitments related to 2008 up to a maximum of CFAF 2.31 billion. - Nonregistered expenditures (DNTs) definition: - Any Treasury outlay not accounted for and therefore not reflected in the expenditure tables presented by the National Direction of Budget (including nontitularized expenditures, restitutions, etc.). - External debt and concessionality: - Indicator applies to debt as defined in point No. 9 of the Guidelines on Performance Criteria with Respect To Foreign Debt (August 24, 2000) and to commitments contracted or guaranteed for which value has not been received. - Loan concessionality assessed using OECD CIRRs: - Loan concessional if grant element >= 50 percent (i.e., difference between NPV and nominal value, as percentage of nominal, is less than 50 percent). - For debt with maturity >= 15 years, use ten-year average CIRR for NPV; for maturity < 15 years, use six-month average CIRR; for shorter maturities, use six-month market reference rate. - Purchases from the IMF are excluded from this limit. - Adjusters (formulaic adjustments to ceilings/floors): - EU fishing compensation adjuster: - The ceiling on nontax revenues and domestic primary deficit (commitment basis) will be increased (lowered) for any shortfall (excess) in EU fishing compensation, by the full amount of the shortfall (excess). - Program assumes cumulative EU fishing compensation amounts from January 1, 2009: - by end-June CFAF 4.59 billion; - by end-September CFAF 4.59 billion; - by end-December CFAF 4.59 billion. - External budgetary assistance adjuster (including EU fishing compensation): - The ceiling on domestic financing will be increased (lowered) in case of shortfall (excess) in external budget support, by the full amount of the shortfall (excess). - Program assumes cumulative external budgetary assistance (including EU fishing compensation) from January 1, 2009: - by end-June CFAF 12.41 billion; - by end-September CFAF 22.73 billion; - by end-December CFAF 26.0 billion. - The ceiling on accumulation of new domestic arrears will be adjusted in line with available domestic financing of the budget; if the government cannot increase (decrease) domestic financing by the full amount of the shortfall (excess) in external support, the ceiling on new domestic arrears of nonpersonnel expenditures will be adjusted upward (downward) by that difference. - Exchange rates used in TMU calculations: - CFAF/US$ exchange rate: 426,6 - CFAF/Euro exchange rate: 656 ### Reporting and data submission requirements (periodicity and deadlines) - Ministry of Finance reporting to IMF staff (with indicated periodicity/deadlines): - Detailed reports on revenue and expenditure by budget line and completed summary table on central government operations (TOFE) — monthly, two weeks after the end of the month. - Data on any extrabudgetary expenditure not included above (including incentives to tax collectors; restitutions to collecting agencies; any other retentions operated by collecting agencies) — monthly, two weeks after the end of the month. - Tables on nonregularized expenditures (DNT) — monthly, two weeks after the end of the month. - Table on accounts payable broken down by budget category (wages, goods and services, transfers, other) — monthly, two weeks after the end of the month. - Previous years’ domestic arrears (including 2008): stock and clearance, broken down by budget category — monthly, two weeks after the end of the month. - The monetary survey, balance sheet of the central bank, and balance sheet of commercial banks — monthly, within six weeks after the end of the 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 the end of the month. - The amount and terms of new external debt (concessional or not) contracted or guaranteed by the government — within four weeks after the end of the month. - Monthly table on disbursements of budget support (grants and loans) by donors — two weeks after the end of the month. - Indicators to assess overall economic trends, such as the household consumer price index and exports of cashew nuts — immediately when such information becomes available. - Table with a description of the status of implementation of the structural indicators in Table 2 of the MEFP — within two weeks after the end of the month. - Information on any type of financial assistance received and not programmed — reported on a continuous basis. *Source: Technical Memorandum of Understanding and related tables in the MEFP for the 2009 EPCA program (Guinea-Bissau).* ### 14. The Ministry of Finance will provide the staff of the IMF with any other ### _cr09236 - 14. The Ministry of Finance will provide the staff of the IMF with any other ### Key findings and overall assessment - The 2009 debt sustainability analysis (DSA) indicates that Guinea-Bissau remains in debt distress. - External debt ratios have been roughly constant over the past few years, while domestic debt ratios have been deteriorating owing to the accumulation of new domestic arrears and increased borrowing from regional financial institutions. - Debt dynamics under the baseline scenario are projected to remain unfavorable, but to significantly improve should the country reach completion point, as expected in 2010, and receive HIPC and MDRI debt relief. ### Background: public and external debt stocks (end-2008) - Public and publicly guaranteed (PPG) external debt: US$1,040 million (246 percent of GDP). - External arrears: US$383 million. - External debt in end-2008 Present Value (PV) terms: US$788 million or 171 percent of GDP and 573 percent of exports. - Composition of end-2008 PPG external debt: - Bilateral debt: about 51 percent of total PPG external debt (37 percent owed to Paris Club creditors). - Multilateral debt: about 49 percent of total PPG external debt (28 percent owed to IDA, 14 percent to AfDB/AfDF, and 0.9 percent to the IMF). - Domestic debt at end-2008: CFAF 144 billion (70 percent of GDP); compared with CFAF 125 billion in 2006 and CFAF 91.1 billion in 2000. - Domestic arrears on wages, goods and services: CFAF 56 billion at end-2008 (includes CFAF 11 billion accumulated in 2008). - Outstanding WAEMU capital contribution remaining to be paid at end-2008: CFAF 58.8 billion (originally CFAF 70 billion agreed to be paid over 25 years starting in 2005). - Commercial debt outstanding to WAEMU banks: CFAF 14 billion. - Treasury bills outstanding since 2006: CFAF 7.2 billion. - Arrears owed to the central bank (BCEAO): CFAF 15 billion (including compensation for BCEAO repayments to the IMF). - Including domestic debt, PV of total public sector debt at end-2008: 256 percent of GDP and 807 percent of government revenue and grants. ### Historical context and HIPC status - Guinea-Bissau reached the decision point under the HIPC Initiative in 2000, but has not reached the completion point. - After the 2000 decision point the PRGF-supported program went off track; two Staff-Monitored Programs (SMP) followed in 2005 and 2006 with mixed progress. - The country agreed a new timeline in 2008 to re-engage with an IMF-supported program. The Fund approved two purchases under Emergency Post-Conflict Assistance (EPCA) in 2008; a third EPCA purchase was scheduled for Fund Board discussion in June 2009. - Satisfactory performance under a 2009 EPCA-supported program could permit initiation of discussions for a new PRGF arrangement in the second half of 2009; satisfactory performance under a PRGF would be a necessary condition for reaching the HIPC completion point in the first half of 2010. - At the 2000 decision point, expected HIPC relief was US$416 million in end-1999 PV terms (currently estimated at about US$579.9 million in nominal terms). An additional US$71 million in PV terms (currently estimated at about US$133.3 million in nominal terms) could come from an agreement with other bilateral creditors. - Since going off-track, the country has serviced a large share of external debt in full since 2001; the stock of external arrears increased from US$142 million in December 2000 to US$383 million at end-2008. - Interim debt relief: AfDB and IDA have been providing interim relief expected to continue until 2011; China and Cuba have cancelled all outstanding claims since 2000. ### Underlying macroeconomic assumptions (baseline DSA) - Growth projections average 4.2 percent over 2009 to 2028. - Key macro assumptions (2009–29): - Real GDP growth: drop from 3.3 percent in 2008 to 1.9 percent in 2009, then gradually recover to reach 4.5 percent from 2016 onward. - Inflation (GDP deflator): grow at a rate slightly below CPI inflation in the medium term; both GDP deflator and CPI projected to return to historical level of 2 percent over the long term. - Non-interest current account deficit (including grants): deteriorate from 0.2 percent of GDP in 2008 to about 7 percent by 2015; decline to under 3 percent of GDP by 2029 with real export volumes projected to grow around 4.5 percent per year over the longer term. - Domestic primary fiscal deficit (revenue excluding grants minus non-interest expenditure excluding foreign-financed investment projects): gradually decrease from 8.3 percent of GDP in 2009 to 5.3 percent from 2019 onwards. - Net aid flows (grants and concessional loans): expected to slightly increase in line with GDP. - Budget support grants projected at 10 percent of GDP per annum. - Project grants projected at nearly 27 percent of GDP during 2009–11, decreasing to 19 percent of GDP in 2017. - No nonconcessional borrowing assumed; all borrowing assumed to be from multilateral sources with grant element in new disbursements above 50 percent; concessional loans on standard terms. - Access to public sector domestic borrowing expected to remain difficult; regional banking sector debts assumed rescheduled in 2009 and repaid by end-2028; annual WAEMU capital contributions assumed fully made from 2010 until arrears are paid; domestic arrears to commercial banks projected fully rescheduled in 2010 and repaid by 2029 using concessional loans. ### External DSA — Baseline (No Debt Relief) - Baseline presumes HIPC completion point is not attained; real GDP growth converges to about 4.5 percent per annum. - Under the baseline, all PPG external debt indicator ratios decline from historical levels but remain well above policy-dependent debt burden thresholds. - Downward trends are mainly driven by assumption that Guinea-Bissau takes only highly concessional loans to finance fiscal gaps. - Selected baseline indicator values from Text Table 1 (as presented): - Indicative Thresholds and selected averages (as shown in Text Table 1): - PV of debt-to-GDP: 30 | 1996 | 12976 | 13 4 (table formatting in source); (text preserved as in source) - PV of debt-to-exports: 100 | 6665 | 14288 | 489 (table formatting in source) - PV of debt-to-revenue: 200 | 13 887 | 214108 | 40 (table formatting in source) - Debt service-to-exports: 152 819 | 1420 (table formatting in source) - Debt service-to-revenue: 255 726 | 2035 (table formatting in source) - Note: Table entries preserved verbatim from the source text; refer to Tables 1a, 1b and Figure 1a in the source for full detail. ### Alternative scenario: HIPC completion (Scenario A3) - If Guinea-Bissau reaches the HIPC completion point in the first half of 2010, debt burden would be significantly alleviated though many indicators would remain high. - Scenario A3 assumes total debt relief — including HIPC, MDRI and additional rescheduling of arrears — of US$620 million in end-2010 PV terms. - MDRI alone amounts to almost US$100 million in end-2010 PV terms. - Under this scenario: - NPV of external debt to GDP falls significantly due to clearance of external arrears and lower debt service (debt service down by about 5 percent of GDP per year). - Even in the long run, PV of debt remains above relevant indicative thresholds (except PV of debt-to-revenue in 2029); only debt service is expected to decline to below-threshold levels. ### Stress tests and vulnerabilities - Standard stress tests confirm vulnerabilities to unexpected shocks. - A one-time 30 percent depreciation in the nominal exchange rate (Scenario B6) would increase the PV of debt by 77 percentage points of GDP in 2010 relative to the baseline. - A one-standard deviation negative export shock (Scenario B2) would have a large impact on PV debt/exports and debt service/export ratios. - Nominal exchange rate depreciation is the most extreme shock in terms of PV/GDP, debt/revenue, and debt service/revenue. Other stress tests (B1 and B3–B5) confirm vulnerabilities from different angles. *Prepared by the Staffs of the International Monetary Fund and the International Development Association; Approved by Roger Nord and Anthony Boote (IMF) and Carlos Braga and Sudhir Shetty (World Bank); May 20, 2009.* ### 11. The baseline scenario, adapted from the same assumptions and consistent with ### 11. The baseline scenario, adapted from the same assumptions and consistent with ### Short-term and long-run debt dynamics (Baseline) - Baseline scenario shows a deterioration of domestic debt indicators in the short term (Table 2a, 2b and Figure 2a). - Over the long run, total public debt (domestic and external) as a percent of GDP decreases, similar to the behavior of external debt described in the previous section. - Despite a long run downward trend, the PV of total public debt to GDP ratio remains very high, indicating a highly vulnerable debt position. - Vulnerabilities highlighted: - Any deterioration in the underlying fiscal stance could further deteriorate the situation. - Limited access to concessional loans could further deteriorate the situation. - Shocks to the economy are likely to significantly increase the debt burden. ### Alternative scenarios and their effects - Scenario A4: HIPC completion point attained in 2010 with corresponding external debt relief fully delivered. - The PV of debt would fall to 108 percent of GDP in 2010. - This amounts to a debt reduction of nearly 150 percentage points of GDP in PV terms with respect to the baseline scenario. - Despite this reduction, the PV of public debt to GDP would still remain at high levels. - Scenario A3: GDP growth remains permanently below the baseline level. - The PV of debt-to-GDP ratio stays well above 150 percent through 2019, although it moderates thereafter. - Scenario A2: Primary balance persists at its 2009 level. - The PV of debt-to-GDP ratio stays well above 150 percent through 2019, although it moderates thereafter. - Debt service implications under A2 and A3: - Debt service remains high at over 10 percent of revenues despite the assumption of highly concessional loans to finance the fiscal gaps. ### Standard stress tests (Baseline sensitivity) - Scenario B1: Negative GDP shock. - Shock specification: assuming negative growth of 3.9 percent for two years (2010-11). - Impact: translates into a 27 percentage point difference in PV of debt-to-GDP with respect to the baseline in 2011. - PV of debt-to-GDP and debt service-to-revenue ratios are most affected. - Scenario B4: One-time exchange rate depreciation. - Shock specification: one-time 30 percent depreciation in the exchange rate. - Impact: adverse effect on the PV of debt-to-fiscal revenues ratio. - Quantified impact: translates into a 141 percentage point increase in the PV of debt-to revenues ratio in 2011 compared with the baseline. ### Conclusion: sustainability and risk assessment - Guinea-Bissau remains in debt distress. - External debt burden ratios are well above the country-specific indicative thresholds during the complete projection period, even after assuming full delivery of MDRI and HIPC Initiative debt relief. - The public DSA suggests that Guinea-Bissau’s overall public sector debt dynamics are unsustainable in light of the current size and the evolution of the domestic debt stock. - The risk rating therefore remains unchanged with respect to the previous DSA. *Source: IMF staff analysis as presented in the chapter "11. The baseline scenario, adapted from the same assumptions and consistent with" of the referenced DSA.* ### 16. Prudent macro policies, especially under the 2009 EPCA-supported program ### 16. Prudent macro policies, especially under the 2009 EPCA-supported program ### Summary and policy recommendations - Prudent macro policies under the 2009 EPCA-supported program and a potential new PRGF are critical to reach the HIPC completion point and reduce debt ratios. - The debt strategy should focus on: - strengthening the fiscal stance; - avoiding nonconcessional debt; - securing foreign aid on highly concessional terms and increasing the grant content of aid received; - providing a stable political and business environment to attract investment and stabilize external aid inflows. - Fiscal measures to reduce the current fiscal imbalance sustainably: - contain the wage bill; - avoid off-budget expenditures; - avoid new domestic arrears by keeping current spending strictly within available domestic and external resources; - clear the stock of domestic arrears based on a thorough external audit and availability of additional concessional external assistance. - Structural and administrative measures under the 2009 program include a medium-term action plan for public financial management, strengthening customs administration, and control of territorial waters. - Strong engagement of the international community is essential; donor assistance should be on highly concessional terms, preferably grants. - Satisfactory performance under the EPCA-supported program could pave the way for a PRGF arrangement and eventual debt relief under the HIPC Initiative and the MDRI. ### External debt and arrears (selected figures, 2000–08) - Total external debt outstanding (end of year; including arrears) for 2000–2008: - 2000: 787.9 - 2001: 801.0 - 2002: 941.4 - 2003: 1,013.5 - 2004: 1,023.5 - 2005: 1,029.0 - 2006: 1,024.6 - 2007: 1,031.4 - 2008: 1,040.3 - Multilateral creditors (2000–2008, selected totals): - 2000: 435.3 - 2004: 514.9 - 2008: 504.7 - Bilateral creditors (2000–2008, selected totals): - 2000: 352.0 - 2008: 534.7 - Total stock of arrears outstanding (end of year) selected series: - 1992: 189.3 - 2000: 141.7 - 2004: 224.5 - 2006: 322.2 - 2007: 330.7 - 2008: 353.5 - Sources for tables: Guinea-Bissau authorities; IMF and staff estimates and projections. (Estimates based on incomplete and unreconciled data provided by the Guinea-Bissau authorities and on IMF and WB staff estimates and projections.) ### Debt sustainability projections and sensitivity (selected results, 2006–2029) - PV of external (PPG) debt (selected projection series): - 2009 onward (selected): 170.9, 195.5, 186.7, 179.7, 171.6, 163.8, 157.8, 129.3, 76.2 - PV of debt-to-exports ratio (selected projection series): - 2009 onward (selected): 573.2, 666.2, 710.3, 655.8, 690.1, 659.4, 636.3, 513.7, 287.7 - PV of debt-to-revenue ratio (selected projection series): - 2009 onward (selected): 1015.4, 1388.4, 1251.3, 1170.3, 1101.7, 1011.1, 955.7, 721.1, 409.9 - Debt service-to-exports ratio (in percent) (selected years): - 2006: 41.3 - 2007: 36.9 - 2008: 32.3 - Projection decline toward: 14.0 (later projection) - Total gross financing need (Millions of U.S. dollars) (selected years): - 2006: 32.9 - 2007: -25.7 - 2008: 35.2 - projection example: 33.4 - Alternative scenario A3 (HIPC completion point attained in 2010) results (selected indicators in projection tables): - PV of debt-to-GDP ratio in 2019 and 2029: 99, 37 (table entries under A3 show sharp reductions consistent with debt relief) - PV of debt-to-exports ratio and PV of debt-to-revenue ratio show substantial declines under A3 compared with baseline. ### Public sector debt dynamics and key fiscal/macro assumptions (selected figures) - Public sector debt (gross) (selected series): - 2006: 382.2 - 2007: 326.1 - 2008: 316.0 - Projection sample: 328.3, 317.6, 304.6, 290.0, 276.2, 266.8, 297.2, 221.2, 132.4 - Composition (2006–2008): - o/w domestic (2006–2008): 75.5, 71.9, 70.1 - o/w external (2006–2008): 306.7, 254.2, 245.9 - Identified debt-creating flows (selected years): - Change in public sector debt (2006–2008): -45.3, -56.1, -10.1 - Primary deficit (selected): 6.4, 7.7, 3.8 - Other sustainability indicators: - PV of public sector debt (selected projection): 256.4, 258.4, 249.2, 236.5, 222.9, 210.2, 200.6, 158.2, 90.3 - Gross financing need (selected years): 41.8, 52.1, 48.2, 49.7, 40.8, 42.8, 41.2, 38.1, 36.2, 28.4, 18.0 - Key macroeconomic assumptions (selected): - Real GDP growth (in percent) series (selected entries): 0.6, 2.7, 3.3, 2.3, 3.9, 1.9, 3.2, 3.7, 4.2, 4.4, 4.3, 3.6, 4.5, 4.5, 4.5 - GDP deflator in US dollar terms (change in percent) (selected series): 4.4, 17.2, 16.8, 5.7, 9.6, -9.5, 2.7, 2.3, 2.5, 2.5, 2.0, 0.4, 2.0, 2.0, 2.0 - Effective interest rate (percent) (selected): 0.5, 1.1, 1.3, 1.1, 0.3, 1.0, 0.7, 0.7, 0.7, 0.7, 0.7, 0.8, 0.7, 0.6, 0.7 - Grant element of new public sector borrowing (in percent) (selected projections): 57.6, 55.7, 56.7, 58.0, 59.5, 59.5, 57.8, 59.5, 59.5, 59.5 - Aid flows (in Millions of US dollars) (selected series): - 2006: 53.4 - 2007: 81.1 - 2008: 94.4 - projections and later: 177.7, 176.8, 181.9, 184.0, 192.6, 198.5, 252.1, 447.5 - o/w Grants (selected): 36.7, 56.8, 68.9, 167.5, 166.3, 170.9, 172.4, 180.4, 185.8, 236.4, 447.5 - o/w Concessional loans (selected): 16.8, 24.3, 25.5, 10.2, 10.6, 11.0, 11.5, 12.1, 12.6, 15.7, 0.0 - Grant-equivalent financing (in percent of external financing) (selected): 85.1, 90.5, 88.6, 89.3, 89.7, 89.1, 90.3, 97.2, 92.1 ### IMF decision and public statements (June 19, 2009) - IMF Executive Board approved a purchase in an amount equivalent to SDR 1.775 million (about US$ 2.737 million) under the Emergency Post-Conflict Assistance (EPCA). This was the third purchase under EPCA for Guinea-Bissau. - EPCA support aims to strengthen administrative and institutional capacity, stabilize public finances, and support fiscal management reforms. - IMF Deputy Managing Director and Acting Chair Murilo Portugal emphasized: - global economic developments (lower demand and prices for exports) are expected to slow growth and tighten external and fiscal positions; - the 2009 program must avoid new domestic arrears and clear existing domestic arrears with external audit and concessional assistance; - fiscal reform pace needs to accelerate to build capacity and improve confidence; - donor assistance should be highly concessional, preferably grants; - satisfactory EPCA performance could lead to a PRGF arrangement and eventual HIPC/MDRI debt relief. - Statement by Laurean Rutayisire, Executive Director for Guinea-Bissau, dated June 19, 2009, is included in the record. *Source: IMF staff report — 16. Prudent macro policies, especially under the 2009 EPCA-supported program* ### 1. My Guinean authorities are grateful for the valuable assistance that the Fund has ### 1. My Guinean authorities are grateful for the valuable assistance that the Fund has ### Opening remarks - Authorities express gratitude to the Fund, Board, Management and staff for continued support of their policy and reform agenda. - Recent political shocks: assassinations of the president and the army chief of staff in early March 2009 created brief economic uncertainty and weakened business confidence; subsequent adherence to constitutional procedures and the election of a new president helped overcome this uncertainty. - Authorities are determined to manage risks associated with the presidential elections scheduled to take place on June 28. - Guinea-Bissau faces additional challenges from the global economic crisis via a decline in revenues, remittances and aid flows. - New government has strengthened fiscal management through stricter expenditure control and more efficient tax and customs administration. ### Recent Economic Developments and Performance Under the EPCA-Supported Program - Macro developments: - GDP increased in 2008 from its 2007 level, boosted by higher agricultural output. - Average consumer inflation reached double-digit levels in 2008 at the onset of the food and oil price shocks and is projected to decline sharply in 2009. - The country’s external position deteriorated, although the current account deficit was lower than projected under the 2008 EPCA-supported program. - Structural-reform implementation (bulk implemented, some with delay): - Established a legal framework for budget classification consistent with WAEMU regional regulations. - Launched the financial audit of domestic arrears. - Partial collection of tax arrears. - Implemented an integrated management system for public accounts. - Regularized unaccounted expenditures for end-2007 and end-April 2008. - Two measures delayed but expected by end-October 2009 with assistance from the African Development Bank and Portugal: - Upgrading of the automated system for customs administration (ASYCUDA++). - Installation of a computer-based and unified payroll system. ### Economic Outlook and Policy and Reform Agenda for 2009 - Outlook and risks: - Reflecting the anticipated fall in export prices of cashew nut, real GDP growth is expected to be lower in 2009. - The external current account deficit is projected to further increase in 2009. - The fiscal position is expected to deteriorate owing notably to the adverse impact of the global economic downturn on tax revenues. - Consumer inflation is projected to follow its declining trend driven by lower food and energy prices, thereby dropping below 3 percent this year. - Fiscal program priorities and revenue measures: - Fiscal program focuses on stabilizing public finances and avoiding accumulation of new arrears. - The 2009 budget recently approved by Parliament reflects the fiscal framework of the EPCA-supported program. - Authorities committed to broadening the tax base and improving tax and customs administration. - Specific revenue and compliance measures identified: - Implementation of ASYCUDA++. - Update of taxpayer fiscal identification numbers. - Compliance with regional customs regulations about goods left in customs warehouses for more than three months. - Incentive-based approach to collecting outstanding tax arrears. - Pre-shipment inspections to collect customs duties. - Replacement of tax exemptions with tax credits. - Expenditure management measures: - Steps to improve expenditure management, including containing current primary expenditures, particularly the wage bill and discretionary spending. - Plan to finalize a survey of civil servants by the end of July 2009. - In coordination with development partners (World Bank, European Union and African Development Bank), aim to complete by end-September 2009 an action plan for public financial management. - Public financial management and arrears: - Intend to fully implement an integrated public financial management system to integrate budget preparation, execution and accounting and improve monitoring of expenditures. - Priority to clear and prevent reaccumulation of domestic arrears; intend to devise an arrears clearance plan to be integrated into a medium-term budget framework in the context of the future PRGF arrangement. - Plan to strengthen debt management, notably through installation of a public debt management software with support of the African Development Bank. - Capacity building and technical assistance needs: - Capacity building is critical; substantial technical assistance needs remain unmet, particularly in the fiscal area. - Authorities request the Fund to step up technical assistance to Guinea-Bissau, particularly in tax administration, debt management, and national accounts. ### Conclusion and program intentions - Authorities remain committed to strong implementation of the EPCA-supported program with the aim of continuing program relations with the Fund in the context of a PRGF arrangement. - Recently appointed a high-level steering committee comprising staff from ministries of economy and finance and the central bank to monitor program implementation. - Ultimate focus is to speed up progress toward the HIPC completion point to benefit from HIPC and MDRI debt relief. - Authorities request the Board to consider favorably the request for a third purchase under the EPCA. *Source: _cr09236 - 1. My Guinean authorities are grateful for the valuable assistance that the Fund has* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09236.pdf_