## _cr12301

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### Executive Summary — Overview and Program Performance
- Macroeconomic developments H1 2012: economic activity strong; inflation declined; exchange rate stabilized; official reserves exceeded 4 months of imports by end-June, despite non-materialization of expected exceptional mining revenue of $250 million (4.5 percent of GDP).
- Policy supports: continued prudent fiscal management (strong revenue efforts, cash-based expenditure management) and central bank foreign exchange sales to absorb excess liquidity.
- Political context: government and opposition unable to agree on legislative elections schedule; socio-political environment fragile.
- Quantitative performance H1 2012:
  - End-June quantitative performance criteria (PCs) were met.
  - Continuous PC on non-accumulation of external arrears missed due to short-lived arrears in April–May 2012 arising from technical problems with central bank international transfer system; arrears settled and authorities requesting a waiver.
  - Indicative target for priority sector spending was missed.
- Fiscal H1 2012 outcomes:
  - Revenue exceeded program target by almost 1 percent of GDP.
  - Current expenditure much lower than projected; domestically-financed investment spending lower due to project delays.
  - Basic fiscal balance virtually nil versus programmed deficit of 3.7 percent of GDP.
  - Some additional bank financing needed to clear unpaid 2011 bills.
- Monetary and liquidity indicators H1 2012:
  - Broad money contracted by 1.5 percent (also reported as 1.2 percent decline in first half).
  - Market exchange rate premium nearly disappeared; banking system excess liquidity fell.
- Inflation and growth:
  - Inflation fell below 15 percent (y-o-y) in July 2012.
  - Real GDP growth supported by agriculture and accelerating mining investment; outlook: Real GDP growth should approach 5 percent during 2012–13.

### Key Fiscal Factors and Revised 2012 Budget
- Main factors affecting budget execution H1 2012:
  - Non-receipt of expected exceptional mining revenue: $250 million; 4.5 percent of GDP (half expected Q2 for budget, half to SIF).
  - Sizable payments on expenditures committed in late 2011: 1.1 percent of GDP.
  - Higher foregone fuel tax revenue than expected: 1.1 percent of GDP for H1 2012.
  - Unanticipated concessional loan disbursement from Angola: $72 million; 1.3 percent of GDP (first tranche of $150 million total; second tranche $39 million expected in 2013).
- Revised budget adopted August 30, 2012 (prior action):
  - Revenue estimated somewhat higher than original budget.
  - Current expenditure lowered; development spending increased to include projects not implemented in 2011.
  - Transfer to central bank to bring its capital in line with legal requirements: GNF 220 billion budgeted.
  - Basic balance deficit target revised from 3.8 percent to 3.6 percent of GDP (3.1 percent excluding central bank recapitalization).
  - Net bank financing rises to 5.0 percent of GDP in revised budget (compared to 1.6 percent originally).
  - Revised budget does not anticipate an increase in domestic fuel prices; authorities will decide on adjustments if import prices jeopardize fiscal targets.

### Mining Sector Governance, Transparency, and Exceptional Revenue
- Government actions:
  - Two inter-ministerial committees (Strategic Committee and Technical Committee) established March 2012 to review existing mining conventions and align with 2011 mining code.
  - Implementing regulations and technical amendments for 2011 mining code expected before end-2012; standard mining convention to be completed by end-2012.
  - SOGUIPAMI (created August 2011) had independent unsupervised powers rescinded by presidential decree August 10, 2012; study of SOGUIPAMI role to be completed by end-March 2013 with World Bank and IMF technical assistance.
  - Special Investment Fund (SIF) created March 2012 to receive windfall mining revenues and ring-fence use for priority investments; steering committee includes civil society and donor representatives; detailed governance structure based on World Bank advice to be adopted by end-2012.
- Financing of possible government participation in Simandou infrastructure company:
  - Discussions indicate possible 51 percent participation requiring financing up to $5 billion at present estimates; staff suggested minimizing direct government participation.
  - Authorities stated any borrowing would be financed only on the basis of future project revenue without guarantees that could impose a burden on the budget; World Bank enclave financing requested.

### Monetary and Exchange Rate Policy
- Monetary policy focus: lowering inflation; intermediate target: reserve money.
- Instruments and stance:
  - Domestic liquidity managed via weekly foreign exchange auctions; BCRG sold $123 million in 26 auctions (net liquidity contraction GNF 847 billion).
  - Policy rate and reserve requirement ratio remained unchanged at 22 percent (BCRG signaling possible easing given contraction of monetary aggregates in H1 2012).
  - BCRG may begin lowering signaling policy rate and possibly reduce reserve requirement if conditions warrant.
  - Improvements planned: upgrade foreign exchange market operations, strengthen banking supervision, adopt new banking law by end-2012, sign agreement on treatment of outstanding government advances by end-2012.
  - Consider widening band around FEA rate from ±3 percent to ±5 percent given parallel market premium nearly disappeared.
- Financial sector developments:
  - Bank credit to private sector down 26 percent in first six months of 2012 (after increasing 93–94 percent in 2011).
  - Broad money declined by 1.2 percent during H1 2012.
  - Exchange rate movements Jan–Jun 2012: GNF appreciated 2.0 percent vs US$ and 5.9 percent vs EUR; official–parallel dollar differential roughly 0.5 percent versus almost 11 percent in June 2011.
  - Number of banks not meeting minimum capital fell from five at end-2011 to two at end-June 2012; one small bank (0.4 percent of deposits) placed under receivership in January 2012.
  - Central Bank completed external audit of financial statements as of December 31, 2011; audited statements published.

### Structural Reform Priorities and Implementation Status
- Priority reform areas: tax system and tax administration; public financial management (PFM); debt management strengthening; mining, electricity, agriculture, and investment climate reforms.
- Fiscal/PFM actions:
  - Implement tax reform plan; medium-sized enterprise unit to start activities and VAT collection to be expanded to these enterprises by end-December 2012 (SB).
  - VAT refund system improvements; gradual repayment of VAT credits to lower stock by 50 percent in 2012.
  - Issue decree on General Regulations on Fiscal Management and Public Accounting (RGGBCP) by end-December 2012 (SB).
  - Strengthen operationalization of the Treasury single account (TSA) and regularize suspense accounts; adopt implementing decree for Procurement Code by end-December 2012.
- Mining sector benchmarks:
  - Submit draft amendments to 2011 mining code to parliament by end-2012 (SB); adopt implementing regulations including standard mining convention (SB).
  - Technical committee to review existing mining conventions through 2013–14.
- Electricity sector:
  - Implement rehabilitation and investment program; place new thermal generators to add 50 MW (Tombo I/II) by end-November 2012, 50 MW at Kipé by end-March 2013, and 22 MW in interior prefectures; aim average 18 hours/day service in Conakry area starting Q2 2013.
  - Define EDG legal status and governance by end-June 2013 (SB).
- Agriculture:
  - Implement action plan to improve use of public resources aimed at food security and agricultural exports; PNIASA and preparatory activities for roundtable with completion deadlines through 2013.
- Business climate:
  - Revise Investment Code separating investment policy from tax incentives; new Investment Code to be submitted end-March 2013 (SB).
  - Terminate tax advantages for non-compliant companies by end-2012 (SB).

### Program Monitoring, Financing, and Risks
- Staff recommendations:
  - Completion of the first review under the ECF arrangement.
  - Approve waiver for nonobservance of continuous PC on new external arrears (minor, short-lived; corrective action taken).
  - Modify performance criteria for end-December 2012 and set performance criteria for June 2013.
  - Approve financing assurances review and second disbursement equivalent to SDR 18.36 million (17.1 percent of quota).
- Financing and debt relief:
  - Program financing requirements fully met (Table 7); debt rescheduling agreement reached with Paris Club creditor members April 2012.
  - Creditors accounting for 97.5 percent of total HIPC eligible debt gave satisfactory assurances of participation in enhanced HIPC initiative.
  - Expected HIPC, MDRI and additional bilateral debt relief upon HIPC completion point in September 2012 will free resources for priority spending in 2012–13.
  - Residual financing to be met through some use of international reserves accumulated in 2011 and ECF disbursements.
- Gross financing requirements and available financing (selected figures):
  - Gross financing requirements: 1,095; 2,321; 2,729; 2,611; 1,968 (as presented in Table 7 series).
  - Total available financing: 1,095; 2,291; 2,672; 2,554; 1,940.
  - Financing gap: 0; 29; 58; 58; 29.
- Main risks:
  - Domestic: political and socio-economic instability (especially ahead of legislative elections); adjustment fatigue undermining reform support; imprudent borrowing for large mining projects compromising debt sustainability.
  - External: fall in mineral export demand; rise in prices of imported food and oil.
  - Mitigating factors: long-term mining contracts mitigate short-term mining export risks; near-term mining prospects mainly driven by Simandou; rice price modest increases recently; agricultural reforms aim to restore rice self-sufficiency.

### HIPC Completion Point, Medium-Term Outlook, and Program Targets
- HIPC completion point expected September 2012 following first review completion; with full delivery of HIPC completion point and MDRI external debt present value would fall by 60 percent.
- Medium-term macro outlook and targets:
  - Real GDP growth: forecast 4.8 percent for 2012 (revised from 4.7 percent earlier); projected 5.0 percent in 2013.
  - Inflation: on track to decline to 12 percent (y-o-y) by end-2012; projected to decline into single digits (8.7 percent target) in 2013.
  - Gross official reserves target revised from 3.3 months of imports to 2.9 months by end-2012; remains above medium-term floor of 2.5 months.
  - Basic fiscal balance projected to improve to a deficit of 1.4 percent of GDP in 2013 (from 3.6 percent in 2012 revised).
- Fiscal and expenditure planning 2013:
  - Anchor: avoid bank financing of the budget, aside from drawdown of deposits from 2011 windfall revenue.
  - Revenue effort to increase mainly due to reintroduction of automatic fuel price adjustment from January 1, 2013 (SB).
  - Domestically-financed investment expected considerably lower in 2013 than in 2012 but remain above 2008–11 levels; SIF expected to finance almost half of domestically-financed investment.
  - Use of SIF resources to be spread over 2013–15; half of SIF deposits as of end-2012 ($125 million or 2.5 percent of GDP) expected used in 2013.
- Program quantitative indicators (selected values from program tables and projections):
  - Total revenue and grants (percent of GDP): 16.1; 16.5; 15.7; 20.3; 22.0; 22.9; 24.0; 24.9; 27.5; 28.2.
  - Revenue (percent of GDP): 15.6; 16.2; 15.3; 16.8; 18.8; 19.2; 20.2; 20.8; 24.1; 26.3.
  - Mining sector revenue (percent of GDP): 3.6; 3.3; 3.8; 3.8; 3.7; 4.2; 4.0; 4.4; 7.4; 8.4.
  - Basic fiscal balance (percent of GDP): 1.6; -5.6; -12.6; -1.6; -3.8; -3.6; -1.4; -0.6; -0.6; 0.6.
  - Gross available reserves (months of imports): 0.6; 0.8; 0.7; 4.6; 3.3; 2.9; 2.9; 3.0; 3.1; 3.7.
  - Consumer prices (end of period): 13.5; 7.9; 20.8; 19.0; 12.0; 12.0; 8.7; 6.2; 5.9; 5.9.
  - Broad money (M2) year-on-year change: 39.0; 25.9; 74.4; 9.4; 6.1; 5.3; 10.2.
  - Reserve money (annual percentage change): 13.8; 81.7; 73.0; -4.9; -6.7; -7.5; -6.2; 8.3.
  - Expenditure in priority sectors (floor, billions GNF): 2,341; 2,700; 4,069; 1,105; 2,367; 2,959; 3,945.

### Program Monitoring, Reporting, and Conditionality
- Performance criteria and targets adjusted to reflect delay in exceptional mining revenue; end-September 2012 indicative targets revised; performance criteria proposed for end-June 2013 and indicative targets for March, September and December 2013.
- Reporting obligations and deadlines (selected):
  - Central bank balance sheet, consolidated commercial bank balance sheet, monetary survey: monthly — 30th of the month for previous month.
  - Detailed net treasury position and government fiscal reporting table (TOFE): monthly — 30th of the month for previous month.
  - Use of exceptional mining revenues: quarterly — 30th of the month after the end of the quarter.
  - External debt and debt service reconciliation: monthly — 30th of the month for previous month.
- Adjustment mechanisms (selected):
  - If net external assistance is below program forecasts: floor on NIR adjusted downward by 80 percent of shortfall; ceilings on NDA and bank financing adjusted upward by 80 percent; floor for basic fiscal balance adjusted upward by 20 percent of shortfall.
  - For surplus exceptional mining revenues up to US$125 million: NIR floor adjusted upward and ceilings on NDA and bank financing adjusted downward by 80 percent of surplus; basic fiscal balance floor adjusted downward by 20 percent of surplus (allowing up to US$25 million or 0.4 percent of GDP for supplementary expenditures).
  - Surplus exceptional mining revenues between US$125 million and US$250 million to be saved in SIF.

### Staff Conclusions and Requests to the IMF Executive Board
- Staff recommends completion of the first review under the ECF arrangement, approval of a waiver for nonobservance of the continuous PC on new external arrears, modification of performance criteria for end-December 2012, setting of new performance criteria for June 2013, and approval of financing assurances review.
- Executive Board actions reported:
  - First review completed; disbursement equivalent to SDR 18.36 million approved.
  - Waiver for nonobservance of new external arrears and modification of end-December 2012 performance criteria approved.
  - Board noted growth pickup, declining inflation, stabilized exchange rate, and importance of transparent mining contract review and prudent financing for large mining projects.

*Source: IMF staff report content contained in _cr12301 (Executive Summary and extracted sections). *

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

### Executive Summary

### Overview
- Macroeconomic developments in the first half of 2012 have been encouraging: economic activity strong, inflation declined, the exchange rate stabilized, and official reserves exceeded 4 months of imports by end-June, despite the non-materialization of expected large exceptional mining revenue.
- Key policy supports: continued prudent fiscal management based on strong revenue efforts and cash-based expenditure management, and central bank foreign exchange sales to absorb excess liquidity.
- Political context: government and opposition have been unable to agree on a schedule for legislative elections needed to complete the political transition; the socio-political environment remains fragile.

### Recent Economic Developments and Program Performance
- Quantitative performance:
  - End-June quantitative performance criteria (PCs) were met.
  - The continuous PC on the non-accumulation of external arrears was missed because short-lived external debt service arrears arose in April and May 2012 due largely to technical problems with the central bank’s international transfer system; the issues were addressed, arrears settled, and the authorities are requesting a waiver.
  - The indicative target for priority sector spending was missed.
- Fiscal outcomes, H1 2012:
  - Revenue exceeded the program target by almost 1 percent of GDP.
  - Current expenditure was much lower than projected.
  - Delays in implementing projects led to lower domestically-financed investment spending.
  - The basic fiscal balance was virtually nil, against a programmed deficit of 3.7 percent of GDP.
  - Some additional bank financing was needed to clear unpaid bills accrued in 2011.
- Monetary and liquidity indicators:
  - Broad money contracted by 1.5 percent.
  - The market exchange rate premium almost disappeared.
  - Banking system excess liquidity fell.
- Inflation and growth:
  - Inflation fell below 15 percent (y-o-y) in July.
  - Economic activity strong, supported by agriculture and accelerating investment in the mining sector.

### Main Factors Affecting Budget Execution in H1 2012 (selected facts)
- Non-receipt of expected exceptional mining revenue: $250 million; 4.5 percent of GDP. Half was expected in Q2 to finance the budget, the rest to be saved in the Special Investment Fund (SIF).
  - Delay related to creation in March 2012 of two committees to review existing mining contracts to align with the 2011 mining code; results dependent on amendments and implementation regulations expected by end-2012 and outcomes expected in 2013.
- Sizable payments on expenditures committed in late 2011: 1.1 percent of GDP, partly due to late approval of the 2011 revised budget.
- Higher foregone revenue from fuel taxes than expected: 1.1 percent of GDP for H1 2012; domestic fuel prices were kept unchanged while import costs rose.
- Unanticipated concessional loan disbursement from Angola: $72 million; 1.3 percent of GDP (disbursed in February 2012). The total loan is $150 million; a second tranche of $39 million is expected in 2013.

### Mining Sector Governance and Transparency
- Government actions:
  - Established two committees to implement the review of existing mining contracts to ensure transparency and appropriate due diligence.
  - Reinforced government control over a company set up to manage the country’s mining assets, pending World Bank and IMF advice on its role.
  - Implementing regulations for the 2011 mining code and technical amendments are expected to be completed before end-2012, providing the basis for the review of mining contracts.
- Financing of possible government participation in the Simandou iron ore infrastructure company:
  - Authorities have not decided on financing and stated any borrowing would be financed only on the basis of future project revenue without guarantees that could impose a burden on the budget.

### Program Adjustments for Remainder of 2012 and 2013
- Program targets for end-2012 modified to reflect: shortfall in expected exceptional mining revenue and expenditure overflows from 2011, while maintaining overall program objectives.
- Macro outlook and targets:
  - Real GDP growth should approach 5 percent during 2012–13.
  - Inflation is on track to decline to 12 percent (y-o-y) by end-2012, and into single digits in 2013.
  - The target for gross official reserves was revised down from 3.3 months of imports to 2.9 months by end-2012, remaining above the medium-term target floor of 2.5 months.
  - Savings from HIPC, MDRI, and other debt relief will make space for increasing priority sector spending.
- Structural reform priorities for remainder of 2012 and 2013:
  - Reforms of the tax system and tax administration.
  - Public financial management reform.
  - Debt management strengthening.
  - Sectoral reforms in mining, electricity, agriculture, and the investment climate.

### Structural Reform Implementation and Delays
- Overall progress satisfactory, though some structural benchmarks experienced delays.
- Main causes of delays:
  - Need for additional technical assistance.
  - Policy slippages including delayed implementation of agricultural sector reform (from March to August) and postponement of re-introducing the automatic fuel price adjustment mechanism because of concerns about social impact.

### Program Monitoring, Financing, and Risks (staff stance)
- Staff recommends:
  - Completion of the first review under the ECF arrangement.
  - Approving the waiver for nonobservance of the performance criterion on new external arrears.
  - Modification of the performance criteria for end-December 2012.
  - Approving the financing assurances review.

*Source: IMF staff Executive Summary (Country Report) contained in _cr12301 - Executive Summary.*

### 8.      On August 30, the government adopted a revised budget for 2012 to adjust to the

### _cr12301 - 8.      On August 30, the government adopted a revised budget for 2012 to adjust to the

### Fiscal policy and 2012 revised budget
- On August 30, the government adopted a revised budget for 2012 to adjust to the unforeseen developments during the first half of the year (prior action; MEFP ¶ 29).
- Revenue is estimated to be somewhat higher than in the original budget, building on strong performance during January-June and additional administrative measures (MEFP ¶ 30).
- Allocations:
  - Current expenditure: lowered.
  - Development spending: increased to include some projects not implemented in 2011.
  - Transfer to the central bank to bring its capital in line with legal requirements (MEFP ¶ 31–32).
- Basic balance deficit targets:
  - Decline from 3.8 percent in the original budget to 3.6 percent (3.1 percent excluding recapitalization of the central bank).
- New budget support grants included from:
  - African Development Bank (AfDB), France (largely reflecting return of excess debt service payments in 2009–11), and Angola.
- Fiscal contingency and fuel pricing:
  - The revised budget does not anticipate an increase in domestic fuel prices; authorities will decide on an increase or offsetting measures should higher import prices jeopardize attaining the broad fiscal targets.

### Fiscal policy stance for 2013 and financing
- Anchor: avoid bank financing of the budget, aside from a further drawdown of deposits from the 2011 windfall revenue (MEFP ¶ 35).
- Basic balance deficit target for 2013: 1.4 percent of GDP.
- Revenue effort to increase mainly due to reintroduction of automatic mechanism for fuel price adjustments by January 1, 2013 (SB) (MEFP ¶ 36–38).
- Financing resources:
  - Funding from the 2011 exceptional revenue will decline.
  - Partly offset by lower projected debt service (about 1.7 percent of GDP) resulting from expected HIPC completion point relief and new budget support from France and Angola.
- Expenditure allocations for 2013:
  - Discussions ongoing; overall spending to be contained in line with the basic balance deficit target (MEFP ¶ 39–41).
  - Given lower domestic financing (and somewhat lower external project financing), investment spending expected to be considerably lower than in 2012 but remain well above 2008-11 levels.
- Special Investment Fund (SIF):
  - SIF expected to finance almost half of domestically-financed investment.
  - World Bank to provide further technical assistance to complete SIF governance; AfDB and UNDP to assist identifying projects for SIF-financing within the public investment program (PIP) to be completed by end-December 2012 (SB).

### Monetary and exchange rate policy
- Monetary policy focus: lowering inflation (MEFP ¶ 42).
- Intermediate target: reserve money; domestic liquidity managed via weekly foreign exchange auctions, considering international reserves target.
- Monetary stance:
  - Contraction of monetary aggregates in the first half of 2012 suggests scope for easing.
  - BCRG may start lowering its (signaling) policy rate in the months ahead, possibly followed by a reduction in the reserve requirement.
- Central bank and regulatory actions:
  - BCRG plans to further improve the foreign exchange market (MEFP ¶ 43) and strengthen banking supervision.
  - Government intends to adopt a new banking law by end-2012 (SB; MEFP ¶ 44).
  - BCRG and Ministry of Economy and Finance (MEF) intend to sign agreement on treatment of outstanding government advances by end of 2012 (SB; MEFP ¶ 45) to implement external auditors' recommendation to shorten repayment period.
  - Study on development of the financial sector begun with AfDB and UNDP assistance.

### Structural reforms (priority areas and actions)
- Priority areas: public financial management; governance structure for the mining sector; electricity and agricultural sectors; business climate (MEFP ¶ 46–66).
- Fiscal (PFM):
  - Implement recently adopted tax reform plan.
  - Medium-sized enterprises unit to start activities; VAT collection to be expanded to these enterprises by end-December 2012 (SB).
  - VAT refund system to be improved.
  - With the new Organic Budget Law, issue decree on general regulations on fiscal management and public accounting (RGGBCP) by end-December 2012 (SB) to strengthen safeguards against expenditure overflows and strengthen MEF control over external debt for all government entities (MEFP ¶ 47–48).
- Mining sector (governance and transparency):
  - Submit draft amendments to the 2011 mining code to parliament by end-2012 (SB); adopt implementing regulations including a standard mining convention (SB).
  - Two recently established committees to review all existing mining conventions to align them with the new code (MEFP ¶ 19; 52–53).
  - SOGUIPAMI (created 2011 to manage mining assets): independent and largely unsupervised powers restricted by presidential decree in August 2012, pending review of role/relations by March 2013, to be completed with World Bank and IMF technical assistance (SB; MEFP ¶ 54–56).
- Electricity sector:
  - Continue implementing rehabilitation and investment program (MEFP ¶ 57–60).
  - Define legal status of EDG and create company governance institutions, including management, by end-June 2013 (SB).
- Agriculture:
  - Implement action plan to improve use of public resources aimed at promoting food security and agricultural exports (MEFP ¶ 61–65).
- Business climate:
  - Broadened revision of the Investment Code, separating investment policies and access to tax incentives (MEFP ¶ 49–51).
  - New Investment Code to be submitted to parliament by end-March 2013 (SB).
  - Draft law on tax and customs incentives expected to be submitted to parliament by end-May 2013 (SB) and subsequently incorporated in separate tax and customs codes.
  - Inter-ministerial committee reviewing list of companies benefiting from tax incentives, with a view to terminating existing exemptions for companies not satisfying contractual obligations by end-2012 (SB; MEFP ¶ 22; 30).

### Box: Governance structure for the mining sector (key elements)
- Mining Code, Contracts and Conventions:
  - New mining code conforming to international standards (September 2011).
  - Implementing texts and technical amendments to the new mining code and a standard mining contract (to be completed by end-2012).
- Renegotiation of existing mining conventions:
  - Inter-ministerial National Mining Commission (NMC) to examine titles and conventions prior to decisions on modifications or withdrawals (March 2012).
  - Two inter-ministerial committees within the NMC established March 2012:
    - Strategic Committee (SC): policy, strategic issues, preparing draft decisions.
    - Technical Committee (TC): examines existing titles and conventions, makes recommendations to SC, publishes regular reports (review to be completed during 2013–14).
- Management of public mining sector resources:
  - Resumed participation in the Extractive Industries Transparency Initiative (March 2011) and participates in Kimberly process.
  - Special Investment Fund created within the budget framework (March 2012) to receive windfall mining revenues and ring-fence their use for priority investments; steering committee includes civil society and donor representatives (end-2012). Detailed governance structure based on World Bank advice to be adopted by end-2012.
  - Review of institutional framework for managing government mining assets: SOGUIPAMI established August 2011; independent unsupervised powers rescinded in August 2012 pending review to be completed by March 2013.

### Program monitoring, financing, and risks
- Performance criteria and targets:
  - Staff proposes to modify program’s performance criteria for end-December 2012 (Table 6, MEFP Table 4) in response to delay in receiving new windfall mining revenue.
  - End-September 2012 indicative targets revised; performance criteria proposed for end-June 2013 and indicative targets for March, September and December 2013 (Table 6).
  - Government requesting a waiver for temporarily accumulating new external debt arrears, for which corrective action has been taken. List of SBs updated (MEFP Table 5).
- Financing:
  - Program’s financing requirements are fully met (Table 7, MEFP ¶ 68).
  - Debt rescheduling agreement reached with Paris Club creditor members in April 2012; government has initiated discussions with commercial and non-Paris Club official bilateral creditors for debt relief comparable to Paris Club terms and in line with HIPC Initiative.
  - Creditors accounting for 97.5 percent of total HIPC eligible debt have given satisfactory assurances of participation in the enhanced HIPC initiative.
  - Expected HIPC, MDRI and additional bilateral debt relief upon reaching HIPC completion point in September 2012 will free resources during 2012–13 to be allocated to priority expenditures.
  - Residual financing requirements to be met through some use of the international reserves accumulated in 2011, consistent with maintaining an adequate level of international reserves. Disbursements under the ECF-supported program would cover the residual balance of payments financing need (Tables 8 and 9).
- Debt management and project financing:
  - Authorities will mobilize only grants and concessional loans, apart from possible World Bank enclave financing for the Simandou iron ore project (MEFP ¶ 69).
  - Discussions on possible 51 percent government participation in Simandou infrastructure company requiring financing of up to $5 billion at present estimates; staff suggested minimizing direct government participation.
  - Any borrowing for the project would be financed only on the basis of future project revenue without guarantees that could pose a burden on the budget. World Bank enclave financing requested.
- Strengthening debt management:
  - In June, authorities informed the Fund of two loans contracted in 2011 but not previously disclosed to the Fund (MEFP ¶ 13); both loans reportedly intended to finance SOGUIPAMI.
    - One loan of $25 million on non-concessional terms from a private company was cancelled and repaid in full in July 2012.
    - Second loan of $150 million on concessional terms was from the government of Angola.
  - In August 2012, SOGUIPAMI’s power to independently contract loans was curtailed (MEFP ¶ 54–56).
  - Following issuance of regulations on fiscal management and accounting, government intends to revise laws on SOEs and adopt, by end-2013, revisions to statutes on public entities to make them consistent with the new budget framework law and regulations; this would confirm the Minister of Economy and Finance as the sole authority who can authorize contracting external public debt (SB; MEFP ¶ 48).
- Main risks:
  - Domestic risks predominate: political and socio-economic instability, especially in run-up to legislative elections; adjustment fatigue could undermine reform support.
  - Imprudent borrowing for large mining projects could compromise debt sustainability.
  - External risks: fall in mineral export demand; rise in prices of imported food and oil products.
  - Mitigating factors:
    - Risks to current mining exports mitigated by long-term contracts; near-term mining prospects mainly driven by very large Simandou project (investment estimated at 3-4 times annual GDP).
    - Guinea’s food imports dominated by rice; rice prices have risen only modestly recently.
    - Agricultural reforms aim to quickly restore Guinea’s self-sufficiency in rice.

### Medium-term plans, PRSP, and HIPC completion point
- Investment program and medium-term plans:
  - Parliament adopted a 5-year development plan (2011–15) in May 2012 focusing on government investment in infrastructure, mining, industry, water, energy and tourism.
  - Medium-term PIP under preparation; authorities started work on new PRSP for 2013–15 drawing on the annual progress report on PRSP implementation in 2011, expected to be finalized by end-2012.
- HIPC completion point and debt relief:
  - Following completion of the first review of the ECF arrangement, Guinea is expected to reach the completion point under the enhanced HIPC Initiative (MEFP ¶ 66–67 and Table 3).
  - With full delivery of HIPC completion point, MDRI and beyond-HIPC debt relief, the present value of Guinea’s external debt would fall by 60 percent.
  - External debt burden indicators remain vulnerable to adverse shocks and would be at a moderate risk of debt distress; this compares to the “in debt distress” assessment in February 2012 at the time of the request for the current ECF arrangement.
  - Authorities’ commitment to sound macroeconomic policies, business environment improvements, and prudent debt management intended to address remaining vulnerabilities and maintain sustainable external debt position.

*IMF staff report content from the supplied PDF chapter/section.*

### 20.      Macroeconomic developments have been positive during 2012. Indications are that

### _cr12301 - 20.      Macroeconomic developments have been positive during 2012. Indications are that

### Macroeconomic developments (2012)
- Growth continues to pick-up, driven by policies to improve agricultural production and reduce infrastructure bottlenecks, and accelerating investment in the mining sector.
- Tight fiscal and monetary policies and increased availability of foreign exchange have stabilized the exchange rate and lowered inflation.
- International reserves remain at a comfortable level.
- The APR was send to the Board on August 30, 2012, see www.imf.org together with the Joint Staff Advisory Note thereon, see www.imf.org.

### Implementation of the ECF-supported program
- Implementation of the ECF-supported program has been good.
- The end-June performance criteria were met.
- Measures have been taken to prevent the technical problems that resulted in the non-observance of the continuous PC on the non-accumulation of external debt service arrears.
- Good progress was made in most key areas of structural reform.
- It will be important to build on these early steps and make further advances in the key mining, energy and agricultural sectors, as well as in transparency and good governance.

### Fuel pricing and fiscal implications
- Implementation of an automatic cost-based fuel price adjustment mechanism remains important for Guinea.
- Authorities have been reluctant to raise fuel prices while inflation remains high, but foregone fuel tax revenue weighs heavily on the budget.
- A rising wedge between import cost and domestic prices could undermine overall fiscal objectives.
- Staff urges the authorities to consider advancing the re-introduction of the automatic mechanism from January 1, 2013 in the event import prices rise above the level assumed in the 2012 revised budget.

### Public financial management and tax reform
- Recent progress with reforming public financial management is welcomed by staff.
- It is important to consolidate progress by completing the implementing regulations for the new Organic Budget Law, which are expected to safeguard against large expenditure overflows across fiscal years.
- Authorities should rapidly implement the recently adopted tax reform plan, including measures to expand the coverage of VAT to medium-sized companies and improve the VAT refund system.

### Transparency, governance, and the mining sector
- Transparency and good governance are essential to unleash the mining sector and Guinea’s growth potential.
- Staff welcomes the government’s approach to reviewing existing mining contracts through a transparent process.
- While this review led to delays in new exceptional revenue from the sector, full transparency and appropriate due diligence are key for ensuring Guinea receives a fair share of its natural resource wealth.
- Staff welcomes recent measures which intensified government oversight over the company that is to manage the country’s mining sector assets, pending a review of its role and place in the government system with World Bank and IMF technical assistance.

### External debt management
- Further improvements in external debt management should be undertaken.
- The new Organic Budget Law strengthens the centralized authority of the Minister of Economy and Finance regarding contracting public external debt, a step in the right direction.
- Staff encourages quick progress with reviewing relevant regulations on public enterprises and other government entities to ensure consistency with the new budget framework law.
- While staff welcomes corrective measures taken in light of recent temporary external arrears, further progress in building capacity in debt management is needed.

### Financing of possible government participation in Simandou
- Authorities have not yet decided on the financing of possible government participation in the infrastructure company for the Simandou iron ore project.
- It remains vital that such financing avoid any burden on the budget to maintain medium-term debt sustainability.
- Staff welcomes the authorities’ undertaking to seek assistance from the Fund and the World Bank before committing to possible new large debt.

### Medium-term outlook and risks
- The medium-term outlook remains positive, with both downside and upside risks.
- Guinea remains vulnerable to developments in international markets for minerals, oil and food products.
- Near-term economic activity will be driven by progress in implementing reform, including in the agricultural and electricity sectors, and by investment in the large Simandou iron ore project, which is less likely to be affected by short-term global developments.
- The fragile political and socio-economic situation remains an important risk factor, but staff considers the authorities’ policies and planned reforms to be appropriate to mitigate such risks.

*Source: _cr12301 - 20.      Macroeconomic developments have been positive during 2012. Indications are that*

### 28.      The staff recommends completion of the first review under the ECF arrangement

### _cr12301 - 28.      The staff recommends completion of the first review under the ECF arrangement

### Staff recommendation, conditional actions, and financing
- Staff recommends completion of the first review under the ECF arrangement and of the financing assurances review.
- Staff recommends approval of a waiver for non-observance of the performance criterion on the non-accumulation of external debt arrears during the first half of 2012, noting that the external debt arrears were minor and short-lived and that corrective action has been taken.
- Staff recommends modification of the quantitative performance criteria for end-December 2012, and the setting of new performance criteria for June 2013.
- Staff supports the authorities’ request for the second disbursement under the ECF arrangement of an amount equivalent to SDR 18.36 million.

### Macroeconomic outlook and key indicators (selected)
- GDP at constant prices: 4.9 -0.3 1.9 3.9 4.7 4.8 5.0 5.2 19.9 19.7
- GDP deflator: 14.1 6.8 20.2 19.6 12.3 14.7 6.3 7.4 5.2 5.0
- GDP at market prices: 19.7 6.5 22.5 24.3 17.6 20.2 11.7 13.0 26.1 25.7
- Consumer prices (average): 18.4 4.7 15.5 21.4 15.0 14.7 10.3 7.3 6.0 5.9
- Consumer prices (end of period): 13.5 7.9 20.8 19.0 12.0 12.0 8.7 6.2 5.9 5.9
- Exports goods & services (in US$ terms): 32.0 -22.1 13.6 12.1 11.1 3.0 2.2 5.8 77.5 53.3
- Imports goods & services (in US$ terms): 19.6 -21.2 26.2 38.3 68.1 48.3 7.2 1.7 13.4 8.8
- Gross available reserves (months of imports): 0.6 0.8 0.7 4.6 3.3 2.9 2.9 3.0 3.1 3.7
- Nominal GDP (GNF billions): 20,780 22,133 27,118 33,697 39,944 40,494 45,219 51,114 64,439 80,983

### Fiscal operations (selected aggregates and projections)
- Total revenue and grants (percent of GDP): 16.1 16.5 15.7 20.3 22.0 22.9 24.0 24.9 27.5 28.2
- Revenue (percent of GDP): 15.6 16.2 15.3 16.8 18.8 19.2 20.2 20.8 24.1 26.3
  - Mining sector (percent of GDP): 3.6 3.3 3.8 3.8 3.7 4.2 4.0 4.4 7.4 8.4
  - Non-mining sector (percent of GDP): 12.1 12.9 11.5 13.0 15.1 15.0 16.2 16.4 16.7 17.9
- Grants (percent of GDP): 0.5 0.4 0.4 3.4 3.2 3.7 3.8 4.1 3.4 1.9
- Total expenditure and net lending (percent of GDP): 17.5 23.7 29.7 21.5 28.7 28.1 26.1 26.2 28.4 29.7
  - Current expenditure (percent of GDP): 13.4 16.5 20.5 16.3 16.8 15.6 15.8 15.6 15.2 15.0
  - Capital expenditure and net lending (percent of GDP): 4.0 7.2 9.1 5.2 11.9 12.4 10.3 10.5 13.2 14.6
- Overall budget balance (including grants, commitment basis, percent of GDP): -1.3 -7.1 -14.0 -1.3 -6.7 -5.2 -2.1 -1.3 -0.9 -1.5
- Basic fiscal balance (percent of GDP): 1.6 -5.6 -12.6 -1.6 -3.8 -3.6 -1.4 -0.6 -0.6 0.6
- Basic fiscal balance (billions GNF): -3,424 -662.5 -539 -1,497 60 -1,518 -1,469 -634 -318 -351 349

### Balance of payments and external sector (selected)
- Merchandise trade balance (US$ millions): 105 61 -70 -443 -1,428 -1,612 -1,565 -742 602
- Exports, f.o.b. (US$ millions): 1,471 1,157 1,335 1,489 1,533 1,567 1,660 3,003 4,643
  - Mining products (US$ millions): 1,380 1,097 1,266 1,412 1,437 1,460 1,541 2,867 4,480
- Imports, f.o.b. (US$ millions): -1,366 -1,096 -1,405 -1,932 -2,961 -3,178 -3,225 -3,745 -4,041
  - Of which: imports for large mining projects (US$ millions): -239 -83 -74 -155 -1,188 -1,443 -1,523 -1,999 -1,713
- Current account including official transfers (US$ millions): -467 -457 -609 -845 -2,230 -2,446 -2,422 -1,592 -447
- Overall balance of payments (percent of GDP): -0.9 5.3 -3.6 10.1 -7.2 -0.8 -0.2 2.3 1.3
- Net foreign assets (central bank) (US$ millions): -14.1 97.9 39.6 637.6 381.6 265.7 214.8 260.8 460.6 577.7

### Monetary and banking sector (selected)
- Broad money (M2) (year-on-year change, percent of beginning-of-period M2): 39.0 25.9 74.4 9.4 6.1 5.3 10.2
- Reserve Money (annual percentage change): 13.8 81.7 73.0 -4.9 -6.7 -7.5 -6.2 8.3
- Commercial bank credit to the private sector (annual percentage change): 18.4 15.8 44.6 93.5 -27.1 55.0 6.0 25.0
- Money multiplier (M2/reserve money): 2.1 1.5 1.5 1.7 1.8 1.9 1.9 1.9
- Exchange rate, GNF per US$ (end of period): 5,161 4,924 6,079 6,957 6,951

### Performance criteria, indicative targets, and program monitoring (selected)
- Table 5 (SMP 2011 and ECF 2012 performance criteria, selected outcomes and targets):
  - Basic fiscal balance (floor) (billions GNF): -663 -864 -539 Met -1,102 -571 Met -1,497 -1,839 60 Met -1,418 -1,518
  - Net domestic assets of the central bank (ceiling) (billions GNF): 2,488 3,178 2,105 Met 4,484 3,409 Met 3,385 5,020 2,471 Met 3,541 3,854
  - Domestic bank financing of the government (ceiling) (billions GNF): -3,943 -3,120 -4,378 Met 1,300 1,206 Met 197 1,832 315 Met 348 650
  - Net international reserves of the central bank (floor); US$ millions: 669 541 759 Met 435 547 Met 585 360 643 Met 504 458
  - New external arrears (ceiling): 0 0 0 Met ... (note: small, short-duration external arrears accumulated in April–May were fully cleared before end-June)
- Table 6 (Performance Criteria and Indicative Targets, ECF 2012–13; selected targets):
  - Basic fiscal balance (floor) (billions GNF): 60 -1,005 -1,469 -238 -475 -555 -634
  - Net domestic assets of the central bank (ceiling) (billions GNF): 2,471 3,756 4,331 4,645 4,959 5,064 5,168
  - Domestic bank financing of the government (ceiling) (billions GNF): 315 1,490 2,010 340 680 793 906
  - Net international reserves of the central bank (floor); US$ millions: 643 463 382 363 344 338 331
  - Expenditure in priority sectors (floor) (billions GNF): 2,341 2,700 4,069 1,105 2,367 2,959 3,945

### Policy and program implications (from staff analysis)
- Waiver granted for non-accumulation of external arrears during first half of 2012 is supported on grounds that arrears were minor, short-lived, and corrective action has been taken.
- Quantitative performance criteria for end-December 2012 are to be modified and new performance criteria for June 2013 are to be set to reflect updated program financing and projections.
- Continued monitoring of central bank net domestic assets, domestic banking financing of the government, and net international reserves is critical to program implementation.
- Priority sector spending floors and the tracking of exceptional mining revenue remain important program anchors.

*Source: IMF staff report content as provided in the supplied PDF extract.*

### 1. Gross financing requirements1,0952,3212,7292,6111,968

### _cr12301 - 1. Gross financing requirements1,0952,3212,7292,6111,968

### Gross financing requirements (Table 7 items)
- Gross financing requirements: 1,095 2,321 2,729 2,611 1,968
- External current account deficit: 960 2,277 2,509 2,491 1,668
- Capital account balance: -715 -41 -12 -120
- Debt amortization: 179 143 81 88 100
- Change in arrears, net 1/: 7 4 25 11 4 60 0
- Gross reserves accumulation: 598 -332 444 200
- Fund repayments 1/: 0 23 000

### Available financing (Table 7 items)
- Total available financing: 1,095 2,291 2,672 2,554 1,940
- Foreign direct investment, net: 367 1,574 2,153 2,204 1,637
- Identified disbursements: 308 394 377 349 302
- Grants: 178 215 237 255 225
- Project financing: 63 168 173 185 148
- Program financing: 11 54 76 36 9 7 6 (as presented)
- Loans: 130 179 141 95 78
- Project loans: 52 107 102 95 78
- Program loans: 77 72 39 0 0
- Other flows: 270 000 0 0
- Debt relief 1/: 15 30 11 14 100
- HIPC Completion Point debt relief 1/: 2,151
- HIPC completion point debt cancellation 1/: -2,130

### Financing gap and staff estimates
- Financing gap: 0 29 58 58 29
- Sources: Guinean authorities and IMF staff estimates and projections.
- Footnote 1/: For 2012, Paris Club debt relief for end-2011 arrears and maturities falling due agreed under April 2012 Paris Club agreement. Comparable terms are assumed for other bilateral creditors. HIPC/MDRI relief is assumed to be delivered effective October 2012.

### Fund obligations, prospective drawings, and repayment capacity (Table 8 highlights)
- Fund obligations based on existing credit — Credit outstanding (SDR millions): 42.84 41.46 36.57 31.67 26.78 20.04 12.85 9.18 5.51 1.84 0 0 0 0
- Percent of quota: 40 38.71 34.14 29.57 25 18.71 12 8.57 5.14 1.71 0 0 0 0
- Repayment of principal (existing credit): 0 1.38 4.9 4.9 4.9 6.73 7.19 3.67 3.67 3.67 1.84 0 0 0
- Charges and interest (existing credit): 0.02 0.04 0.14 0.12 0.11 0.10 0.08 0.07 0.06 0.05 0.04 0.04 0.04 0.04
- Fund obligations from prospective drawings under the ECF — Credit outstanding: 18.36 55.08 91.80 110.16 110.16 110.16 104.65 91.80 71.60 49.57 27.54 11.02 1.84 0.00
- Percent of quota (prospective): 17.16 51.48 85.79 102.95 102.95 102.95 97.80 85.79 66.92 46.33 25.74 10.30 1.72 0.00
- Repayment of principal (prospective drawings): 0 0 0 0 0 0 5.51 12.85 20.2 22.03 22.03 16.52 9.18 1.84
- Charges and interest (prospective drawings): 0 0 0.18 0.26 0.28 0.28 0.27 0.25 0.2 0.15 0.1 0.05 0.01 0
- Total obligations based on existing and prospective credit — Credit outstanding: 61.2 96.54 128.37 141.83 136.94 130.2 117.5 100.98 77.11 51.41 27.54 11.02 1.84 0
- Percent of quota (total): 57.14 90.14 119.86 132.43 127.86 121.57 109.71 94.29 72 48 25.71 10.29 1.71 0
- Percent of gross foreign available reserves: 17.93 28.05 34.41 28.10 23.54 19.25 16.05 12.67 9.45 6.14 3.21 1.24 0.20 0.00
- Repayment of principal (total): 0 1.38 4.9 4.9 4.9 6.73 12.7 16.52 23.87 25.7 23.87 16.52 9.18 1.84
- Charges and interest (total): 0.02 0.04 0.32 0.39 0.39 0.37 0.35 0.31 0.26 0.2 0.14 0.09 0.05 0.04
- Total payments to the Fund: 0.02 1.42 5.22 5.28 5.28 7.11 13.05 16.84 24.13 25.9 24 16.61 9.23 1.88
- Percent of exports of goods and services: 0.00 0.13 0.46 0.26 0.17 0.17 0.27 0.32 0.42 0.45 0.42 0.28 0.16 0.03
- Percent of external public debt service: 0.02 2.30 7.79 6.99 18.94 23.36 36.86 45.33 58.48 64.30 54.79 31.49 15.95 2.92
- Memorandum items — Prospective purchases: 18.36 36.72 36.73 18.36
- Exports of goods and services, US$ millions: 1,613.70 1,648.52 1,743.55 3,095.08 4,745.69 6,413.20 7,355.88 7,963.69 8,643.13 8,715.46 8,792.73 8,875.69 8,965.25 9,062.49
- Sources: Guinean authorities and IMF staff projections.

### Proposed schedule of disbursements and timing under ECF (Table 9)
- Disbursement schedule (in percent of quota and SDR amount):
  - 17.1 percent of quota — 18.36 — February 23, 2012 — Disbursed following Board approval of the three-year arrangement under the ECF.
  - 17.1 percent of quota — 18.36 — September 25, 2012 — Observance of all relevant performance criteria, including the performance criteria for June 2012 and completion of the first review under the ECF arrangement.
  - 17.1 percent of quota — 18.36 — February 15, 2013 — Observance of all relevant performance criteria, including the performance criteria for December 2012 and completion of the second review under the ECF arrangement.
  - 17.1 percent of quota — 18.36 — August 15, 2013 — Observance of all relevant performance criteria, including the performance criteria for June 2013 and completion of the third review under the ECF arrangement.
  - 17.1 percent of quota — 18.36 — February 15, 2014 — Observance of all relevant performance criteria, including the performance criteria for December 2013 and completion of the fourth review under the ECF arrangement.
  - 17.1 percent of quota — 18.36 — August 15, 2014 — Observance of all relevant performance criteria, including the performance criteria for June 2014 and completion of the fifth review under the ECF arrangement.
  - 17.1 percent of quota — 18.36 — February 15, 2015 — Observance of all relevant performance criteria, including the performance criteria for December 2014 and completion of the sixth review under the ECF arrangement.
- Total: 102.9 110.2
- Source: IMF staff.

### Program status, macroeconomic results, and policy actions (from Letter of Intent and Supplement)
- Program objective: Reduce inflation and lay foundation for accelerated and diversified growth to achieve significant poverty reduction; capitalize on agricultural, hydroelectric, and mining potential; improve infrastructure and access to social services; strengthen governance.
- 2011 outcomes:
  - Real growth rate: nearly 4 percent in 2011 (compared to 1.9 percent in 2010).
  - Basic fiscal deficit: lowered from nearly 13 percent of GDP in 2010 to less than 2 percent in 2011.
  - Growth of the money supply: contained to less than 10 percent in 2011 (versus 74 percent in 2010).
  - 12-month consumer price index increase: 19 percent as of end-December 2011.
  - International reserves: replenished to 4.5 months of imports of goods and services after May 2011 windfall mining revenue.
  - All end-2011 quantitative targets of the program were met with considerable margins.
- First half of 2012:
  - Activity continued to accelerate; mining investment (Simandou iron ore project), agricultural support, and electricity sector investment contributed.
  - Inflation fell below 15 percent in July 2012 (y-o-y).
  - International reserves: equivalent of 4.2 months of imports at end-June.
  - End-June performance criteria were met (adjusted for delayed windfall mining revenue); continuous performance criterion on non-accumulation of new external arrears was not met due to technical issues.
  - Unexpected disbursement: $72 million first tranche of a budget loan from Angola (out of $150 million total).
  - Indicative target on expenditures in priority sectors was not reached due to delay in implementing a large electricity sector investment project.
- External arrears issue:
  - Technical problems with the central bank’s SWIFT system caused some external debt service payments to be delayed by a few days in April and May 2012, leading to temporary and minor nonobservance of the criterion on avoiding new external arrears; no arrears notifications were received from creditors.
  - Corrective measures: establishment of direct and regular telecommunication with the internet access supplier for SWIFT interface; plan to install upgraded SWIFT version as part of payments system project; backup system operational at Kindia site per IMF safeguards mission recommendations.
- HIPC completion objective:
  - Government seeks to reach the completion point under the enhanced HIPC Initiative by end-September 2012.
  - With completion of first review of the ECF-supported program, macroeconomic stability completion point trigger will be met; as of end-July 2012, other triggers were already completed.
- Request and assurances:
  - Government requests completion of the first review of the ECF-supported program and a second disbursement of SDR 18.36 million (17.1 percent of quota).
  - Government seeks modification of program performance criteria for end-December 2012 to account for delays in windfall mining revenue collection.
  - Government affirms policies are adequate to achieve program objectives and will take further measures as appropriate, consulting the IMF in accordance with IMF policies.
  - Government authorizes IMF to publish the Letter, the Supplement to the MEFP, the TMU, and the Staff Report relating to the first review.

### Key program policy priorities and planned measures (Supplement highlights)
- Consolidate social peace: organize peaceful elections and complete security sector reform.
- Restore confidence and credibility in economic, financial, and monetary institutions: lower inflation, stabilize the exchange rate, maintain adequate international reserves.
- Reform public sector: improve productivity, governance, business climate, combat corruption, strengthen judicial system.
- Improve infrastructure: implement public investment program with development partners.
- Develop mining potential and ensure synergy with diversification and growth in other sectors.
- Increase agricultural production: attain food self-sufficiency, reduce import dependence, increase agricultural exports.
- Enhance electricity production and distribution: tap hydroelectric potential and implement electricity sector reforms.
- Continue implementation of PRSP II and prepare PRSP III for 2013–15 by end-December 2012.

*Sources: Guinean authorities and IMF staff estimates, Letter of Intent (Conakry, September 11, 2012), Supplement to the Memorandum of Economic and Financial Policies, and IMF staff projections as presented in the provided content.*

### 10.      Fiscal policy during the first half of 2012 aimed at increasing budget revenue and

### _cr12301 - 10.      Fiscal policy during the first half of 2012 aimed at increasing budget revenue and

### Fiscal performance and revenue measures (H1 2012)
- Budget revenue exceeded projections by almost 1 percent of GDP.
- Primary drivers of outperformance:
  - Tax audits on fiscal years 2009 to 2012.
  - Increase in withholding non-salary income rate from 10 to 15 percent and a growing number of mining-sector expatriates subject to the tax.
- Customs:
  - Achieved its revenue target despite accumulated losses in fuel taxes (over 1 percent of GDP), particularly in Q2, because pump prices remained stable while import costs increased.
  - Government considered that gradual adjustment of pump prices and the regular mechanism for adjusting fuel prices (structural benchmark for July 1) could not be implemented due to the unfavorable social context.
  - Shift from lump-sum valuation by container to valuation of imports based on market value per transaction documents is being used increasingly.
  - Harmonization of customs clearances at the port and land borders was accelerated to reduce leakage.
- Tax administration issues:
  - Continued thorough review of tax exemption specifications for companies under the Investment Code.
  - Treasury’s failure to repay VAT credits to mining companies led those companies not to pay VAT to subcontractors or suppliers.
  - Expansion of the VAT base was hampered by the medium-sized taxpayer unit not operating as anticipated.

### Expenditure control and composition
- Expenditures were contained to maintain macroeconomic stability.
- Sources of savings in the wage bill:
  - Retirement of a large number of military personnel.
  - Postponement of the coming into effect of some special personnel statutes in public administration.
  - Continued improvement in the civil service database and better auditing of new employees.
- Other expenditure measures:
  - Cleaning up the list of scholarship recipients in higher education lowered subsidy expenditures.
  - Investment expenditures were well below forecasts due to contract changes for purchasing electricity generators and postponement of contracts to build and renovate military barracks.
- Caveat on savings:
  - A large share of expenditures not executed in H1 will be executed in H2; therefore, no real savings for the year as a whole are expected, especially regarding expenditures for the legislative elections and subsidies for the agriculture and electricity sectors.

### Program targets, financing, and off-budget developments
- Program performance:
  - Basic fiscal balance for H1 2012 was nearly zero; target was a deficit of 3.7 percent of GDP.
- Missed financing:
  - It was not possible to collect the $250 million in new windfall mining revenue (4.5 percent of GDP) expected in Q2 from renegotiation of mining contracts.
  - Government opted for a transparent, inclusive process under two commissions reviewing mining titles and conventions established in March 2012; results expected in 2013.
- Payments related to prior year:
  - Over 1 percent of GDP of expenditures for fiscal year 2011 was paid in 2012, mainly due to late adoption of the 2011 supplemental budget law and inability to commit some expenditure before the normal commitment closing date.
- Newly disclosed loans (informed to IMF staff in June):
  - (i) Palladino Capital loan: $25 million on nonconcessional terms, disbursed May 2011 to SOGUIPAMI, deposited into a suspense account, never used; canceled and repaid in full in July 2012.
  - (ii) Angola concessional loan: $150 million signed October 2011 for SOGUIPAMI; initial disbursement of $72 million received in February 2012, not used pending finalization of SOGUIPAMI’s management structure.

### Monetary policy and financial sector developments
- BCRG policy stance:
  - Policy rate and reserve requirement ratio remained unchanged at 22 percent.
  - To strengthen official FX market, BCRG held 26 foreign exchange auctions, selling a total amount of $123 million, equivalent to a net liquidity contraction of GNF 847 billion.
- Financial indicators:
  - Banking system interest rates fell in line with lower inflation.
  - Bank credit to the private sector was down by 26 percent in the first six months of 2012 (after increasing 94 percent in 2011).
  - Broad money declined by 1.2 percent during the first half of 2012.
  - Guinean franc appreciated against the dollar and the euro by 2.0 percent and 5.9 percent respectively during January-June 2012.
  - Average exchange rate differential for the dollar between the official and parallel markets was roughly 0.5 percent versus almost 11 percent in June 2011.
- Banking supervision and sector health:
  - Reinforcement of the Banking Supervision Department with West AFRITAC technical assistance.
  - Number of banks not meeting minimum capital fell from five at end-2011 to two at end-June 2012.
  - One small bank (0.4 percent of bank deposits; government participation of 55 percent) was placed under receivership in January 2012.
  - Licensing committee approved four new banks and is reviewing four applications.
  - Central Bank completed external audit of financial statements as of December 31, 2011; audited statements published on the BCRG website.
  - BCRG is completing hiring a new external auditing firm and implementing IMF safeguards assessment recommendations.

### Debt relief and creditor negotiations
- Paris Club:
  - In April, Paris Club creditors reached an agreement with the government of Guinea to provide relief for its external public debt on exceptional terms.
- Other creditors:
  - Discussions started with other official bilateral and commercial creditors on debt restructuring under terms comparable to the Paris Club.
  - Government continued discussions with commercial creditors consistent with IMF policy on loans to countries in arrears, emphasizing transparency, equity among creditors, and dialogue.
  - United States announced decision to cancel 100 percent of the arrears and debt service owed during 2012–14.
  - Bilateral agreement with France signed in June 2012, also including additional debt relief.

### Structural reforms progress and sectoral actions
- Institutional coordination:
  - Council of Ministers, chaired by the Prime Minister, took major role in monitoring execution of program reforms; each minister aware of measures across ministries.
  - Some lags in meeting structural benchmarks under the ECF program due mainly to need for additional technical assistance.
- Tax policy and PFM:
  - Ministry of the Economy and Finance prepared a tax reform action plan in June, including IMF comments; to be submitted to development partners before end-December 2012.
  - Adopted new procurement code sent to Parliament in July 2012.
  - On July 27, Parliament approved the Organic Budget Law prepared with IMF Fiscal Affairs Department.
  - Decree on accounting procedures governing the Special Investment Fund (SIF) issued in March 2012; $250 million deposited in the fund’s account to finance priority investments beginning in 2013.
  - Work began on preparing a medium-term public investment program (PIP) for 2013–15 (structural benchmark for end-September) with UNDP and AfDB assistance.
- Mining sector reforms:
  - Decree of March 26, 2012 created the National Mining Commission (CNM).
  - Two interministerial committees (strategic and technical) established to review all existing mining titles and conventions; technical committee is the exclusive forum for revision of mining contracts and reports to the strategic committee of four ministers.
  - Audit of the mining registry performed, identifying and listing all mining titles and permits.
  - Implementing regulations for the new Mining Code and standard mining convention (structural benchmark for end-June 2012) were not signed and published, but most texts and the standard convention were prepared by end-June; finalization of text on fiscal regime awaited IMF FAD technical assistance early in September.
- Electricity sector:
  - Government adopted action plan for electricity sector reform in March 2012 (structural benchmark).
  - Rehabilitation and repairs increased available capacity from 109 MW at end-2010 to 162 MW currently, and average availability of electricity rose to 15 hours per day.
  - Management of Electricité de Guinée (EDG) strengthened; average monthly revenue from private customers doubled from GNF 8 billion in 2011 to GNF 16 billion during first six months of 2012.
  - Construction started on the Kaléta Hydroelectric dam and power plant, expected to increase share of cheaper hydroelectricity by 2015.
  - Government established a monitoring committee to coordinate implementation of the action plan.
- Agriculture:
  - Reforms aim at food self-sufficiency in 2014.
  - Delays in harmonizing assistance methods and procedures with World Bank and IFAD projects (structural benchmark for end-March 2012).
  - In June, Prime Minister signed order organizing distribution of farm inputs and cost recovery; circular widely distributed.
  - Three-party convention signed on August 7 among Ministry of Agriculture, Chamber of Agriculture, and five farmer organizations (including CNOPG) assigning distribution and loan collection roles.
- Investment climate and Investment Code:
  - Revision of the Investment Code continues with technical assistance from World Bank, IFC, and IMF.
  - Agency to promote private investment established; one-stop-shop for registering new companies is operational.
  - Revision of the Code to be coordinated with revisions of the General Tax Code, Customs Code and Customs Tariff; revision now scheduled for end-June 2013.
  - Workshop with stakeholders planned for September to prepare an investment policy letter.
  - Comprehensive list of companies benefiting from Investment Code incentives prepared in March.
  - Inter-ministerial commission set up in June began reviewing beneficiary companies, aiming to terminate benefits for non-compliant companies by end-December 2012 (structural benchmark).

### Poverty reduction strategies and medium-term planning
- PRSP II and extension:
  - PRSP II (2007–10) extended to cover 2011–12 to achieve goals not reached during 2009–10 military regime; extension presented in January 2011 and to the National Transition Council (CNT) in February 2011.
- Five-Year Development Plan 2011–15:
  - Adopted and consistent with PRSP II; CNT adopted the plan in May 2012.
  - Plan includes a priority public investment program focused on infrastructure in mining, industrial, water and energy, and tourism sectors.
- Reporting and PRSP III:
  - Annual progress report on PRSP II for 2011 produced and submitted to Bretton Woods institutions in May 2012; validated after partner comments.
  - Preparation of PRSP III in progress; outline and roadmap submitted to partners.
  - PRSP III will have two parts: assessment of current situation and poverty; government vision and sector strategies arranged around six pillars: (i) macroeconomic stability; (ii) improved governance and institutional reforms; (iii) development of economic infrastructures; (iv) rural development; (v) mining and industrial development; and (vi) development of human capital.
  - Implementation process will specify financing, priority action plans, communication strategy and evaluation of impact on living conditions with view to pursuing the Millennium Development Goals.

### Policies for remainder of 2012 and 2013
- Government commitments:
  - Continue macroeconomic and structural policies in the ECF-supported medium-term program (2012–14).
  - Maintain prudent fiscal and monetary policies that ended the spiral of inflation and depreciation.
  - Continue structural reforms to reduce obstacles to economic potential and support strong, sustainable and diversified growth.
  - With debt relief following HIPC Initiative completion point, additional resources can be set aside for priority spending programs, including financing for basic infrastructure and social expenditures.
  - Government intends to leverage program experience to strengthen reforms in the post-HIPC period.

*Source: _cr12301 - 10.      Fiscal policy during the first half of 2012 aimed at increasing budget revenue and_*

### 28.      Despite the sluggish international economic environment, the macroeconomic

### _cr12301 - 28.      Despite the sluggish international economic environment, the macroeconomic

### Macroeconomic outlook (rest of 2012–2013)
- Growth in agricultural production, especially rice, is estimated to continue apace and should decrease risks from increases in international food prices.
- Investment in developing deposits of iron ore and other minerals should continue, though risks remain regarding international prices, particularly for aluminum.
- Real GDP growth forecast for 2012 revised slightly upward to 4.8 percent (compared to a forecast of 4.7 percent early in the year).
- Real GDP growth projected to reach 5 percent in 2013, based on rapid acceleration of investments in the large Simandou iron ore project.
- Inflation trend in the first six months of 2012 is consistent with the program target for end-2012 of 12 percent (y-o-y); target for 2013 is to lower the rate to 8.7 percent.
- Windfall mining revenue initially planned for 2012 (equivalent to 4.5 percent of GDP) was not received, requiring adjustments to budget and monetary policies for the second half of 2012.
- Revised program floor on international reserves: 2.9 months of imports for end-2012 (compared to 3.3 months in the initial program) and 2.9 months of imports for 2013.

### Fiscal policy for July–December 2012
- Main objective: meet macroeconomic targets under the ECF-supported program while avoiding bank financing of the budget deficit other than that stemming from the decrease in deposits due to use of 2011 windfall mining revenue for investments.
- Supplementary budget law for 2012 (prior action) submitted to the CNT reflecting windfall shortfall and 2011 expenditure overflow.
- Revised budget targets:
  - Basic balance deficit of 3.6 percent of GDP (compared to 3.8 percent in the initial budget for 2012), including recapitalization of the Central Bank equivalent to 0.5 percent of GDP.
  - Net bank financing rises to 5.0 percent of GDP (compared to 1.6 percent of GDP in the initial budget).
- Revenue projections for 2012 exceed initial forecasts by 0.4 percent of GDP, reflecting: substantial collection efforts in H1, higher mining revenue, and lower losses in fuel tax revenue due to fall in international oil prices.
- Additional revenue measures and structural benchmarks:
  - Medium-size enterprise unit starts activities and VAT collection expanded to such enterprises by end-December 2012 (structural benchmark).
  - Gradual repayment of VAT credits, lowering the stock by 50 percent in 2012.
  - Termination of tax advantages under the Investment Code for non-compliant companies by end-2012 (structural benchmark).
- Government to analyze cross debts between the Treasury and public enterprises and decide by end-November 2012 regarding frozen tax revenue of these enterprises (Electricité de Guinée, Port Autonome de Conakry, Société de Télécommunications de Guinée, and Société des Eaux de Guinée).
- Revised budget does not include a fuel price increase pending a regular price adjustment mechanism; government will adjust pump prices or take revenue/expenditure measures if international prices rise above budget assumptions.
- Expenditure adjustments:
  - Basic expenditures lowered by about 0.5 percent of GDP relative to the initial budget.
  - Current expenditures reduced; investment allocations increased to accommodate projects delayed from 2011 (mainly electricity sector).
  - Savings expected from cleaning civil service payroll database via on-site inspections, contract updating, interconnection of budget payroll and civil service databases, and not granting retroactive payments for reduced recruitment.
  - Subsidy savings from improved student scholarship database management and better management of transfers to decentralized authorities.
- Additional budget provisions:
  - Gradually clear stock of VAT credit arrears (0.25 percent of GDP).
  - Provision for restructuring or liquidation of a bank under Central Bank receivership; authorities to choose least costly option.
  - Provision to finance administrative costs of SOGUIPAMI while awaiting technical assistance.
  - Amount of GNF 220 billion budgeted to bring the capital of the Central Bank up to the minimum statutory level.
- Financing plan and external support:
  - Use remaining amount from 2011 windfall mining revenue after $250 million transferred to the SIF.
  - Provision equivalent to 1.1 percent of GDP for paying 2011 expenditure overflow.
  - Agence Française de Développement will audit stock of domestic debt, including arrears, before end-March 2013.
  - Budget to benefit from external debt relief (Paris Club, MDRI, additional Paris Club member relief), debt rescheduling discussions with other official bilateral and commercial creditors consistent with IMF policy on lending to countries in arrears.
  - Budget support expected from Angola and the AfDB, and repayment by the Agence Française de Développement of excess debt service payments during 2009–11.

### Fiscal objectives for 2013
- Aim: consolidate basic balance deficit and limit bank financing to gradual use of SIF resources per initial ECF-supported medium-term program.
- Additional resources expected from lower external debt service payments following HIPC completion point, including MDRI relief.
- Basic balance deficit projected to fall from 3.6 percent of GDP in 2012 to 1.4 percent of GDP in 2013.
- Use of SIF resources to be spread over 2013–15 to ensure sufficient public investment before expected permanent increase in mining revenue after Simandou production start planned for mid-2015.
- External financing use to be consistent with debt sustainability objective.
- Government aiming to submit draft budget to the CNT on October 15, 2012.
- Budget revenue projection: increase from 19.2 percent of GDP estimated for 2012 to 20.2 percent of GDP in 2013.
- Assumptions underpinning revenue projection:
  - As of January 1, 2013, price of petroleum products at the pump will be adjusted regularly to cover import cost to prevent revenue losses.
  - Termination of benefits for non-compliant companies under the Investment Code will affect full fiscal year 2013.
- Petroleum pricing reform (continuous structural benchmark):
  - Automatic monthly petroleum price adjustment system based on international prices and exchange rate to be applied starting January 2013.
  - Special committee on petroleum products to decide on price adjustments; Director General of Customs and the Special Customs Collector to participate.
  - Objective: limit erratic pump price fluctuations while safeguarding government revenue.
- Tax and customs reform action plans (with technical and financial partner assistance):
  - Tax department action plan focuses on organization streamlining, harmonizing/simplifying tax legislation, promoting compliance, strengthening skills, expanding tax base, and strengthening administration management/supervision.
  - Customs department action plan focuses on strengthening agency, improving human/financial resources, modernizing procedures, and strengthening risk-based control.
  - Priority activities include:
    - Revise General Tax Code, Customs Code and Customs Tariff to include recent tax changes and tax incentives currently in Investment Code or other statutes.
    - Conduct study, with IMF assistance, to provide recommendations on reforming real estate taxation.
    - Make tax appeal commission operational.
    - Clear backlog in VAT credits and establish appropriate system to refund VAT for exporters.
    - Implement risk-based customs control using ASYCUDA ++ declarations and computerize customs offices at in-land frontiers.
    - Develop partnership with private sector for gradual payment of customs duties with guarantees.
    - Interconnect computers between tax agencies and other administrations (Procurement and the Treasury).
    - Start using mobile scanner already available at the Port of Conakry.
- Expenditure guidelines for 2013:
  - Current primary expenditures to slightly rise as percent of GDP, implying a nominal increase of about 20 percent.
  - Main drivers: offset inflation impact on civil service wages; hiring about 8,500 new staff in social sectors and police while continuing civil service reforms; apply special statutes for a few functional groups; keep goods and services spending constant in real terms; reduce agricultural subsidies by increasing farmer cost share and using funds in revolving account; reduce electricity subsidies by stemming technical/commercial losses and adjusting rates.
- Investment expenditures:
  - Domestically-financed investment expenditures to fall from 7 percent of GDP in 2012 to 4.9 percent in 2013 as 2011 exceptional mining revenue balances are gradually exhausted.
  - Externally-financed investment projected at 4.4 percent of GDP, assuming European Union 10th EDF financing envelope remains available.
  - SIF operational by end-December 2012 with World Bank assistance; government to select projects for SIF approval.
- Debt relief and resource use in 2013:
  - Estimated external debt service savings for 2013 from HIPC completion point, MDRI and additional bilateral relief: about $148.3 million compared to applying only the Paris Club agreement of April 22.
  - 2013 budget provides that half of SIF deposits as of end-2012 ($125 million or 2.5 percent of GDP) will be used in 2013.
  - Net bank financing to be avoided other than planned SIF resource use.
  - Budget includes grants under C2Ds with France; Guinea will make regular debt service payments returned as grants to finance approved projects.
  - Government intends to organize donor round table in early-2013 to generate additional financing.

### Monetary and exchange policy (BCRG strategy)
- Main objective: lowering inflation.
- Monetary policy based on containing base money; intervention in weekly foreign exchange auction (FEA) remains main instrument to sterilize excess liquidity by selling foreign exchange.
- BCRG to monitor liquidity closely to reduce excess arising from government drawdown of 2011 windfall mining resources for local expenses within international reserve target.
- Drop in inflation and slower bank lending in H1 2012 give BCRG leeway to lower the policy rate; if bank lending growth remains low, consider gradually lowering reserve requirement ratio.
- BCRG to align discount rate with policy rate to encourage interbank market development and deposit mobilization.
- Since July 10, banks authorized to include cash in vault in meeting reserve requirements; this exemption to be suspended once replacement of older GNF 10,000 banknotes is completed before end-2012.
- With the parallel market premium nearly disappeared, authorities will consider widening band around FEA rate from ±3 percent to ±5 percent.
- Considering keeping SIF account in Guinean francs instead of US dollars, in agreement with Ministry of Finance (in line with March 2012 IMF Fiscal Affairs Department technical assistance recommendations).
- To enhance transparency, BCRG will adopt a memorandum clarifying FEA operating regulations, validated by the Exchange Commission by end-December 2012.
- Financial sector strengthening measures:
  - Continue on-site and off-site supervision to ensure banks observe prudential ratios.
  - Government to adopt draft banking law by end-December 2012 (structural benchmark).
  - BCRG to prepare new bank chart of accounts with goal of completing by end-2014.
  - Upgrade payments system: set up a payment incidents clearinghouse with Banque de France assistance.
  - Organize workshop to disseminate new microfinance institution instructions and strengthen insurance sector regulation.
  - Study on development of financial sector launched with AfDB, UNDP and other partners; expected adoption by government by June 2013.
- Strengthening BCRG instruments and governance (with IMF assistance):
  - Review overall monetary policy framework including setting-up of permanent facilities.
  - Sign framework agreement with Ministry of the Economy and Finance to update the 2010 convention on outstanding advances by end-December 2012 (structural benchmark).
  - Request to IMF Monetary and Capital Markets Department for financial assessment of BCRG balance sheet to determine capital requirements after statutory capital replenishment provided in 2012 supplemental budget law.
  - Establish investment policy, set up trading room for outside investments, and train staff with IMF and World Bank technical assistance.
- Audit and safeguards actions:
  - Review agreed procedures to validate level of net domestic assets and net international reserves in the June 30, 2012 monetary survey; new independent auditor to certify monetary statistics used to evaluate program performance on June 30, 2012 by end-October.
  - Continue implementing recommendations of the IMF safeguards assessment mission of January 2012.
  - Prepare audit of accounts for December 31, 2012.

### Structural reforms (heading introduced; substantive content follows in source beyond this extract)
- Structural reform agenda in fiscal management and other areas is under way as described in preceding fiscal and monetary measures.

*Source: IMF staff report extract from the provided PDF content unit.*

### 46.      The government continues to implement the public financial management

### The government continues to implement the public financial management modernization program

### Public financial management modernization — planned activities (next twelve months)
- Strengthen operationalization of the Treasury single account (TSA) by finalizing the identification of accounts that are to be transferred under the TSA, and move from the current monthly leveling to daily leveling of the balances in credit accounts into the account of the National Treasury Directorate (DNT), except for the bank accounts of public accountants in the regions.
- Sign the regulatory instructions on closing the fiscal year.
- Regularize suspense accounts to produce financial statements for the 2011 budget review law, and to ensure reliable financial reports for fiscal year 2012.
- Reintroduce the oversight of the budget implementation process through budget review laws; prepare the administrative and management accounts for 2010–11 in order to submit the draft budget review laws to Parliament for 2010 and 2011.
- Put in place the governance structure of the SIF and submit projects that could be financed by it in 2013, based on a medium-term public investment program; a medium-term public investment program, based on advice provided by the development partners, will be adopted before end-December 2012 (structural benchmark).
- Adopt, by end-December 2012, the implementing decree for the Procurement Code that was adopted by the government in July 2012 and submitted to Parliament.
- Revise and harmonize the budget classification with the new government chart of accounts that is scheduled to come into effect in 2014.
- Audit domestic payment arrears and prepare a plan to clear these arrears with support from the Agence Française de Développement (AFD).

### Budget framework law, closing fiscal year rules, and expenditure overflow control
- Overflow of expenditures between fiscal years will be avoided through the budget framework law (LORF) and the General Regulations on Fiscal Management and Public Accounting (Règlement Général de Gestion Budgétaire et de Comptabilité Publique - RGGBCP).
- A decree on the RGGBCP will be signed by December 31, 2012 (structural benchmark).
- Under these frameworks:
  - No expenditure commitments can be made after November 30 of the fiscal year.
  - No payments for expenditure from a fiscal year can be made after January 31 of the following year (i.e. a supplementary period of one month).
- The revised budget law for 2012 includes a clause that closes expenditure commitments on November 30, 2012 and sets the supplementary period until January 31, 2013 to limit expenditure overflow from 2012 into 2013.

### External debt management and public entities’ borrowing controls
- Measures taken to strengthen management of the country’s external debt after weaknesses highlighted by recent loan agreements for SOGUIPAMI.
- Government will adopt, by end-December 2013, revisions to the legal texts on public entities to make them consistent with the new budget framework law and the RGGBCP (structural benchmark).
- Specific texts to be revised include Order O/91/025 of March 11, 1991 and Decree D92/133/PRG/SGG of May 26, 1992; Law L/93/021/CTRM/SGG of May 6, 1993 on EPAs will be reviewed so that EPAs are forbidden from borrowing under the LORLF and RGGBCP.

### Improve the business climate — Investment Code, tax incentives, and institutional steps
- Revision of the Investment Code continues with IFC, World Bank, and IMF assistance; investment regulations will be separated from tax incentives.
- New Investment Code will be limited to non-tax and non-customs related incentives; tax and customs incentives will be included in the General Tax Code, the Customs Code and the Customs Tariff.
- Program for 2012–13 includes adoption by Parliament of the new Investment Code by end-June 2013, with stages:
  - (i) Draft investment policy letter discussed with the private sector during a workshop in September 2012; policy letter submitted to the Council of Ministers for approval by end-November 2012. A draft law revising the Investment Code will be submitted to parliament by end-March 2013 (structural benchmark).
  - (ii) Government will submit a draft law on tax incentives to parliament by end-May 2013 (structural benchmark); law expected to be adopted before end-June 2013 and will incorporate all tax and customs investment incentives with precise triggering thresholds. Ministry of the Economy and Finance will prepare a report on incentives with assistance from IFC and the IMF by end-April 2013.
  - (iii) Pending parliamentary adoption of the law on tax incentives, the National Investment Commission (CNI) will continue to operate under the Minister of Industry and SMEs.
  - (iv) To operationalize the private investment promotion agency (APIP), the government will appoint its executive board and nominate the deputy managing director and the heads of the four departments provided for under its statutes, by end-October 2012.
  - (v) To monitor the reforms, the government will put in place a private-sector reform coordination unit in the Ministry of Industry and SMEs by end-November 2012.

### Doing Business Index and judicial/anti-corruption reforms
- Launch reforms on three Doing Business indicators by May 30, 2013, monitoring performance criteria for (a) the delays; (b) the number; and (c) the cost of procedures.
- Work with private sector to streamline professional organizations; organize a roundtable early in 2013 with development partner support.
- Implement a permanent education program for judges and court officers in 2012–13; strengthen capacities of associations of attorneys, notaries, court clerks and auctioneers to better execute court decisions.
- Submit to Parliament a draft anticorruption law transposing UN and African Union conventions and launch a second corruption survey by end-June 2013.
- Issue a decree on the operation and duties of CENTIF (National Financial Information Processing Unit) by end-June 2013, providing the unit with human, financial and technical resources.

### Mining policy — implementing texts, conventions, committee, and SOGUIPAMI
- Adopt and publish the implementing texts of the 2011 mining code as well as a standard mining convention (structural benchmark), and submit to Parliament draft technical amendments to the code by end-December 2012 (structural benchmark).
- Implementing texts and amendments to the code pertaining to the tax system will be based on IMF recommendations and will address: (1) fees; (2) the export tax; (3) tax barriers to operation; (4) capital gain taxation; (5) the provision for replenishing deposits; (6) restricted capitalization; and (7) tax regime stabilization.
- Technical committee reviewing all existing mining conventions expected to serve until end-December 2014; government budget to pay for its operations and equipment.
  - Initial allocation of GNF 400 million included in the 2012 supplemental budget law.
  - 2012 supplemental budget law includes an allocation of GNF 21 billion to allow the committee to begin operations.
- Government will hire specialized firms to strengthen negotiating capacity; discussions to create a trust fund financed by partners, government budget, and mining companies are in progress.
- Authorities will conduct an audit of mining companies, with partner assistance, to ensure past business conformed with existing conventions.

- SOGUIPAMI review and interim restrictions:
  - SOGUIPAMI was founded in August 2011 as a government-held joint stock company and granted broad powers by decree of August 11, 2011, but lacks institutional structures for oversight and supervision.
  - Government requested World Bank and IMF technical assistance to study SOGUIPAMI’s role and relationship with public administration; study to be completed by end-March 2013 at the latest (structural benchmark).
  - Envisaged revisions are based on principles including:
    - (i) Limit SOGUIPAMI’s activities to managing the portfolio of the government’s mining assets (equity investments); Public Treasury remains owner of government’s portfolio of securities and other stocks.
    - (ii) SOGUIPAMI to work in liaison with the Department of Government Portfolio and Private Investments of the Ministry of the Economy and Finance and the Ministry of Mines and Geology.
    - (iii) SOGUIPAMI will not be able to contract loans or collect government revenues.
    - (iv) Activities funded through an annual allocation in the government budget.
    - (v)–(viii) Prohibitions include making investments outside the mining sector; discretionary use of funds other than budget allocations; independently owning real estate, securities, intangible assets and tangible personal property beyond necessary operations; and raising funds.
    - Supervisory council to include the Minister of the Economy and Finance and the Minister of Mines and Geology.
  - Budget appropriations allocated to SOGUIPAMI in the 2012 supplemental budget law will be disbursed after SOGUIPAMI’s business plan is finalized and approved by the Ministry of Economy and Finance and the Ministry of Mines and Geology.
  - Pending finalization, presidential decree of August 10, 2012 stipulates SOGUIPAMI should not exercise rights as an independent entity with financial autonomy and must:
    - (i) not collect revenue from any source other than sources approved in the government budget; any other income outside budget allocations must be deposited into a special account with the Central Bank and transfers executed only by the Minister of the Economy and Finance to the principal Treasury account;
    - (ii) not contract foreign or domestic debt or other types of debts or commitments directly or through subsidiaries;
    - (iii) not create or hold equity investments in subsidiaries or business activities.

### Energy sector — electricity recovery plan, capacity additions, subsidies, and investments
- Legislative and institutional actions to be taken with development partner support:
  - Submit to Parliament a draft revision of the law on electricity, a draft law on BOT projects, and a draft law on the regulatory agency for the sector by end-June 2013; and approve implementing texts for these laws.
  - Define EDG’s legal status and establish the company’s governance institutions, including management, by end-June 2013 (structural benchmark).
  - Negotiate and sign with EDG a performance contract to be audited periodically by independent auditing firms.
  - Select a strategic partner and, with it, enter into a management contract for EDG, or sign a contract for management technical assistance, by end-December 2013.
  - Develop a program to communicate with, and inform the people on, the recovery of the electricity sector.

- Capacity additions and operating plans:
  - EDG will place in service new thermal generators for a total capacity of 50 MW at Tombo I and Tombo II by end-November 2012, an additional 50 MW at Kipé (in Conakry) by end-March 2013, and 22 MW in the interior prefectures.
  - These thermal generators will provide service for an average of 18 hours per day in the Conakry metropolitan area, beginning in the second quarter of 2013.

- Subsidies, cost control, and measures to limit subsidy needs:
  - Operating costs for these generators are high; projected that EDG will use the 250 billion Guinean francs in subsidies planned for 2012 in the government budget, with the same amount in 2013.
  - To limit subsidies in 2013 despite increased power generation, the government will:
    - (i) adjust rates by end-January 2013 in accordance with the principle of flexibility recently adopted;
    - (ii) continue to install meters on the premises of identified customers; and
    - (iii) discourage the use of incandescent light bulbs to promote energy-saving bulbs during 2013.
  - Government will conduct an audit of billing of industrial companies with development partner assistance; a monitoring committee will ensure implementation of audit recommendations regarding billing upgrades to industrial companies.

- Medium-term investment focus and timelines:
  - Government will adopt a public investment program for 2013–15 placing emphasis in the electricity sector on hydroelectric dams, transmission lines and distribution grids.
  - In 2013, government will conduct a public expenditure review in the electricity sector with support from the World Bank.
  - Government will update the electricity rate study in June 2013 with assistance from the World Bank.
  - By 2015, government will complete construction of the Kaléta Dam, funded one-fourth from the national development budget’s own resources and the remainder by China Exim Bank.

### Water sector
- Government will conduct a diagnostic study and prepare investment scenarios by end-March 2013.
- Hold a donor roundtable with support from the AFD and the World Bank by end-June 2013.
- Process expected to identify a restructuring and investment program, including selection of a strategic partner for technical assistance.

### Agricultural sector — objectives, PNIASA, and preparatory actions for roundtable
- Objectives: achieve food security and promote agricultural exports via an action plan in second half of 2012 and in 2013 to:
  - (1) improve use of resources in agricultural support programs;
  - (2) assess execution of operations for crop years 2011–12 and 2012–13;
  - (3) increase competitiveness of agricultural products relative to imported food staples and promote agricultural exports.

- National Agricultural Investment and Food Security Plan (PNIASA) and preparatory activities for roundtable (roundtable scheduled by end-March 2013):
  - Prepare PNIASA consistent with CAADP and ECOWAP; joint mission April 23–27, 2012 reviewed rural sector.
  - Five preparatory activities:
    - Review public expenditures in the agricultural sector by end-January 2013, with technical and financial assistance from the World Bank; findings will be used to lower budget subsidies to the sector.
    - Hold a dialogue workshop with stakeholders representing the national private sector in two agricultural subsectors (e.g., rice, potatoes, or vegetable farming) to specify needs for government intervention or disengagement.
    - Hold a dialogue meeting with mining companies on their medium-term estimates of requirements for agricultural products and the impact of their investments on agriculture.
    - Prepare an employment and resource matrix for the period covered by the PNIASA, consistent with the programs and sub-programs of the PNIASA.
    - Streamline PNIASA monitoring.

*Source: _cr12301 - 46.      The government continues to implement the public financial management*

### 63.      The roundtable will review the findings and recommendations of the five activities

### _cr12301 - 63.      The roundtable will review the findings and recommendations of the five activities

### Agricultural sector review and action plan
- The roundtable will review the findings and recommendations of the five activities and will propose an action plan that the government will approve by end-June 2013 to improve the use of resources and the quality of assistance services in the agricultural sector.
- The government will select independent consultants under an open competitive procedure with technical and financial assistance from the World Bank, IFAD and the Agence Française de Développement to:
  - prepare a detailed assessment of the execution of operations for the 2011–12 and 2012–13 crop years in comparison with best practices in Africa and in the world;
  - propose an action plan to achieve the objectives of food security and promoting agricultural exports, including an institutional reform project in the sector.
- The assessment mission is expected to submit its report by end-June 2013. Its findings and recommendations will be discussed at a national workshop that the government would like to organize by end-October 2013 with technical and financial partners and key players in the sector.
- Public investment program for 2013–15 in the agriculture sector will focus on:
  - Implement an ambitious program of bringing the large crop production areas out of isolation;
  - Launch an ambitious irrigation development program;
  - Build multifunctional storage infrastructures in villages;
  - Support agricultural product processors through their organizations to facilitate access to loans for materials and for harvesting;
  - Revitalize the agricultural product information system and involve the private sector in marketing agricultural products.

### HIPC Initiative completion point and priority expenditure allocation
- Status of completion point triggers (Table 3): all met by end-July 2012, except audit of all government procurement contracts over GNF 100 million, which was not fully met (broad objective maintained).
- The macroeconomic performance trigger will be met once the IMF Executive Board completes the first review under the ECF-supported program.
- Debt relief will be allocated entirely to expenditures for the priority sectors under budget laws to reduce poverty in accordance with government commitments under the economic and financial program.
- With assistance from technical and financial partners, the government will prepare a functional budget classification to better target priority expenditures.

### Program financing and debt management
- Financing requirements for the program are met. Financing in 2012 and in 2013 will be met in part by external assistance in the form of budget support and investment financing.
- A debt rescheduling agreement was reached with the creditor members of the Paris Club in April 2012; the government will continue discussions with other foreign creditors to obtain debt rescheduling under terms comparable to Paris Club terms and in line with the HIPC Initiative.
- Guinea benefited from the fourth allocation of interim HIPC assistance from the IMF during the first half of 2012.
- Reaching the HIPC Initiative completion point in September 2012 and implementing the MDRI will free resources from servicing the debt beginning in the fourth quarter of 2012.
- Residual financing requirements will be met through the use of international reserves accumulated in 2011 thanks to the exceptional mining revenue, while maintaining an adequate level of international reserves.
- Disbursements under the ECF-supported program will cover the residual balance of payments financing need.
- To ensure prudent debt management:
  - authorities will mobilize only grants and concessional loans;
  - the government’s equity investment in the project to develop Simandou blocks 3 and 4 will be financed without any direct loans or government guarantees, apart from possible World Bank enclave financing, and should be covered entirely by project revenue;
  - the government will provide IMF staff with details on the financing for its equity investment;
  - once the HIPC Initiative completion point is reached, the authorities will adopt a new debt strategy and a program to strengthen debt management capacities, in consultation with the Fund, with the goal of maintaining debt sustainability;
  - the authorities agree to submit to the National Debt Directorate all proposals for new loan agreements and loan guarantees to ensure terms are concessional;
  - the government agrees to consult with IMF staff on the conditions and concessionality of all new debt agreement proposals before contracting or guaranteeing any external debt;
  - regarding debt service to the IMF, the BCRG will keep sufficient funding in its SDR account with the IMF to cover all payments falling due during the next quarter.

### Statistics, technical assistance, and program monitoring
- The government intends to continue efforts to improve the statistics system to ensure the steady production and supply of quality statistical data and to launch implementation of capacity-building programs already negotiated with development partners.
- Technical assistance needs identified in macroeconomic management include tax policy, tax and customs administration, public financial management, the foreign exchange market, monetary policy, banking supervision, the balance of payments and the national accounts. Missions from IMF and West AFRITAC have been carried out since February 2011.
- Monitoring mechanisms created:
  - Reform Coordination Committee (CCR) chaired by the Prime Minister;
  - Technical Support Committee for the CCR;
  - Program Monitoring Technical Unit (CTSP) in the Ministry of Economy and Finance.
- These mechanisms will produce periodic reports for the government, the Central Bank, international financial institutions and development partners.
- Program review schedule and instruments:
  - Program will be reviewed semiannually by the IMF Executive Board on the basis of quantitative monitoring indicators and structural benchmarks (Tables 4 and 5; indicators defined in the TMU).
  - First year of the program finishes in end-December 2012; second year covers January to December 2013.
  - The second (third) program review based on performance criteria at end-December 2012 (June 2013) should be completed no later than March 2013 (October 2013).
- During the program period, the government agrees not to:
  - introduce or intensify restrictions on the balance of payments or transfers pertaining to current international transactions;
  - introduce multiple currency practices;
  - enter into bilateral payment agreements inconsistent with Article VIII of the IMF Articles of Agreement;
  - impose or intensify import restrictions for balance of payments purposes.
- Authorities agree to adopt, in consultation with IMF staff, any new financial or structural measures necessary for the program’s success.

### Selected quantitative indicators from the program (as reported in Table 1)
- Basic fiscal balance (floor): -663; -864; -539 Met; -1,102; -571 Met; -1,497; -1,839 60 Met; -1,418; -1,518
- Net domestic assets of the central bank (ceiling): 2,488; 3,178; 2,105 Met; 4,484; 3,409 Met; 3,385; 5,020; 2,471 Met; 3,541; 3,854
- Domestic bank financing of the government (ceiling): -3,943; -3,120; -4,378 Met; 1,300; 1,206 Met; 197; 1,832; 315 Met; 348; 650
- Net international reserves of the central bank (floor); US$ millions 3/: 669; 541; 759 Met; 435; 547 Met; 585; 360; 643 Met; 504; 458
- New nonconcessional medium- or long-term external debt contracted or guaranteed by the government or central bank (ceiling); US$ millions 4/ 5/: 00 0Met    00Met  000Met 0  0
- Stock of outstanding short-term external debt contracted or guaranteed by the government or the central bank (ceiling); US$ millions 5/: 00 0Met    00Met  000Met 0  0
- New external arrears (ceiling) 5/: 00Met  000Not Met8/  0  0
- Expenditure in priority sectors (floor) 6/: 2,100; 1,457; 1,765; 1,445 Not Met; 2,501; 2,428; 2,341 Not met; 3,208; 3,910
- Reserve money (memorandum item): 7,101; 7,287; 6,638 Met; 7,083; 6,534 Met; 7,078; 7,078; 6,195 Met; 6,644; 6,744

### Structural benchmarks and implementation status (selected)
- Prior actions completed: Adopt a 2012 budget law consistent with November 2011 mission discussions; Provide IMF staff with a copy of the Rio Tinto contract with the government; Hold a roundtable on the electricity sector to establish a sector reform program; Publish the BCRG audited financial statements and auditors’ opinion on the BCRG web site.
- Structural benchmarks status highlights:
  - Consult with the IMF before making any changes in the new Mining Code that have a tax impact: Continuous Met.
  - Adopt a comprehensive plan for reform of the electricity sector: End-March 2012 Completed.
  - Harmonize methods and procedures for assistance to the agricultural sector: End-March 2012 Completed with delays (new system implemented in early-August 2012).
  - Reintroduce the mechanism for regularly adjusting petroleum product prices: Continuous, starting July 1, 2012 — Not implemented. Postponed to January 1, 2013.
  - Adopt and publish implementing decrees for the new Mining Code as well as a standard mining contract: End-June 2012 — Not completed; expected before end-December 2012.
  - Certify, by an independent external auditor, the statistical data on program performance at test dates submitted to the IMF by the BCRG, and approve investment policy and investment procedure guidelines for its assets by end-December 2012 by the BCRG board of directors: End-December 2012 — In progress (BCRG selected a new auditor to certify data from end-June 2012).
  - Terminate benefits of companies whose eligibility periods under the Investment Code have expired, and adopt a revised Investment Code: End-August 2012 — Not completed; revision expected by end-March 2013; termination of benefits for noncompliant companies by end-December 2012.
  - Adopt a medium-term public investment program: End-September 2012 — PIP being prepared; completion expected delayed to end-December 2012.

*Source: _cr12301 - 63.      The roundtable will review the findings and recommendations of the five activities*

### 2007. A system of quarterly audits based on a

### _cr12301 - 2007. A system of quarterly audits based on a

### Audits of public contracts
- A system of quarterly audits based on a representative sample of large government contracts was put in place in 2008.
- Audit reports covering 2007, 2008, 2009, 2010, and the first semester of 2011 have been completed.
- The audited sample represented 70 percent of the public contracts in 2009–10.
- The audit reports were published in the Official Journal of the Government of Guinea in May 2012 and the Procurement Gazette.

### Education targets and outcomes
- Target: Increase the gross enrollment rate for primary school students from 56 percent in 1999 to 62 percent in 2001 and 71 percent in 2002; girls: 40 percent in 1999, 51 percent in 2001, 61 percent in 2002.
  - Outcome: Met. Gross enrollment increased significantly after 2002, reaching 79 percent in 2006 and 80 percent in 2011.
  - Outcome for girls: Gross enrollment for girls reached 71 percent in 2006 and 73 percent in 2011.
- Target: Increase the number of new primary school teachers hired by at least 1,500 a year for each year until the HIPC completion point, from an estimated base of about 15,000 primary school teachers in 2000.
  - Outcome: Met. On average 1,673 primary school teachers have been recruited and trained each year from 2001 through 2011.

### Health targets and outcomes
- Target: Increase immunization (DTP3: diphtheria, tetanus, pertussis) rates for children under 1 year of age, from 45 percent in 2000, to 50 percent in 2001, and to 55 percent in 2002.
  - Outcome: Met. Immunization coverage of DPT3 reached 88 percent in 2011.
- Target: Improve the percentage of pregnant women benefiting from at least 1 prenatal consultation from 70 percent in 2000, to 80 percent in 2001, and to 85 percent in 2002.
  - Outcome: Met. 88 percent of pregnant women had at least one ante-natal care consultation in 2011.

### Quantitative performance criteria and indicative targets (selected figures from Table 4)
- Basic fiscal balance (floor): 60; -1,005; -1,469; -238; -475; -555; -634
- Net domestic assets of the central bank (ceiling): 2,471; 3,756; 4,331; 4,645; 4,959; 5,064; 5,168
- Domestic bank financing of the government (ceiling): 315; 1,490; 2,010; 340; 680; 793; 906
- Net international reserves of the central bank (floor); US$ millions 3/: 643; 463; 382; 363; 344; 338; 331
- New nonconcessional medium- or long-term external debt contracted or guaranteed by the government or central bank (ceiling); US$ millions 4/ 5/: 0 0  0  0000
- Stock of outstanding short-term external debt contracted or guaranteed by the government or the central bank (ceiling); US$ millions 5/: 0; 0; 0; 0000
- New external arrears (ceiling) 5/: 0 0  0  0000
- Expenditure in priority sectors (floor) 6/: 2,341; 2,700; 4,069; 1,105; 2,367; 2,959; 3,945
- Memorandum item — Reserve money: 6,195; 6,218; 6,229; 6,424; 6,619; 6,683; 6,748

Sources for the table: Guinean authorities and IMF staff projections. Definitions and adjustors are included in the technical memorandum of understanding (TMU). Flow for fiscal criteria and stock for end-December 2012 for monetary and external debt criteria. Calculated using the program exchange rates. External debt contracted or guaranteed other than with a grant element equivalent to 35 percent or more, calculated using a discount rate based on the OECD commercial interest rates. Excludes borrowing from the IMF. Continuous performance criterion. Priority sectors include education, health, agriculture, energy, justice, social affairs, and public works (as defined in the TMU).

### Prior actions and structural benchmarks (selected items and dates)
- Prior action: Adoption by the government of a revised budget for 2012 as agreed with the July–August 2012 mission, including a clause that closes expenditure commitments on November 30, 2012 and sets the end of the supplemental period as January 31, 2013 — Date: August 30, 2012. Macroeconomic rationale: Implement the revised program.
- Structural benchmarks with End-December 2012 target dates:
  - Adoption of a medium-term public investment program. Rationale: Create a pipeline of viable projects that could receive funding from the SIF.
  - Signing of a decree on the General Regulations on Fiscal Management and Public Accounting (RGGBCP). Rationale: Strengthen budget management; limit expenditure overflows; strengthen central control over public external debt.
  - Signing by the BCRG and the Ministry of Economy and Finance of a framework agreement to update the 2010 convention on the outstanding stock of advances. Rationale: Shorten repayment period in line with recommendations by external auditors.
  - Adoption by the government of the draft new banking law. Rationale: Strengthen the banking system.
  - Termination of tax advantages under the Investment Code for companies that do not meet contractual obligations. Rationale: Lower tax exemptions.
  - Submission to Parliament of draft technical amendments to the 2011 Mining Code and adoption/publication of implementing texts and a standard mining convention. Rationale: Ensure competitiveness of the Mining Code and a larger share for the government in mining revenues.
  - The medium-size enterprise unit starts activities and VAT collection is expanded to medium-sized enterprises. Rationale: Increase budget revenues.
- Continuous and later-date benchmarks:
  - Apply an automatic system to monthly adjust the price of petroleum products based on international market price and exchange rate — Continuous, beginning January 1, 2013. Rationale: Protect budget revenues.
  - Completion of a study on the role of SOGUIPAMI and its relationship with the public administration — End-March 2013. Rationale: Maintain government control over mining-sector assets, protect budget revenue, and limit financial risks.
  - Submission to parliament of a draft law revising the Investment Code — End-March 2013. Rationale: Reduce tax expenditures and improve the business environment.
  - Submission to parliament of a draft law on tax and customs incentives — End-May 2013. Rationale: Separate investment regulation from tax incentives.
  - Definition of the legal status of EDG and establishment of governance institutions, including management — End-June 2013. Rationale: Improve EDG’s governance and performance, and reduce budget subsidies.
  - Adoption of a revision to legal texts on public entities to make them consistent with the new budget framework law and the RGGBCP — End-December 2013. Rationale: Limit risks for the government budget; improve central control over external public debt.

Note: Some measures are marked as rescheduled.

### Key definitions from the Technical Memorandum of Understanding (TMU)
- Government: central government of the Republic of Guinea; excludes local governments, the Central Bank of the Republic of Guinea (BCRG), and autonomous public entities.
- Basic fiscal balance: difference between government revenue, excluding grants, and basic government expenditure. Calculated consistent with the government flow of funds table (TOFE).
- Net domestic assets (NDA) of the BCRG: NDA = Reserve Money – Net Foreign Assets (NFA), calculated at the program exchange rate.
- Net foreign assets (NFA): gross foreign assets of the BCRG (including foreign assets not part of reserve assets) minus foreign liabilities of the BCRG.
- Domestic bank financing of the government (net domestic bank credit): comprises (i) central bank financing of the Treasury (change in the net position of the Treasury with the central bank, NTP1), including the HIPC account and accounts for exceptional resources (e.g., SIF), but excluding changes in “satellite” government accounts with the central bank (PNT2); and (ii) commercial bank financing of the Treasury, including changes in the stock of Treasury bills held by banks, but excluding changes in net position of “satellite” government accounts held in commercial banks.
- Net international reserves (NIR) of the BCRG: reserve assets readily available and controlled by the BCRG minus foreign exchange liabilities of the BCRG to residents and nonresidents (including foreign exchange deposits of local banks with the BCRG and off-balance sheet liabilities). Excludes long-term liabilities such as SDR allocations.
  - Gold valuation: gold holdings valued at US$1598.50 per oz. (price in effect on June 29, 2012) for the second half of 2012 and at the price in effect on December 28, 2012 for the first half of 2013.
  - Program exchange rates in effect on June 29, 2012 for second half of 2012: 6950.09 GNF/US$, SDR (1.5176 US$/SDR), Euro (1.2667 US$/EUR).
- Medium- and long-term external debt: external debt contracted by the government or the central bank with initial maturity of one year or more. Concessional if grant element ≥ 35 percent of NPV. NPV calculation uses average OECD CIRRs: previous 10 years for maturities ≥15 years; previous six months for maturities <15 years. Margins added by repayment period: 0.75 point (<15 years), 1 point (15–19 years), 1.15 points (20–29 years), 1.25 points (30+ years). Excludes IMF financing.
- Short-term external debt: stock as of a specific date of external debt with initial contractual maturity of less than one year. Excludes normal import-related suppliers’ credits and foreign currency deposits at the central bank.
- New external arrears: debt-service obligations (principal and interest) due but not paid on the due date for loans contracted or guaranteed by the government or the BCRG, plus unpaid penalties or interest charges; an obligation unpaid within 30 days after falling due is a “program” arrear. Exclusions: arrears for which there is a request for rescheduling or restructuring, and litigious amounts.
- Float: flow of expenditures accepted by the Treasury that is not yet paid. Net change in the float = accumulation − payments.
- Expenditure in priority sectors (indicative target): includes spending under Title 2, Title 3, Title 4, and Title 5 by specified ministries (Justice; Agriculture; Fisheries and Aquaculture; Livestock; Public Works and Transport; Urban Planning, Housing and Construction; Health and Public Hygiene; Social Affairs, Women Promotion and Children; Pre-University Instruction and Civic Education; Labor, Technical Education and Professional Training; Higher Education and Scientific Research; Alphabetization and Promotion of National Languages; Energy and Environment). Also includes Title 6 spending by the Ministry of Public Health and utility charges (water, electricity, telephone). Excludes Title 4 transfers and subsidies of the Ministry of Higher Education and Scientific Research.
- Reserve money (memorandum item): local banks’ deposits and other private sector deposits with the BCRG (including bank reserve requirements) in GNF and foreign currencies, GNF in circulation, and GNF in the vaults of local banks. Foreign currencies converted at the program exchange rate.

### Adjustments to program performance criteria and components of program calculations
- Quantitative performance targets are calculated based on projected amounts of:
  - (1) Net external assistance;
  - (2) Exceptional revenues of the mining sector;
  - (3) Net change of “program” arrears;
  - (4) Net change in the float.
- Net external assistance (program definition): difference between (a) cumulative budgetary assistance (grants and loans), the impact of debt relief granted by external creditors, and the net change in “non-program” arrears; and (b) cumulative payments of external debt service due after relief, for loans on which debt relief is secured.

Selected figures from "Guinea: External assistance, exceptional mining revenue and the float, 2012-13" (Billions of Guinean Francs, cumulative from the beginning of the fiscal year)
- Net external assistance: -13; -33; -279; -328 (Sept.; Dec.; Mar.; Jun. columns)
- Budgetary assistance (grants + loans): 739; 841; 100
- External debt service: -1,112; -1,740; -512; -1,057
  - Interest: 198; 273; 50; 116
  - Principal: 913; 1,467; 462; 941
- Payment of external arrears: -1,617; -1,771; -61; -79
- Debt relief: 1,977; 2,637; 294; 808
- Exceptional mining revenues expected: 0; 0; 0; 0
- Net change in the float: -384; -332; -58; -115

Sources: Guinean Authorities and IMF staff estimates.

*Italic: Content derived from the IMF document _cr12301 - 2007. A system of quarterly audits based on a (PDF chapter/section)._

### 18. The floor for NIR, the ceilings on NDA of the BCRG and bank financing of the

### 18. The floor for NIR, the ceilings on NDA of the BCRG and bank financing of the government, and the floor for the basic fiscal balance

### Adjustments for net external assistance
- If net external assistance exceeds the program forecasts:
  - The floor for the basic fiscal balance will be adjusted downward by an amount equal to the surplus external assistance (allowing the entire surplus to be used for supplementary expenditures).
  - The floor for NIR and the ceilings on NDA of the BCRG and bank financing of the government will not be adjusted.
- If net external assistance is below program forecasts:
  - The floor on NIR will be adjusted downward by 80 percent of the shortfall.
  - The ceilings for NDA of the BCRG and bank financing of the government will be adjusted upward by 80 percent of the shortfall.
  - The floor for the basic fiscal balance will be adjusted upward by 20 percent of the shortfall (requiring a fiscal adjustment equivalent to 20 percent of the shortfall).

### Adjustment related to the net change in “program” arrears
- If the net change in “program” arrears exceeds program projections:
  - The floor for NIR will be adjusted upward by an amount equal to the surplus net change in arrears.
  - The ceilings on NDA of the BCRG and bank financing of the government will be adjusted downward by an amount equal to the surplus net change in arrears.
  - The floor for the basic fiscal balance will not be adjusted.
- If the net change in “program” arrears is below program projections:
  - The floor on NIR will be adjusted downward by 80 percent of the difference.
  - The ceilings for NDA of the BCRG and bank financing of the government will be adjusted upward by 80 percent of the difference.
  - The floor for the basic fiscal balance will be adjusted upward by 20 percent of the difference (requiring a fiscal adjustment equivalent to 20 percent of the difference).

### Adjustments for exceptional mining revenues
- For surplus exceptional mining revenues of up to US$125 million:
  - The floor for NIR will be adjusted upward and the ceilings on NDA of the BCRG and bank financing of the government will be adjusted downward by 80 percent of the surplus.
  - The floor for the basic fiscal balance will be adjusted downward by 20 percent of the surplus (allowing the surplus to be used for supplementary expenditures up to the amount of US$25 million or 0.4 percent of GDP).
- For surplus exceptional mining revenues in excess of US$125 million:
  - The floor for NIR will be adjusted upward and the ceilings on NDA of the BCRG and bank financing of the government will be adjusted downward by an amount equal to 100 percent of the surplus beyond US$125 million.
  - The floor for the basic fiscal balance will not be adjusted (resulting in the saving of the surplus beyond US$125 million pending a review of the budget outlook and a cost-benefit and sustainability analysis before these excess revenues are committed).
  - Surplus exceptional mining revenues between US$125 million and US$250 million will be saved in the Special Investment Fund (SIF).

### Adjustment related to the net change in the float
- If the net change in the float exceeds the projected amounts under the program:
  - The ceilings on NDA of the BCRG and bank financing of the government will be adjusted downward by an amount equal to the excess.

### Definitions for the purpose of the TOFE (key fiscal definitions)
- Government revenue:
  - Includes tax and nontax revenue.
  - Does not include external grants, the proceeds of privatizations, or exceptional mining revenues (the latter two being recorded as financing).
  - Tax and nontax revenue defined in accordance with Section IV.A.1 of the 1986 edition of the IMF’s Government Finance Statistics Manual (GFS).
  - Tax revenue main categories: Title 1 (taxes on income, profit, and dividends); Title 2 (taxes on property); Title 3 (taxes on international trade, including import duties, export duties, the surtax on consumption, the liquidation levy (redevance de liquidation), and penalties related to international trade); Title 4 (taxes on goods and services, including general sales taxes, value-added taxes on domestic sales and on imports, the single tax on vehicles (TUV), the business tax (TAF), taxes on petroleum products, and export taxes on mining products, including the tax on mining products, taxes on diamonds, and the tax on precious metals); Title 5 (other tax revenues include stamp taxes and registration fees).
  - Tax receipts also include taxes borne by the government for the purchase of externally financed capital goods.
  - Nontax revenue: royalties and dividends (excluding revenue from the sale of telephone licenses), administrative duties and fees, fines and forfeitures (Title 6), other nontax revenue (Title 7), including incidental revenues, and capital revenues (Title 8). Capital revenues include proceeds from the sale of government assets, but exclude privatization proceeds.
- Government expenditure:
  - Measured at the stage of acceptance by the Treasury, regardless of the execution procedure followed.
  - Acceptance occurs immediately after the payment order is issued for regular and simplified delegated spending authority procedures; in delegated procedures or payments without prior payment authorization, acceptance occurs when payment is ordered, and no expenditure is measured on the basis of adjusting payment orders when adjustment is done.
  - For refunds of VAT credits, acceptance occurs when refund requests are transmitted by the National Tax Directorate to the National Director of the Treasury.
  - Includes all expenditure of the central government, including subsidies and transfers to autonomous public entities, and loans granted or on-lent by the government to public enterprises and other sectors of the economy, net of repayments on such loans.
- Basic expenditure:
  - Defined as total fiscal expenditure, less expenditure on interest on the external debt and expenditure financed by external grants or loans or by counterpart funds.
- External financing comprises:
  - (i) disbursements of external loans;
  - (ii) principal owed on government external debt;
  - (iii) relief and rescheduling of government external debt, net of HIPC assistance obtained from multilateral institutions, which is considered part of grants;
  - (iv) the net change in external arrears (interest and principal, to be shown separately).

### Data reporting for program monitoring (reporting obligations and deadlines)
- Implementation status of structural benchmarks:
  - Report to the IMF’s African Department within two weeks of the planned date of implementation.
  - Status of other structural measures: within 30 days of the end of each month.
- Authorities will report the information summarized in Table 1 to the IMF’s African Department by the deadlines set in the table; data will take the form mutually agreed upon by the authorities and the IMF; additional information to be supplied upon request.

Key reporting items, frequency, and deadline (selected entries from Table 1):
- Central bank balance sheet, consolidated commercial bank balance sheet, monetary survey (at current and program exchange rate): Monthly — 30th of the month for the previous month.
- Detailed net treasury position (NTP) and net government position (NGP): Monthly — 30th of the month for the previous month.
- Interest rates and stock of government and central bank securities (BDT and TRM): Monthly — 30th of the month for the previous month.
- Foreign exchange budget: Monthly — 30th of the month for the previous month.
- Status report including detailed statement of revenue, expenditure, and cash-flow operations: Monthly — 30th of the month for the previous month.
- Cash-flow plan: Monthly — 30th of the month for the previous month.
- Government fiscal reporting table (TOFE): Monthly — 30th of the month for the previous month.
- Use of exceptional mining revenues: Quarterly — 30th of the month after the end of the quarter.
- Execution of budgetary expenditures from HIPC resources and other priority expenditures: Monthly — 30th of the month for the previous month.
- Balance of current expenditures, VAT credits to be refunded, and domestic debt arrears: Monthly — 30th of the month for the previous month.
- Nonbank financing, indicating operations in Guinean francs and those in foreign currencies: Monthly — 30th of the month for the previous month.
- Consumer price index, Conakry: Monthly — 30th of the month for the previous month.
- National accounts: Annually — summary estimates three months after the end of the year.
- Balance of payments data (imports by use and exports by major product, trade balance): Quarterly — three months after the end of the quarter.
- External debt: Debt service due before and after debt relief: Monthly — 30th of the month for the previous month.
- Debt service paid; debt service reconciliation table; end-of-month outstanding debt and stock of daily debt service outstanding (after relief) and unpaid, stock of daily arrears according to the program definition; drawings on new loans: Monthly — 30th of the month for the previous month.
- External grants and loans disbursements: Quarterly — 30th of the month for the previous quarter.
- Monthly transfers of debt relief amounts under the HIPC Initiative, by creditor: Monthly — 30th of the month for the previous month.

*Source: IMF staff.*

### 2. Lending Operations: Units of Accounts (UA) 20 million was allocated for the first

### 2. Lending Operations: Units of Accounts (UA) 20 million was allocated for the first

### Lending allocations and planned uses
- UA 20 million was allocated for the first Pillar, through the Budget Support Programme approved by the Bank’s Board in May 2011.
- Guinea also has access to UA 2.50 million under the Fragile States Facility (FSF) Window III that was allocated for implementing two capacity building programmes.
- The available balance on the African Development Fund (ADF) 12 for 2011–13 estimated at UA 28.70 million was fully allocated to activities planned under Pillar II.

### Governance sector financing and reallocation
- Approved budget support: UA 20 million.
- FSF Targeted Support: UA 2.5 million.
- Reallocated from restructured non-performing projects: UA 7.5 million to an economic governance project in 2011.
- Intended impacts:
  - Improve public finance management.
  - Support reforms to enhance governance, especially in the extractive sector.
  - Cover public administration capacity building, particularly in statistics and strategic planning.

### Energy sub-sector projects (scheduled by end-2013)
- Contribution to OMVG project: construction of a dam and a 240 MW hydro-power plant at Kaleta.
- Côte d’Ivoire-Liberia-Sierra Leone-Guinea power interconnection project: construction of 1,360 km of 225 kV transmission lines and 12 sub-stations.
- Expected results from implementation:
  - An increase in the average electricity access rate.
  - A reduction in the kWh generating cost.
  - A reduction in the number of power outages.
  - The creation of temporary and permanent jobs.
  - A reduction in greenhouse gas emissions.

### Transport sub-sector
- Planned financing: Boké-Quebo Road, part of the ECOWAS Regional Transport Programme.
- Strategic alignment: New Partnership for Africa’s Development (NEPAD) Short-Term Action Plan objective of interstate roads without impediment to free movement.
- Expected outcome: completion of the Boké–Quebo missing link to provide a year-round paved road link between Conakry and Bissau.

### Trust and supplementary resources
- Potential additional resources:
  - ADB private sector window (including enclave operations in the mining sector infrastructure).
  - Trust Fund resources to finance complementary operations in sectors covered by the 2012–16 Country Strategy Paper (CSP).
- Example instrument: Rural Water Supply and Sanitation Initiative to prepare a strategy in that area.
- Other instruments available: Partial Risk Guarantee Instrument; Global Environment Fund; Africa Carbon Facility; Green Fund.

### African Development Bank and Fund staff collaboration
- Sharing of information on the ECF-supported program, the macroeconomic situation, the budget, progress in structural reform, planned missions, and mission reports.

---

### Non-Lending Operations and FSF-supported economic and sector work
- FSF and UNDP collaboration under the first FSF programme on:
  - (i) private sector profile;
  - (ii) Guinea’s Vision 2035;
  - (iii) study on financial sector reforms;
  - (iv) study on the feasibility of the PPP framework;
  - (v) study on Economic Partnership Agreements (EPA).
- FSF support components:
  - (i) build the PRSP III (2012–15) steering capacity;
  - (ii) good governance monitoring and promotion;
  - (iii) build aid mobilization and coordination capacity.
- Support includes organization of the Guinea Partnership Conference scheduled for early 2012 aimed at mobilizing international community aid around six themes:
  - (i) rural development and food security;
  - (ii) infrastructure;
  - (iii) education;
  - (iv) social development;
  - (v) mining, energy, water, environment and industry;
  - (vi) macroeconomic framework and institutional development.

### Second FSF programme and mining governance support
- Second FSF programme will support:
  - National Statistics Development Strategy (NSDS);
  - Conduct of the Third General Population and Housing Census (RGPH-III).
- Mining sector governance support via private sector window and legal support facility to include:
  - (i) support for Guinea’s accession to the EITI;
  - (ii) support to Mining Code Reform, which includes a 15 percent State participation in all mining concessions, the strengthening of transparency and introduction of penalties for non-compliance with the legislation;
  - (iii) support for the revision of mining agreements;
  - (iv) involvement in the operational audit of mining companies;
  - (v) conduct of economic and financial studies on mining contracts (their value, production costs and transfer prices, etc.).

---

### Table 1 — ADF 13 (2011–13) and FSF Operations Programming (UA million) — key entries
- Pillar I – Support Good Economic and Financial Governance
  - Budget Support 2011: 20.00
  - Targeted Support 2011: 2.50
  - Sub-Total: 20.00 and 2.50 (total 22.50)
- Pillar II – Support Energy and Transport Infrastructure
  - CLSG Interconnection (electricity) 2012: 16.00 (Regional Funds) — row shows 32.00 and 48.00 when combined
  - Rehabilitation of Electric Power Networks 2013: 12.70
  - OMVG (postponed) 2014: (no amount listed in excerpt)
  - Boké-Quebo Road (Postponed) 2015: (no amount listed in excerpt)
  - Sub-Total: 28.70  32,00 60,7
- Total (as presented): 48.70 2.50 32,00 83,2

- Economic and Sector Work (selected years)
  - Private Sector Profile 2012: x
  - Guinea Vision 2035 2013: x
  - Study on Financial Sector Reforms 2013: x
  - PPP Framework Feasibility Study 2013: x
  - Study on Economic Partnership Agreements (EPA) 2012: x

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### Millennium Development Goals — selected indicators and values (as presented)
- Employment to population ratio, 15+, total (%): 69 69 69 69 64 70
- Employment to population ratio, ages 15-24, total (%): 51 51 51 51 46 52
- Income share held by lowest 20%: 3.0 5.0 .. 6.0
- Malnutrition prevalence, weight for age (% of children under 5): .. 21.0 29.0 23.0 22 21 13.4
- Poverty gap at $1.25 a day (PPP) (%): 63.0 30.0 .. 15.0 21 ..
- Poverty headcount ratio at $1.25 a day (PPP) (% of population): 93.0 64.0 .. 43.0 48 ..
- Literacy rate, youth female (% of females ages 15-24): ......34 67 54
- Literacy rate, youth male (% of males ages 15-24): ......59 77 68
- Persistence to last grade of primary, total (% of cohort): ......74 60 66
- Primary completion rate, total (% of relevant age group): 19 20 32 58 70 64
- Total enrollment, primary (% net): 25 .. 47 69 76 77
- Proportion of seats held by women in national parliament (%): .. 79 19 20 19
- Immunization, measles (% of children ages 12–23 months): 35 61 42 51 75 51
- Mortality rate, infant (per 1,000 live births): 135 121 106 93 77 81
- Mortality rate, under 5 (per 1,000): 229 203 175 151 122 130
- Births attended by skilled health staff (% of total): 31 .. 35 38 46 ..
- Maternal mortality ratio (modeled estimate, per 100,000 live births): 1,200 .. 740 980 500 610
- Incidence of tuberculosis (per 100,000 people): 119 158 193 236 271 318.0
- Prevalence of HIV, total (% of population ages 15-49): 1.1 1.8 1.7 1.5 5.5 1.3
- Improved sanitation facilities (% of population with access): 10.0 12.0 14.0 16.0 31 18.0 57
- Improved water source (% of population with access): 51.0 58.0 63.0 69.0 61 74.0 72
- GNI per capita, Atlas method (current US$): 450 480 400 420 1,178 390
- Life expectancy at birth, total (years): 44 46 48 51 54 54
- Population, total (millions): 0.90
- Trade (% of GDP): 65 46 52 69 65 74

(Sources listed in original: World Development Indicators database, June 2012; and Guinean authorities, Second Poverty Reduction Strategy Paper, August 2007.)

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### Guinea: Statistical issues — data adequacy and quality
- General assessment: Guinea’s data provision has some shortcomings, but is broadly adequate for surveillance.
- Official data provision was suspended during 2009–10; mechanisms are being gradually restored.
- National accounts:
  - Real sector statistics are incomplete and published with insufficient timeliness.
  - Monthly surveys of mining, industrial and agricultural production are produced with delays.
  - Employment and population statistics published annually.
  - A program for annual input-output matrices was interrupted in 2009.
  - West AFRITAC missions have worked on provisional national accounts estimates for 2009–10; work is nearly completed.
- Price statistics:
  - Monthly consumer price index (CPI) is published in a timely manner.
- Government finance statistics:
  - Ministry of Economy and Finance compiles comprehensive monthly budgetary central government data on a cash basis for revenue and on commitment and cash bases for expenditure.
  - During 2009–10 many operations executed on behalf of the government were not recorded under TOFE.
  - Adoption of the law on Treasury Single Account in 2011; efforts underway to include “satellite” accounts into the budget and government finance statistics.
- Monetary statistics:
  - During 2009–10 many government accounts were created at the central bank and commercial banks outside treasury control, creating large inconsistencies.
  - New government is closing these accounts and bringing government operations under the net position of the treasury.
  - Central bank and deposit money bank accounts as well as the monetary survey are compiled and shared monthly with AFR.
  - Some delays with commercial bank data; coverage issues noted recently.
- Balance of payments:
  - IMF technical assistance mission visited Conakry in April 2012 to assist balance of payments statistics improvement and migration from the fifth to the sixth edition of the Balance of Payments Manual.
  - Technical Committee on Balance of Payments Harmonization reportedly reactivated.
  - Results of weekly foreign exchange auctions are reported regularly online and in main newspapers; exchange rates published daily.
- Data standards:
  - Guinea participates in the General Data Dissemination System since 2003.
  - No data ROSC is available.

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### IMF Executive Board — First review under the ECF (Press Release No. 12/364, September 26, 2012)
- The Executive Board completed the first review of Guinea’s performance under the Extended Credit Facility (ECF).
- Completion enabled disbursement equivalent to SDR 18.36 million (about US$28.3 million), bringing total disbursements under the arrangement to SDR 36.72 million (about US$56.6 million).
- The Board approved a waiver for nonobservance of the performance criterion on new external arrears and the modification of the performance criteria for end-December 2012.
- Original ECF arrangement: amount equivalent to SDR 128.52 (about US$198.1 million), approved on February 24, 2012.
- The Executive Board agreed Guinea has taken steps necessary to reach its completion point under the Enhanced HIPC Initiative; World Bank reached a similar decision on September 25.
- IMF Deputy Managing Director and Acting Chair Mr. Naoyuki Shinohara noted:
  - Growth is picking up, inflation is declining, and the exchange rate has stabilized.
  - Key factors: strong fiscal adjustment and tight monetary policies; large exceptional mining revenue in 2011 helped rebuild international reserves.
  - Macroeconomic policies geared toward reducing inflation and maintaining adequate international reserves.
  - Revised 2012 budget was necessitated by a shortfall in exceptional mining revenue.
  - Fiscal policy in 2013 based on limiting domestic bank financing of the budget.
  - Weekly foreign exchange auctions will continue to play an important role.
  - Structural reform agenda focuses on tax system and tax administration, public financial management, investment climate, and removing bottlenecks in mining, electricity, and agriculture.
  - Implementation of the new mining code and transparent review of mining contracts are crucial.
  - Guinea reached the completion point under the enhanced HIPC Initiative; almost all creditors have agreed to participate.
  - Guinea will receive additional debt relief under the Multilateral Debt Relief Initiative and various bilateral initiatives.
  - Authorities plan to strengthen debt management and pursue prudent debt policies.

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### Statement by Kossi Assimaidou, Executive Director for Guinea (September 26, 2012) — selected points
- The ECF-supported program enabled stabilization of the macroeconomic framework and foundations for sustainable growth.
- All quantitative performance criteria for end-June 2012 met except the continuous performance criterion on new external arrears, missed due to technical problems with the central bank’s international transfer system; authorities request a waiver and report arrears were settled.
- Considerable progress on structural reforms with some delays and development partner support.
- Legislative elections to be organized before the end of 2012; new law governing CENI adopted on September 17, 2012.
- Completion point under the HIPC Initiative:
  - Authorities met nine of the ten triggers; one trigger (audit of government procurement contracts over GNF 100 million) missed due to capacity constraints and a waiver is requested.
  - Financing requirements for the program are met.
  - Authorities will mobilize only grants and concessional loans and consult IMF staff on conditions and concessionality of new debt proposals.
  - Authorities committed to allocate debt relief resources to priority sectors for poverty reduction.
- Achievements under the ECF-supported program (first half of 2012):
  - Real GDP growth in 2012 expected to reach 4.8 percent against 3.9 percent in 2011 and 1.9 percent in 2010.
  - Inflation decreased from 19 percent at end-2011 to below 15 percent in July 2012 and is projected to continue declining.
  - Official reserves accumulation exceeded 4 months of imports by end-June 2012.
  - Budget revenue exceeded projections by 1 percentage point of GDP, helped by strengthened administrative measures including audits on fiscal years 2009 to [text cuts off].

*Source: Excerpt from IMF and African Development Bank documents in the supplied content unit.*

### 2012. Customs achieved its revenue target despite the losses in fuel taxes and increases in import

### 2012. Customs achieved its revenue target despite the losses in fuel taxes and increases in import costs.

### Fiscal performance and public expenditure management (2012)
- Customs revenue met the target despite losses in fuel taxes and increases in import costs.
- Harmonization of customs clearances at seaports and land borders was accelerated to reduce leakages.
- Thorough review of tax exemptions continued for companies eligible for advantages under the investment code.
- Cash-based expenditure management was continued and expenditures were contained to the level required under the program.
- Personnel and wage-bill measures:
  - Retirement of more than 4000 military personnel.
  - Postponement of the implementation of special civil personnel statutes.
  - Better auditing of new employees.
  - These measures generated savings in the wage bill.
- Fiscal outcome:
  - The basic fiscal balance for the first semester of 2012 was nearly zero against a deficit target of 3.7 percent of GDP for the year.

### Structural reforms and institutional strengthening (2012)
- Strengthened commitment to coordinate and monitor structural reforms:
  - Council of Ministers, chaired by the Prime Minister, plays a major role in monitoring execution of reforms and policy measures; each minister is accountable for measures under his ministry.
- Public financial management improvements with IMF Fiscal Affairs Department support:
  - Tax reform action plan prepared in June.
  - Adoption of a new procurement code.
  - Adoption of the organic budget law.
  - Accounting procedures governing the Special Investment Fund adopted through a presidential decree.
- Central Bank and financial sector reforms (with AFRITAC technical assistance):
  - Strengthened banking supervision framework and prudential regulations, including those for microfinance institutions.
- Sectoral reforms:
  - Mining: strengthened framework for awarding mining titles and conventions; creation of the National Mining Commission supported by a strategic committee and a technical committee. Fiscal regime of the new mining code adopted in 2011 will be finalized under FAD technical assistance.
  - Electricity: action plan to reform the electricity sector adopted in January; establishment of a monitoring committee to oversee and coordinate implementation.
  - Agriculture: objective to achieve food-self-sufficiency by 2014. Harmonization of assistance methods and procedures with development partner projects achieved, with some delays due to capacity constraints.
- Legal and regulatory revisions under preparation with technical assistance from the Fund, IFC and the World Bank:
  - Revision of the investment code, the General Tax Code, the Customs Code and the Customs tariff.

### External debt and arrears handling (2012)
- Agreement reached in April 2012 with Paris Club creditors to benefit from relief on exceptional terms.
- Initiation of discussions with other official creditors on debt restructuring under terms comparable with those of the Paris Club.
- Commitment to strengthen external debt management to fully observe the program’s performance criterion related to arrears.

### Policies and reforms for 2012 and 2013: macroeconomic framework and targets
- Macroeconomic projections and targets:
  - Policies being implemented are expected to raise real GDP growth to about 5 percent in 2012–13.
  - Reduce inflation further by end 2012 and to single digits in 2013.
  - Target for gross official reserves will remain well above the medium-term target floor of 2.5 months of imports.
  - Basic balance deficit target set in the revised budget is 3.6 percent against 3.8 percent of GDP.
- Fiscal policy and reforms:
  - Authorities will avoid bank financing of the budget deficit.
  - Revised budget adopted with additional measures to increase tax revenue and reduce current expenditures, in light of lower windfall mining revenue and earlier payments.
  - Measures to expand the coverage of VAT and improve the VAT refund system.
  - Budget revenue is projected to increase to 20.2 percent in 2013.
  - Expenditures will aim at achieving the target for the basic balance deficit within available resources.
  - Domestically-financed investment expenditures are projected to fall to about 5 percent of GDP with the completion of a number of projects, while allocations for investment mainly in the electricity sector will increase.
  - Continued implementation of the public financial management program, including regulations for the new Organic Budget Law and the recently adopted tax reform plan.
- Public debt management measures:
  - Minister of economy and finance is now the sole authority who can authorize contracting external public debt.
  - Only grants and concessional loans will be mobilized to finance projects.
  - Laws on SOEs to establish a clear borrowing framework will be revised.
- Monetary and financial policies:
  - Central Bank to focus on lowering inflation through adequate liquidity management including weekly foreign exchange auctions while taking into account the target for international reserves.
  - Commitment to further improve the foreign exchange market, strengthen banking supervision and adopt a new banking law by end-2012.
  - Agreement on the treatment of the outstanding stock of advances to the Treasury will be signed before end of 2012.
  - A study on the financial sector’s development is being conducted with assistance from development partners to address sector weaknesses and identify measures to strengthen it.
- Structural reform agenda and growth:
  - Commitment to implement far-reaching structural reforms to create a conducive environment for increased investment and economic growth.
  - Intensified efforts to improve public financial management, the business climate, governance structure for the mining sector, and increase investment in electricity and the agricultural sector, as described in the authorities’ letter of intent.

### Conclusion and requests
- Authorities’ implementation of sound reforms and prudent policies under the ECF-supported program helped restore macroeconomic stability, improve public financial management and make progress in structural reforms.
- Requests for support:
  - Completion of the first review and waiver for non-observance of performance criterion and waiver for modification of performance criteria.
  - Approval of the completion point for Guinea under the Enhanced HIPC Initiative.

*IMF staff report content (2012) from the provided PDF excerpt.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12301.pdf_