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### Executive summary — background and program performance
- Real GDP growth in 2012: almost 4 percent.
- Inflation: declined from 19 percent at end-2011 to 12.8 percent in December 2012; annual average 15.2 percent (program target: 12 percent).
- Exchange rate: broadly stable; average spread between official and parallel markets fell to almost zero in 2012.
- Gross official reserves: 3.1 months of imports by end-December 2012; program target for end-2013: 2.9 months of imports.
- Mining sector: investment in Simandou slowed sharply toward end-2012; closure of Friguia alumina refinery in April 2012.
- Debt relief: HIPC completion point at end-September 2012; external debt stock to fall by about $1.95 billion (multilateral relief $1.4 billion; Paris Club and additional bilateral relief $0.5 billion).
- Program performance (ECF-supported program, 2012): overall satisfactory; most indicative targets for end-September and all but one of end-2012 performance criteria were met.
- Breach: continuous PC on no new nonconcessional medium- or long-term external debt breached by four loans totaling $362.53 million (three small loans total ~$28 million; Kaleta loan $335 million). Corrective measures: EU technical assistance to debt department; establishment of a public debt monitoring commission (prior action).
- IMF staff recommendations: complete second review under the ECF arrangement; approve waiver for nonobservance of the PC on nonconcessional external debt; approve modification of the PC to include a limited borrowing window; complete financing assurances review.

### 2013 outlook, risks, and policy stance
- Growth: projection for 2013: 4.5 percent (slightly lower than previously envisaged because of lower mining growth).
- Inflation target: program aims to bring inflation to single digits; target of 9.7 percent year-on-year by December 2013 (annual average 11.2 percent).
- Reserves: gross official reserves to be kept close to three months of imports; program target 2.9 months by end-2013.
- Main risks:
  - Political uncertainty ahead of legislative elections scheduled for June 30, 2013.
  - Inflation rebound risk from private-sector wage responses to civil service wage increases.
  - Vulnerability to a rise in international oil prices in absence of an automatic domestic price-adjustment mechanism.
  - Prolonged delays in Simandou and other mining projects negatively affecting medium-term growth potential.
- Policy stance for 2013:
  - Fiscal: budget adopted broadly in line with program; basic balance deficit projected 3.3 percent of GDP (reflecting 0.4 percent of GDP revenue shortfall and 1.4 percent of GDP higher net external assistance).
  - Monetary: BCRG to maintain cautious stance; policy rate reduced from 22 to 16 percent in February 2013; further loosening conditional on persistent downward trend in inflation toward single digits and adequate international reserves.
  - Exchange rate: continue weekly foreign exchange auctions to avoid large exchange rate fluctuations.

### Fiscal policy, wages, and public expenditure priorities
- 2013 budget: basic balance deficit projected 3.3 percent of GDP (compared with initial program target adjusted for additional net external assistance of 2.8 percent of GDP).
- Exceptional/additional financing: higher net external assistance equal to 1.4 percent of GDP, including a $90 million grant from Abu Dhabi.
- Civil service wage agreement: phased 50 percent increase in basic wage — 10 percent starting October 2012; 15 percent from January 2013; 25 percent before end-2013.
  - National minimum monthly wage: GNF 440,000 (about $60); annual per capita GDP $565.
  - Salary increase accounts for about half of the programmed growth in the 2013 budgetary wage bill of 0.8 percent of GDP.
  - Increase applies only to about 40 percent of the budget’s wage bill; civil service wages account for about 65 percent of total wage bill; about 40 percent of total civil service pay consists of allowances not raised further during 2013 after October 2012.
- Wage bill management: authorities intend to maintain medium-term wage bill at about 5.2 percent of GDP and to develop a civil service reform plan for adoption by September 2013 (structural benchmark).
- Priority spending: use HIPC savings and SIF resources for energy, basic infrastructure and social spending; SIF resources $250 million by end-2012, with $125 million programmed for 2013.

### Monetary, exchange rate, and financial sector measures
- 2012 monetary outcomes:
  - Policy interest rate and reserve requirement ratio remained unchanged at 22 percent for much of 2012; BCRG reduced signaling policy rate to 16 percent on February 28, 2013.
  - Central bank organized weekly foreign exchange auctions; sold $251.6 million in 2012, equivalent to net liquidity contraction of GNF 1,728 billion.
  - Broad money virtually flat in 2012; bank credit to private sector fell by 4.3 percent in 2012.
  - Banks’ excess reserves fell sharply; banks’ net foreign assets increased.
- 2013 policy focus:
  - Contain reserve money growth; main instrument: interventions in weekly foreign exchange auctions (MIC).
  - Further reserve requirement easing to be delayed until sustained disinflation confirmed.
  - BCRG governance and safeguards: budget capital transfer 0.6 percent of GDP in 2012; further 0.3 percent of GDP planned for 2013 to reach statutory capital; IMF MCM to evaluate balance sheet and capital needs.
- Financial sector strengthening:
  - With AFRITAC West IMF TA, BCRG rebuilt supervision department; liquidate BADAM bank and appoint liquidator by June 2013 (SB).
  - Increase initial minimum capital requirement for banks (proposal to double the initial requirement).
  - Study feasibility of deposit insurance; adopt new draft banking law and draft chart of accounts in line with new law by end-2014.
  - New independent auditor to certify monetary data for program evaluation.

### External debt management, HIPC/MDRI, and recent loans
- HIPC completion point reached September 2012; Paris Club agreement in October 2012 to cancel 99 percent of eligible external public debt on exceptionally favorable terms.
- Multilateral creditors (World Bank, EIB, AfDB) provided MDRI relief in early November 2012.
- Bilateral agreements: U.S. cancelled 100 percent of arrears and outstanding debt in January 2013; France bilateral agreement early February 2013 converting debt into C2D proposals amounting to €171 million.
- New nonconcessional loans contracted in 2012–13:
  - Export-Import Bank of China (Kaleta hydroelectric plant): $335 million — dated January 4, 2013 — grant element reported 33.2 percent at signing.
  - ECOWAS Investment and Development Bank (BIDC): $10.53 million — dated August 24, 2012.
  - OPEC Fund: $10 million — dated March 7, 2012.
  - OPEC Fund: $7 million — dated January 29, 2013.
  - Allowance for four project loans totaling $362.53 million in TMU.
- Authorities’ commitments to improve debt management:
  - Establish technical public debt monitoring commission (completed April 8, 2013).
  - Prepare medium-term action plan by end-October 2013 (SB) with EU technical assistance.
  - Establish National Debt Committee before end-2013 to prepare national debt policy and strategy.
  - Submit all proposals for new loan agreements to the public debt monitoring committee; consult IMF staff on terms and concessionality before contracting.

### Structural reforms and sectoral priorities (selected)
- Main reform priorities for 2013:
  - Governance of the mining sector, including implementing the 2011 mining code and adopting implementing texts and a standard mining convention (SB end-June 2013; adoption by Parliament of amendments occurred April 2013).
  - Improving the business climate: adopt Investment Code revisions by end-June 2013 (SB); submit related fiscal and customs laws by end-May 2013 (SB); National Investment Policy Letter adopted March 22, 2013 (prior action).
  - Public financial management: implement Budget Framework Law (LORLF) and RGGBCP; regularize suspense accounts and produce financial accounts for 2005–12 by end-2013 (SB).
  - Electricity sector: Kaleta hydroelectricity project expected to increase supply and reduce costs; EDG under close financial supervision; adopt new reform program by end-June 2013 (SB); donor financing sought (Donor Round Table April 19, 2013).
  - Agriculture: evaluate 2011–12 reforms with World Bank assistance; national workshop tentatively October 2013.
- Specific PFM and tax actions:
  - Operationalize medium-sized taxpayer unit (completed April 2013).
  - Extend VAT coverage to medium-sized enterprises; clear backlog of VAT credits by end-September 2013.
  - Implement monthly fuel-price adjustment mechanism by August 1, 2013 (continuous SB readjusted).

### Program conditionality, monitoring, and targets (selected quantitative indicators)
- IMF program requests and staff proposals:
  - Waiver for nonobservance of continuous PC on no new nonconcessional external debt; modify PC to include nonconcessional borrowing window equal to amount borrowed under four nonconcessional loans ($362.53 million; 5.8 percent of GDP referenced).
  - Proposed PCs for end-December 2013 and indicative targets for end-September 2013.
  - Approve second disbursement under ECF equal to SDR 18.36 million.
- Selected quantitative outcomes and targets (values preserved):
  - Basic fiscal balance (floor) — Dec. 2012 Est. Status: -1,469 (Met); 2012 outcome: basic fiscal balance deficit 2.5 percent of GDP (program target 3.6 percent of GDP).
  - Net domestic assets of the central bank (ceiling) — Sep. 2012 Status: 3,802; Dec. 2012 Est. Status: 2,892 (Met).
  - Domestic bank financing of the government (ceiling) — Dec. 2012 Est. Status: 555 (Met).
  - Net international reserves (NIR) of the central bank (floor) — Dec. 2012 Est. Status: 541 US$ millions (Met).
  - Reserve money (memorandum): Dec. 2012 Est. Status: 5,723 (Met); Mar. 2013 Status: 6,380 (Not Met).
  - Expenditure in priority sectors (floor) — Dec. 2012 Est. Status: 4,069 (Met); Mar. 2013 Status: 1,105 (Not Met).
  - New nonconcessional medium- or long-term external debt (continuous PC): reported breaches for Mar. 2013 and subsequent periods (Not Met entries).
- Technical Memorandum of Understanding (TMU) key definitions:
  - Debt concessionality threshold: grant element ≥ 35 percent (NPV using OECD CIRRs and specified margins).
  - Program exchange rates for test dates: 6951.33 GNF/US$ on December 28, 2012; 1.5369 US$/SDR; 1.3183 US$/EUR.
  - Adjustment rules for net external assistance, program arrears, exceptional mining revenues, and float specified in TMU.

### Gross financing requirements, available financing, and residuals (US$ millions)
- Gross financing requirements series (selected entries): 2,170; 2,729; 1,797; 3,049; 3,120; 298; 3.
- External current account deficit (series): 1,975; 2,509; 1,684; 3,006; 2,892; 294; 4.
- Total available financing (series): 2,170; 2,672; 1,739; 2,991; 3,091; 298; 3.
- Foreign direct investment, net (series): 538; 2,153; 1,164; 2,639; 2,828; 264; 3.
- Identified disbursements (series): 286; 377; 443; 352; 263; 340.
- Debt relief (series): 348; 141; 133; 0; 0; 0 (HIPC completion point debt cancellation noted as -1,902).
- Residual financing and ECF disbursement drawn where relevant: Residual financing 0; 58; 58; 58; 29; 0 — ECF disbursement component 58; 58; 58; 29; 0.

### Debt sustainability assessment (LIC-DSA update) — conclusions and implications
- Debt distress classification: moderate risk of debt distress (continuing assessment).
- End-2012 external public debt: $1,306.3 million (23.2 percent of GDP).
- Major factors affecting debt dynamics:
  - Baseline improvement depends on large projected FDI inflows in mining and jump in mining exports; vulnerability to shocks to growth, exports, FDI, and fiscal performance.
  - Inclusion of Kaleta loan and three other nonconcessional loans increases PV of debt and affects projections; Kaleta loan $335 million (5.3 percent of 2013 GDP) with grant element 33.3 percent or 33.2 percent in different statements.
  - Delays in Simandou shift peaks in debt and debt service ratios by about two years in extreme stress scenarios.
- Key LIC-DSA indicators (selected):
  - PV of external debt (percent of GDP): 2013: 37.1; 2014: 18.8; 2015: 20.8; 2016: 20.3.
  - PV of external debt (percent of exports): 2013: 122.4; 2014: 69.9; 2015: 74.3.
  - Debt service-to-exports ratio (percent): 2013: 10.1; 2014: 13.8; 2015: 11.6.
  - Public sector debt (percent of GDP) selected: 2012: 35.4; 2013: 39.2; 2014: 40.0; 2019: 21.0.
- Policy implications: avoid large-scale new borrowing until export and growth boost from mining production materializes; maintain fiscal discipline; strengthen debt management procedures and capacity.

### Program risks and Risk Assessment Matrix (selected entries)
- Deterioration in socio-political/security situation:
  - Relative Likelihood: Medium to high; Impact If Realized: High.
  - Consequences: negative impact on foreign investment (mining), weakened program monitoring, postponed reforms (fuel pricing, expenditure controls), aggravated fiscal deficits, money creation, inflation, loss of foreign exchange, exchange rate instability.
- Private sector following civil service wage increases:
  - Relative Likelihood: Low; Impact If Realized: High.
  - Consequences: inflation rebound, reduced growth, increased poverty, greater political tension.
- Prolonged delay in major mining investment:
  - Relative Likelihood: Medium; Impact If Realized: Medium.
  - Consequences: lower short-term growth, negative demonstration effect on other investments, prolonged high poverty rates.
- Global oil shock:
  - Relative Likelihood: Low; Impact If Realized: Medium.
  - Consequences: higher import prices, additional tax losses, complications in meeting fiscal targets, undermining macro stabilization.
- Cross-cutting observation: risks concentrate on mining, fiscal performance, inflation, foreign investment, and political stability; policy vulnerabilities can amplify macroeconomic deterioration.

### IMF staff recommendations and Board action
- Staff recommends: complete second review under ECF; approve waiver for nonobservance of PC on no new nonconcessional external debt; modify PC to include a limited nonconcessional borrowing window; complete financing assurances review; set PCs for December 2013 and indicative targets for September 2013; approve second disbursement SDR 18.36 million.
- Executive Board action (May 20, 2013): completed second review under ECF; approved disbursement equivalent to SDR 18.36 million; approved waiver for nonobservance of continuous PC on new nonconcessional external debt.

*Source: IMF staff report excerpt and accompanying tables.*

### EXECUTIVE       SUMMARY

### EXECUTIVE SUMMARY

### Background and recent macroeconomic developments
- Real GDP growth in 2012: close to 4 percent; real GDP growth is estimated to have been almost 4 percent.
- Inflation: declined from 19 percent at end-2011 to 12.8 percent in December 2012.
- Exchange rate: has been stable; market premium has virtually disappeared.
- International reserves: 3.1 months of imports by end-December 2012; program target for end-2013 set at 2.9 months of imports.
- Mining sector: investment in a large mining project (Simandou) slowed sharply toward end-2012; closure of the Friguia alumina refinery in April 2012.
- Fiscal and monetary context in 2012:
  - Fiscal policy tighter than envisaged; 2012 revenue target exceeded.
  - Basic balance deficit was more than 1 percent of GDP lower than targeted, helping avoid central bank financing (other than drawing down deposits from one-off 2011 mining receipts).
  - Broad money stayed virtually flat in 2012; credit to the private sector fell slightly.
  - Banks’ excess reserves fell sharply while banks’ net foreign assets increased.
- Debt relief: completion point under enhanced HIPC at end-September 2012; debt stock to fall by about $1.95 billion; multilateral relief $1.4 billion; Paris Club and additional bilateral relief $0.5 billion.

### Program performance (ECF-supported program, 2012)
- Overall: Performance under the ECF-supported program has been satisfactory.
- Targets met: Most indicative targets for end-September and all but one of the end-2012 performance criteria (PCs) were met.
- Breach of continuous PC on no new nonconcessional medium- or long-term external debt:
  - Three loans totalling $28 million (0.45 percent of GDP) with grant elements of 22, 29 and 30 percent respectively; assessed as having negligible impact on external debt and fiscal sustainability. Causes: weak technical capacity, lapses of coordination in the MEF, misunderstandings of IMF concessionality methodology.
  - Corrective measures: EU technical assistance to strengthen debt management; establishment of a public debt monitoring commission (prior action).
  - Fourth loan: Kaleta hydroelectricity project, $335 million (5.3 percent of GDP); grant element was above the 35 percent program floor at negotiation but dropped to 33.2 percent by signing on January 4, 2013 due to a change in the discount rate effective December 15. Project expected to improve electricity supply and reduce average costs; feasibility study shows high expected rate of return.
- Structural reforms: Progress satisfactory though some measures delayed. Amendments to the 2011 mining code approved by parliament in April 2013 after longer consultations. MEF and BCRG signed a framework agreement on securitization of outstanding advances; medium-sized taxpayer unit became operational. Automatic fuel price adjustment delayed until mid-2013.

### Economic outlook and risks (2013)
- Growth projection for 2013: 4.5 percent (slightly lower than previously envisaged because of lower mining growth).
- Inflation: program’s inflation target revised upward slightly (reflecting end-2012 outcome and civil service wage agreement). Program aims to bring inflation to single digits (stated program focus).
- Reserves target: gross official reserves to be kept at close to three months of imports; program target 2.9 months of imports by end-2013.
- Risks:
  - Political uncertainty and possible effects on reform momentum in the run-up to legislative elections scheduled for June 30, 2013.
  - Inflation rebound risk if private sector follows civil service wage increases.
  - Vulnerability to a rise in international oil prices in the absence of an automatic domestic price-adjustment mechanism.
  - Prolonged delays in Simandou and other mining projects would negatively affect medium-term growth potential.

### Fiscal policy for 2013
- 2013 budget: adopted broadly in line with the program by the interim parliament.
- Updated projections reflect 2012 outcome:
  - Revenue shortfall: about 0.4 percent of GDP, owing to delay in applying the automatic fuel-price adjustment mechanism from January to August 2013 (structural benchmark).
  - Higher net external assistance: 1.4 percent of GDP, including a $90 million grant from Abu Dhabi; most of the grant to be used for additional investment.
  - Basic balance deficit projected: 3.3 percent of GDP, compared to the initial program target (adjusted for additional net external assistance) of 2.8 percent of GDP.
  - Slightly higher deficit reflects planned reprogramming of investment expenditure budgeted but not committed in 2012.
- Civil service wages:
  - Agreement: phased increase in the September 2012 basic wage for the civil service of 50 percent: 10 percent starting October 2012; 15 percent from January 2013; and 25 percent before end-2013.
  - Implementation of long-agreed special allowances for education and health personnel, creation of a Social Security Fund and a system of health insurance for civil servants.
  - National minimum monthly wage: GNF 440,000 (about $60); annual per capita GDP $565.
  - Fiscal impact: the salary increase accounts for about half of the programmed growth in the 2013 budgetary wage bill of 0.8 percent of GDP.
  - Wage composition and mitigation: increase applies only to about 40 percent of the budget’s wage bill; civil service wages account for about 65 percent of total wage bill; about 40 percent of total civil service pay consists of allowances that after a 10 percent increase in October 2012 will not be raised further during 2013.
- Civil service reform: authorities intend to maintain the budget’s medium-term wage bill at about 5.2 percent of GDP while improving productivity and addressing capacity constraints. A civil service reform plan to be developed with World Bank assistance for adoption by September 2013 (structural benchmark).

### Monetary, exchange rate, and financial sector policies
- Monetary conditions tightened in 2012: decline in domestic financing of the fuel sector; credit to private sector fell slightly; treasury-bill rates rose toward year-end.
- Liquidity overhang from 2009–10 high fiscal deficits is gradually disappearing.
- Policy focus for 2013: consolidate macroeconomic stability; keep gross official reserves close to three months of imports.

### External debt and debt management
- HIPC completion point: external debt stock reduction about $1.95 billion; multilateral relief $1.4 billion; Paris Club and additional relief $0.5 billion.
- Breach of continuous PC on no new nonconcessional external debt discussed above; authorities have taken corrective measures (EU technical assistance; public debt monitoring commission).

### Structural reform priorities (2013)
- Governance of the mining sector (including implementation of the new mining code by mid-2013).
- Improving the business climate.
- Public financial management.
- Electricity sector reforms and projects (including Kaleta hydroelectricity project).

### Program reviews and IMF staff recommendations
- IMF staff recommends:
  - Completing the second review under the ECF arrangement.
  - Approving a waiver for the nonobservance of the PC on no new nonconcessional external debt.
  - Approving modification of the PC on nonconcessional external debt.
  - Completing the financing assurances review.

*EXECUTIVE SUMMARY, May 6, 2013.*

### 12.      The central bank will maintain a cautious monetary policy stance despite the

### 12.      The central bank will maintain a cautious monetary policy stance despite the

### Monetary policy, inflation, and liquidity
- The central bank will maintain a cautious monetary policy stance despite the tightening liquidity situation (MEFP ¶29–30).
- Indicators:
  - Stagnation in credit growth and a fall in banks’ excess reserves indicate growing room for a relaxation of monetary policy.
  - Inflation has remained slightly higher than expected and upward risks from wage increases and political uncertainty have increased.
- Recent policy actions:
  - The BCRG reduced its main (signaling) policy rate from 22 to 16 percent in February, bringing it more in line with rates prevailing in the banking sector.
  - The BCRG has delayed reducing the reserve requirement until the downward trend in inflation is confirmed.
  - The BCRG will continue weekly foreign exchange auctions, aimed at avoiding large exchange rate fluctuations.
- Staff guidance:
  - The key criterion for relaxing monetary policy should be solid evidence of a persistent declining trend in inflation towards single digits, along with the maintenance of an adequate level of international reserves.

### Financial sector strengthening and supervision
- Progress and actions (MEFP ¶31):
  - With technical assistance from the IMF’s Regional Technical Assistance Center for West Africa (AFRITAC West), the BCRG has rebuilt its banking supervision department.
  - In 2012, it closed the small agricultural bank BADAM (in which the government held a 51 percent share); it will nominate a liquidator by June 2013 (SB).
  - The BCRG plans to double the initial minimum capital requirement for banks to avoid a proliferation of small banks.
  - The BCRG is reviewing the recommendations of a recently completed consultant’s study on the financial sector, for implementation in the second half of the year.

### BCRG financial position and governance
- Capital and reforms (MEFP ¶32):
  - Pending an evaluation of its balance sheet and future capital needs by the IMF’s Money and Capital Markets Department (MCM), the budget made a capital transfer to the BCRG equivalent to 0.6 percent of GDP in 2012.
  - A further infusion of 0.3 percent of GDP is planned for 2013 to raise the BCRG’s capital to its statutory requirement.
  - The BCRG continues to implement recommendations of the January 2012 safeguard assessment mission of the IMF’s Finance Department.
  - A new central bank act is expected to be submitted for government approval in the first half of 2013.
  - Monetary analysis and policy formulation are being strengthened with IMF technical assistance.
  - Delays in preparing accurate monetary data, because of the transition to a new accounting system, are being addressed.

### External debt management
- Strengthening measures (MEFP ¶35; 48):
  - A technical-level external debt monitoring commission was recently established.
  - The authorities will prepare a medium-term action plan by October 2013 (SB).
  - They will establish, before end-2013, a National Debt Committee that will prepare a national debt policy and a strategy for medium-term debt management, and then oversee their implementation.
  - With EU technical assistance, the authorities will prepare a procedures manual for the debt department and train staff on its application.
  - The authorities intend to seek only grants and concessional loans to meet their financing needs, but noted limited availability of concessional resources from lenders.
- Commercial creditor normalization:
  - Guinea’s debt to commercial creditors is in arrears; the government invited them for collaborative discussions to reach agreement based on the principle of "inter-creditor equity" and in line with the HIPC Initiative.
  - IMF staff believes this approach is consistent with the good faith criterion of the IMF’s lending into arrears policy.

### Structural reform priorities
- Main focus areas:
  - Tax administration and public financial management (PFM).
  - Reforms in the mining, electricity, and agricultural sectors.
  - Improving the business climate.
- Key measures (selected):
  - Revenue administration (MEFP ¶23): Revision of the tax and customs codes to incorporate tax incentives in the new codes and strengthen the value-added tax (VAT) system.
  - PFM (MEFP ¶34):
    - Adoption of the governance structure of the Special Investment Fund for exceptional mining revenue by end-June 2013 (SB).
    - Regularization of suspense accounts and production of the financial accounts for 2005–12, by end-2013 (SB).
    - Adoption of legal texts concerning public entities to make them consistent with the new budget framework law and the General Regulation on Budget Management and Public Accounting, by end-2013 (SB).
  - Business climate (MEFP ¶36–38): Government adopted a National Investment Policy Letter (prior action). Authorities will submit for parliamentary approval revisions to the Investment Code by end-June (SB), and related fiscal and customs laws by end-May (SB).
  - Mining sector (MEFP ¶39–42): The 2011 new mining code is expected to become operational following adoption and publication of implementing regulations and the standard mining agreement (SB for end-August 2013). These actions will improve regulatory stability and allow review of existing mining titles and conventions to advance.
  - Electricity (MEFP ¶43–45): Progress in strengthening EDG’s financial situation has been slow. Pending recruitment of a strategic partner, the government has put EDG under close financial supervision, ensuring its need for government financial support remains within budgeted amounts, and will adopt, following consultation with external partners, a new reform program by end-June 2013 (SB).
  - Agriculture (MEFP ¶46): Officials are reviewing reform measures taken in 2011–12 with World Bank assistance; an evaluation will be discussed during a national workshop tentatively planned for October 2013.

### Poverty Reduction Strategy Paper (PRSP) and program financing
- PRSP III (MEFP ¶16–17):
  - Guinea is finalizing its third PRSP, covering 2013–15.
  - PRSP III priorities: (i) strengthening democracy and the effectiveness of the state; (ii) accelerating diversified economic growth; (iii) increasing employment; and (iv) reducing regional inequalities.
  - The strategy was approved by the government on May 2, 2013.
  - Authorities plan a donor meeting in the last quarter of 2013 to seek financing for the PRSP priority action plan.
- Program monitoring and financing:
  - Authorities request a waiver for the PC on nonconcessional external borrowing; IMF staff proposes to modify that PC to take account of the four nonconcessional loans (Table 5).
  - Waiver supported because the four new loans do not jeopardize Guinea’s moderate risk rating of debt distress; high economic rate of return of the Kaleta hydroelectricity project; and corrective actions taken to prevent recurrence of breaching the PC.
  - The PC on nonconcessional debt would be modified to include a window for nonconcessional borrowing equal to the amount borrowed under the four nonconcessional loans ( ($363 million; 5.8 percent of GDP), to incorporate them transparently in the program.
  - IMF staff proposes PCs for end-December 2013 and updated indicative targets for end-September 2013. Proposed structural benchmarks for 2013 are set out in Table 3 of the MEFP.
  - The 2013 program’s financing requirements are expected to be fully met (Table 6; MEFP ¶47).
  - The bulk of the external current account deficit—mainly reflecting imports for the mining sector—will be financed by foreign direct investment.
  - For other external financing, the government intends to rely mainly on grants and concessional external loans (particularly from the World Bank, the African Development Bank, the Islamic Development Bank and the EU) and disbursements on the four loans included in the proposed new limited window for nonconcessional borrowing.

### Staff appraisal: findings, risks, and policy recommendations
- Macro-fiscal assessment:
  - Macroeconomic developments continue to be broadly positive: economic growth was relatively strong in 2012, driven by agriculture and services; continued tight fiscal and monetary policies contributed to a gradual decline in inflation; exchange rate was stable; gross official reserves have remained at a comfortable level.
  - Implementation of the ECF-supported program has been satisfactory; all but one of the PCs for end-December 2012 were observed (exception: PC on contracting nonconcessional debt).
  - Fiscal policy remains tight; domestic bank financing of the budget deficit continues to be limited to drawing down balances of the 2011 exceptional mining revenue.
  - Cash-based expenditure management remains important while PFM is being strengthened.
- Specific challenges and recommendations:
  - Containing budgetary subsidies is a major challenge:
    - Strengthen oversight of the electricity company and accelerate reforms to ensure financial viability, expand supply, and support growth.
    - Delay in aligning domestic fuel prices with import costs causes revenue loss; address this in a timely manner alongside targeted compensatory assistance to the poor.
  - Public sector wages:
    - 2012–13 increases in civil service wages can be financed under present projections.
    - Important to develop a structural and medium-term approach to public sector wages.
    - Timing of the third tranche of the wage adjustment (to be implemented in the second half of the year) should await reassurance that the wage bill envelope in the 2013 budget will be maintained and that inflation is trending toward the single digits.
    - Regular consultation with social partners and accelerating civil service reform are recommended.
  - Monetary policy:
    - Liquidity is tightening; a cautious monetary policy stance remains appropriate given wage increases and political uncertainty.
    - Relaxation of policy should await persistent declines in inflation towards single digits and maintenance of adequate international reserves.
  - External debt management:
    - Further strengthening needed; priority to improving procedures and their application and preparing a medium-term action plan.
    - Staff welcomes start of an EU-funded technical assistance project in debt management.
  - Structural reform urgency:
    - Significant downward risks highlight the importance of structural reform.
    - Continued progress in key areas will make Guinea more attractive for investors, promoting growth and poverty reduction.
    - Close high-level monitoring of reform implementation remains essential.

*INTERNATIONAL MONETARY FUND — GUINEA*

### 29.      The staff recommends completion of the second review under the ECF arrangement

### 29.      The staff recommends completion of the second review under the ECF arrangement

### Staff recommendations
- Complete the second review under the ECF arrangement and the financing assurances review.
- Approve the authorities’ request for a waiver for nonobservance of the PC on no new nonconcessional debt.
- Modify the performance criteria (PCs) to include a nonconcessional borrowing window.
- Set the proposed PCs for December 2013 and the indicative targets for September 2013.
- Approve the second disbursement under the ECF arrangement in the amount equal to SDR 18.36 million.

### Rationale and assessment
- Authorities have taken corrective measures to improve debt management to ensure that new loans comply with program undertakings.
- The impact on Guinea’s debt-sustainability and on the successful implementation of the program of the four new nonconcessional external loans is minor.
- The loan for the Kaleta hydroelectricity project is expected to yield a major economic return.

### Program-monitoring and performance-criteria highlights
- Recommendation to waive nonobservance of the PC on no new nonconcessional debt and to establish a limited nonconcessional borrowing window for program flexibility.
- Support for setting PCs for December 2013 and indicative targets for September 2013 to maintain program monitoring.

### Key macroeconomic and fiscal indicators (selected series from source tables)
- GDP at constant prices (2008–2016): 4.9-0.31.93.94.83.95.04.55.25.45.8
- GDP deflator (2008–2016): 14.16.820.219.714.712.96.39.99.66.36.5
- GDP at market prices (2008–2016): 19.76.522.524.420.217.311.714.915.412.012.7
- Consumer prices, average (2008–2016): 18.44.715.521.414.715.210.311.28.16.56.0
- Exports, f.o.b. (US$ terms) (2008–2016): 27.2-16.712.912.43.0-2.22.20.95.33.11.8
- Imports, f.o.b. (US$ terms) (2008–2016): 12.2-19.828.255.648.316.47.22.047.22.11.5
- Total revenue and grants (percent of GDP, 2008–2016): 16.116.515.720.222.922.924.022.724.023.623.8
- Total expenditure and net lending (percent of GDP, 2008–2016): 17.523.729.721.528.126.126.127.826.725.325.5
- Basic fiscal balance (percent of GDP, 2008–2016): 1.6-5.6-12.6-1.6-3.6-2.5-1.4-3.3-0.7-0.60.6
- Current account balance, including official transfers (percent of GDP, 2008–2016): -10.6-8.6-11.5-20.3-38.8-34.2-39.2-25.2-47.0-42.0-39.5
- Gross available reserves (months of imports, 2008–2016): 0.60.80.63.42.93.22.92.93.03.13.2
- Nominal GDP (GNF billions, 2008–2016): 20,78022,13327,11833,73940,49439,59045,21945,47952,47058,78266,273

### Program-specific targets and actuals (selected from performance table)
- Basic fiscal balance (floor): Sep. Act. -1,005; Sep. Indicative/Adjusted Est. -984; Jun. Act. -1,469; Jun. Indicative/Adjusted Est. -1,436; Dec. Targets include -982.
- Net domestic assets of the central bank (ceiling): Sep. Act. 3,756; Sep. Indicative/Adjusted Est. 3,802; Jun. Act. 4,331; Jun. Indicative/Adjusted Est. 4,283.
- Domestic bank financing of the government (ceiling): Sep. Act. 1,490; Sep. Indicative/Adjusted Est. 1,536; Jun. Act. 2,010; Jun. Indicative/Adjusted Est. 1,962.
- Net international reserves of the central bank (floor), US$ millions: Sep. Act. 463; Sep. Indicative/Adjusted Est. 379; Jun. Act. 382; Jun. Indicative/Adjusted Est. 250.
- New nonconcessional medium- or long-term external debt contracted or guaranteed by the government or central bank (ceiling), US$ millions: continuous PC with reported values Sep. Act. 0; Jun. Act. 0; Dec. Indicative shows 10 (Not Met in the period covered).

*Source: IMF staff report excerpt and accompanying tables.*

### 1. Gross financing requirements2,1702,7291,7973,0493,1202983

### _cr13192 - 1. Gross financing requirements2,1702,7291,7973,0493,1202983

### Gross financing requirements (US$ millions)
- Gross financing requirements: 2,170; 2,729; 1,797; 3,049; 3,120; 298; 3
- External current account deficit: 1,975; 2,509; 1,684; 3,006; 2,892; 294; 4
- Capital account balance: -41; -12; -12; -12; 0; 0; 0
- Debt amortization: 217; 813; 334; 475; 7
- Change in arrears, net: 250; 146; 139; 531
- Gross reserves accumulation: -21; 44; -47; 16; 17; 9; -19
- IMF repayments: -160; 0; 0; 0

### Available financing (US$ millions)
- Total available financing: 2,170; 2,672; 1,739; 2,991; 3,091; 298; 3
- Foreign direct investment, net: 538; 2,153; 1,164; 2,639; 2,828; 264; 3
- Identified disbursements: 286; 377; 443; 352; 263; 340
- Grants: 152; 237; 194; 213; 176; 161
  - Project: 96; 173; 88; 15; 48; 13; 4
  - Program: 56; 63; 106; 28; 27
- Loans: 134; 141; 248; 139; 88; 179
  - Project: 62; 102; 209; 139; 88; 179
  - Program: 72; 39; 39; 0; 0; 0
- Other flows: 99; 90; 0; 0; 0
- Debt relief: 348; 141; 133; 0; 0; 0
  - HIPC completion point debt relief: 1,902 (note: HIPC completion point debt cancellation: -1,902)

### Residual financing (US$ millions)
- Residual financing: 0; 58; 58; 58; 29; 0
- Of which: ECF disbursement: 58; 58; 58; 29; 0

Sources: Guinean authorities; and IMF staff estimates and projections.
Notes:
- 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.

### Indicators of Capacity to Repay the IMF (SDR millions, 2013–25; projections)
- Fund obligations based on existing credit — Credit outstanding by year:
  - 2013: 37.22
  - 2014: 37.22
  - 2015: 37.22
  - 2016: 37.22
  - 2017: 35.39
  - 2018: 27.54
  - 2019: 20.2
  - 2020: 12.85
  - 2021: 5.51
  - 2022–2025: 0; 0; 0; 0
- Percent of quota (existing credit):
  - 2013–2016: 34.76; 34.76; 34.76; 34.76
  - 2017: 33.04
  - 2018: 25.71
  - 2019: 18.86
  - 2020: 12
  - 2021: 5.14
  - 2022–2025: 0; 0; 0; 0
- Repayment of principal (existing credit):
  - 2013–2016: 0; 0; 0; 0
  - 2017: 1.84
  - 2018: 7.85
  - 2019–2021: 7.34; 7.34; 7.34
  - 2022: 5.51
  - 2023–2025: 0; 0; 0
- Charges and interest (existing credit):
  - 2013: 0.01
  - 2014: 0.01
  - 2015: 0.1
  - 2016: 0.1
  - 2017: 0.1
  - 2018: 0.09
  - 2019: 0.07
  - 2020: 0.05
  - 2021: 0.03
  - 2022–2025: 0.01; 0.01; 0.01; 0.01

- Fund obligations from prospective drawings under the new ECF — Credit outstanding:
  - 2013: 36.72
  - 2014: 73.44
  - 2015–2016: 91.80; 91.80
  - 2017: 91.80
  - 2018: 89.96
  - 2019: 80.78
  - 2020: 64.26
  - 2021: 45.90
  - 2022: 27.54
  - 2023: 11.02
  - 2024: 1.84
  - 2025: 0.00
- Percent of quota (prospective drawings): 34.32; 68.64; 85.79; 85.79; 85.79; 84.07; 75.50; 60.06; 42.90; 25.74; 10.30; 1.72; 0.00
- Repayment of principal (prospective drawings):
  - 2013–2016: 0; 0; 0; 0
  - 2017: 0
  - 2018: 1.84
  - 2019: 9.18
  - 2020: 16.52
  - 2021: 18.36
  - 2022: 18.36
  - 2023: 16.52
  - 2024: 9.18
  - 2025: 1.84
- Charges and interest (prospective drawings):
  - 2013–2014: 0; 0
  - 2015: 0.22
  - 2016: 0.23
  - 2017: 0.23
  - 2018: 0.23
  - 2019: 0.22
  - 2020: 0.18
  - 2021: 0.14
  - 2022: 0.09
  - 2023: 0.05
  - 2024: 0.01
  - 2025: 0

- Total obligations based on existing and prospective credit — Credit outstanding:
  - 2013: 73.94
  - 2014: 110.66
  - 2015–2016: 129.02; 129.02
  - 2017: 127.19
  - 2018: 117.5
  - 2019: 100.98
  - 2020: 77.11
  - 2021: 51.41
  - 2022: 27.54
  - 2023: 11.02
  - 2024: 1.84
  - 2025: 0
- Percent of quota (total obligations): 69.04; 103.33; 120.47; 120.47; 118.76; 109.71; 94.29; 72; 48; 25.71; 10.29; 1.71; 0
- Percent of gross foreign available reserves (total obligations): 18.86; 27.50; 24.77; 25.29; 20.39; 17.12; 13.53; 10.06; 6.51; 3.38; 1.30; 0.21; 0.00

- Total payments to the IMF (repayment of principal plus charges and interest):
  - 2013: 0.01
  - 2014: 0.01
  - 2015: 0.33
  - 2016: 0.33
  - 2017: 2.17
  - 2018: 10
  - 2019: 16.81
  - 2020: 24.1
  - 2021: 25.87
  - 2022: 23.97
  - 2023: 16.58
  - 2024: 9.2
  - 2025: 1.84

- Percent of exports of goods and services (total payments to the IMF): 0.00; 0.00; 0.03; 0.03; 0.10; 0.31; 0.39; 0.49; 0.49; 0.41; 0.28; 0.16; 0.03
- Percent of external public debt service (total payments to the IMF): 0.03; 0.03; 0.78; 0.69; 4.22; 15.70; 23.09; 28.59; 31.02; 36.49; 24.75; 14.22; 2.85

Memorandum items:
- Prospective purchases: 36.72; 36.72; 18.36
- Exports of goods and services, US$ millions (series): 1,689.67; 1,774.532; 1,829.389; 1,865.291; 3,226.36; 4,877.668; 6,474.797; 7,418.531; 8,022.866; 8,698.936; 8,767.604; 8,841.301; 8,920.896

Sources: Guinean authorities; and IMF staff projections.

### Proposed Schedule of Disbursements and Timing of Reviews Under the EFC Arrangement, 2012–15 (SDR)
- Individual disbursements: 17.1 percent of quota; 18.36 Millions of SDRs
  - February 23, 2012: Disbursed following Executive Board approval of the three-year arrangement under the ECF.
  - September 25, 2012: Disbursed following Executive Board completion of the first review under the ECF arrangement.
  - May 20, 2013: Observance of all relevant performance criteria, including the performance criteria for December 2012 and completion of the second review under the ECF arrangement.
  - 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.
  - 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.
  - 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.
  - 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: 120.0 percent of quota; 128.52 Millions of SDRs

Source: IMF staff.

### Letter of Intent and Program Summary (Conakry, May 3, 2013)
- Program implementation and outcomes:
  - Continued tight fiscal and monetary policies contributed to a further decline in inflation; exchange rate stable; international reserves satisfactory.
  - Real GDP growth: close to 4 percent in 2012.
  - Closure of an alumina refinery and slowdown in investment in a major mining project negatively affected growth.
- Performance criteria and breach:
  - End-December 2012 quantitative performance criteria met, except continuous performance criterion of no contracting of new medium- or long-term nonconcessional external debt.
  - Four loans contracted: three small loans totaling about $28 million; one larger loan of $335 million (Exim Bank of China) for the Kaleta hydroelectric dam.
  - The $335 million loan was deemed concessional in early-December 2012 negotiations but became nonconcessional at signing in January 2013 due to a change in the discount rate on December 15, 2012; resulting grant element: 33.2 percent.
  - Government requests a waiver for nonobservance of the performance criterion on no new medium- or long-term nonconcessional external debt.
- Program commitments for 2013:
  - Maintain tight fiscal and monetary policies aiming at reducing inflation to the single digits.
  - Complete several structural reforms in 2013 (including mining sector and investment incentives); accelerate restoring viability of the electricity sector.
  - Government requests completion of the second review of the ECF-supported program and a third disbursement of SDR 18.36 million (17.1 percent of quota).
- Corrective and safeguard measures:
  - Creation of a technical public debt monitoring committee in April 2013 to ensure external loans comply with a grant element of at least 35 percent before signature (prior action under the ECF-supported program).
  - Debt Department of the Ministry of Economy and Finance to receive technical assistance financed by the EU and training from AFRITAC West.

### Macroeconomic Results and 2012 Program Implementation (key figures and outcomes)
- Real GDP growth: around 4 percent in 2012 (program target: 4.8 percent).
- Inflation: 12.8 percent in December 2012 year-on-year; annual average 15.2 percent (program target: 12 percent; end-December 2011: 19 percent).
- Fiscal basic balance deficit: 2.5 percent of GDP (program target: 3.6 percent of GDP).
- Net bank credit to the government: managed to meet performance criterion, including net repayment of treasury bills of about GNF 400 billion (almost 1 percent of GDP) to commercial banks.
- BCRG international reserves: equivalent of more than three months of imports at end-December 2012.
- Nonconcessional loans details:
  - Kaléta hydroelectric dam (Exim Bank of China): $335 million; grant element 33.2 percent.
  - OPEC Fund loans for agriculture ($10 million) and water ($7 million) with grant elements between 22–30 percent.
  - BIDC loan: $10.53 million for electricity distribution network rehabilitation; grant element between 22–30 percent.
- Fiscal revenue and expenditures:
  - Government revenue exceeded projections by more than 0.9 percent of GDP.
  - Loss in fuel taxes estimated at 1.8 percent of GDP in 2012.
  - Expenditures lower than budgeted; wage bill savings from retirements and postponements; investment expenditures below forecasts due to procurement changes and postponed contracts.
- Structural reform progress: considerable progress made, though some structural benchmark actions experienced delays.

*Sources: Guinean authorities; IMF staff estimates, projections, and related documents in the provided content.*

### 11.      In 2012, the BCRG maintained its monetary policy aimed at further reducing

### 11.      In 2012, the BCRG maintained its monetary policy aimed at further reducing

### Monetary policy and financial sector developments (2012)
- Policy interest rate and reserve requirement ratio remained unchanged at 22 percent.
- Central bank organized weekly foreign exchange auctions, selling a total of $251.6 million in 2012, equivalent to a net liquidity contraction of GNF 1,728 billion.
- Indicators show interest rates fell in the banking system, but bank credit to the private sector declined in 2012 by 4.3 percent (compared to an increase of 94 percent in 2011).
- Broad money stabilized relative to end-December 2011, indicating the monetary policy objective of absorbing excess liquidity is being achieved.
- Exchange rate movements in 2012:
  - Guinean franc appreciated by 1.7 percent against the U.S. dollar.
  - Guinean franc depreciated by 0.6 percent in relation to the euro.
- The average spread between the official and parallel foreign-exchange markets fell from almost 11 percent in June 2011 to almost zero during most of 2012.
- Financial sector strengthening:
  - New draft banking law adopted by the government in December 2012 and sent to the CNT.
  - BCRG began implementing a payment incidents clearing house; disseminated new instructions on microfinance institutions; strengthened insurance sector regulation.
  - With AFRITAC West assistance, supervision of banks and microfinance institutions was strengthened; 16 young inspectors recruited in late 2012.
  - Decision to liquidate the African Agriculture and Mining Bank (BADAM) and withdraw its license.
  - New independent auditor approved monetary statistics used to evaluate program performance as of June 30, 2012.

### Debt relief and external debt restructuring
- HIPC completion point reached in September 2012.
- Paris Club creditors agreed in October 2012 to cancel 99 percent of Guinea’s eligible external public debt on exceptionally favorable terms.
- Bilateral agreements:
  - United States cancelled 100 percent of the arrears and outstanding debt owed by Guinea in January 2013.
  - France signed a bilateral agreement in early February 2013 cancelling 100 percent of its debt except for debt eligible for conversion into C2D; two C2Ds were proposed for a total amount of €171 million to be converted into grants for development projects.
- Multilateral creditors:
  - Following the World Bank, the European Investment Bank and the African Development Bank cancelled outstanding debt in line with the Multilateral Debt Relief Initiative (MDRI) in early November 2012.
- Government engaged commercial creditors consistent with IMF policy on lending to countries in arrears, emphasizing transparency, equity between creditors, and collaborative discussions.

### Structural reforms implementation
- Government implemented and monitored structural reforms at the highest level, with regular Cabinet review chaired by the Prime Minister.
- Majority of structural benchmarks (SBs) under the program were met; some SBs faced delays but were expected to be completed during the first half of 2013.
- Mining sector reforms:
  - Draft technical amendments to the 2011 Mining Code sent to the CNT in March 2013 and adopted in April 2013; adoption delayed by extended consultations.
  - Adoption and publication of implementing regulations for the new Code and the standard mining convention expected shortly.
- Fuel-price adjustment mechanism (continuous SB from January 1, 2013) could not be implemented owing to an unfavorable social context.

### Public financial management and tax administration reforms
- Adopted a three-year rolling public investment program (PIP) 2013-15 in late September 2012 with AfDB and UNDP support.
- Promulgated Budget Framework Law (LORLF) on August 6, 2012, drafted with IMF Fiscal Affairs Department assistance.
- Key public financial management actions:
  - Promulgated a new Government Procurement Code.
  - Signed a new decree on General Regulations of Budgetary Management and Public Accounting (RGGBCP); began procedural manual and a decree on governance and transparency in budget preparation and execution.
  - Instituted a new medium-sized enterprise unit in the National Tax Directorate (DNI) and extended scope of VAT to cover medium-sized enterprises (in April 2013).
  - Signed a framework agreement between the BCRG and the Ministry of Economy and Finance updating the 2010 securitization agreement (April 2013).
  - Consolidated operational rules of the Treasury Single Account (TSA) with IMF assistance.
  - Launched an audit of domestic payment arrears with support from AFD.
  - Strengthened procedures for closing government accounts at December 31, 2012, via new closure instructions disseminated through the accounting network.

### PRSP implementation and development planning
- Extended PRSP II to cover 2011–12 to pursue goals not attained during 2009–10 military regime; emergency poverty-combat program initiated.
- Government’s Five-Year Development Plan 2011–15 consistent with extended PRSP II, including priority public investment program in infrastructure, mining, industrial, water and energy, tourism, education and health sectors.
- Annual progress report on PRSP II implementation for 2011 submitted to IMF and World Bank in May 2012 showing continued increase in expenditures in priority sectors.
- PRSP III (2013–15) completed and adopted by government on May 2, 2013; prepared through an inclusive participatory process.
- PRSP III structure:
  - Part I: assessment of poverty and lessons from PRSP I and II.
  - Part II: government vision and sectoral strategies around six pillars: (i) macroeconomic stability; (ii) governance and institutional reforms; (iii) development of economic infrastructures; (iv) rural development; (v) mining and industrial development; and (vi) human capital development.
  - Defines implementation process, priority action plan, communication program, and impact-evaluation mechanisms against the Millennium Development Goals.

### Macroeconomic outlook and 2013 objectives
- Output prospects for 2013:
  - Agriculture growth (particularly rice) expected to remain strong.
  - Mining sector expansion expected due to recovery of alumina production from the second half of 2013.
  - Objective for real GDP growth rate for 2013 is 4.5 percent.
  - Major uncertainties: delays in the Simandou mining project and impact of legislative elections on investment.
- Inflation and reserves:
  - Target to reduce consumer price index increase to 9.7 percent year-on-year by December 2013, corresponding to an annual average rate of 11.2 percent.
  - Central bank foreign exchange reserves should be equivalent to at least 2.9 months of imports by end-2013.
- Policy stance: continuation of rigorous macroeconomic policies and structural reforms under the ECF-supported program; use savings from HIPC debt relief and remaining Special Investment Fund (SIF) funds to finance priority expenditure programs in energy, basic infrastructure and social spending.

### Fiscal policy and public finance projections for 2013
- Fiscal objective: avoid net bank financing of the budget other than drawing down resources from the 2011 exceptional revenue.
- 2013 budget approved by CNT in December 2012 and updated provisions indicate overall targets remain attainable.
- Basic balance deficit expected to rise from 2.5 percent of GDP in 2012 to 3.3 percent in 2013.
  - This 3.3 percent is consistent with the initial program objective of 1.4 percent of GDP for 2013 after adjustments for additional net external financing and expenditure shifts financed by 2011 exceptional mining revenues.
- Special Investment Fund (SIF) resources: $250 million by end-2012, to be used on a staggered basis in 2013-15.
- Budget revenue projected to drop from 20.1 percent of GDP in 2012 to 19.6 percent in 2013.
  - Projections assume strong collection efforts but losses on fuel taxes estimated at 0.7 percent of GDP due to delayed fuel price adjustments.
- Key revenue measures:
  - Cancellation of tax benefits for noncompliant companies under the Investment Code.
  - Operationalization of medium-sized enterprise unit within DNI and extension of VAT scope.
  - Clearance of backlog of VAT credits by end-September 2013.
  - Introduction of monthly fuel-price adjustment mechanism starting by August 2013 (SB); adjustments to be set by Joint Committee on Petroleum Products.
  - Planned framework social protection strategy to mitigate fuel-price adjustment impact on poverty.

### Tax and customs administration action plans and priorities
- DNI action plan focuses on:
  - Streamlining organization, harmonizing and simplifying tax legislation, promoting taxpayer compliance, strengthening employee skills, expanding tax base, and strengthening management and supervision.
- Directorate-General of Customs (DGD) action plan focuses on:
  - Strengthening the customs agency, improving human and financial resources, modernizing procedures, and strengthening risk-based control.
- Priority activities:
  - Revision of the General Tax and Customs Codes and the Customs Tariff to reflect recent tax changes and incorporate tax incentives currently in the Investment Code.
  - Preparation of a study with IMF assistance on reforming real estate taxation.
  - Operationalization of the Tax Appeal Commission.
  - Implementation, by end-September 2013, of a VAT refund system to ensure timely refunds with safeguards.
  - Implementation of risk-based customs control using SYDONIA ++ declarations, followed by SYDONIA World, and computerization of customs offices at inland border posts.
  - Partnership with the private sector for gradual payment of customs duties with guarantees by uncollected goods.
  - Interconnection of computers between the two tax agencies and other administrations (National Procurement Directorate, Treasury, BCRG) to speed services and limit fraud.

### Expenditure management and civil service wages
- Current expenditure projected to decline slightly in percent of GDP in 2013 compared to 2012 outcome despite sharp increase in civil service wages.
- Wage bill:
  - Declined sharply in percent of GDP during 2012, projected to return in 2013 to about the same level relative to GDP as in 2011.
  - Government intends to maintain the wage bill at around 5.2 percent of GDP over the medium-term.
  - Following agreement with unions, civil service basic wages to be raised by 50 percent over the period October 2012–December 2013.
  - Government to hire about 10.000 new employees (about 10 percent of the end-2012 payroll) in priority sectors: education, health, environment, justice, and police.
- Measures to offset wage increases:
  - Harmonizing civil service database and payroll administrations.
  - Securing the database through a biometric census with World Bank support.
  - Removing duplicate and fictitious workers, better monitoring of contractual workers.
  - Strengthening recruitment practices, establishing line managers, and improving employee management with World Bank support.
  - Government intends to adopt a civil service reform plan before end-September 2013, based on biometric census results and HCREMA action plan (SB).

### Box 1 — Details on the increase in the 2013 wage bill
- Wage increase arrangement agreed in December 2012:
  - 10 percent starting from October 2012.
  - 15 percent from January 2013.
  - 25 percent before end-2013.
- Special measures starting January 2013:
  - Implementation of special employment conditions (charters) for education and health personnel agreed in 2008.
  - Creation of a Social Security Fund and a system of health insurance for civil servants.
  - Introduction of a minimum monthly wage of GNF 440,000 (about $60; 1.3 times monthly per capita GDP) for public and private sector.
- Fiscal impact:
  - Salary increase accounts for about half of the budgeted growth of 35 percent (0.8 percent of GDP) in the 2013 wage bill.
  - Increase applies to about 40 percent of the budget’s wage bill because civil service wages account for about 65 percent of total wage bill and allowances (about 40 percent of civil service pay) will not be raised further after October 2012.
  - Other elements: full implementation of special charters accounts for 23 percent of the increase; additional recruitment accounts for 19 percent.
- Guinea: Details of the Increase in the 2013 Wage Bill (GNF billions; In percent of total)
  - Total increase in the 2013 wage bill 609.1 100
  - Civil service wage increase 297.3 49
  - Special charters 139.5 23
  - Adjustment to minimum wage 15.5 3
  - Recruitments 113.9 19
    - Education 64.6 11
    - Health 5.1 1
    - Security 30.0 5
    - Justice 0.2 0
    - Environment 14.0 2
  - Promotions 77.7 13
  - Retirement-34.8-6
- Source: Guinean authorities.

*Source: IMF staff report (excerpted content unit).*

### 26.      In 2013, the government will incur a number of exceptional expenses to improve tax

### 26.      In 2013, the government will incur a number of exceptional expenses to improve tax 

### Exceptional expenses and banking sector operations
- Clear backlog of VAT credits: GNF 45 billion; 0.1 percent of GDP.
- Budgetary credits expected to finance operating expenses of SOGUIPAMI (government-owned entity to manage government economic and financial activities in the mining sector).
- Provision in budget for liquidation of BADAM: GNF 20 billion.
  - BCRG will appoint a liquidator for BADAM by the end of June 2013, under terms of reference to ensure:
    - Advances from BCRG to BADAM will be reimbursed (SB).
    - Deposits up to GNF 10 million will be reimbursed (SB).
  - The liquidator will recover assets of the bank in liquidation and of its managers.
- Projections for 2013 include the second tranche of the recapitalization of the BCRG: GNF 138 billion.

### Domestically and externally financed investment (2013)
- Domestically financed investment expenditure expected to drop slightly to 6.6 percent of GDP in 2013.
  - Fall reflects lesser availability of financing from the 2011 exceptional mining revenues.
  - During 2012, the equivalent of $250 million of the exceptional revenue was used, mainly to finance projects in the electricity sector.
  - 2013 budget provides for the use of $125 million (2.5 percent of GDP) from exceptional revenue, which is half of the exceptional revenue transferred to the SIF in 2012.
- Reduction mitigated by:
  - Retargeting external budgetary assistance toward investments.
  - Reprogramming expenses not executed in 2012, specifically for installation of new thermal power generating plants.
- Projects financed from SIF resources are based on the three-year public investment program prepared in 2012.
  - With World Bank assistance, government will set up SIF governance structure to make the fund operational by June 2013.
- Projections for externally financed investment: 3.4 percent of GDP.
  - These projections assume EU financing under the 10th European Development Fund (EDF) that is contingent upon legislative elections will remain available.

### Budget financing and debt relief
- Budget expected to be fully financed, helped by debt relief from achievement of the HIPC completion point.
- External debt service savings from HIPC completion point, the MDRI, and additional relief from bilateral creditors estimated at about $203 million.
- Budget includes grants associated with the debt reduction and development contracts (C2Ds) with France to finance jointly agreed projects.
  - Under the C2Ds, Guinea will make debt service payments on debts under the C2D which will be returned as grants to finance development projects.
- Government received $90 million in budget support from Abu Dhabi, targeted on the electricity and agriculture sectors.
- Government plans a consultative group meeting of donors and private investors towards the end of 2013 in Abu Dhabi to potentially generate additional financing.
- Net bank financing of the Treasury will be avoided, other than:
  - Planned use of SIF resources.
  - Remainder (outside the SIF) of deposits from the 2011 exceptional mining revenue, amounting to $43 million.

### Monetary policy objectives and instruments
- Main objective: lower inflation; BCRG will focus on containing reserve money growth.
- In absence of indirect instruments, interventions in weekly foreign exchange auctions (marché interbancaire des changes—MIC) will continue as main monetary policy instrument, allowing BCRG to control liquidity by selling foreign exchange within limit of target for international reserves.
- Observations:
  - Sharp drop in the inflation rate in 2012.
  - Decline in bank lending.
  - Reduction in banks’ demand for treasury bills while rates increased — indicating bank liquidity is drying up.
- Policy actions:
  - BCRG lowered central bank’s policy rate by six points to 16 percent on February 28, 2013 (policy rate mainly serves a signaling function).
  - Maintained a spread of six percentage points for the interest rate on special overdrafts at the BCRG to encourage interbank market development.
  - Further loosening (reducing reserve requirement) will depend on evidence of sustained downward trend in inflation and stability in international reserves.

### Exchange rate policy and MIC transparency
- Exchange rate largely market-determined; BCRG interventions limited to weekly auctions.
- Weekly offered amounts in the MIC have fluctuated very little; banks’ purchases mainly used to satisfy marginal needs.
- BCRG will adopt new regulations to clarify MIC operating regulations (modalities for allocating foreign exchange and setting the exchange rate), based on IMF technical assistance to enhance transparency.

### Financial sector strengthening and supervision
- BCRG to continue strengthening banking supervision with IMF technical assistance.
- Key measures:
  - Adoption of a plan for recapitalization of banks not compliant with minimum capital requirement.
  - Increase minimum capital requirement for banks from GNF 50 billion to GNF 100 million.
  - By end-December 2013, central bank will adopt a plan for liquidation of banks that have not complied with recapitalization plans.
  - Study feasibility of setting up a deposit insurance fund.
  - Prepare new draft chart of accounts for banks in accordance with new banking law, targeted for completion by end-2014.
- Plans to strengthen supervision of microfinance institutions and the insurance sector.
- A study on development of the financial sector (with assistance from AfDB, UNDP, and other partners) was recently completed; recommendations expected to be adopted by government by June 2013.

### BCRG financial position, safeguards, and governance
- Planned second capital contribution for the budget would bring central bank’s capital up to the statutory minimum in 2013.
  - A further increase in bank’s capital may be needed to align with growing banking system.
  - BCRG requested IMF’s Monetary and Capital Markets Department to prepare a financial assessment of its entire balance sheet to more precisely determine additional capital requirements.
- BCRG will define investment policy, set up trading room for foreign exchange investments, and train staff with IMF and World Bank technical assistance.
- New external auditors will review agreed procedures to validate net domestic assets and net international reserves indicated in the December 31, 2012 monetary survey.
  - New independent auditor will certify monetary data used to evaluate the program’s performance on December 31, 2012 and audit central bank’s accounts for December 31, 2012 by end-June 2013; these accounts will subsequently be published on the BCRG’s external web site.
- In March 2013, BCRG received comments from IMF’s Legal and other Departments on a new draft central bank act, intended for submission for government approval in the first half of 2013.

### Structural reform priorities (2013)
- Structural reform critical to remove growth bottlenecks, reduce poverty, and unlock natural resources.
- Expected completions in 2013 include reforms in the mining sector and revision of the investment code.
- Continued progress in public financial management (PFM) and intensified efforts to restore viability of the energy sector.
- Agricultural sector reforms will include evaluation of effectiveness of previous measures.

### Fiscal management action plan (selected measures and timelines)
- By end-June 2013:
  - Finalize transfer of accounts to be integrated into the Treasury Single Account (TSA) and perform weekly leveling of balances in credit accounts of financial administrations in the account of the National Treasury Directorate (DNT), except bank accounts of public accountants in the regions.
  - With World Bank technical assistance, put SIF governance structure in place to be operational by end-June 2013 (SB), including management committee, consultative and monitoring committee, and executive secretariat; submit projects for financing under 2013–15 triennial public investment program.
- Produce and disseminate accounting and budgetary procedures under new regulatory framework to units executing the government budget.
- Regularize suspense accounts and produce administrative and general financial management accounts for 2005-2012 by end-December 2013 (SB).
- Adopt new order to limit use of special budget execution procedures, providing modalities for regularization pursuant to new regulatory framework.
- Reintroduce oversight of budget implementation through budget review laws; prepare administrative and management accounts for 2010–12 to submit draft expenditure laws for 2010, 2011, and 2012 to Parliament.
- Adopt public investment program for 2014-16, based on development partners’ recommendations.
- By end-October 2013, adopt implementing regulations for the Procurement Code adopted by the CNT and promulgated in 2012.
- Adopt procedural manual for budgetary management and public accounting, and the computerization master plan; with development partner assistance, computerize expenditure chain and public accounting with real-time access for authorized personnel.
- Adopt decree on budgetary governance and transparency—the second implementing regulation of the LORLF—setting rules on formulation of budgetary policy and preparation of budget laws.
- Adopt orders related to government chart of accounts and budget nomenclature to be applied for first time in fiscal year 2014.
- Prepare functional budgetary classification targeting priority expenses.
- By end-September 2013, prepare a plan to clear domestic payment arrears, based on findings of ongoing audit supported by AFD.
- Implement regulations requiring that expenditure commitments cannot be made after November 30, and complete payments on related expenses by January 31 of the following year, limiting overflow of 2013 expenses into fiscal 2014; transactions under special procedures will be limited.

### External debt management and statutes of public entities
- By end-December 2013, adopt revisions to statutes of public entities to align with new LORLF and RGGBCP (SB).
  - Amend Order O/91/025 of March 11, 1991 and Decree D92/133/PRG/SGG of May 26, 1992 to control recourse to borrowing and limit budget risks.
  - Submit draft revision of Law L/93/021/CTRN/SGG of May 6, 1993 on public administrative entities (EPAs) to Parliament to forbid EPAs from borrowing.
  - Government has requested IMF technical assistance for this purpose.

### Improving the business climate and investment framework
- Continue review of Investment Code with World Bank, IFC, and IMF technical assistance.
  - Government decided to separate investment regulation from tax incentives:
    - New Investment Code limited to nontax regulations.
    - All tax and customs incentives to be included in General Tax Code, Customs Code, and Customs Tariff.
- Draft national private investment policy letter prepared in September 2012 workshop; adopted by government in March 2013 (prior action).
- Key 2013 actions:
  - Submit draft law on tax and customs incentives to Parliament by end-May 2013 (SB); law will encompass all tax and customs incentives for private investment and define precise triggering thresholds.
  - Submit draft law revising the Investment Code to Parliament by end-June 2013 (SB); limited to nontax and non-customs incentives.
  - Prepare, with IMF and IFC assistance, and submit to Parliament new General Tax and Customs Codes and new Customs Tariff incorporating tax incentives for private investment between September 2013 and June 2014.
- Pending parliamentary adoption, National Investment Commission (CNI) will continue to operate under Ministry of Industry and SMEs.
- Government will set up private-sector reform coordination unit in Ministry of Industry and SMEs to monitor reforms.
- To operationalize private investment promotion agency (APIP), government will appoint executive board and nominate deputy managing director and heads of four departments before end-June 2013.

### Business environment and legal system reforms
- Guinea rose three places on “Doing Business” indicators ranking in 2013.
  - Improvement resulted from intensified reforms on three indicators during 2012 and first four months of 2013, based on performance criteria: (a) the delays; (b) the number; and (c) the cost of procedures, while monitoring effective implementation.
  - For remainder of 2013, government will focus on remaining four indicators and work with private sector to streamline professional organizations, including organizing a round table in 2013 with development partner support and participation of all private sector stakeholders.
- Strengthening legal system:
  - Maintain continuous training program for judges and court officers in 2013.
  - Continue capacity building for associations of attorneys, notaries, court clerks and auctioneers, and accounting experts and auditors to execute court decisions more effectively and strengthen shareholder control of enterprise management and accounts.
  - Submit draft anticorruption law to Parliament by end-September 2013, transposing provisions of United Nations and African Union conventions on controlling corruption into domestic law.
  - Launch second survey to evaluate level of corruption by end-December 2013.
  - Issue decree on operation and duties of National Financial Information Processing Unit (CENTIF) by end-June 2013 to provide human, financial and technical resources, pursuant to Articles 19 and 20 of law to combat money-laundering and financing of terrorism.

### Mining sector policy, infrastructure, and contract review
- Mining policy focus: develop investments to promote growth and employment, support projects transitioning to production, foster exploration to diversify resources, and encourage local processing to enhance added value and poverty reduction.
- With World Bank support:
  - Commission study on master plan for mining sector-related infrastructure (port and rail), expected finalized in September 2013.
  - Commission study on organization of artisanal gold exploration, expected finalized by end-December 2013.
- Modernize Mining Promotion and Development Center (CPDM) information system to maintain comprehensive and updated mining cadaster and permits database.
- Government will take delivery of findings of geological study.
- Review of existing mining contracts:
  - Adoption of amendments to mining code by CNT in April 2013 removed final obstacle to renegotiation process.
  - Technical Committee charged with reviewing mining titles and agreements will publish its work program by mid-2013; supported by four international law firms with legal, technical, and financial skills.
  - Technical Committee published all mining conventions on its web site to promote transparency.
  - Audit of 18 mining companies whose contracts will be subject to review will be finalized by end-December 2013.
  - Renegotiating process for three priority contracts scheduled to be finalized by end-2013, together with adoption of outcomes by Strategic Committee and immediate implementation.
  - With AfDB assistance, Technical Committee will hire a financial analyst to guide financial models used in renegotiation process.
  - Renegotiation of all mining titles to be renegotiated is scheduled to be finalized in 2014.

*Source: IMF staff report content provided in the supplied document excerpt.*

### 41.      The government’s policies will continue to focus on improving the governance of

### 41.      The government’s policies will continue to focus on improving the governance of

### Mining sector — governance, licensing, and projects
- Adopt and publish the implementing regulations of the new mining code as well as a model mining contract by end-June (SB).
- Audit of the mining cadaster led to withdrawal of 818 inactive permits; government is actively seeking professional partners to reallocate the 818 inactive permits.
- Reallocation process will be transparent and consistent with the stipulations of the mining code.
- Preparation of the petroleum code and its implementing regulations launched with AfDB support; new petroleum code slated to be adopted by the government and submitted to Parliament by September 2013.
- Facilitate exploration initiatives, including the Tullow Oil plc deepwater well project with drilling scheduled to start by end-June 2013.
- Government expects to finalize the investment framework for the Simandou South project and specify the financing strategy “soonest.”
- Compagnie de Bauxite de Guinée (CBG), in which the government holds a 49 percent share, concluded an agreement requiring a substantial increase in production; World Bank assisting government in evaluation of CBG’s worth to inform financing arrangements for increasing production capacity.
- Government will agree on a timetable with Rusal for bauxite mining in the Dian-Dian concession and for resumption of work at the Friguia alumina factory.

### SOGUIPAMI institutional reform
- Reaffirm commitment to reform institutional framework of SOGUIPAMI with World Bank assistance to:
  - (i) limit SOGUIPAMI activities to management of the state’s portfolio of mining assets, with the Treasury retaining ownership of state securities and shares; and
  - (ii) define its relationship with the Ministry of Economy and Finance and the Ministry of Mines.
- First request for bids for a consultant was not successful; a second request is under preparation.
- Due to delays, government aiming at adopting and implementing study recommendations by end-December 2013 (SB).
- Interim measure: a Steering Committee will ensure SOGUIPAMI activities remain within budget law allocations and conform with rules governing public entities.
- By end-June 2013, the Steering Committee will meet to decide on SOGUIPAMI’s business plan, including conditions for acquisition of geodetic data to streamline use of resources for mining exploration.

### Energy Sector — objectives and short- to medium-term measures
- Medium- to long-term objectives:
  - (i) increase access to electricity for the general population;
  - (ii) improve governance of EDG; and
  - (iii) reduce dependence on fossil fuels, especially by developing Guinea’s large potential for hydroelectricity.
- Over time, government intends to withdraw from commercial activities and open up the sector to competition.
- Short- and medium-term measures included in the recovery plan for the electricity sector.

### Electricity company (EDG) governance and operational measures
- For 2013, priority is improving governance of EDG.
- EDG placed under supervision of an oversight board in March 2013; board assisted by a financial controller who will:
  - supervise EDG’s financial management daily;
  - ensure EDG’s expenses remain in line with its revenue; and
  - ensure the government subsidy of a maximum of GNF 250 billion is strictly adhered to.
- Commercial and demand management improvements to include:
  - installing meters: 150,000 meters in three years at a cost of $8.3 million;
  - installing low consumption bulbs: close to two million lamps.

### Electricity sector restructuring and donor financing
- Updated action plan for restructuring prepared with World Bank assistance; five priority projects:
  - (i) rehabilitation and strengthening of hydroelectric production;
  - (ii) rehabilitation of thermal power plants Tombo III and V in Conakry;
  - (iii) support to reform of EDG’s governance, including establishment of a management contract with a strategic operator;
  - (iv) restructuring and strengthening of the sector through technical advice to the reform of the electric power sector; review of the electricity law; adoption of a law on public-private partnerships in Guinea; and
  - (v) rehabilitation and strengthening of the electric power transport network.
- Government presented five projects at a Donor Round Table on April 19, 2013 in Washington, D.C., to seek external financing estimated at about $280 million; donors agreed to start preparing respective support with a view to making them available in 2014.

### Agricultural sector — objectives, evaluation, and planning
- Objective: relaunch agriculture to achieve food self-sufficiency by 2014.
- 2012 focus: ensure assistance sustainability by raising loan collection rate and controlling budget subsidies.
- Recent increases in food crop production (in particular rice) mainly attributable to increased area under cultivation rather than expected yield improvements.
- Government will carry out an in-depth evaluation, including a technical and financial audit of the last two seasons, to identify reasons yields did not substantially improve.
- Audit will examine distribution of subsidies to farmers by income level to assess program equity and contribution to poverty reduction.
- Evaluation, including findings of a public expenditure review by the World Bank, expected to be completed by end-June 2013; findings to be discussed at a national workshop tentatively planned for end-October 2013.
- Government approved the National Agricultural Investment and Food Security Plan 2012-16 in December 2012.
- Government will prepare a work program for the National Agency for the Development of Agriculture and for Food Security to coordinate policy, promote food security, and build grain stocks to stabilize grain product prices.

### External Program Financing — financing sources, debt relief, and debt management actions
- 2013 program financing expected to be met in part by external assistance (budget support and investment financing).
- Achieving HIPC initiative completion point and implementing the MDRI released significant resources from debt service in 2013; World Bank and AfDB cancelled their MDRI-eligible outstanding debt with Guinea.
- A debt reduction operation agreed with Paris Club creditor members in October 2012; government will continue discussions with other foreign creditors for comparable debt reduction under HIPC Initiative.
- For commercial creditors, government will continue discussions in line with IMF policy on lending to countries in arrears.
- Disbursements from the IMF under the ECF arrangement expected to cover residual balance of payments financing need.
- Authorities will seek only grants and concessional loans, though concessional resources may be limited.
- Noted loans with grant element of less than 35 percent: Exim Bank of China loan for Kaléta hydroelectric dam; a loan with the BIDC; and two loans from the OPEC Fund.
- Government’s equity in Simandou iron-ore project (blocs 3 and 4) will be financed without direct loans or government guarantees and should be fully covered by project revenue; government will provide IMF staff details on financing for equity participation.
- To ensure debt sustainability after the HIPC completion point:
  - adopt a new medium-term debt management strategy and a program to strengthen debt management capacities in consultation with the Fund;
  - submit all proposals for new loan agreements and loan guarantees to the public debt monitoring committee to ensure concessional terms;
  - consult with IMF staff on conditions and concessionality of all new debt agreement proposals before contracting or guaranteeing external debt.
- Timetable for debt management capacity building:
  - By end-October 2013: prepare a medium-term action plan to strengthen external debt management, with technical assistance from the European Union (SB).
  - By end-September 2013: finalize a procedural manual and set up management teams for the National Debt Directorate.
  - By end-December 2013: establish a National Debt Committee to prepare a National Debt Policy and a medium-term debt strategy and oversee implementation.
- To service debt owed to the IMF, the BCRG will keep sufficient funds in its SDR account with the Fund to cover all payments falling due over the next quarter.

### Statistics and program monitoring capacities
- Government will continue efforts to upgrade the statistics system to ensure steady production and supply of quality statistical data.
- In line with the National Strategy for the Development of Statistics (NSDS), government is preparing the draft statistical law and the institutional framework of the National Statistical System and will start implementing capacity-building programs negotiated with development partners.
- Authorities requested technical assistance from partners including the IMF, AFRITAC West, the European Union, and the AFD in areas including fiscal policy, tax and customs administration, public financial management, the foreign exchange market, monetary policy, bank supervision, debt management, the balance of payments and the national accounts.
- Between now and end-June 2013, government will strengthen the monitoring system consisting of:
  - a Reform Coordination Committee (CCR) chaired by the Prime Minister;
  - a Technical Support Committee for the CCR; and
  - a Program Monitoring Technical Unit (CTSP) in the Ministry of Economy and Finance.
- These mechanisms will provide periodic reports to the government, the central bank, international financial institutions, and development partners on progress, prospects, and envisaged measures.
- Program review schedule and monitoring:
  - Program will be reviewed semiannually by the IMF Executive Board on the basis of quantitative monitoring indicators and structural benchmarks (Tables 1, 2 and 3 attached).
  - Indicators defined in the attached Technical Memorandum of Understanding (TMU) (Attachment II).
  - Second year of the program finishes at end-December 2013.
  - Third (fourth) program review based on performance criteria at end-June 2013 (December 2013) should be completed no later than October 2013 (April 2014).

*IMF staff report excerpt as provided in the source content.*

### 53.      During the program period, the government agrees not to introduce or intensify

### During the program period, the government agrees not to introduce or intensify

### Restrictions on external transactions and program commitments
- 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;
  - multiple currency practices;
  - bilateral payment agreements that are inconsistent with Article VIII of the IMF Articles of Agreement;
  - import restrictions for balance of payments purposes.
- The authorities agree to adopt, in consultation with IMF staff, any new financial or structural measures that may prove necessary for the program’s success.

### Quantitative performance criteria and indicative targets (selected items from Table 1)
- Basic fiscal balance (floor) (Billions of Guinean francs, unless otherwise indicated):
  - Jun. 2012 Act.: 60
  - Sep. 2012 Indicative Targets Adjusted1: -1,005
  - Sep. 2012 Est. Status: -984 (Met)
  - Dec. 2012 Indicative PC Adjusted1: 8
  - Dec. 2012 Est. Status: -1,469 (Met)
  - Mar. 2013 Indicative PC Adjusted1: -1,436
  - Mar. 2013 Est. Status: -982 (Met)
  - Jun. 2013 Targets: -238
  - Sep. 2013 Targets: -475
  - Dec. 2013 Targets: -1,115
  - End-2013 Target: -1,486
- Net domestic assets of the central bank (ceiling):
  - Jun. 2012 Act.: 2,471
  - Sep. 2012 Est.: 3,756
  - Sep. 2012 Status: 3,802
  - Dec. 2012 Est. Status: 2,892 (Met)
  - Dec. 2012 Targets Adjusted1: 4,331
  - Mar. 2013 Est.: 4,283
  - Mar. 2013 Status: 3,513 (Met)
  - Jun. 2013 Targets: 4,645
  - Sep. 2013 Targets: 4,959
  - Dec. 2013 Targets: 4,596
  - End-2013 Target: 4,540
- Domestic bank financing of the government (ceiling):
  - Jun. 2012 Act.: 315
  - Sep. 2012 Est.: 1,490
  - Sep. 2012 Status: 1,536
  - Dec. 2012 Est. Status: 555 (Met)
  - Dec. 2012 Targets Adjusted1: 2,010
  - Mar. 2013 Est.: 1,962
  - Mar. 2013 Status: 1,470 (Met)
  - Jun. 2013 Targets: 340
  - Sep. 2013 Targets: 680
  - Dec. 2013 Targets: 1,069
  - End-2013 Target: 1,221
- Net international reserves (NIR) of the central bank (floor); US$ millions:
  - Jun. 2012 Act.: 643
  - Sep. 2012 Est.: 463
  - Sep. 2012 Status: 379
  - Dec. 2012 Est. Status: 541 (Met)
  - Dec. 2012 Targets Adjusted1: 382
  - Mar. 2013 Est.: 250
  - Mar. 2013 Status: 535 (Met)
  - Jun. 2013 Targets: 363
  - Sep. 2013 Targets: 344
  - Dec. 2013 Targets: 458
  - End-2013 Target: 427
- New nonconcessional medium- or long-term external debt contracted or guaranteed by the government or central bank (ceiling); US$ millions:
  - Allowance included for four project loans totaling $362.53 million (see TMU details below).
  - Jun./Sep./Dec. 2012 and Mar. 2013 reported: 0 (Met) until ceiling breached: Jun./Sep./Dec. 2013 entries show 10 (Not Met) and subsequent entries 363, 363, 363, 363.
- Stock of outstanding short-term external debt contracted or guaranteed by the government or the central bank (ceiling); US$ millions: continuous performance criterion; table entries indicate 0 (Met) across reported dates.
- New external arrears (ceiling): continuous performance criterion; table entries indicate 0 (Met) across reported dates.
- Expenditure in priority sectors (floor):
  - Jun. 2012 Act.: 2,341
  - Sep. 2012 Indicative Targets: 2,700
  - Sep. 2012 Est. Status: 2,673 (Not Met)
  - Dec. 2012 Indicative Targets: 4,069
  - Dec. 2012 Est. Status: 4,069 (Met)
  - Mar. 2013 Indicative Targets: 4,197
  - Mar. 2013 Status: 1,105
  - Jun. 2013 Targets: 2,367
  - Sep. 2013 Targets: 3,077
  - Dec. 2013 Targets: 4,200
- Memorandum item — Reserve money:
  - Jun. 2012 Act.: 6,195
  - Sep. 2012 Est.: 6,218
  - Sep. 2012 Status: 6,218
  - Dec. 2012 Est. Status: 5,723 (Met)
  - Dec. 2012 Targets Adjusted1: 6,229
  - Mar. 2013 Est.: 6,229
  - Mar. 2013 Status: 6,380 (Not Met)
  - Jun. 2013 Targets: 6,424
  - Sep. 2013 Targets: 6,619
  - Dec. 2013 Targets: 7,028
  - End-2013 Target: 6,770

### Prior actions and structural benchmarks (selected commitments and statuses)
- Prior action (Completed August 30, 2012):
  - Adoption by the government of a revised budget for 2012, including clause closing expenditure commitments on November 30, 2012 and setting the end of the supplemental period as January 31, 2013.
- Structural benchmarks (with dates and implementation statuses, selected):
  - Adoption of a medium-term public investment program — End-December 2012 — Completed.
  - Signing of a decree on the General Regulations on Fiscal Management and Public Accounting (RGGBCP) — End-December 2012 — Completed.
  - Signing by the BCRG and the Ministry of Economy and Finance of a framework agreement to update the 2010 securitization agreement — End-December 2012 — Completed with delays (signed in April 2013).
  - Adoption by the government of the draft new banking law — End-December 2012 — Completed.
  - Termination of tax advantages under the Investment Code for companies not meeting contractual obligations — End-December 2012 — Completed.
  - Submission to Parliament of the draft amendments to the 2011 Mining Code — End-December 2012 — Completed with delays (submitted early March 2013, adopted April 2013).
  - Adoption and publication of the implementing texts of the new Mining Code and a standard mining convention — End-December 2012 — Not completed (postponed to end-June 2013).
  - Operational implementation of the medium-sized enterprises unit and extension of VAT collection to medium-sized enterprises — End-December 2012 — Completed with delays (operational in April 2013).
  - Application of a monthly adjustment system to the price of petroleum products based on international market price and exchange rate — Continuous, beginning January 1, 2013 — Not completed (postponed to August 1, 2013).
  - Completion of a study on the role of SOGUIPAMI and its relationship with public administrations — End-March 2013 — Not completed (postponed to end-October 2013).

### January–December 2013 prior actions and benchmarks (selected)
- Prior actions (completed):
  - Adoption by the government of the investment policy letter — Completed on March 22, 2013.
  - Creation of an external debt supervisory commission — Completed on April 8, 2013.
- Structural benchmarks (dates and rationales, selected):
  - Submit to Parliament a draft law on tax and customs incentives — End-May 2013 — Separate investment regulation from tax and customs incentives.
  - Adopt and publish implementing texts for the new Mining Code and standard mining convention — End-June 2013 (readjusted).
  - Submit to Parliament a draft law revising the Investment Code — End-June 2013 (readjusted).
  - Adopt a program to reform the electricity sector and governance of Electricité de Guinée (EDG) — End-June 2013 — Improve EDG governance and reduce budget subsidies.
  - Adopt the Special Investment Fund governance structure, with World Bank technical assistance — End-June 2013 (readjusted).
  - Appoint a liquidator for the BADAM bank with terms ensuring reimbursement of BCRG advances and deposits up to GNF 10 million — End-June 2013 (readjusted).
  - Apply a monthly adjustment system to petroleum product prices — Continuous starting August 1, 2013 (readjusted).
  - Adopt a civil service reform plan based on biometric census and HCREMA action plan — End-September 2013 (new action).
  - Prepare a medium-term action plan to strengthen external debt management with EU technical assistance — End-October 2013 (new action).
  - Adopt and implement recommendations from the SOGUIPAMI study — End-December 2013 (readjusted).
  - Regularize suspense accounts and produce administrative and general financial management accounts for 2005–12 — End-December 2013 (new action).
  - Adopt revisions of legal texts on public entities to align with the new Organic Budget Law (LORLF) and RGGBCP — End-December 2013 (new action).

### Technical Memorandum of Understanding — key definitions and parameters
- Government definition:
  - Government = central government of the Republic of Guinea; excludes local governments, the Central Bank of the Republic of Guinea (BCRG), and other public entities with autonomous legal personality.
- Basic fiscal balance:
  - Calculated as government revenue, excluding grants, minus basic government expenditure; consistent with TOFE definitions.
- Net domestic assets (NDA) of the BCRG:
  - NDA = Reserve Money – Net Foreign Assets (NFA), based on the BCRG balance sheet.
- Domestic bank financing of the government:
  - Comprises (i) central bank financing of the Treasury (change in net position of the Treasury with the central bank (NTP1), including the HIPC account and accounts for exceptional resources such as the SIF, but excluding “satellite” accounts (PNT2)); and (ii) commercial bank financing of the Treasury (changes in stock of Treasury bills held by banks, excluding “satellite” government accounts in commercial banks).
- Net international reserves (NIR) of the BCRG:
  - NIR = reserve assets readily available to and controlled by the BCRG (sixth edition BPM) minus foreign exchange liabilities of the BCRG to residents and nonresidents (including local banks’ foreign exchange deposits with the BCRG and off-balance sheet liabilities); excludes long-term liabilities such as SDR allocations.
  - Gold valuation: priced at US$1657.50 per oz. for the first half of 2013 (price in effect on December 28, 2012) and at the price in effect on June 28, 2013 for the second half of 2013.
  - Program exchange rates for test dates:
    - 6951.33 GNF/US$ (U.S. dollar <-> Guinean franc) on December 28, 2012 for the first half of 2013.
    - 1.5369 US$/SDR (SDR).
    - 1.3183 US$/EUR (Euro).
    - Other currencies as published in International Financial Statistics.
- Medium- and long-term external debt definition and concessionality:
  - External debt contracted by government or central bank for one year or more during review period.
  - Debt considered concessional if grant element ≥ 35 percent of NPV.
  - NPV calculated using average OECD commercial interest reference rates (CIRRs): previous 10 years for maturities ≥ 15 years; previous six months for maturities < 15 years.
  - Margins for repayment periods added to averages: 0.75 point (<15 years), 1 point (15–19 years), 1.15 points (20–29 years), 1.25 points (≥30 years).
  - Excludes financing granted by the IMF.
- Allowance for four nonconcessional project loans totaling $362.53 million (all nonconcessional; dates provided):
  - Export-Import Bank of China: $335 million — dated January 4, 2013 — to finance the Guinea Kaleta Hydroelectric Plant Project (Loan Number China Exim Bank PBC No. 49 Total No. 437).
  - ECOWAS Investment and Development Bank: $10.53 million — dated August 24, 2012 — to finance rehabilitation and extension of the electricity distribution network (Loan Number 67/AP/LA/BIDC/EBID/08/2012).
  - OPEC Fund for International Development: $10 million — dated March 7, 2012 — to finance the National Program to Support Agricultural Value Chains (Loan Number 1429P).
  - OPEC Fund for International Development: $7 million — dated January 29, 2013 — to finance the Five Towns Water Supply Project (Loan Number 1481P).
- Short-term external debt:
  - Defined as stock on a specific date of external debt contracted or guaranteed with initial contractual maturity < 1 year; excludes normal import-related suppliers’ credits and foreign currency deposits at the central bank.
- New external arrears:
  - Include all debt-service obligations (principal and interest) arising from government- or BCRG-contracted or guaranteed loans that are due but unpaid on the due date, and unpaid penalties or interest charges.
  - An obligation unpaid within 30 days after falling due is considered a “program” arrear.
  - Arrears not considered program arrears include: (i) arrears with a request for rescheduling or restructuring; and/or (ii) litigious amounts.

*Source: Attachment 2. Technical Memorandum of Understanding, May 3, 2013, and Tables 1–3 (Guinea ECF 2012–13).*

### 12. The float is the flow of expenditures accepted by the Treasury that is not yet paid. The

### 12. The float is the flow of expenditures accepted by the Treasury that is not yet paid. The

### Float: definition and treatment
- The float is the flow of expenditures accepted by the Treasury that is not yet paid.
- The net change in the float is the difference between the accumulation and the payments.
- 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.
- Guinea: Change in the float (Billions of Guinean francs, cumulative from the beginning of the fiscal year) as reported in the table fragment:
  - 2012 Sept.–Dec. Prog. Act.: -384
  - 2013 Mar. Prog. Est.: -346
  - 2013 June Prog. Est.: -332
  - 2013 Sept. Prog. Est.: -152
  - 2013 Dec. Prog. Est.: -58
  - 2013 (continuation entries): -115, -185, -244
- Sources for float data: Guinean authorities and IMF staff estimates.

### Indicative target: Expenditure in priority sectors (program definition)
- Expenditure in priority sectors (indicative target) includes spending under:
  - Title 2 (wages and salaries)
  - Title 3 (goods and services)
  - Title 4 (transfers and subsidies)
  - Title 5 (domestically financed investment)
- Ministries included (i)–(xiii):
  - (i) Justice
  - (ii) Agriculture
  - (iii) Fisheries and Aquaculture
  - (iv) Livestock
  - (v) Public Works and Transport
  - (vi) Urban Planning, Housing and Construction
  - (vii) Health and Public Hygiene
  - (viii) Social Affairs, Women Promotion and Children
  - (ix) Pre-University Instruction and Civic Education
  - (x) Labor, Technical Education and Professional Training
  - (xi) Higher Education and Scientific Research
  - (xii) Alphabetization and Promotion of National Languages
  - (xiii) Energy and Environment
- Additional inclusions:
  - Spending under Title 6 (Financial Investment and Capital Transfers) by the Ministry of Public Health.
  - Utility charges for water, electricity, and telephone (Title 3 of the ministries listed above).
- Explicit exclusion:
  - Spending under Title 4 (transfers and subsidies) of the Ministry of Higher Education and Scientific Research is excluded.

### Memorandum item: Reserve money (definition)
- Reserve money comprises:
  - Local banks’ deposits and other private sector deposits with the BCRG (including bank reserve requirements) denominated both in Guinean francs and in foreign currencies,
  - Guinean francs in circulation,
  - Guinean francs in the vaults of local banks.
- Foreign currency amounts will be converted to Guinean francs at the program exchange rate (as defined in the paragraph on net international reserves).

### External debt: definition and treatment
- “External debt” as used follows point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt adopted by the IMF Executive Board on August 31, 2009.
- For program purposes, “debt” is current (not contingent) liabilities created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, requiring the obligor to make one or more payments in the form of assets (including currency) or services at some future point(s) in time; these payments discharge principal and/or interest liabilities under the contract.
- Primary forms of external debt:
  - Loans (including deposits, bonds, debentures, commercial loans, buyers’ or suppliers’ credits), and temporary exchanges of assets equivalent to fully collateralized loans (repurchase agreements, official swap arrangements, swaps, or leases).
  - Suppliers’ credits where the supplier permits deferred payment after delivery of goods or services.
  - Leases: debt equals the present value (at inception) of all lease payments expected during the agreement, excluding payments that cover operation, repair, or maintenance.
- Under this definition, arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt.
- Failure to make payment on an obligation not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.
- Policy commitment:
  - The government and the central bank agree not to contract or guarantee any nonconcessional external debt under the conditions defined in paragraph 8 above, with the exception of debt in the form of reschedulings.
  - The government undertakes to consult with IMF staff on the terms and concessionality of all proposed new loan agreements before contracting or guaranteeing any external debt.

### Adjustments to program performance criteria (calculation basis and rules)
- Quantitative performance targets are calculated based on projected amounts of:
  1. net external assistance;
  2. exceptional revenues of the mining sector;
  3. the net change of “program” arrears;
  4. the net change in the float.
- Net external assistance (program definition) = (a) cumulative budgetary assistance (grants and loans) + impact of debt relief granted by external creditors + net change in “non-program” arrears) minus (b) cumulative payments of external debt service due after relief, for loans on which debt relief is secured.
- Adjustment rules for net external assistance:
  - If net external assistance exceeds 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 net change in “program” arrears exceeds 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 net change in “program” arrears is below 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 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).

### Definitions for purpose of the TOFE
- Government revenue:
  - Includes tax and nontax revenue.
  - Excludes external grants, the proceeds of privatizations, and exceptional mining revenues (the latter two recorded as financing).
  - Tax and nontax revenue defined in accordance with Section IV.A.1 of the 1986 IMF 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 including 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, and fines and forfeitures (Title 6).
  - Other nontax revenue (Title 7), including incidental revenues.
  - Capital revenues (Title 8), including proceeds from the sale of government assets but excluding privatization proceeds.
- Government expenditure:
  - Measured at the stage of acceptance by the Treasury, regardless of execution procedure.
  - For regular and simplified delegated spending authority procedures, expenditures are accepted immediately after the payment order is issued.
  - For simplified procedures and delegated spending authority or payments without prior issuance of a payment authorization, the Treasury accepts the expenditure at the time that payment is ordered; no expenditure is measured on the basis of adjusting payment orders when adjustment to a payment order basis is done.
  - For refunds of VAT credits, acceptance by the Treasury occurs when refund requests are transmitted by the National Tax Directorate to the National Director of the Treasury.
  - Government expenditure 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
- Structural benchmarks implementation/execution:
  - Information on implementation and/or execution of structural benchmarks (as specified in Table 5 of the Supplement) to be reported to the IMF’s African Department within two weeks of the planned date of implementation.
  - Status of implementation of other structural measures included in the program to be transmitted 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 mutually agreed form unless indicated otherwise.
- Authorities will supply any additional information requested by IMF staff for program monitoring.
- Selected data reporting deadlines (Table 1):
  - Central bank balance sheet, consolidated commercial bank balance sheet, monetary survey (at current and program exchange rates): 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.
  - Prudential indicators for commercial banks: Quarterly, one month after the end of the quarter.
  - Foreign exchange budget: Monthly, 30th of the month for the previous month.
  - Fiscal status report, detailed statement of revenue, expenditure, and cash-flow operations: Monthly, 30th of the month for the previous month.
  - General Treasury balances: 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.
  - Imports by use and exports by major product, trade balance: Quarterly, three months after the end of the quarter.
  - Price and volume indices of imports and of exports: Quarterly, three months after end of quarter.
  - Consolidated balance of payments estimates: Annual, summary estimates: six months after the end of year.
  - External debt: debt service due before and after debt relief: Monthly, 30th of the month for the previous month.
  - Debt service paid: Monthly, 30th of the month for the previous month.
  - Debt service reconciliation table: Monthly, 30th of the month for the previous month.
  - 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: Monthly, 30th of the month for the previous month.
  - 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.

### Appendix II — Update to the Low-Income Country Debt Sustainability Analysis (LIC-DSA)
- Assessment:
  - Guinea continues to be assessed at a moderate risk of debt distress.
  - The moderate rating is primarily due to vulnerability to adverse shocks to growth, exports, foreign direct investment flows, and fiscal performance.
  - Policy implication: Need for sustained implementation of sound macroeconomic policies, ensuring public investment in sound projects, improving implementation capacity and the business climate, and structural reforms to remove bottlenecks and improve productivity to minimize Dutch disease effects from export-oriented mining expansion.
  - Vulnerabilities indicate that new borrowings on a large scale should be avoided, especially before the boost to exports and growth from new mining production.
  - Authorities committed to ensuring government participation in large-scale infrastructure and mining projects does not involve using budgetary resources to meet associated financing needs.
- Key debt stock and projection notes:
  - Guinea’s external public debt amounted to $1.3 billion (23 percent of GDP) at end-2012.
  - This was significantly down from $3.2 billion (62 percent of GDP) at end-2011 following the attainment of the HIPC completion point.
  - The end-2012 external public debt figure was slightly above that projected in the previous LIC-DSA ($1.1 million).
- Macroeconomic framework changes relative to previous LIC-DSA:
  - Government’s public investment program finalized in late 2012 incorporated in budget projections, raising the level of public investment due to inclusion of the Kaleta hydroelectric dam project.
  - Delays in investment and exports related to the Simandou iron ore project resulted in downward revisions in projections of real GDP growth, exports, and fiscal revenues; a substantial increase in these variables previously projected in 2015 has been shifted to 2017.
  - The discount rate used for calculating present values was reduced from 4 percent to 3 percent, resulting in an increase in the present value of debt.
- Debt policy thresholds remain unchanged.

*IMF staff and Guinean authorities (text extracted from the program document).*

### 3.      The results of the external LIC-DSA confirm that Guinea’s debt dynamics are

### _cr13192 - 3.      The results of the external LIC-DSA confirm that Guinea’s debt dynamics are

### Debt sustainability and stress tests
- The external LIC-DSA confirms that Guinea’s debt dynamics are sustainable.
- Stress tests reaffirm vulnerabilities primarily from shocks to:
  - growth,
  - exports,
  - foreign direct investment flows,
  - fiscal performance.
- Vulnerabilities reflect dependence of baseline improvement on a projected large inflow of foreign direct investments in the mining sector and the related jump in mining exports.
- The most extreme stress test corresponds to the combination shock.
- The delay in the Simandou mining project results in a shift of about two years in the peaks in the debt and debt service ratios; this is highlighted in the most extreme shock stress test.

### Main changes to the baseline compared to the previous LIC-DSA
- Lower grant element of new borrowing in the latter part of the projection period due to:
  - allowance for some financing from commercial creditors beginning 2027,
  - introduction of specific terms of four new nonconcessional loans (including Kaleta),
  - increase in the discount rate used to calculate the grant element.
- Higher present value (PV) of debt stems from higher assumed borrowing (and corresponding government disbursements) to finance the revised investment budget, associated with an increase in external borrowing during 2013–16.
- Lower debt service payments in 2013–16.
- Delayed start-up of operations related to the Simandou mining project and its impact on real GDP growth, exports and fiscal revenue.
- Short-term change in the assumed profile of debt service payments on French ODA claims converted into C2D swaps: payments are assumed in the present LIC-DSA to be stretched out over 2013–20 rather than over 2013–15 as projected in the last LIC-DSA.

### Key new borrowing details and debt-service profile
- Bulk of increased borrowing accounted for by a loan from the Export-Import Bank of China to finance construction of the Kaleta hydroelectric dam:
  - Loan amount: $335 million (5.3 percent of 2013 GDP).
  - Grant element: 33.3 percent.
- This loan and three other nonconcessional loans are projected to be disbursed during 2013–16.
- The average interest rate on new borrowing is relatively low (similar to the last LIC-DSA), reflecting:
  - presence of several long-standing lenders with zero interest rate loan terms,
  - low interest rates even for the four new nonconcessional loans.
- Risk noted that interest rates could rise as the global economy recovers from the recent economic and financial crisis.

### Inclusion of domestic debt and implications
- Inclusion of domestic debt in the LIC-DSA worsens debt burden indicators, although the domestic debt burden is expected to decrease over time.
- Following a large increase in borrowing from the domestic banking system in 2009–10, authorities have sharply curtailed new borrowing; net repayments of domestic debt are expected to resume.
- Under an agreement between the Ministry of Finance and the central bank:
  - the government will repay past advances through end-2010 from the central bank over a period of 40 years, starting in 2020.
  - The agreement envisages repayments will be made in cash rather than issuance of government debt.
  - Discussions are to begin in the near future on recapitalization of the central bank which would likely entail issuance of new public debt and would offset to some extent the projected decline of the share of domestic debt in total public sector debt.
- The public debt position remains vulnerable notably with respect to policy reversals in maintaining fiscal discipline and shocks to growth.
- The impact of an unchanged primary balance is much weaker than in the previous LIC-DSA because the reference year changed from 2012 to 2013 and the projected 2013 primary deficit is smaller than the 2012 deficit projected at the time of the last LIC-DSA.

### Policy-relevant observations and implicit recommendations
- Maintain fiscal discipline to reduce vulnerability of the public debt position to policy reversals.
- Continue policies to restore macroeconomic stability, including curtailing new domestic borrowing and resuming net repayments of domestic debt.
- Monitor refinancing and interest-rate risk as some financing shifts to nonconcessional and commercial creditors beginning 2027.
- Manage timing and implementation risks associated with large mining projects (Simandou) due to their material effect on debt peaks and debt-service ratios.

*Source: IMF staff analysis in the LIC-DSA section of the provided document.*

### 5.      The Guinean authorities broadly concurred with the assumptions and conclusions,

### 5.      The Guinean authorities broadly concurred with the assumptions and conclusions,

### Authorities’ stance
- The Guinean authorities "broadly concurred with the assumptions and conclusions, including identified vulnerabilities, of this update of the LIC-DSA."

### Structure of external public debt (end-2012, nominal)
- Total: $1,306.3 million; Percent of total: 100.0; Percent of GDP: 23.2
- Multilateral creditors: $585.5 million; 44.8 percent of total; 10.4 percent of GDP
  - IMF: $57.3 million; 4.4 percent of total; 1.0 percent of GDP
  - World Bank: $155.2 million; 11.9 percent of total; 2.8 percent of GDP
  - AfDB Group: $96.6 million; 7.4 percent of total; 1.7 percent of GDP
  - IsDB: $128.8 million; 9.9 percent of total; 2.3 percent of GDP
  - Other multilateral creditors: $147.6 million; 11.3 percent of total; 2.6 percent of GDP
  - EU: $0.0 million; 0.0 percent of total; 0.0 percent of GDP
- Official bilateral creditors: $659.9 million; 50.5 percent of total; 11.7 percent of GDP
  - Paris Club: $272.0 million; 20.8 percent of total; 4.8 percent of GDP
  - Non-Paris Club: $263.5 million; 20.2 percent of total; 4.7 percent of GDP
  - Arab Funds: $124.4 million; 9.5 percent of total; 2.2 percent of GDP
- Commercial creditors: $60.8 million; 4.7 percent of total; 1.1 percent of GDP
- Sources: Guinean authorities, and World Bank and IMF staff estimates.

### Key macroeconomic assumptions and projections (selected series)
- Nominal GDP ($ million) (series highlights)
  - 2013: 6,237.1
  - 2014: 6,179.7
  - 2015: 7,475.2
  - 2020: 13,396.2
  - 2025: 16,008.1
  - 2032: 24,296.4
- Real GDP (percentage change) (selected years)
  - 2013: 5.0 percent
  - 2014: 5.2 percent
  - 2015: 19.9 percent
  - 2016: 6.1 percent
  - 2017: 2.7 percent
  - 2018: 3.1 percent
  - 2019: 4.5 percent
  - 2020: 5.2 percent
  - 2023: 5.4 percent
  - 2032: 3.6 percent
- Fiscal (central government; percent of GDP)
  - Revenue (incl. external grants): 2013: 24.0; 2014: 24.9; 2015: 27.5; 2016: 30.2; 2020: 29.8; 2025: 32.3; 2032: 26.9
  - Primary expenditure: 2013: 25.2; 2014: 24.9; 2015: 27.1; 2016: 31.4; 2020: 29.2; 2025: 31.3; 2032: 26.1
  - Capital expenditure and net lending (of which): 2013: 10.3; 2014: 10.5; 2015: 13.2; 2016: 18.8; 2020: 18.6; 2025: 23.3; 2032: 17.4
  - Primary fiscal balance: 2013: -1.2; 2014: 0.0; 2015: 0.4; 2016: -1.2; 2020: 0.6; 2025: 0.9; 2032: -1.5
  - Basic primary fiscal balance: 2013: -0.6; 2014: 0.4; 2015: 0.4; 2016: 1.4; 2020: 1.3; 2025: 1.1; 2032: -2.4
- New external borrowing (includes publicly guaranteed external borrowing)
  - 2013: 1.6; 2014: 1.5; 2015: 1.0; 2016: 1.7; 2020: 0.5; 2025: 0.1; 2032: 4.9
  - Grant element of new external borrowing (%): 2013: 39.7; 2014: 39.7; 2015: 39.7; 2016: 33.4; 2020: 33.4; 2025: 30.3; 2032: 17.4
- Balance of payments (percent of GDP)
  - Exports of goods and services: 2013: 26.4; 2014: 28.2; 2015: 41.4; 2016: 64.5; 2020: 56.6; 2025: 43.9; 2032: 37.5
  - Imports of goods and services: 2013: -63.5; 2014: -65.2; 2015: -61.1; 2016: -52.3; 2020: -47.2; 2025: -40.4; 2032: -40.3
  - Current account, incl. official transfers: 2013: -39.2; 2014: -39.2; 2015: -21.3; 2016: -2.0; 2020: -2.7; 2025: -5.8; 2032: -10.5
  - Foreign direct investment (FDI): 2013: 35.8; 2014: 35.9; 2015: 25.7; 2016: 3.7; 2020: 4.1; 2025: 4.7; 2032: 4.6
- Source for macro tables: Country authorities, IMF and World Bank staff.

### External debt sustainability (baseline and selected indicators)
- Table 3 (External Debt Sustainability Framework, baseline scenario, 2010–33) selected entries:
  - PV of external debt (percent of GDP) (selected years shown)
    - 2013: 37.1
    - 2014: 18.8
    - 2015: 20.8
    - 2016: 20.3
    - 2017: 20.1
    - 2018: 18.1
    - 2019: 16.3
    - 2023: 13.7
    - 2033: 6.0
  - PV of debt (in percent of exports) (selected)
    - 2013: 122.4
    - 2014: 69.9
    - 2015: 74.3
    - 2016: 75.4
    - 2017: 79.2
    - 2018: 49.1
    - 2023: 24.9
    - 2033: 16.8
  - PV of PPG external debt (percent of GDP) same values as PV of external debt above in table
  - PV of PPG external debt (percent of government revenues)
    - 2013: 220.8
    - 2014: 94.0
    - 2015: 102.8
    - 2016: 87.7
    - 2017: 81.0
    - 2018: 80.5
    - 2019: 77.2
    - 2023: 73.6
    - 2033: 30.3
  - Debt service-to-exports ratio (percent) (selected)
    - 2013: 10.1
    - 2014: 13.8
    - 2015: 11.6
    - 2016: 3.0
    - 2017: 2.8
    - 2018: 3.6
    - 2019: 4.2
    - 2023: 2.6
    - 2033: 2.0
  - PPG debt service-to-revenue ratio (percent) (selected)
    - 2013: 19.2
    - 2014: 26.0
    - 2015: 17.1
    - 2016: 4.1
    - 2017: 3.9
    - 2018: 4.2
    - 2019: 4.3
    - 2023: 4.3
    - 2033: 3.7
  - Total gross financing need (Billions of U.S. dollars) (selected)
    - 2013: 0.6
    - 2014: 0.9
    - 2015: 1.5
    - 2016: 0.7
    - 2017: 0.4
    - 2018: 0.5
    - 2019: 1.2
    - 2023: 0.4
    - 2033: 1.9
  - Non-interest current account deficit that stabilizes debt ratio (percent of GDP) (selected)
    - 2013: 11.8
    - 2014: 22.8
    - 2015: 77.9
    - 2016: 21.9
    - 2017: 44.7
    - 2018: 42.8
    - 2019: 39.7
    - 2023: 21.5
    - 2033: 12.5

### Key macro assumptions used in debt projections (selected)
- Real GDP growth (in percent) (selected)
  - Historical and projections: 1.9; 3.9; 3.9; 2.5; 1.5; 4.5; 5.2; 5.4; 5.8; and long-run averages shown (e.g., 3.0; 3.7; 4.8)
- GDP deflator in US dollar terms (change in percent) (selected)
  - 4.3; 0.0; 5.7; 4.2; 15.3; 6.6; -3.8; 1.6; 2.3; -0.1; -0.5; 1.0; 1.2; 1.7; 1.5
- Effective interest rate (percent) (selected)
  - 1.1; 1.4; 1.2; 1.4; 0.3; 1.0; 1.1; 1.1; 1.2; 1.2; 1.3; 1.2; 1.4; 1.4; 1.4
- Growth of exports of G&S (US$ terms, percent) (selected)
  - 11.4; 12.9; 3.3; 8.6; 12.8; 1.0; 5.0; 3.1; 2.0; 73.0; 51.2; 22.5; 0.8; 0.7; 4.6
- Growth of imports of G&S (US$ terms, percent) (selected)
  - 26.2; 53.2; 26.6; 16.6; 19.3; -7.1; 43.1; -0.7; 1.7; 2.1; 8.8; 8.0; 2.0; 5.1; 4.7
- Grant-equivalent financing (in percent of GDP) (selected)
  - 4.6; 4.5; 3.6; 2.4; 1.9; 1.4; 0.4; 0.0; 0.3 (series shown across projection years)

### Public sector debt sustainability (baseline, selected indicators)
- Public sector debt (percent of GDP) (selected)
  - 2010: 99.6
  - 2011: 77.8
  - 2012: 35.4
  - 2013: 39.2
  - 2014: 40.0
  - 2015: 38.5
  - 2016: 36.6
  - 2017: 32.0
  - 2018: 28.2
  - 2019: 21.0
  - 2023 average: 9.4
- PV of public sector debt (selected)
  - 2013: 48.0 (percent of GDP shown in table); 2023: 16.5; 2033: 7.1
  - o/w foreign-currency denominated PV of public debt (percent of GDP) (selected)
    - 2013: 37.1; 2014: 18.8; 2015: 20.8; 2016: 20.3; 2017: 20.1; 2018: 18.1; 2019: 16.3; 2023: 13.7; 2033: 6.0
- Gross financing need (percent of GDP) (selected)
  - 2013: 16.7; 2014: 4.8; 2015: 6.0; 2016: 3.6; 2017: 1.9; 2018: 1.6; 2019: 2.1; 2023: 2.7; 2033: 0.2
- PV of public sector debt-to-revenue and grants ratio (percent) (selected)
  - 2013: 210.1; 2014: 134.2; 2015: 135.2; 2016: 120.0; 2017: 112.8; 2018: 109.5; 2019: 102.9; 2023: 87.9; 2033: 35.6
- Debt service-to-revenue and grants ratio (percent) (selected)
  - 2013: 30.0; 2014: 27.1; 2015: 19.6; 2016: 8.5; 2017: 8.8; 2018: 7.9; 2019: 7.8; 2023: 7.5; 2033: 4.0

### Sensitivity analysis (high-level outcomes)
- Table 4 (External PPG debt indicators, 2013–33) and Table 6 (Public debt sensitivity) present alternative scenarios and bound tests with projected outcomes for:
  - PV of debt-to-GDP ratio, PV of debt-to-exports ratio, PV of debt-to-revenue ratio, debt service-to-exports ratio, and debt service-to-revenue ratio.
- Scenarios include:
  - A1. Key variables at their historical averages in 2013–2033
  - A2. New public sector loans on less favorable terms in 2013–2033
  - B1–B6. Bound tests including shocks: lower real GDP growth, lower export value growth, lower US$ GDP deflator, lower net non-debt creating flows, combined shocks, and a one-time 30 percent nominal depreciation in 2014
- Memo item: Grant element assumed on residual financing = 17 (percent) across stress scenarios (applies to all stress scenarios except A2)

### Figures and stress-test notes
- Figures compare the current LIC DSA update with the HIPC completion point LIC DSA across indicators (PV of debt-to-GDP, PV of debt-to-exports, PV of debt-to-revenue, debt service-to-exports, debt service-to-revenue) for 2012–2033.
- Stress-test definition: "The most extreme stress test is the test that yields the highest ratio in 2023." For the external-debt indicators series, the most extreme shock corresponds to a "Combination shock" in figures indicated.

*Source: IMF staff compilation of Guinea LIC-DSA update tables and figures; country authorities; World Bank and IMF staff estimates and projections.*

### APPENDIX III. RISK ASSESSMENT MATRIX

### APPENDIX III. RISK ASSESSMENT MATRIX

### Major Risks and Expected Impacts
- A deterioration in the current socio-political and security situation
  - Relative Likelihood: Medium to high
  - Impact If Realized: High
  - If realized:
    - "There would be a negative impact on foreign investment, particularly in the mining sector."
    - "Program monitoring would weaken, key structural reforms would be postponed (e.g. fuel pricing, expenditure controls), with an aggravation of fiscal deficits, money creation, inflation, loss of foreign exchange, and exchange rate instability."

- The private sector follows a recent agreement on increases in civil service wages
  - Relative Likelihood: Low
  - Impact If Realized: High
  - If realized:
    - "Inflation would rebound, reducing economic growth and increasing poverty."
    - "The socioeconomic situation would deteriorate, increasing political tension and instability."

- Prolonged delay in resuming investment in a major mining project
  - Relative Likelihood: Medium
  - Impact If Realized: Medium
  - If realized:
    - "Short-term economic growth would decline."
    - "The negative demonstration effect on other large investment projects would undermine Guinea’s longer-term development and prolong high poverty rates."

- Stalled or incomplete delivery of Euro area policy commitments
  - Relative Likelihood: Medium
  - Impact If Realized: Medium
  - If realized:
    - "Guinea would be affected essentially through the trade channel, especially through lower mining exports."
    - "Foreign investments in the mining sector could also slow down."
    - "Guinea would however benefit from lower oil prices."

- Global oil shock triggered by geopolitical events
  - Relative Likelihood: Low
  - Impact If Realized: Medium
  - If realized:
    - "Higher import prices for oil would result in additional tax losses in case domestic prices would not be adjusted."
    - "The revenue loss would seriously complicate attaining fiscal targets, thus undermining ongoing efforts on macroeconomic stabilization."

### Cross-Cutting Observations
- Risks concentrate on the mining sector, fiscal performance, inflation, foreign investment, and political stability.
- Transmission channels cited include:
  - Direct impact on foreign investment and mining exports.
  - Fiscal channel through tax/revenue losses and expenditure pressures.
  - Monetary channel via money creation and inflation.
  - External channel via loss of foreign exchange and exchange rate instability.
- Policy and program vulnerabilities:
  - Program monitoring weakening and postponement of "key structural reforms (e.g. fuel pricing, expenditure controls)" are highlighted as amplifiers of fiscal and macroeconomic deterioration.

*Source: APPENDIX III. RISK ASSESSMENT MATRIX*

### 9. African Development Bank and Fund staffs collaboration: sharing of information on the

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

### ADF 13 (2011–13) and FSF Operations Programming — Lending operations and ESW (UA million)
- Pillar I – Support Good Economic and Financial Governance
  - Budget Support 2011: 20.00
  - Targeted Support 2011: 2.50
  - Sub-Total: 22.50
- Pillar II – Support Energy and Transport Infrastructure
  - CLSG Interconnection (electricity) 2013: 16.00 (ADF 12) and 40.00 (Regional Funds) — Total project line shows 56.00
  - Rehabilitation of Electric Power Networks 2013: 11.00
  - Institutional support project for Economic Management 2013: 11.4
  - OMVG (postponed) 2014: (no numeric allocation shown)
  - Boké-Quebo Road (Postponed) 2015: (no numeric allocation shown)
  - Sub-Total: 78.4 (38.40 from ADF 12; 40.00 from Regional Funds)
- Total (across pillars and funds): 100.9 (58.40 ADF 12; 2.50 FSF (Pillar III); 40.00 Regional Funds)
- Economic and Sector Work (2013)
  - Private Sector Profile: x
  - Guinea Vision 2035: x
  - Study on Financial Sector Reforms: x
  - PPP Framework Feasibility Study: x
  - Study on Economic Partnership Agreements (EPA): x

### Millennium Development Goals and other social/economic indicators (as presented)
- Goal 1 and related indicators (selected entries preserved verbatim where numeric)
  - 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
  - GDP per person employed (constant 1990 PPP $): 3,669
  - 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 21 21 13.4
  - Poverty gap at $1.25 a day (PPP) (%): 63.0 30.0 ..15.0 21 ..
  - Poverty headcount ratio at $1.25 a day (PPP) (% of population): 93.0 64.0 ..43.0 48 ..
- Goal 2—Education (selected)
  - Literacy rate, youth female (% of females ages 15-24): ..34 67 57
  - Literacy rate, youth male (% of males ages 15-24): ..59 76 70
  - Persistence to last grade of primary, total (% of cohort): ..74 60 66
  - Primary completion rate, total (% of relevant age group): 19 20 32 58 70 67
  - Total enrollment, primary (% net): 25 ..47 69 76 83
- Goal 3—Gender (selected)
  - Proportion of seats held by women in national parliament (%): ..79 19 21 19
  - Ratio of female to male primary enrollment (%): 47 52 69 82 93 87
- Goal 4—Child mortality (selected)
  - Immunization, measles (% of children ages 12–23 months): 35 61 42 51 74 58
  - Mortality rate, infant (per 1,000 live births): 135 121 106 93 69 79
  - Mortality rate, under 5 (per 1,000): 229 203 175 151 109 126
- Goal 5—Maternal health (selected)
  - Births attended by skilled health staff (% of total): 31 ..35 38 46 ...
  - Maternal mortality ratio (modeled estimate, per 100,000 live births): 1,200 ..740 980 500 610
- Goal 6—Disease (selected)
  - Incidence of tuberculosis (per 100,000 people): 119 158 193 236 257 183.0
  - Prevalence of HIV, total (% of population ages 15-49): 1.1 1.8 1.7 1.5 5.0 1.4
- Goal 7—Environment and services (selected)
  - Forest area (% of land area): 30 ..28 27 28 27
  - Improved sanitation facilities (% of population with access): 10 12 14 16 31 18
  - Improved water source (% of population with access): 51 58 63 69 61 74
- Goal 8—Partnership and infrastructure (selected)
  - Debt service (PPG and IMF only, % of exports, excl. workers' remittances): 20.0 24.0 15.0 13.0 35.0
  - Mobile cellular subscriptions (per 100 people): 00 1.0 2.0 53.0 44.0
- Other indicators (selected)
  - GNI per capita, Atlas method (current US$): 450 480 400 420 1,257 430
  - Gross capital formation (% of GDP): 25 21 20 20 21 18
  - Life expectancy at birth, total (years): 44 46 48 51 54 54
- Sources cited in table: World Development Indicators database, October 2012; and Guinean authorities, Third Poverty Reduction Strategy Paper, March 2013.
- Note: "Figures in italics refer to periods other than those specified."

### Statistical issues — Assessment of data adequacy for surveillance
- General assessment
  - Guinea’s data provision has some shortcomings, but is broadly adequate for surveillance.
  - Official data provision was suspended during 2009–10 due to severe hindrance in data collection on government operations and private sector activities.
  - Gradual restoration of data collection mechanisms is underway following return to normal functioning of administration.
- National accounts
  - Real sector statistics are incomplete and published with insufficient timeliness.
  - Monthly bulletin of the Guinean economy includes limited macroeconomic variables.
  - Monthly surveys of mining, industrial and agricultural production are produced with delays.
  - Employment and population statistics are published only annually.
  - An international-partner-supported program to produce annual input-output matrices was interrupted in 2009.
  - West AFRITAC missions worked on revised national accounts for 2003-08 and provisional estimates for 2009–10, with 2006 as new base year; work completed but data to be validated before publication.
- Price statistics
  - Monthly consumer price index (CPI) is being published in a timely manner.
- Government finance statistics
  - Ministry of Economy and Finance compiles comprehensive monthly central government data: revenue on cash basis; expenditure on commitment and cash bases.
  - During 2009–10 many government-executed operations were not recorded under TOFE; new government took corrective measures.
  - Provision of monthly data to AFR has resumed; AFR also receives treasury plans.
  - Budget excludes a number of “satellite” accounts; law on Treasury Single Account adopted in 2011 and efforts underway to incorporate satellite accounts (including autonomous government agencies) into 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 with government finance statistics.
  - New government is closing these accounts and bringing operations under net position of the treasury.
  - Central bank and deposit money bank accounts and monetary survey are compiled and shared monthly with AFR.
  - Some delays in commercial banks' data remain and need improvement.
  - Ongoing migration to a new central bank accounting system has caused frequent data changes and delays in monetary statistics provision.
  - Monetary data used to assess program performance are certified by an independent external auditor on a regular basis.
- Balance of payments
  - IMF statistics technical assistance visited Conakry in April 2012 to assist improvement, including migration from BPM5 to BPM6.
  - Technical Committee on Balance of Payments Harmonization reportedly reactivated.
  - Results of weekly foreign exchange auctions reported regularly online and in main newspapers; exchange rates published daily.
- Data standards and quality
  - Guinea participates in the General Data Dissemination System since 2003.
  - No data ROSC is available.

### IMF Staff Representative statement — Provisional program assessment (May 20, 2013)
- Recent data through Q1 2013:
  - Program remains broadly on track and in line with staff appraisal.
  - Inflation stalled around 13 percent y-o-y.
  - Strong foreign exchange inflows resulted in appreciation of the exchange rate by about 1 percent since end-December 2012.
  - Fiscal policy remains tight: government revenue was lower than projected (especially mining revenue), offset by lower spending.
  - Fiscal basic balance: about in equilibrium compared to projected deficit of 0.5 percent of GDP (text reports "projected deficit of 0.5 percent of GDP").
- Performance vs. targets:
  - Most quantitative indicative targets for end-March 2013 were met, except floor on priority sector spending (reflecting delays in investment spending).
  - Continuous performance criterion on no new nonconcessional debt was not observed.
- Structural reforms:
  - Progress on end-May and end-June structural benchmarks on improving the business climate.
- PRSP:
  - Government adopted the Poverty Reduction Strategy Paper 2013–15 on May 2, 2013; adopted version same as JSAN version issued May 9, 2013.
- Political context:
  - Political situation difficult; government and opposition remain divided on legislative election process scheduled for June 30.
  - Political rallies and demonstrations against electricity and water shortages have resulted in deteriorating security, especially in Conakry.

### Guinea: Performance Criteria (PC) and Indicative Targets, ECF 2012–13 — selected quantitative outcomes (as presented)
- Table notes: flow for fiscal criteria and stock for end-December 2012 for monetary and external debt criteria; definitions and adjustors in TMU.
- Selected quantitative outcomes and status (values preserved verbatim where shown)
  - Basic fiscal balance (floor)
    - Sep. Act.: 60; Indicative/Adjusted/Est. columns show -1,005 -984 8 — Status: Met
    - Dec. Est.: -1,469 -1,436 -982 — Status: Met
    - Mar. Prel.: -238 -40 — Status: Met
  - Net domestic assets of the central bank (ceiling)
    - Sep. Act.: 2,471; Indicative/Adjusted/Est.: 3,756 3,802 2,892 — Status: Met
    - Dec. Est.: 4,331 4,283 3,513 — Status: Met
    - Mar. Prel.: 4,645 3,664 — Status: Met
  - Domestic bank financing of the government (ceiling)
    - Sep. Act.: 315; Indicative/Adjusted/Est.: 1,490 1,536 555 — Status: Met
    - Dec. Est.: 2,010 1,962 1,470 — Status: Met
    - Mar. Prel.: 340 110 — Status: Met
  - Net international reserves of the central bank (floor); US$ millions
    - Sep. Act.: 643; Indicative/Adjusted/Est.: 463 379 541 — Status: Met
    - Dec. Est.: 382 250 535 — Status: Met
    - Mar. Prel.: 363 515 — Status: Met
  - New nonconcessional medium- or long-term external debt contracted or guaranteed by government or central bank (ceiling); US$ millions (continuous performance criterion)
    - Multiple rows indicate 0 with Status: Met for Sep. and Dec.; for Mar. Indicative Targets show 10 Not Met; subsequent rows show 0 28 Not Met and 7 (context: Nonconcessional loans (US$363 million) were contracted in 2012-13; they became effective starting from late 2012.)
  - Stock of outstanding short-term external debt contracted or guaranteed by government or central bank (ceiling); US$ millions: entries show 0 0 0 Met across periods.
  - New external arrears (ceiling): entries show 0 0 0 Met across periods.
  - Expenditure in priority sectors (floor)
    - Sep. Act./Est.: 2,341 / 2,700 / 2,700 / 2,673 — Status: Not Met
    - Dec. Est.: 4,069 / 4,069 / 4,197 — Status: Met
    - Mar. Prel.: 1,105 / 702 — Status: Not Met
  - Memorandum item: Reserve money
    - Sep. Act./Indicative/Adjusted/Est.: 6,195 6,218 6,218 5,723 — Status: Met
    - Dec. Est.: 6,229 6,229 6,380 — Status: Not Met
    - Mar. Prel.: 6,424 6,437 — Status: Not Met
- Sources: Guinean authorities; and IMF staff projections.
- TMU definitions: Priority sectors include education, health, agriculture, energy, justice, social affairs, and public works.
- Footnote: Nonconcessional loans (US$363 million) were contracted in 2012-13; they became effective starting from late 2012.

### IMF Press Release and Executive Board assessment (May 20, 2013)
- Executive Board completed second review under ECF and approved disbursement equivalent to SDR 18.36 million (about US$27.4 million), bringing total disbursements under arrangement to SDR 55.08 million (about US$82.1 million).
- Board approved waiver for nonobservance of continuous performance criterion on new nonconcessional external debt.
- Original three-year ECF approved on February 24, 2012 for amount equivalent to SDR 128.52 (then about US$198.1 million).
- Mr. Naoyuki Shinohara (Deputy Managing Director and Acting Chair) statement — main points:
  - Guinea’s macroeconomic performance under ECF was satisfactory: strong growth, inflation gradually declining, and international reserves at comfortable level.
  - Substantial reduction in external debt after reaching HIPC completion point in September 2012.
  - Continued commitment to program policies and structural reforms necessary to consolidate macroeconomic stability, maintain debt sustainability, and foster sustainable and inclusive growth.
  - Fiscal and monetary policies for 2013 geared toward reducing inflation.
  - Efforts to strengthen revenue collections and rationalize expenditure, plus additional external assistance, helped maintain high level of domestically-financed investment spending in 2013 budget despite dwindling exceptional mining revenue from 2011.
  - Government steps to contain subsidies, including in electricity sector; importance of introducing timely automatic adjustment mechanism while providing targeted assistance to the poor.
  - Importance of maintaining adequate international reserves.
  - December 2012 agreement on civil service wage increases is within 2013 budget limits; important to assess timing of implementation against inflation trends and to develop medium-term approach to wage increases with strengthened civil service reform.
  - Need for further progress on structural reforms: improving business climate, electricity sector, and governance of mining sector.
  - PRSP-III (2013–15) lays out program emphasizing strengthening state institutions (including justice and security) and improving business climate; success will require prioritization and effective monitoring and evaluation.

### Statement by Nguéto Tiraina Yambaye, Alternate Executive Director for Guinea (May 20, 2013) — Authorities’ perspective
- Appreciation expressed for IMF support; note that Fund assistance helped Guinea reach HIPC completion point in September 2012, considerably reducing external public debt.
- Program performance in 2012 described as satisfactory: decline in inflation, reduction of fiscal deficit, return of confidence in national currency, and resumption of economic growth.
- End-December 2012 quantitative performance criteria met except for nonconcessional external debt criterion.
- Authorities requested completion of second review and waiver for nonobservance of nonconcessional debt criterion and modification of performance criteria.
- Nonconcessional debt criterion not satisfied on four loans contracted to strengthen electricity and agricultural sectors:
  - Three of the four loans were small and the criterion was missed due to technical capacity constraints and misunderstandings of IMF methodology for assessing concessionality.
  - The fourth loan, contracted to complement financing of Kaleta hydroelectricity project, was considered to be concessional at the time by the authorities.

*Source: IMF staff report and associated materials contained in the provided content unit.*

### conclusion of the negotiations in December 2012. At that time it was estimated that it had a grant

### _cr13192 - conclusion of the negotiations in December 2012. At that time it was estimated that it had a grant

### Debt, Kaleta hydroelectric project, and debt management
- The loan for the Kaleta hydroelectric project was estimated at the conclusion of negotiations in December 2012 to have a grant element exceeding the program floor of 35 percent.
- By the time the loan agreement was signed in January 2013 the loan became nonconcessional as the grant element fell to 33.2 percent due to a change in the discount rate used for the calculations of the grant element.
- The Kaleta hydroelectric project is part of a regional project supported by the African Development Bank with a high rate of return.
  - It will significantly improve electricity supply, reduce average costs and thus spur economic growth.
  - 30 percent of Kaleta’s production will be sold to neighboring countries, thereby increasing export revenues.
- Although these loans do not jeopardize the country’s moderate risk rating of debt distress, the authorities recognize the urgent need to improve debt management.
  - Corrective measures taken include establishing a technical debt commission within the Ministry of Economy and Finance.
  - The authorities intend to prepare, with technical assistance of the European Union, a medium-term action plan to strengthen external debt management.

### Macroeconomic developments in 2012
- Real GDP grew by almost 4 percent, driven mainly by the continued good performance of the agricultural and services sectors; the mining sector’s contribution was held back by closure of the alumina plant and postponement of iron ore development projects.
- Fiscal policy was tightened:
  - Government revenues exceeded the target owing to a combination of increases in tax rates, administrative measures and strong collection efforts.
  - Public expenditures were lower than budgeted reflecting savings in the wage bill, lower subsidies and investment.
  - The basic balance deficit in 2012 was 2.5 percent of GDP against a target of 3.5 percent.
- Monetary policy remained tight:
  - Inflation decreased from 19.0 percent in 2011 to 12.8 percent in 2012.
  - International reserves amounted to 3.1 months of imports by end-December 2012.
  - The exchange rate continues to be market-determined and has been broadly stable.
- Structural reforms progress:
  - Amendments to the mining code adopted in 2011 were approved by the parliament in April 2013.
  - The framework agreement on the securitization of outstanding advances was signed in April 2013 by the Ministry of Economy and Finance and the Central Bank.
  - The medium-sized taxpayer unit became operational.
  - Implementation of the automatic adjustment mechanism for fuel prices was delayed until mid-2013.

### HIPC completion and debt relief
- In September 2012, Guinea reached the completion point under the enhanced HIPC initiative.
- In October 2012, the authorities and Paris Club creditors reached an agreement to cancel 99 percent of the country’s eligible external debt on exceptional favorable terms.
- Several bilateral agreements were signed in recent months under the Paris Club agreement.
- The authorities have undertaken discussions with other official bilateral and commercial creditors on debt restructuring on comparable terms.

### The 2013 program: policies, objectives, and quantitative targets
- Overall objectives:
  - Continue implementing macroeconomic policies and structural reforms envisaged under the program to accelerate economic growth and significantly reduce poverty.
  - Consolidate progress made under the ECF-supported program in macroeconomic management and policy reforms.
- Poverty reduction and PRSP III:
  - PRSP III covering 2013–15 was completed and adopted on May 2, 2013.
  - Six pillars: (i) macroeconomic stability; (ii) governance and institutional reforms; (iii) development of economic infrastructures; (iv) rural development; (v) mining and industrial development; and (vi) human capital development.
  - Authorities intend to organize before the end of 2013 in Abu Dhabi a Donors’ Conference.
- Macroeconomic projections for 2013:
  - Real economic growth is projected to reach 4.5 percent, driven mainly by investments in the energy and agriculture sectors.
  - The fiscal basic balance is projected at 3.3 percent of GDP due to the decline in budget revenue and public investments in priority sectors.
  - Inflation is expected to be 9.7 percent by December 2013 with tighter macroeconomic policies.
- Fiscal policy measures for 2013:
  - Continue to avoid net banking financing of the budget through intensified revenue collection and contained public expenditure.
  - Measures cancelling tax benefits for companies that no longer comply with obligations under the investment code will be fully implemented.
  - The scope of the VAT will be extended to cover medium-sized enterprises.
  - By August 2013 the authorities will introduce the mechanism for monthly adjustment of the fuel prices; the price adjustment will be set by a joint committee.
  - Implementation of action plans for tax and custom reforms with technical assistance from development partners will be accelerated.
  - Maintain the wage bill at around 5.2 percent of GDP over the medium-term.
    - The recent increase in the civil service basic wage by 50 percent covers the period October 2012-December 2013.
    - Implementation of the third tranche of the basic wage increase scheduled for the second half of 2013 will depend on budgetary and inflation developments.
  - Adopt by the end of September 2013 a civil reform plan based on results of the ongoing biometric census and the action plan of the state reform and public sector modernization program.
- Monetary and financial sector measures:
  - Continue policies aimed at reducing inflation and improving financial intermediation with greater private sector access to credit.
  - Contain growth of reserve money through the central bank’s interventions in weekly foreign exchange auctions.
  - Central bank plans to adopt, with technical assistance from the Fund, new regulations clarifying the regulations governing the marché interbancaire des changes (MIC).
  - Strengthen the financial sector including increasing the minimum capital requirement for banks from GNF 50 billion to GNF 100 million and adopting a plan enabling banks to comply with the minimum capital requirement.
  - Conduct a feasibility study to establish a deposit insurance fund.
  - A study on the development of the financial sector completed with assistance from development partners; its recommendations will be adopted by June 2013.
- Structural and sectoral reforms:
  - Continue reforms to remove bottlenecks to economic growth and poverty reduction, focusing on tax administration and public financial management.
  - Implement needed reforms in the mining, energy and agricultural sectors while creating a business environment conducive to high and sustainable growth.
  - Implement the 2012 Budget Framework Law and the Decree on the General Regulations on Fiscal Management and Public Accounting.
  - After adoption of the National Investment Policy Letter, submit to parliament by end-June revisions to the investment code and related fiscal and customs laws.
  - Electricité de Guinée placed under close financial supervision to ensure government financial support remains within budget limits; adopt by end-June a new reform plan prepared in consultation with development partners.
  - Agricultural sector: review of 2011-12 reform measures is underway; authorities plan to determine by end-October 2013 the best strategy to promote growth in the sector based on results of this evaluation.

### Conclusion and requests to the Fund
- The Guinean authorities remain strongly determined to continue implementing prudent fiscal and monetary policies and sound structural reforms under the ECF-supported program.
- They will continue working with the Fund and other development partners to implement their economic development strategy.
- Based on their performance and commitment to reform policies, the authorities request Directors’ support for:
  - Completion of the second review.
  - Waivers for non-observance of performance criterion.
  - Waivers for modification of performance criteria.

*IMF staff summary of Guinea program conclusion and 2013 policy intentions contained in the provided text.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13192.pdf_