## Recent Developments and Program Implementation (Guinea) — content unit _cr1539 ## Source details **Canonical URL:** [Recent Developments and Program Implementation (Guinea) — content unit _cr1539](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr1539.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr1539.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr1539.pdf.json) --- ### Ebola epidemic: spread, health, and food security - Spatial concentration: south-east border region with Sierra Leone and Liberia (70 percent) and around Conakry (20 percent); extension north toward bauxite and gold producing regions. - Case and mortality counts (as of January 6): 2,783 cases and 1,791 deaths (of which 72 were health workers); compared with 2,164 cases and 1,327 deaths on November 30. - Children infected: 20 percent of total cases (WHO data cited). - New infections: leveled out at around 20 cases per day after October peak and slowdown through early November. - Treatment capacity: five new treatment centers opened between mid-November and early December, bringing total to seven plus one transit center in the south-eastern epicenter. - Contact monitoring: risen to 90–95 percent. - Staff expectation: disease elimination likely “well into 2015”. - Food security and agriculture: - Aggregate food crop production 2014: fell by about 3 percent (WFP and FAO estimates). - Severely food insecure population (December 2014): 9 percent. - Projected food insecure persons in March 2015: 1.2 million, of which 470,000 are Ebola driven. - Agricultural constraints: displacement, farm labor shortages, marketing disruptions from border closures. ### Macroeconomic impact in 2014 and near-term outlook - 2014 growth: slowed to 0.4 percent (overall estimate statements vary within tables; selected entries show 0.4 and other series). - Sectoral impacts: severe effects on agriculture, services (hotels), transport, and trade; mining operations in the north steady but with higher transport and insurance costs. - Hotels occupancy: declines of as much as 80 percent as of October 2014 versus one year earlier. - Inflation: 9.0 percent year-on-year in December 2014 (other table excerpts: 9.3 percent end-November 2014; consumer prices averages reported in tables). - Poverty: expected to have increased, especially among informal and casual service workers. - Short-term growth projection (staff): 2015 real GDP projected to contract by 0.3 percent. - Authorities’ projection: growth rebound to 2.1 percent if Ebola brought under control during first half of 2015. - Medium-term: baseline rebound in 2016 conditional on Ebola eradication, supply bottleneck reduction, reforms, and large mining projects; Kaleta hydroelectric dam projected increase in electricity capacity by 240 MW to 520 MW, operations possibly late 2015 or early 2016 (higher access depends on transmission line progress). ### Fiscal effects, 2014 execution, and 2015 fiscal stance - 2014 fiscal outturn (Text Table 1, percent of GDP): - Revenue, excl. grants: 19.3 (4th Review); 18.7 (RCF); 18.7 (5th Review) - Grants: 5.6 (4th Review); 5.2 (RCF); 7.0 (5th Review) - Expenditure: 28.9 (4th Review); 29.8 (RCF); 30.1 (5th Review) - Current: 15.6 (4th Review); 17.2 (RCF); 18.1 (5th Review) - Capital: 13.0 (4th Review); 12.2 (RCF); 11.7 (5th Review) - Basic balance: -4.0 (4th Review); -5.5 (RCF); -5.7 (5th Review) - Overall balance: -9.6 (4th Review); -11.2 (RCF); -11.4 (5th Review) - Preliminary basic balance deficit 2014: -5.7 percent of GDP (program target -5.5 percent). - Revenue execution: tax and non-tax receipts below program, notably mining taxes; fuel excise up later in year due to international oil price decline. - Current expenditures: exceeded program by 0.6 percent of GDP, largely Ebola response spending (financed mainly by development partners). - 2015 program fiscal stance: expansionary to support Ebola eradication. - Program target basic balance deficit: increase from 5.7 percent of GDP in 2014 to 6.6 percent of GDP in 2015. - Revenue measures in 2015: - Expected increase by 2.0 percent of GDP, mainly higher tax revenues on oil products (MEFP ¶18). - Petroleum product tax revenues expected to rise by 1.8 percent of GDP. - New telecommunications tax: 0.2 percent of GDP. - Strengthened collection: 0.2 percent of GDP. - CET introduction: marginal adverse effect. - Expenditure pressures in 2015: - Ebola response plan spending in 2015 projected at just over $200 million of a total $350 million (3.2 percent of GDP). - Wage bill: projected increase by 0.8 percent of GDP reflecting a 40 percent staggered base-wage increase and new institutions/recruitment in health, education, security. - Subsidies to EDG: projected to fall to GNF250 billion from GNF 534 billion in 2014 owing to lower oil prices and 15 percent tariff increase. - Domestically-financed public investment: expected to rise by 0.3 percent of GDP, concentrated on roads and electricity networks. - Staff advice and trade-offs: - Authorities justify wage increases for social stability. - Staff cautioned large ad-hoc real wage increases risk macro stability and crowd out infrastructure/human capital spending. - Staff recommended passing through oil price declines to improve legitimacy of fuel price mechanism; authorities concerned about social reaction. ### 2015 financing strategy and IMF support request - Domestic financing: - Government intends to use domestic bank financing in 2015 and issue domestic debt instruments up to as much as 2 percent of GDP (bonds of various maturities). - Requested technical assistance from World Bank and IMF for issuance and a medium-term debt strategy (off-site). - External and exceptional financing: - Drawdowns of unused World Bank and AfDB budget supports disbursed late 2014. - Creation of special budget account (BAS) to channel Ebola-related resources (MEFP ¶22); financing pledges about 2.7 percent of GDP in grants and concessional loans. - Exceptional revenues: $80 million (1.1 percent of GDP) from sale of mining concessions to fund earmarked investments. - IMF request and program adjustments: - Government requested IMF financial support equivalent to 25 percent of quota (about $41 million) as budget support under the current ECF review. - Authorities requested extension of ECF through end-December 2015 and augmentation in access by 42.1 percent of quota (SDR 45.135 million), with SDR 26.775 million (25 percent of quota) to be disbursed upon completion of the 5th review as budget support; remaining under a 7th review. Staff supports requests. - If financing shortfall, the program adjustor will mix additional domestic financing and adjustment measures; authorities would adopt a revised budget for second half of 2015. - Financing composition projected for 2015: - External financing mainly grants and concessional loans of 10.0 percent of GDP, of which 5.4 percent of GDP in grants. - Issue of bills and bonds on local market up to GNF 1,000 billion (2 percent of GDP). - Expected $80 million from bauxite block sales in Boffa, with $80 million earmarked for investment. ### Monetary and external sector policy and developments - 2014 monetary stance and outcomes: - BCRG policy: cautious; reserve requirement reduced November 2013; policy rate reduced in June 2014. - Policy rate reduced by three percentage points to 13 percent (monetary program summary). - Required reserves ratio reduced to 20 percent. - Domestic liquidity: excess reserves to total deposits ratio 11 percent at end-October 2014; private sector credit grew by 30 percent (driven by pre-Ebola loan signings). - Central bank net domestic assets target: missed at end-September (indicative). - Exchange rate, reserves, and FX operations: - Market rate depreciated about 4 percent through end-2014; official depreciation moderated to around 3 percent via increased BCRG FX sales. - Divergence nearly 5 percent versus market rate by end-November; parallel market premium diminished to less than 3 percent by year-end. - Gross international reserves rose from equivalent of 3 months of imports in 2013 to about 4 months of imports by end-October 2014 (other entries show reserves estimates in months and US$ million series). - Staff supports BCRG planned increase in FX sales to sterilize large programmed net domestic government financing (GNF 1000 billion), provided reserve objectives not compromised. - Advice to widen exchange rate band around auction rate from 3 percent to 5 percent. - Safeguards and transparency: - Update of 2012 safeguards assessment underway; preliminary findings indicate need to re-engage Investment Committee and enhance Audit Committee oversight. - Priority for adoption of IFRS to enhance financial statement transparency. - Large 2014 reserves over-performance reflects Ebola-related assistance received but not spent in 2014 and included in 2015 plans. ### Program performance, conditionality, and monitoring - 2014 program performance: - All end-June 2014 performance criteria and indicative targets met. - Most end-September indicative targets met; exceptions include BCRG net domestic assets (missed) and floor on expenditure in priority sectors (missed because of investment cutbacks). - All end-2014 PCs and targets expected to be met except the indicative target on expenditure in priority sectors. - Structural reforms implementation: - Delays since 4th ECF review due to Ebola diverting administrative resources and delaying external technical assistance. - Two of four end-September structural benchmarks implemented with delay; none of four end-December benchmarks implemented. - Civil service reform plan and State reform/administration modernization action plan validated and await government adoption. - Authorities agreed with staff that no new structural benchmarks would be introduced in ECF program at this time; focus to remain on completing existing benchmarks. - Monitoring and reporting: - Program monitored semiannually by IMF Executive Board; sixth review based on end-December 2014 PCs to be completed no later than May 2015; seventh review based on end-June 2015 PCs no later than November 2015. - Reporting calendar includes monthly, quarterly, and annual data submissions (detailed deadlines listed in Table 1 excerpt). ### Debt sustainability, DSA findings, and repayment capacity - DSA overview: - Joint Bank-Fund LIC-DSA; excludes French C2D claims beginning 2012. - Guinea assessed as weak policy performer at moderate risk of debt distress. - Near-term deterioration in some external debt indicators reflects Ebola impacts and 2015 civil service increase. - Key DSA projections and indicators (selected exact figures): - PV of PPG external debt (selected): 2014: 13.4 (percent of GDP); 2019: 20.2; 2024: 14.1; 2034: 10.6. - PV of PPG external debt (percent of exports): 2014: 53.0; 2019: 95.5; 2024: 24.5; 2034: 26.3. - Public sector debt (percent of GDP): 2011: 77.8; 2014: 39.7; 2019: 39.9; 2024: 25.0; 2034: 17.3. - Non-interest current account deficit (percent of GDP): 2014: 10.4; 2019: 27.0; 2024: 43.1; 2034: 51.0. - Nominal GDP (US$ millions, selected): 2014: 6,629 (table variations present); longer-term growth assumptions underpin projections. - Financing of Fund obligations: - Fund obligations based on prospective drawings under the augmented ECF would raise credit outstanding to totals shown (e.g., total obligations percent of quota series: 111.19, 187.61, 187.61, ... across 2014–2025). - Staff recommends disbursement of SDR 45.135 million under the fifth review, with SDR 26.775 million as budget support. - Stress tests: - Stress tests show temporary breaches of some policy-dependent thresholds under alternative scenarios, vulnerabilities to shocks in growth, exports, FDI, and fiscal performance. - Inclusion of domestic debt worsens indicators temporarily because of one-off domestic net bank financing in 2015; issuance to be repaid over following 9–10 years. - Policy implications from DSA: - Limited scope to take on more external debt without risking temporary threshold breaches; priority for concessional external resources and strengthened debt management. ### Risks, policy recommendations, and contingency measures - Key downside risks: - Prolonged Ebola presence beyond 2015. - Sociopolitical tensions and election-related uncertainty in 2015. - Continued delays in structural reforms. - Continued weakness in international iron ore markets delaying mining investments. - Upside factors: - Government commitment to eliminate Ebola quickly. - Continued decline in international oil prices benefiting budget and imports. - Government effort to pursue structural reforms. - Staff recommendations and program advice: - Support authorities’ 2015 fiscal stance balancing Ebola response, investment, and support to the economy within available financing. - Keep budget execution cash-based; strengthen transparency via BAS and audits. - Medium-term expenditure rationalization to restore budget flexibility after wage increase. - Issue medium- and shorter-term bonds avoiding maturity bunching and rollover risk; prepare issuance within a medium-term debt strategy with Fund/Bank technical assistance. - Gradual relaxation of monetary policy to provide liquidity consistent with inflation and reserve targets. - Continue stepped-up FX sales to sterilize domestic financing impact, monitor reserves closely. - Strengthen public electricity utility management (EDG) and operationalize a management contract quickly. - Strengthen banking and financial sector: open market window by end-March 2015, credit information system, microfinance law and directives, insurance code revision. - Prioritize social sector strengthening and reinforce health sector and social safety nets in successor PRSP. - Contingency and safeguards: - Program adjustor will trigger additional domestic financing and adjustment measures if donor financing is short. - Rigorous monitoring of domestic bond issuance rollover and fiscal risks; request for TA to manage issuance and debt strategy. - Use of BAS for Ebola-related external support to ensure transparency and donor confidence. ### Key program actions, disbursements, and governance - IMF Executive Board (Press Release No. 15/49, February 11, 2015) actions: - Completed fifth review and approved immediate disbursement of SDR 45.135 million (about US$63.6 million). - Approved augmentation of access under the ECF by SDR 45.135 million (42.1 percent of quota) and extended the ECF arrangement to end-December 2015. - Total disbursements under arrangement reached SDR 136.935 million (about US$192.9 million). - Letter of Intent (Conakry, January 27, 2015) key commitments: - Continue ECF-supported program to eradicate Ebola; relax monetary policy consistent with stability objectives; increase fiscal deficit in line with available financing; maintain cash-based execution; aim to keep inflation below 10 percent and import coverage at about 3 months. - Establish BAS for Ebola funds; governance arrangements and external audits planned with IMF support. - Request for SDR 45.135 million augmentation with SDR 26.775 million to be disbursed as budget support in connection with the fifth review. - Donor and multilateral support: - Financing pledges for Ebola response and World Bank, AfDB, and AfDB programming highlighted (AfDB support totals and project allocations summarized in AfDB excerpt). *Source: IMF staff report excerpts and accompanying materials in content unit _cr1539.* ### 1. Recent Data on the Ebola Epidemic _____________________________________________________________4 ### 1. Recent Data on the Ebola Epidemic ### Ebola spread and health data - The epidemic remains concentrated in the south-east border region with Sierra Leone and Liberia (70 percent) and around the capital Conakry (20 percent), but has extended north toward bauxite and gold producing regions. - As of January 6, 2,783 cases and 1,791 deaths (of which 72 were health workers) were reported, compared with 2,164 cases and 1,327 deaths on November 30. - Children infected by EVD in Guinea represent 20 percent of the total number of cases (WHO data cited). - After a peak in October and a slowdown through early November, new infections leveled out at around 20 cases per day (Box 1). - Five new treatment centers were opened between mid-November and early December, bringing the total to seven plus one transit center in the south-eastern epicenter. - Monitoring of persons in contact with those infected has risen to 90–95 percent. - Staff expects that it will be well into 2015 before the disease is eliminated. ### Food security and agriculture - WFP and FAO estimate aggregate food crop production in 2014 has fallen by about 3 percent. - Surveys indicate 9 percent of the population was estimated to be severely food insecure in December 2014. - The number of food insecure persons is projected to increase to 1.2 million in March 2015, of which 470,000 are Ebola driven. - Agricultural production was hindered by displacement, farm labor shortages, and disruptions in marketing linked to border closures. ### Immediate macroeconomic impact (2014) - Growth is estimated to have slowed to 0.4 percent in 2014. - The epidemic affected most sectors, especially agriculture, services (particularly hotels), transport, and trade; mining operations in the north remained steady but faced higher transport and insurance costs. - Hotels reported a decline in occupancy rates of as much as 80 percent as of October 2014 compared to one year earlier. - Inflation was 9.0 percent year-on-year in December 2014. - Poverty is expected to have increased, particularly among vulnerable groups relying on the informal sector and casual service workers. ### Fiscal effects and budget execution - Authorities revised fiscal projections for 2014 to accommodate the Ebola response and increased international assistance. - Text Table 1 (2014, Percent of GDP) shows: - Revenue, excl. grants: 19.3 (4th Review); 18.7 (RCF); 18.7 (5th Review) - Grants: 5.6 (4th Review); 5.2 (RCF); 7.0 (5th Review) - Expenditure, of which: 28.9 (4th Review); 29.8 (RCF); 30.1 (5th Review) - Current: 15.6 (4th Review); 17.2 (RCF); 18.1 (5th Review) - Capital: 13.0 (4th Review); 12.2 (RCF); 11.7 (5th Review) - Basic balance (Revenue minus expenditure excluding interest on external debt and foreign-financed investment): -4.0 (4th Review); -5.5 (RCF); -5.7 (5th Review) - Overall balance: -9.6 (4th Review); -11.2 (RCF); -11.4 (5th Review) - Preliminary data suggest the basic balance deficit for 2014 was -5.7 percent of GDP, compared to a program target of -5.5 percent of GDP. - Tax and non-tax revenue projections were lower than programmed, notably mining sector tax receipts; fuel excise revenues were higher later in the year due to the decline in international oil prices. - Current expenditures exceeded program projections by 0.6 percent of GDP, almost entirely due to higher spending under the Ebola response plan (primarily financed by development partners). - Domestic investment was cut back by 0.8 percent of (revised) GDP to partly offset revenue loss and avoid monetary financing, other than withdrawing deposits from exceptional mining revenue received in 2011. ### Monetary and external sector developments - The central bank (BCRG) maintained a cautious policy stance in 2014; the reserve requirement rate had been reduced in November 2013 and the policy rate reduced in June 2014 with little impact on credit conditions. - Domestic liquidity: ratio of excess reserves to total deposits reached 11 percent at end-October 2014; private sector credit grew by 30 percent, mainly driven by loans signed prior to the onset of Ebola. - External current account (including grants) is estimated to have improved somewhat due to increased official grants and lower nonfood imports; however, a fall in capital and financial inflows led to an overall balance of payments deficit. - Exchange rate and reserves: - Market rate depreciated by about 4 percent through end-2014. - Official exchange rate depreciation moderated to around 3 percent by the BCRG’s increased foreign exchange sales. - This led to a divergence of nearly 5 percent versus the market rate by end-November, with the parallel market premium diminishing to less than 3 percent by year-end. - Gross international reserves rose from the equivalent of 3 months of imports in 2013 to about 4 months of imports by end-October 2014. ### Program performance and structural reforms - Program performance was satisfactory in 2014: - All end-June 2014 performance criteria and indicative targets were met. - Preliminary data indicate most end-September indicative targets were met; the target on expenditure in priority sectors was missed due to investment cutbacks. The BCRG net domestic assets target was missed. - All end-2014 performance criteria and indicative targets are expected to be met except the indicative target on expenditure in priority sectors. - Structural reform implementation experienced delays since the 4th ECF review, primarily due to diversion of administrative resources and delays in external technical assistance because of Ebola. - Two of the four end-September structural benchmarks were implemented with delay: adoption of a draft law on public entities to conform with the new budget framework law (LORF), and adoption of a new budget classification. - None of the four end-December benchmarks was implemented. - Civil service reform plan and the action plan for State reform and administration modernization were validated and await government adoption. - Government coordination and monitoring of structural reform implementation was further strengthened. ### Outlook and risks (2015 and medium term) - Short-term outlook: - The epidemic is likely to persist much of 2015; staff expects eradication will take much of 2015. - 2015 real GDP is projected to contract by 0.3 percent, reflecting broad-based deterioration in manufacturing, construction, commerce, transport, and further weakening in agricultural production. - Despite lower commodity prices expected to bolster activity via lower oil import costs and reduced energy subsidies, other factors pull growth down. - Medium-term outlook: - Baseline expects GDP rebound in 2016 on eradication of Ebola in 2015 and a broad-based recovery. - Medium-term prospects hinge on reducing supply bottlenecks (especially energy and infrastructure), implementing reforms to boost agriculture and the business climate, and large mining projects coming on stream. - Key risks: - (i) Ebola epidemic persisting beyond 2015. - (ii) Continued fall in commodity prices reducing investors’ appetite for mining projects. - Sociopolitical uncertainties in the run-up to presidential elections in the second half of 2015. - Recent wage increase could increase medium-term financing gaps and debt, and impair budget flexibility if not addressed by expenditure rationalization. - Authorities’ projection: authorities estimate Ebola will be brought under control during the first half of 2015 allowing growth to rebound to 2.1 percent. - Notable infrastructure development: construction of the Kaleta hydroelectric dam is projected to increase Guinea’s electricity generation capacity by 240 MW to 520 MW and could start operations in late 2015 or early 2016; higher access to electricity depends on progress in building transmission lines from the dam to Conakry. *Source: IMF staff report excerpt titled "Recent Developments and Program Implementation" (Guinea).* ### 13. Fiscal policy in 2015 will be on an expansionary footing to help eradicate the Ebola ### 13. Fiscal policy in 2015 will be on an expansionary footing to help eradicate the Ebola outbreak ### Fiscal stance and composition (2015 program) - Program target: increase in the fiscal deficit from 5.7 percent of GDP in 2014 to 6.6 percent (2015). - Fiscal revenues: - Expected increase by 2.0 percent of GDP, mostly from higher tax revenues on oil products (MEFP ¶18). - Petroleum product tax revenues expected to rise by 1.8 percent of GDP due to government intention to keep some windfall revenue despite the decline in international oil prices. - Additional revenue of 0.2 percent of GDP from a new tax on telecommunications (MEFP ¶18). - Strengthened collection efforts expected to yield 0.2 percent of GDP. - Introduction of the new ECOWAS common external tariff (CET) projected to have a marginal adverse effect on revenue. - Expenditures: - Substantial increase primarily owing to the cost of the Ebola response plan (MEFP ¶19) and the wage bill (MEFP ¶20). - Ebola response plan spending in 2015 projected at just over $200 million out of a total of $350 million (the remainder was executed in 2014), amounting to 3.2 percent of GDP. - Wage bill projected to increase by 0.8 percent of GDP, primarily reflecting: - Implementation of a 40 percent staggered general increase in base wages following the agreement with unions in January 2015 (MEFP ¶20). - Establishment of new institutions mandated under the Constitution. - Implementation of new pay scales for certain civil service groups and recruitment in priority sectors—health, education, and security. - Subsidies to the public electricity company (EDG) to fall to GNF250 billion, from GNF 534 billion in 2014, owing to the fall in international oil prices and a 15 percent increase in electricity tariffs programmed for 2015. - Domestically-financed public investment expected to rise by 0.3 percent of GDP, concentrated on roads, and electricity transmission and distribution networks. - Policy trade-offs and staff advice: - Authorities justify wage increases to maintain social stability. - Staff cautioned that ad-hoc large real wage increases, unrelated to productivity gains, threaten macroeconomic stability and can negate ability to boost public infrastructure and human capital. - Staff recommended passing through the decline in international oil prices to improve legitimacy and population buy-in of the fuel price adjustment mechanism; authorities expressed concern about potential reversal of international price declines provoking strong negative social reaction. ### Financing strategy for 2015 - Domestic financing: - Government will use domestic bank financing for the first time since inception of the ECF-supported program. - Intends to issue domestic debt instruments (including bonds in a range of maturities) amounting to as much as 2 percent of GDP. - To support issuance management, authorities requested technical assistance from the World Bank and the Fund to prepare issuance in the context of a medium-term debt strategy (technical assistance expected off-site). - External and exceptional financing: - Drawdown unused resources from World Bank and AfDB budget supports disbursed in late 2014. - Creation of a special budget account (BAS) to channel resources for Ebola-related spending (MEFP ¶22); financing pledges received about 2.7 percent of GDP in the form of grants and concessional loans. - Exceptional revenues of $80 million (1.1 percent of GDP) from the sale of mining concessions would fund earmarked investment projects. - IMF support request and contingency: - Government requested IMF financial support equivalent to 25 percent of Guinea’s quota (about $41 million) as budget support under the current ECF review. - If financing is not forthcoming, the program adjustor will provide a mix of additional domestic financing and adjustment measures, and authorities will adopt a revised budget for the second half of the year. - Risk management: - Authorities will strictly adhere to cash-based budget execution to ensure spending remains within available financing. - To manage rollover and fiscal risks from domestic bond issuance, authorities requested technical assistance and will monitor developments closely. - Staff supported the strategy at this stage but emphasized close review and that the strategy and need for additional measures would be focal points of the next ECF review. ### Program monitoring, financing requests, and debt treatment - Extension and augmentation request: - Authorities requested extension of the current arrangement through end-December 2015 and an augmentation in access. - Requested increase in access by 42.1 percent of quota (SDR 45.135 million). - Of this amount, requested that 25 percent of quota (SDR 26.775 million) be disbursed upon completion of the 5th review as budget support for Ebola-related fiscal needs; remaining amount to be disbursed under a 7th review. Staff supports these requests. - Reviews and benchmarks: - The requested extension would entail one additional review. - Proposed quantitative performance criteria for end-June 2015, for the 7th review, and structural benchmarks for the seventh review are annexed to the authorities’ MEFP; variable definitions are in the TMU. - Financing outlook and creditor engagement: - Program financing to be filled by official bilateral and multilateral partners’ pledges to support the Ebola response plan; authorities reiterated commitment to adjustment measures if Ebola-related financing falls short. - HIPC debt relief and related relief initiatives: most bilateral agreements with official creditors have been signed except for non-Paris Club members, most of which have yet to respond to the government’s invitation to discuss. - For private creditors, staff assesses authorities are making good faith efforts to reach a collaborative agreement consistent with the Fund’s lending into arrears policy. - Residual balance of payments financing need expected to be fully covered by IMF disbursements and donor loans and grants to finance the Ebola response plan. - Repayment capacity and debt sustainability: - Total amount of credit outstanding from the Fund, once the augmented ECF arrangement is fully disbursed, will amount to 188 percent of quota. - Repayments to the Fund projected to rise over the medium term but remain at a low level relative to exports of goods and services and fiscal revenue. - Accompanying debt sustainability analysis shows the new IMF financing and additional donor support would not change Guinea’s risk of debt distress. - Transparency and disbursement: - To ensure transparency and safeguard use of additional Fund resources, these resources will be used through the special account (BAS) for Ebola-related external support. - A concerted international effort will be needed to ensure financing pledges are fully disbursed; authorities have established the BAS to assure transparent use of resources. ### Monetary and exchange rate policies - Monetary policy stance: - Monetary policy will be gradually relaxed to provide adequate liquidity and support to the economy (MEFP ¶23). - Against subdued growth and inflation pressures and increasing international reserves (estimated at 4 months of imports by end-2014), BCRG sees scope for gradual easing, including to provide liquidity for government funding without crowding out private credit. - Foreign exchange operations and reserves: - Staff supports BCRG’s planned increase in foreign exchange sales (and resulting reduction in BCRG net foreign assets) to sterilize the large programmed increase in net domestic government financing (GNF 1000 billion), to the extent this does not compromise international reserves objectives. - Projections currently reflect GNF 1000 billion in additional BCRG foreign exchange sales aimed at full sterilization of the impact of increased domestic government financing; BCRG acknowledges need/scope depends on prevailing liquidity, demand conditions, pace of reserves accumulation and public expenditure over 2015 and will adjust policy accordingly. - Exchange rate flexibility: - Given downward pressure on the Guinean franc, staff reiterated advice to improve the role of market mechanisms by widening the exchange rate band around the auction rate for banks from 3 percent to 5 percent. - Reserves management and transparency: - Update of the 2012 safeguards assessment is underway. - Preliminary findings indicate need to strengthen oversight mechanisms via re-engagement of the Investment Committee and enhanced Audit Committee oversight. - BCRG needs to accord priority to enhancing financial statement transparency through adoption of International Financial Reporting Standards (IFRS). - Significant estimated over-performance in reserves accumulation in 2014 reflects receipt of Ebola-related assistance not spent in 2014, included in 2015 spending and absorption plans. ### Structural reform priorities - Government continues to view structural reform as essential for higher growth and poverty reduction. - New monitoring and coordination mechanisms introduced earlier in the year will be further strengthened. - Given pressures on administrative capacity from the Ebola epidemic and delays in technical assistance delivery, authorities intend to press ahead with the reform agenda but agreed with staff that no new structural benchmarks (SBs) would be introduced in the ECF-supported program at this time. - Focus to remain on completing remaining existing benchmarks (MEFP ¶25–¶36; Table 3). ### Poverty Reduction Strategy (PRSP) and APR - Annual Progress Report (APR) for 2013 on PRSP III (2013–15) produced in December 2014 (MEFP ¶37–39); prepared through extensive consultations with stakeholders. - Key APR findings: - Progress in poverty reduction was modest because of weak economic growth and sociopolitical difficulties; main PRSP objectives will be difficult to achieve. - Public financial management reforms estimated to have delivered some improvements in education and health service delivery. - Weak growth outcomes suggest poverty has increased in the absence of a robust social safety net. - Progress continued in macroeconomic stabilization but lagged in mining and electricity sectors and public administration reform. - Next steps: - APR for 2014 expected to be completed by mid-2015 and will inform preparation of successor PRSP covering 2016–20; new PRSP will take into account implications of Ebola for the health sector and will be aligned with the next National Development Program and Vision Guinea 2035. - Stakeholder feedback and data issues: - Bank and Fund staff noted data inconsistencies across government reports and suggested tailoring international environment discussion to Guinea’s main trade partners and key commodities. - Donors regretted weak institutional framework for PRSP monitoring and lack of data; encouraged increased budget allocations to social sectors and improvements in statistical apparatus and timeliness of implementation reports. - Authorities noted 2013 implementation lagged due to adverse shocks and delays on large mining projects; authorities stated social outcomes may be better than reported due to large private-sector contributions not captured in official data. *Source: IMF staff report text (content unit _cr1539).* ### 25. Risks to the program are primarily domestic and tilted to the downside. A prolonged ### 25. Risks to the program are primarily domestic and tilted to the downside. ### Key downside risks - Prolonged presence of the Ebola epidemic could further disrupt economic activity. - Renewal of sociopolitical tensions and political uncertainty in the run-up to the 2015 presidential elections could discourage investors and affect growth prospects. - Continued delays in structural reforms could adversely affect prospective growth and investment. - Continued weakness in international markets for iron ore could delay new investments in the mining sector and affect medium-term growth prospects. ### Key upside factors - Government commitment to eliminating the Ebola epidemic as quickly as possible. - Government effort to press ahead with structural reform to develop Guinea’s potential despite a difficult environment. - Recent decline in international oil prices is expected to benefit the economy. ### External creditor and arrears data (as reported) - Non-Paris Club official creditors under the HIPC initiative that have not yet delivered HIPC relief account for $88.5 million of end-2013 debt (5.6 percent), all of which is in arrears. - Private creditors that have not yet delivered HIPC relief account for $65.6 million of end-2013 debt (4.2 percent), all of which is in arrears. - The remaining bilateral agreements with Paris Club creditors are expected to be signed in the near future. ### Economic impact and program execution - The Ebola epidemic had a severe negative impact on Guinea’s economy in 2014, which is expected to persist in 2015. - Many lives have been lost and per capita income growth is expected to decline. - Fiscal revenues have fallen short while the government has faced higher financing needs to fight the epidemic. - Program execution under the ECF arrangement has been satisfactory despite the complicated environment. - Fiscal and monetary policy implemented in a disciplined fashion. - Fiscal deficits kept in line with available financing. - An uptick in inflation has been avoided. - All end-June 2014 performance criteria and indicative targets were met. - Preliminary data indicate most end-September indicative targets have been met; exceptions: - Targets for the net domestic assets of the central bank are estimated to have been missed. - The target floor for priority sector spending is estimated to have been missed—because of lower-than-expected public investment. - Implementation of structural benchmarks has been delayed, reflecting Ebola-related pressures on capacity and delays in planned technical assistance. ### Fiscal policy recommendations and financing strategy - Staff supports the authorities’ fiscal stance for 2015, balancing: - Ensuring adequate resources to fight the Ebola epidemic. - Maintaining a strong investment effort to strengthen growth prospects. - Providing support to the economy as appropriate. - Ensure that execution of the budget is kept in line with available resources; a concerted effort by the international community will be needed to mobilize resources. - Authorities intend to continue to manage the budget on a cash basis; staff welcomes this. - Staff recommends medium-term expenditure rationalization to restore budgetary flexibility and improve long-term fiscal sustainability in the wake of the general wage increase. - Issuance of medium- and shorter-term bonds is an important element of the budget financing strategy: - Issuance should avoid a bunching of maturities and rollover risk and preserve fiscal debt sustainability. - Staff welcomes plans to formulate bond issuance in the context of a medium-term debt strategy with Bank and Fund technical assistance. - The additional budget cost of the Government’s Ebola Response is expected to be largely foreign-financed. - Staff welcomes the creation of a special budget account for Ebola-related spending to ensure transparency and provide assurances to donors. ### Monetary policy and financial sector - A gradual relaxation of monetary policy to support the economy is desirable. - Staff supports the central bank’s stepped-up sales in the foreign exchange market. - Relaxation of monetary policy and foreign exchange interventions should be consistent with the program’s inflation and reserve targets. - Given the risk of private sector payment difficulties in the deteriorated economic environment, it will be important to monitor closely the health of the financial sector. ### Structural reforms and public utilities - Staff welcomes the authorities’ commitment to press ahead with structural reform. - Complete the reform agenda supported by the ECF arrangement regarding public finance management and the business environment. - Strengthening management of the public electricity utility company is critical to reduce the shortfall in energy supply, reduce budget subsidies, and free up fiscal space for other priority needs. - Staff urges that a management contract become operational as quickly as possible. ### Social sectors and PRSP monitoring - Staff welcomes the publication of the first APR for 2013 the PRSP II (2013–15). - Economic difficulties and shocks in 2013–14 have hampered efforts to reduce poverty. - Staff welcomes progress made in education and health sector outcomes in 2013. - Staff encourages the government to apply lessons from the 2013 APR in preparing the APR for 2014 and the successor PRSP, particularly regarding the institutional framework for monitoring implementation. - In the aftermath of the Ebola epidemic, the next PRSP should take due account of medium-term needs to strengthen the health sector and social safety nets. *GUINEA — INTERNATIONAL MONETARY FUND; Staff appraisal excerpts.* ### 34. Staff recommends completion of the fifth review and the disbursement of an amount ### _cr1539 - 34. Staff recommends completion of the fifth review and the disbursement of an amount ### Staff recommendation and program actions - Staff recommends completion of the fifth review and the disbursement of an amount equivalent to SDR 45.135 million under the ECF arrangement and of the financing assurances review. - Supports the authorities' request for an augmentation in access to Fund resources and the extension of the current ECF arrangement to end-December 2015. - Recommends that SDR 26.775 million (25 percent of quota) of the disbursement be made directly in the form of budget support. - Recommends setting of the proposed PCs for June 2015 and indicative targets for March and September 2015. ### Key economic and financial indicators (selected entries from Table 1) - GDP at constant prices: 2.3 (2013); 3.5 (2014 Prog.1); 2.4 (2015 Prog.2); 0.4 (Est.); 4.3 (Proj.2); -0.3; 6.5; 8.3 (2016–2017 entries present). - GDP deflator: 6.3; 7.0; 7.4; 7.5; 5.4; 8.1; 9.1; 9.3. - GDP at market prices: 8.7; 10.7; 10.1; 7.9; 9.9; 7.8; 16.2; 18.3. - Consumer prices (average): 11.9; 9.7; 10.1; 9.7; 6.5; 9.1; 9.6; 9.4. - Exports, f.o.b. (US$ terms): -5.4; -2.2; -6.5; 0.7; 2.6; 6.8; 6.9; 9.3. - Imports, f.o.b. (US$ terms): -6.7; -4.6; -1.9; -4.9; 14.5; -2.2; 20.6; 38.2. - Broad money (M2): 14.1; 10.7; 6.1; 13.3; 19.1; 11.6 (selected years). - Total revenue and grants (percent of GDP): 19.8; 12.4; 10.6; 18.9; 15.3; 23.9; 25.7; 21.3; 23.4; 23.2; 23.3. - Total expenditure and net lending (percent of GDP): 25.1; 14.6; 10.9; 22.5; 17.6; 29.8; 30.1; 24.0; 33.6; 27.2; 26.2. - Overall budget balance including grants (percent of GDP): -5.2; -4.0; -5.9; -4.3; -2.7; -10.1; -4.1; -2.9. - Current account balance including official transfers (percent of GDP): -21.1; -16.9; -18.1; -18.2; -18.0; -16.7; -18.3; -27.4. - Gross available reserves (months of imports): 3.6; 3.7; 3.7; 4.2; 3.5; 3.1; 4.5; 4.5. - External public debt, incl. IMF (percent of GDP): 25.3; ... ; 28.7; ... ; 32.9; 34.6; 34.5. - Total public debt, incl. IMF (percent of GDP): 39.1; ... ; 42.5; ... ; 47.9; 47.1; 44.9. - Nominal GDP (GNF billions): 43,048.2; 47,669.0; 47,387.7; 46,462.8; 52,187.1; 50,084.4; 58,202.6; 68,846.2. ### Fiscal operations and balances (selected from Tables 2a–2c) - Total revenue and grants (GNF billions): 8,544 (Prog.2013); 5,337; 4,912; 8,117; 7,131; 11,328; 11,951; 11,103; 11,729; 13,484; 16,022. - Revenue (GNF billions): 7,905; 4,419; 4,343; 6,633; 6,501; 8,843; 8,683; 10,031; 10,356; 11,889; 14,136. - Mining sector revenue (GNF billions): 1,489; 616; 686; 1,121; 1,029; 1,451; 1,326; 1,408; 1,392; 1,596; 1,998. - Non-mining sector revenue (GNF billions): 6,130; 3,669; 3,473; 5,201; 5,107; 6,931; 6,899; 8,377; 8,578; 9,844; 11,606. - Grants (GNF billions): 639; 918; 569; 1,484; 630; 2,485; 3,268; 1,072; 1,372; 1,595; 1,887. - Total expenditure and net lending (GNF billions): 10,785; 6,277; 5,048; 9,687; 8,191; 14,132; 13,971; 12,505; 16,808; 15,850; 18,036. - Current expenditures (GNF billions): 6,954; 3,230; 3,269; 5,635; 5,313; 8,168; 8,420; 8,680; 10,287; 10,124; 11,709. - Capital expenditure (GNF billions): 3,822; 2,842; 1,745; 3,958; 2,803; 5,800; 5,445; 3,509; 6,327; 5,683; 6,311. - Basic fiscal balance (GNF billions): -1,188; -635; -260; -1,574; -947; -2,628; -2,638; -1,204; -3,324; -1,108; -895. - Basic fiscal balance (percent of GDP): -2.8; -4.0; -5.5; -5.7; -2.3; -6.6; -1.9; -1.3 (selected series). - Overall balance excluding grants (GNF billions): -2,880; -1,858; -704; -3,054; -1,690; -5,289; -5,288; -2,474; -6,452; -3,961; -3,900. - Financing (GNF billions): 2,241; 940; 122; 1,395; 1,006; 1,902; 2,020; 1,402; 3,435; 1,375; 1,356. - External financing (net, GNF billions): 1,200; 235; 102; 321; 855; 841; 1,425; 122; 1,899; 1,560; 1,497. - Memorandum: Nominal GDP (GNF billions) entries included for multiple years (e.g., 43,048; 46,463; 47,388; 52,187; 50,084; 58,203; 68,846). ### Monetary sector and central bank indicators (selected from Tables 3a–3b) - Central bank reserve money (GNF billions, end period sample): 6,978 (Mar.2013); 7,413 (Jun.2013); 7,183 (Sep.2013); 7,183 (Dec.2013 Prog.2); 8,303 (Dec.2014 Prog.2); 7,830 (Dec.2014 Act.); 7,557; 6,620; 6,760; 6,889; 6,820 (2015 estimates/projections present). - Net foreign assets of the central bank (GNF billions, selected): 3,163; 3,021; 3,012; 3,012; 3,086; 2,513; 2,916; 2,573; 2,132; 1,780; 1,430. - Net international reserves (US$ million, memorandum): 564; 539; 552; 552; 557; 461; 550; 482; 419; 369; 319. - Broad money (M2, GNF billions sample): 13,068; 13,392; 13,392; 13,417; 14,334; 13,862; 14,778; 15,206; 15,634; 16,063; 16,491. - Broad money (M2) annual growth (percent of beginning-of-period M2): 14.4; 19.3; 19.3; 11.4; 23.5; 14.9; 14.6; 20.5; 27.1; 33.0; 38.9. - Reserve money (annual percentage change): 15.7; 11.5; 11.5; -9.7; 23.5; 5.2; 1.6; -12.4; -9.2; -7.4; -8.3. - Commercial bank credit to the private sector (annual percentage change): 35.4; 37.3; 37.3; 19.7; 41.6; 33.3; 30.0; 28.0; 27.7; 27.6; 35.0. - Money multiplier (M2/reserve money): 1.8; 1.9; 1.9; 2.0; 1.7; 1.8; 2.0; 2.3; 2.3; 2.3; 2.4. - Velocity (GDP/average M2): 3.5; 3.7; 3.7; 3.5; 3.5; 3.5; 3.3; 3.2; 3.1; 5.1; 3.2. ### Banking sector soundness (selected from Table 6) - Total capital to assets: 7.8 (End Dec.2010); 8.2; 11.6; 11.8; 12.5 (End Sep.2014). - Regulatory capital to risk-weighted assets (RWA): 17.0; 14.6; 18.2; 15.6; 18.0. - Percentage of banks with ≥ 10% regulatory capital to RWA: 100.0; 83.3; 92.3; 93.0; 100.0. - Nonperforming loans (NPLs) to total loans (incl. off-balance sheet): 5.9; 3.2; 4.8; 6.5; 6.3. - NPLs net of provisions to capital: 2.5; 3.5; 3.5; 11.2; 11.5. - Net income to average assets (ROA): 2.0; 2.5; 2.2; 2.2; 1.4. - Net income to average capital (ROE): 35.1; 41.3; 28.8; 27.8; 17.0. - Liquid assets to total assets: 75.9; 69.0; 67.3; 62.3; 65.3. - Loans to deposits: 24.6; 38.1; 38.0; 45.7; 53.5. - Foreign exchange liabilities to total liabilities: 22.0; 28.0; 33.0; 33.0; 26.5. - Foreign currency loans to total loans: 36.0; 48.1; 22.6; 23.1; na. ### Balance of payments and external sector (selected from Table 4) - Exports, f.o.b. (US$ millions): 1,474 (2013); 1,484 (2014); 1,403 (Est.); 1,584 (Proj.); 1,693; 1,849 (2016–2017). - Mining products exports (US$ millions): 1,294; 1,307; 1,261; 1,420; 1,518; 1,710. - Imports, f.o.b. (US$ millions): -2,011; -1,912; -2,156; -1,870; -2,256; -3,119. - Services trade balance (US$ millions): -631; -698; -662; -711; -869; -1,098. - Income balance (US$ millions): -436; -429; -315; -475; -441; -473. - Transfers (US$ millions): 268; 351; 388; 275; 422; 456. - Current account including official transfers (US$ millions): -1,336; -1,205; -1,343; -1,198; -1,451; -2,384. - Current account including official transfers (percent of GDP): -21; -18.2; -18.0; -16.7; -18.3; -27.4. - Gross available reserves (US$ millions): 705; 794.9; 896.7; 634.5; 981.6; 1,173.2. - Nominal GDP (US$ millions): 6,230; 6,629; 7,455; 7,155; 7,909; 8,716. ### Performance criteria and indicative targets (Table 5; selected entries) - Quantitative PC — Basic fiscal balance (floor; cumulative change for the year): targets and status: - Mar. PC: - (no value) ; Adj. PC -635; Act. -676; Status Met. - Jun. PC: -1,570; Adj. -1,537; Act. -893; Status Met. - Sep. PC: -2,628; Adj. -3,217; Act. -880; indicative targets for Dec. and beyond listed. - Net domestic assets of the central bank (ceiling; stock) examples (GNF billions): PC 5,018; Adj. PC 4,910; Act. 4,171; Status Met; later entries include 4,789; 4,921; 5,217 (Not Met). - Net domestic bank financing of the government (ceiling; cumulative change for the year) examples (GNF billions): 879; 771; 43; Met; later PC 1,077; Adj. 1,208; Act. 652; Met. - Net international reserves of the central bank (floor; stock); US$ million: 459; 459; 552; Met; later targets and act values listed (e.g., 513; 495; 560; Met). - New non-concessional medium or long-term external debt contracted or guaranteed by the government or central bank (ceiling); US$ million (continuous): 0; 0; 0 Met; later entries 80; 80; 0 Met. - Indicative target — Expenditure in priority sectors (floor): 2,167; 2,167; 2,276; Met; later targets and act values noted (e.g., 2,633; 2,633; 2,425; Not Met). ### External financing requirements and sources (Table 7 reference presence) - Table 7 is listed as "Guinea: External Financing Requirements and Sources, 2013–15" (table header present). Specific numeric details for Table 7 are not included in the extracted content provided. *Source: IMF staff text as presented in the supplied PDF content.* ### 1. Gross financing requirements1,4561,4321,6961,253 ### _cr1539 - 1. Gross financing requirements1,4561,4321,6961,253 ### Gross financing requirements - Gross financing requirements (table header): 1,456 1,432 1,696 1,253 - External current account deficit: 1,361 1,305 1,428 1,293 - Capital account balance: -12 -15 -15 -90 - Debt amortization: 495 973 57 - Change in arrears, net: -4 -7 3 115 4 - Gross reserves accumulation: 619 0 179 -160 - IMF repayments: 0 0 0 0 ### Available financing - Total available financing: 1,428 1,335 1,639 938 - Foreign direct investment, net: 1,002 735 1,364 260 - Identified disbursements: 311 600 244 524 - Grants: 92 34 81 53 196 - Project grants: 67 24 86 91 01 - Program grants: 26 10 08 49 5 - Loans (total): 218 252 913 28 - Project loans: 183 111 913 28 - Program loans: 35 140 00 - Other flows: 115 000 - Debt relief: 1 13 1154 - Debt rescheduling and cancellation (incl. on arrears): 1 13 1154 ### Residual financing - Residual financing totals by line: 289 657 315 - ECF and RCF disbursement: 289 657 119 - Ebola-related donor pledges: 196 - Additional financing/Adjustment measures: ............ ### Notes and sources - Sources: Guinean authorities; and IMF staff estimates and projections. - Footnotes included in source: - ¹ Excludes public transfers. - ³ Includes private short term financial flows. - ² Projected clearance of outstanding debt arrears to non-Paris Club official creditors and commercial creditors through debt relief. *Sources: Guinean authorities; and IMF staff estimates and projections.* ### Table 8 — Indicators of Capacity to Repay the IMF, 2014–25: key figures - Fund obligations based on existing credit — Credit outstanding (2014–2025): 119.08, 119.08, 119.08, 117.24, 107.56, 94.71, 70.99, 47.28, 25.40, 10.86, 0.00, 0.00 - Percent of quota (existing credit): 111.19, 111.19, 111.19, 109.47, 100.43, 88.43, 66.29, 44.14, 23.71, 10.14, 0.00, 0.00 - Repayment of principal (existing credit): 0.00, 0.00, 0.00, 1.84, 9.68, 12.85, 23.72, 23.72, 21.88, 14.54, 10.86, 0.00 - Charges and interest (existing credit): 0.00, 0.00, 0.00, 0.00, 0.00, 0.26, 0.21, 0.15, 0.09, 0.04, 0.01, 0.00 - Fund obligations from prospective drawings under the ECF — Credit outstanding (2014–2025): 0.00, 81.85, 81.85, 81.86, 81.85, 81.85, 75.51, 59.13, 42.76, 26.40, 10.02, 0.00 - Percent of quota (prospective drawings): 0.00, 76.42, 76.42, 76.43, 76.43, 76.43, 70.50, 55.22, 39.93, 24.65, 9.36, 0.00 - Repayment of principal (prospective drawings): 0.00, 0.00, 0.00, 0.00, 0.00, 0.00, 6.35, 16.37, 16.37, 16.37, 16.37, 10.02 - Charges and interest (prospective drawings): 0.00, 0.00, 0.00, 0.00, 0.00, 0.20, 0.20, 0.17, 0.13, 0.09, 0.05, 0.01 - Total obligations based on existing and prospective credit — Credit outstanding (2014–2025): 119.08, 200.93, 200.93, 199.10, 189.41, 176.56, 146.50, 106.41, 68.16, 37.26, 10.02, 0.00 - Percent of quota (total): 111.19, 187.61, 187.61, 185.90, 176.86, 164.86, 136.79, 99.36, 63.64, 34.79, 9.36, 0.00 - Percent of gross foreign available reserves (total obligations): 22.53, 47.63, 30.79, 25.53, 20.70, 16.53, 11.90, 7.08, 4.26, 2.21, 0.54, 0.00 - Total payments to the IMF (2014–2025): 0.00, 0.00, 0.00, 1.84, 9.69, 13.31, 30.47, 40.40, 38.47, 31.04, 27.29, 10.03 - Percent of exports of goods and services (total payments): 0.00, 0.00, 0.00, 0.14, 0.71, 0.95, 1.20, 1.01, 0.72, 0.50, 0.39, 0.13 - Percent of external public debt service (total payments): 0.00, 0.00, 0.00, 3.04, 13.40, 17.60, 40.75, 80.08, 80.52, 67.15, 63.53, 23.15 - Memorandum items: - Disbursments: 63.5, 81.9 - Exports of goods and services, US$ millions (2014–2025): 1,550.0, 1,651.2, 1,761.7, 1,920.4, 2,058.8, 2,113.4, 3,827.2, 6,032.0, 8,032.3, 9,357.1, 10,645.5, 11,803.0 - Projections and assumptions noted in source: - ¹ PRGT interest waived through end-2016. Projected interest charges between 2017 and 2018 are based on 0/0/0.25/0.25 percent per annum for the ECF, RCF, SCF, and ESF, respectively, and beyond 2018 0.25/0.25/0.5/0.25 percent per annum. - ² Includes disbursment in 2015 of proposed augmentation of use of Fund resources 42.1 percent of Quota (45.135 million) under the current ECF arrangement. *Sources: Guinean authorities; and IMF staff projections.* ### Original and proposed ECF disbursement schedules (Tables 9a and 9b) — key entries - Original schedule total: 120.000 SDRs / 128.520 Millions of SDRs - Proposed schedule total: 162.100 SDRs / 173.655 Millions of SDRs - Individual disbursement lines repeated at 17.143 percent of quota / 18.360 Millions of SDRs on multiple dates across 2012–2015 (dates listed in source). - Proposed augmentation: 42.100 percent of quota / 45.135 Millions of SDRs (August 15, 2014) linked to completion of the fifth review under the ECF arrangement. *Source: IMF staff.* ### Risk Assessment Matrix — selected risks, likelihood, impact, and policy responses - Growth slowdown in China - Relative Likelihood: Low - Impact If Realized: Medium - Policy response: Intensify structural reform and efforts to improve the overall business climate to promote investment in non-mining sectors. Allow moderate monetary easing to limit the impact on growth. - Protracted period of slower growth in advanced and emerging economies - Relative Likelihood: High (Advanced economies) / High (Elsewhere) - Impact If Realized: (implicit) High - Policy response: (not explicitly restated in excerpt) - A prolonged and uncontained outbreak of Ebola - Relative Likelihood: Low to Medium - Impact If Realized: High - Consequences: Investor sentiment and consumer confidence could deteriorate markedly; investments in large-scale mining projects could be delayed; medium-term growth would be affected negatively. - Policy response: Deploy countercyclical fiscal and monetary policies. The deterioration of the fiscal position should remain within the limits of available financing. Intensify structural reform. - A deterioration in the domestic socio-political and security situation - Relative Likelihood: Low to Medium - Impact If Realized: High - Consequences: Investment and growth would be negatively affected; poverty would risk increasing; development of natural resources would be delayed. Program implementation would risk weakening and key structural reforms being postponed. Macroeconomic stability would be at risk. - Policy response: Refocus reform on areas less sensitive to socio-political environment. Aim at maintaining fiscal control. *Source: IMF staff (Risk Assessment Matrix).* ### Letter of Intent (Conakry, January 27, 2015) — substantive points and policy commitments - Purpose: Fifth supplement to the Memorandum on Economic and Financial Policies reviewing implementation of the ECF-supported program during the first half of 2014 and describing policies for remainder of 2014 and 2015. - Ebola impact and financing needs: - Ebola expected to continue to have a significant adverse impact for most of 2015. - Financing requirement in 2014: US$191 million, covered with assistance from partners. - Financing need projected for 2015: US$315 million. - Macroeconomic outcomes and program implementation: - Implementation of the ECF-supported program remained satisfactory; all performance criteria at end-June 2014 were met, and most quantitative targets at end-June and end-September were met. - Inflation maintained below 10 percent; exchange rate depreciated by about 2 percent on average during second half of 2014; international reserves remain above program objective. - Structural reforms lagged; only two structural benchmarks implemented. - Policy intentions for 2015: - Continue ECF-supported program to promote stronger, inclusive growth and eradicate Ebola. - Loosen monetary policy to an extent compatible with economic stability objectives. - Increase fiscal deficit in line with available domestic financing and concessional external financing. - Continue cash-based budget execution to meet fiscal objectives. - Aim to maintain inflation below 10 percent in 2015 and coverage of imports at roughly 3 months. - Continue structural reforms in public financial management, business environment, and electricity sector despite difficulties mobilizing technical assistance. - Ebola response budgeting and safeguards: - Creation of a special earmarked budget (BAS) to record portion of international financial assistance and government resources for fighting the epidemic. - With IMF staff support, conduct an evaluation of fiscal safeguards to ensure international assistance dedicated directly to the budget is used effectively and transparently. - Request to IMF: - Approval of the fifth review of the ECF-supported program. - Extension of the ECF arrangement to end-December 2015. - Increase in Fund financial support equivalent to 42.1 percent of quota: - 25 percent to be disbursed as budget support in connection with the fifth review (SDR 45.135 million, sixth disbursement). - 17.1 percent under a seventh review. - Expected that Fund support in 2015 should cover about one third of the projected balance of payments financing requirement. - Government commitments: - Stand ready to take additional measures if necessary and consult with Fund staff prior to adopting such measures. - Undertake not to introduce measures that would exacerbate balance of payments difficulties. - Provide the Fund with any information required to monitor program implementation. ### Supplement — Budget and program execution highlights - Recent macro developments (excerpt): - Real GDP growth estimate for 2014: 1.3 percent (down from the 2.4 percent projected in September). - Inflation at end-November 2014: 9.3 percent. - Central Bank international reserves covering more than 4 months of imports at end-December 2014. - Budget execution (excerpt): - Cash-based budget execution helped keep end-June expenditure within available financing. - Executed only 80 percent of planned investment expenditures financed from domestic resources to offset shortfall in budget support and revenue. - Basic balance at end-June 2014: -0.6 percent of GDP (program performance criterion: -1.5 percent of GDP). - Budget revenue at end-September 2014 fell short of projections by 1.4 percent of GDP. - 2014 supplemental budget projects higher basic fiscal deficit than original budget by 1.3 percent of GDP to reflect revenue shortfall and increased Ebola-related expenditure. - Text Table 1 — Total Budget for the Ebola Response (USD Millions): - Coordination, finance, logistics: 95.0 - Epidemiology, laboratory, research: 175.1 - Prevention: 22.0 - Social mobilization, communication: 32.5 - Food distribution and social protection: 24.2 - Total: 348.8 - Memorandum item — Special Budget Account for 2015: 230.4 *Attachments listed in Letter of Intent: Fifth Supplement to the Memorandum on Economic and Financial Policies; Technical Memorandum of Understanding.* *Source: Letter of Intent and accompanying materials (Conakry, January 27, 2015).* ### 5. All of the monetary program targets for end-June and end-September 2014 were met ### 5. All of the monetary program targets for end-June and end-September 2014 were met ### Monetary program performance and liquidity - All monetary program targets for end-June and end-September 2014 were met except the end-September indicative target on BCRG’s net domestic assets. - End-June 2014 net domestic assets were met with a significant margin, reflecting sound management of public finances and strict avoidance of monetary financing of the budget. - Net international reserves exceeded program objectives, partly due to higher-than-anticipated inflows of foreign currency. - Monetary stance developments: - Policy rate reduced by three percentage points to 13 percent. - Required reserves ratio reduced by two percentage points to 20 percent, roughly six months prior to the policy rate reduction. - Banking sector liquidity and credit: - Improved bank liquidity helped increase credit to the private sector by 30 percent in 2014. - Interest rate on Treasury bonds fell from 11 percent at end-2013 to 9 percent at end-2014. - Exchange market: - The exchange rate between the Guinean franc (GNF) and U.S. dollar remained stable. - The premium relative to the official rate increased, reflecting greater uncertainty in the exchange market. ### Financial system soundness - Nonperforming loans: declined from 6.5 percent (end-2013) to 6.3 percent (end-September 2014). - Average bank solvency ratio: rose from 15.6 percent (end-2013) to 18.0 percent (end-September 2014). - Bank capital strengthening: - Improvement reflected implementation of the first tranche of the banks’ capital increase in June 2014. - Insurance and regulatory work: - Benchmarking with certain partners helped amend the insurance code; the revised draft code is under technical review. - Reflections on regulations of banking-insurance and microfinance have begun; consultations with market actors are planned. ### External current account and balance of payments - External current account deficit (grants included) projected to improve from 21.1 percent in 2013 to 18.1 percent of GDP in 2014, driven by: - A rise in official transfers. - Lower import demand despite higher food imports and a decline in agricultural exports due to cross-border trade restrictions. - Overall balance of payments risk: - A drop in medium-term capital and financial flows, mostly due to a sharp slowdown in foreign direct investment, and lower short-term capital inflows would translate into a weakening of the overall balance of payments. ### Implementation of structural reforms (overview and progress) - Government coordination: - Technical unit for program monitoring (CTSP) strengthened: executive secretary appointed in June 2014 and an assistant in September 2014. - Government prepared a priority action plan for 2014–15 and consulted donors in October 2014. - Ebola epidemic complicated mobilization of technical assistance and delayed structural reforms; many discussions conducted via teleconference or videoconference. - Public finance reforms and benchmarks: - Preliminary draft law on the financial governance of public enterprises adopted by the Council of Ministers in December 2014 (end-September 2014 structural benchmark). - Decree on the governance framework of public finances (second implementing regulation of the budget framework law, LORF) signed on October 31, 2014. - Consultations launched to transfer accounts of autonomous entities (ARPT and government buildings management company) to the Treasury single account at the BCRG (end-September 2014 structural benchmark); a fact-finding mission was conducted in sub-region countries. - Adoption of the new budget nomenclature by the October 9, 2014 signature of the order on budget nomenclature (end-September 2014 structural benchmark). - Production of government's management and administrative accounts for 2011 and 2012 partially implemented; 2011–13 management accounts produced in December 2014; administrative accounts delayed due to line ministries’ inexperience. - Council of Ministers adopted draft revised customs code on November 6, 2014; selection criteria for investment projects submitted to Special Investment Fund management committee chairman on September 30, 2014. - Debt management: - Medium-term action plan adopted in March 2014 continued to be implemented. - Decision referring matters to National Public Debt Committee (CNDP) signed on September 8, 2014; first CNDP meeting held on October 31, 2014. - Delays: preparation of the medium-term debt strategy, debt sustainability analyses, completion of public debt policy statement, and training on procedures manual—technical assistance missions postponed due to Ebola. - Progress on domestic debt audit: consultant recruited in December 2014 to conduct audit; audit to underpin schedule for clearing domestic payment arrears distinguishing 2011–13 arrears from 2005–10 arrears (end-December 2014 structural benchmark). - Mining and petroleum sector: - Role of SOGUIPAMI redefined following IMF technical assistance and World Bank study; draft decree on new role and relationships with public administration (end-September 2014 structural benchmark) being finalized. - Draft petroleum code prepared with AfDB financing validated on July 18 2014 and adopted by the National Assembly in December 2014. - Electricity sector: - Financing agreement for Electricity Sector Rehabilitation Project (PRSE) signed with the World Bank in July 2014. - International call for tenders to select private partner for Électricité de Guinée (EDG) management contract issued on August 20, 2014 (structural benchmark for end-December 2014), later than planned due to Ebola-related difficulties. - Executive board of EXIM Bank of China approved financing of transmission line Manéah-Tombo (about US$ 91 million of which 85 percent financed by EXIM Bank of China). - Civil service reforms: - Biometric census completed in August 2014; preliminary results indicate 11 percent of paid civil servants did not complete biometric identification forms. - Civil service reform plan and PREMA action plan validated on November 12, 2014 (end-December 2014 structural benchmark). - Activities on governing provisions and position descriptions begun with World Bank assistance. - Business environment and justice reforms: - Justice reform plan adopted in July 2014 includes land tenure protection, enforcement of commercial contracts, and timetable for creation of an Economic Section. - Draft 10-year action plan prepared with EU technical assistance and discussed in December 2014; validation now expected in first quarter of 2015. - Presidential Council on Investment and Public-Private Partnership (CPI-PPP) established by decree on October 17, 2014; advisory committee composed of 30 members. ### Macroeconomic outlook and 2015 policy framework - Growth and inflation: - Growth expected to reach 2.1 percent in 2015 compared to 4.1 percent initially projected, reflecting Ebola-related disruptions and travel restrictions. - Inflation expected to remain close to 2014 level: upward pressure from food prices offset by weaker domestic demand. - BCRG’s reserves expected to remain at about three months of imports with exchange rate stability. - Growth expected to recover in 2016 with recovery of investment in the mining sector. - Policy objectives: - Continue consolidation of macroeconomic stabilization and focus on poverty reduction in line with PRSP III, elimination of Ebola epidemic, and mitigation of its effects. - Fiscal policy: prudent, absorb Ebola impact and support the economy within available financing; continue cash-based budget to control budget execution. - Monetary policy: intend to relax monetary policy to support private sector growth and make domestic resources available for Ebola response. - Exchange policy: focus on currency stability and maintaining BCRG international reserves at an adequate level. ### Fiscal policy and 2015 budget specifics - 2015 budget and deficit: - Basic balance deficit expected at 6.6 percent of GDP compared to an estimated 5.7 percent of GDP in 2014. - Financing gap roughly GNF 1,644 billion, reflecting increased cost of Ebola response partly covered by IMF budget assistance, loans and grants, and domestic financing. - Government continuing discussions with partners to cover response plan financing; domestic adjustment measures anticipated if resources not available. - Revenues: - Revenues under 2015 budget estimated at 20.7 percent of GDP, an increase of 2.0 percentage points of GDP relative to 2014. - Mining receipts expected to decrease slightly as percent of GDP due to weaker profits and anticipated decline in mineral export prices. - Direct taxes ratio to GDP expected to remain constant; indirect taxes expected to rise significantly due to delayed pass-through of international oil price changes, introduction of TARTEL, and improved revenue agency management. - Taxes on international trade expected to decline with implementation of the Common External Tariff (CET). - Text Table 2. Impact of Measures to Increase Revenue (as presented) - TARTEL: 800.2 (GNF billions) - Administrative measures: 1000.2 (GNF billions) - Customs administration: 500.1 (GNF billions) - Tax administration: 500.1 (GNF billions) - Petroleum revenue: 9011.8 (GNF billions) - Total: 1,0812.2 (GNF billions) - Spending and Ebola costs: - Ebola response plan updated cost: US$348.7 million, of which roughly US$118 million was executed in 2014. - Salary and wage increases budgeted for 2015 to reflect creation of new institutions and hiring in health (0.1 percent of GDP), education (0.2 percent of GDP), and security (0.04 percent of GDP). - Subsidies to EDG projected to fall from 1.1 percent of GDP in 2014 to 0.5 percent of GDP in 2015, due to fall in international oil prices and planned tariff adjustment. - Domestically-financed investment spending projected to increase to 6.5 percent of GDP, an increase of 0.3 percentage points of GDP versus 2014. - Wage agreement with unions: - Unions initially demanded 300 percent general wage increase. - Government granted a 40 percent increase in basic salary in 2015 (20 percent in April, 10 percent in July and 10 percent in October). - Financial impact of the increase estimated at GNF 261 billion (0.5 percent of GDP) compared to the 2015 budget projection. - Financing measures to offset GNF 261 billion: - Cancel recruitments in nonpriority sectors: GNF 153 billion. - Implement conclusions of biometric census: GNF 30 billion. - Revise financial impact of specific statutes: GNF 78 billion. - Note: GNF 261 billion amount includes GNF 17 billion corresponding to an increase in the basis of the evaluation of the 2015 wages using 2014 outturns. - Financing strategy and special measures: - Expected external financing: mainly grants and concessional loans of 10.0 percent of GDP, of which 5.4 percent of GDP in grants. - Issue of bills and bonds on the local market for a maximum projected amount of GNF 1,000 billion (2 percent of GDP). - Request for technical assistance from IMF and World Bank to prepare a medium-term debt strategy (MTDS). - Expected receipts from sale of bauxite blocks in Boffa: at least US$600 million, of which US$80 million expected to support investment expenditure under the 2015 budget; if realized, government will reduce domestic financing. - Establishment of a special earmarks budget (BAS) for GNF 1,613 billion (US$230 million) for Ebola funds management, with governance arrangements for transparency and audits by an internationally recognized firm to be recruited by June 2015. ### Monetary and exchange policy actions for 2014–15 - BCRG actions: - Continue gradual and prudent relaxation of monetary policy while monitoring inflation. - Assist government mobilization of financing to mitigate Ebola effects, including sale of securities to the public. - Reduce policy rate and required reserves rate to ensure sufficient liquidity so planned bank financing of public deficit does not crowd out private sector. - Sterilize bank financing to contain inflationary effects by increasing currency sales in the interbank foreign exchange market (MIC) without compromising international reserves objective of about 3 months coverage of imports. - Maintain exchange rate stability. - Launch operations of the international reserves investment committee to implement new investment policy and control procedures. *Source: _cr1539 - 5. All of the monetary program targets for end-June and end-September 2014 were met* ### 24. Several other measures are planned to strengthen the banking and financial sector. The ### _cr1539 - 24. Several other measures are planned to strengthen the banking and financial sector. The ### Banking and financial sector measures - BCRG plans to implement an "open market" window by end-March 2015 to encourage the interbank market in national currencies with the implementation of the market convention (developed with and circulated to banks for opinion). - Set up an information system on credit to improve the credit bureau, with assistance from the World Bank. - Measures to consolidate the microfinance sector and protect depositors: - (i) drafting a new microfinance law by end-December 2014; - (ii) finalizing the directives by end-June 2015; - (iii) adoption by the government of the National Inclusive Finance Strategy by end-June 2015; - (iv) strengthening of microfinance institutions (MFI) through training and supervision; - (v) establishment of a credit information repository to more effectively manage the MFI portfolio by end-December 2015; - (vi) preparation of the directive concerning mobile financial services by end-March 2015. - Insurance sector: finalize the revised insurance code by end-June 2015 and consult actors concerning banking-insurance and micro-insurance. ### Structural Reforms (overview) - CCER and CTA to redouble efforts to accelerate adoption of drafted texts and implement the priority action plan defined in October. - Strengthening of the CTSP to be completed by hiring experts and equipping new offices by end-February 2015, with technical assistance from the World Bank, the African Development Bank, and the European Union. - Key objectives: strengthen public financial management, reform the civil service, improve the business environment, strengthen mining sector reform, restore financial viability of the electricity sector while increasing supply. - Priority: eradication of the Ebola epidemic based on the response plan piloted by the national Ebola coordination mechanism. ### Public Financial Management (PREFIP actions and benchmarks) - Continue implementation of priority actions in the Public Finance Reform Plan (PREFIP) adopted in May 2014. - Structural reforms and benchmarks: - Implementation of the new procurement code by ministerial decision (prior action) to set thresholds and harmonize standard tender documents with donors. - Alignment of fiscal and accounting management practices of public entities collecting public revenue with the LORF and the RGGBCP by end-March 2015 (reformulated and reprogrammed structural benchmark). - Production of the administrative accounts for fiscal years 2011–13 by end-April 2015 (reformulated and reprogrammed structural benchmark); training session of financial affairs divisions of line ministries planned for the first quarter of 2015. - For fiscal years 2005–10, produce cumulative management accounts based only on available figures, drawing from Mali's experience. - Approval of a timetable for clearing domestic payment arrears, distinguishing arrears for budget years 2011–13 from 2005–10 arrears, by end-June 2015 (reprogrammed structural benchmark). - Effective implementation of the new VAT credit refund mechanism by organizing meetings with mining companies and finalizing the multiyear program for clearing arrears by end-March 2015. - Continue strengthening the Medium-Size Taxpayer Unit (SME) through training, internal organization, monitoring of statistics, and implementation of a support committee by June 30, 2015. - Additional reforms for budget programming, preparation, and public expenditure management: - Adoption of a budget execution manual of procedures by end-March 2015. - Start work by end-September 2015 to prepare for implementation of the new budget nomenclature planned for 2016. - Preparation of a manual of procedures for ex ante financial control. - PREFIP also provides for reforms via: - Start training programs on the laws and regulations (LORF, RGGBP, draft law Governance) at headquarters and regional offices by March 2015. - Adoption of standards and the new accounting framework by end-March 2015. - Continued reform of the Treasury single account (CUT), including creation of a central account of the BCRG and signature of the new CUT account agreement by end-March 2015. - Preparation of new budget documents in connection with the changeover by end-September 2015 to the requirements under the LORF beginning in 2016. - Drafting of new directives on the preparation of the TOFE in line with the IMF 2001 GFSM by September 2015. - Completion of recruitment and training of financial inspectors by end-December 2015. ### Civil service reform - Biometric census results to inform civil service reform strategy; adopt by March 2015 a civil service reform plan and action plan for PREMA (reprogrammed structural benchmark). - Remaining steps to complete the biometric census: - (i) physical controls in all departments and units for three months combined with distribution of biometric cards and installation of electronic readers in all departments and units (November 2014 through January 2015); - (ii) cleanup of data files in 2015 (pension beneficiaries file with 50,000 records; contractual employees file with 10,000 records). - Other measures planned by end-June 2015: - (i) installation and start of operations of regional inspectors; - (ii) creation of system of ongoing control of staffing, application of laws/regulations concerning organization and operations of organizational units, and Human Resources Management work. ### Business environment - Focus on improving the business environment and implementing action plan for justice reform program. - APIP to complete a business promotion strategy and business plan by end-March 2015 with assistance from an international consultant selected with support from the World Bank. - Judicial sector reforms: - Revision of the criminal code and code of criminal procedures to be completed by end-June 2015. - Implementation of a new judiciary organization, including specialized sections (Chambre Économique) to handle commercial matters by end-September 2015. ### Mining sector reforms and institutions - Finalize implementing regulations for the mining code and revise mining contracts before end-May 2015. - Institutional audit of the Department of Mines planned by end-June 2015 to align structure with the new mining code, new petroleum code, mining contract reviews, and modernization of the cadastre. - SOGUIPAMI: - Initial operation of SOGUIPAMI to be finalized by end of the first quarter of 2015. - Decree to implement recommendations on SOGUIPAMI’s new role and relations with the public administration to be adopted by end-February 2015 (reprogrammed structural benchmark). - SOGUIPAMI will not engage in financial activities (including indebtedness), will not possess in its own right shares of mining companies active in operations or infrastructure, cannot alienate state holdings and assets nor collateralize them. - Statutes of SOGUIPAMI to be modified to reflect new decree provisions based on consultant recommendations hired with assistance of the World Bank. - Close monitoring to ensure SOGUIPAMI operations do not expose public finances to significant risks. - Artisanal mining and SIGM: - Study on division of artisanal exploitation areas into parcels and study on organization of artisanal gold exploration financed by the World Bank (PAGSEM) to begin in March 2015. - Modernization of the mining cadastre continuing based on 2014 audit of the geological and mining information system (SIGM). - Second and final phase: selection of consultant to identify and install geodetic references by end-March 2015. - New SIGM to be deployed and operational no later than end-December 2015. - Establish a one-stop mining window (GUM) by end-June 2015 to receive and process permits and administrative steps for large, integrated mining projects. ### Energy sector - Step up energy sector reforms by year-end. - Selection of the partner in EDG's management expected to be completed by end-March 2015 (reprogrammed structural benchmark); start of a management contract to begin as soon as possible after that date. - Financing and projects: - Electricity Sector Rehabilitation Project (PRSE) financing agreement signed with the World Bank in July 2014. - Negotiations concluded and EIB board validated provision of a loan. - Measures to improve EDG’s financial position, including readjusting electricity rates during second semester of 2015. - Work on revision of the electricity law and implementing regulations under the public-private partnership law to continue and expected to be completed in 2015. - Kaleta plant coming on stream in June 2015 will increase hydropower production by 560 GWh in 2015, or 39.5 percent of total production in 2014. ### Agriculture sector - Continue agricultural reforms to improve yields and production: distribution of quality seed and fertilizer, improved equipment, capacity-building for agencies in agronomic research, outreach, and statistics. - Prepare conditions for investments beginning in 2015 in processing, storage, and marketing of agricultural products. - Resume exports of coffee with completion of Ziama coffee certification, as well as fruits, vegetables, and cotton. - Accelerate work on irrigation and water control facilities and integration of isolated production areas with partner support. - Enhance market information system and monitoring of food imports; integrate into Development Strategy Bureau. - Renew decision-making bodies of the National Chamber of Agriculture via elections by end-June 2015 following revision of governing texts. - Proposed framework agriculture law to be shared in regional workshops; promulgation planned by end-June 2015 to lay legal foundation for transformation and secure land tenure. - Identify options by end-March 2015 to strengthen the revolving account it finances, including review of subsidies for agricultural inputs and equipment, and identify key measures to ensure sustainability of the revolving account by end-March 2015 (in consultation with partners including the World Bank). ### First Annual PRSP Implementation Report - Report on implementation of the 2013-2015 PRSP III prepared based on extensive consultation. - 2013 implementation produced mixed results due to unfavorable national and international context (political instability, decline in commodities prices) and weak performance in growth-driving sectors such as mining. - Assessment highlights: - Objective of average growth of 5 percent appears unrealistic given weak growth of 2.3 percent in 2013. - Investments in infrastructure supporting growth increased substantially, but energy sector investments did not produce expected results due to poor network condition and commercial management problems. - Notable efforts in justice, strengthening the rule of law, and management of public finances. - Social service access expanded despite shocks: - Primary enrollment ratio increased from 82 percent in 2010/2011 to 86 percent in 2012/2013. - Gross enrollment ratio increased from 78 percent to 82 percent over the same period. - Health improvements: increased prenatal consultation ratio; support for free obstetrical care; vaccination of 186,533 children under age one; increased availability of drugs and medical products. - Increase of close to 5 percent of the volume of potable water produced. - Results remain below government’s objectives for 2013–15. - Preparations begun for new PRSP covering 2016–20; PRSP to be aligned with next National Development Program (PND). - PRSP to be based on 2013 annual implementation report and 2014 report to be finalized in mid-2015 to incorporate progress, lessons, Ebola consequences, and identified requirements. - PND to be based on Vision Guinée 2035, expected to be completed in the first half of 2015. ### Program financing - Government estimates 2015 program financing requirement to be fully covered; most financing from external resources. - Following HIPC completion point in 2012, nearly all Paris Club and multilateral creditors have signed bilateral debt relief agreements or can be expected to sign in near future. - Government pursued debt-relief discussions with official non-Paris Club creditors; majority have yet to respond. - Government invited commercial creditors to open discussions to clear arrears, including through debt reduction under the Fund’s lending into arrears policy; many have not yet responded. - Fund disbursements under the ECF arrangement will cover the residual balance of payments financing needs. - Authorities will prioritize concessional loans and grants to ensure public debt sustainability, but concessional resources may be limited for large infrastructure and energy projects. - Debt management reforms to deepen in 2015; accelerate action plan to strengthen public debt management, contingent on resumption of technical assistance. - Emphasis on formulating medium-term debt strategy with technical assistance from IMF and World Bank; training in debt sustainability analysis; dissemination of national public policy; effective implementation of the debt procedures manual with EU technical assistance. - AFRITAC technical assistance to be mobilized for debt sustainability analyses and support for programming domestic debt issuances. ### Program monitoring and statistics - Continue efforts to improve statistics system for regular production and supply of quality statistical data. - 2006–11 national accounts adopted and being disseminated. - Production of national accounts for 2012 (final) and 2013 (interim) planned for end-January 2015 using 2010 as base year. - Government will request Fund technical assistance to develop economic indicator series to be monitored periodically through the macroeconomic summary table (Tableau de Bord de l'Économie) and methodology to develop annual growth estimates based on monthly indicators. - Program monitoring to continue through CCER, CTA, and CTSP, which are now operational; CTSP capacity-building activities planned to enable full discharge of its role consistent with new structure. - Government requests extension of the ECF arrangement to end-December 2015. - Request for increase in Fund financial support of 42.1 percent of quota, equivalent to about US$65 million (SDR 45.135 million): - 25 percent of the quota to be disbursed as budget support in connection with the fifth review. - 17.1 percent of the quota to be disbursed in connection with the seventh ECF review. - Total Fund support amounted to US$96 million in 2014. - In 2015, Fund support is expected to cover about 18 percent of the 2015 budget financing needs. *International Monetary Fund — Excerpt from program document* ### 45. The program will be monitored semiannually by the IMF Executive Board based on the ### The program will be monitored semiannually by the IMF Executive Board based on the quantitative indicators and structural benchmarks ### Monitoring and review timetable - The sixth program review, based on the performance criteria at end-December 2014, should be completed no later than May 2015. - The seventh program review, based on the performance criteria at end-June 2015, should be completed no later than November 2015. - Program monitoring is semiannual and uses the quantitative indicators and structural benchmarks defined in the Technical Memorandum of Understanding (Attachment II). ### Program conditionality and policy commitments - During the program period, the government will refrain from: - (i) introducing or intensifying exchange restrictions on the making of balance of payments or transfers relating to current international transactions; - (ii) introducing or modifying multiple currency practices; - (iii) entering into any bilateral payment agreement that is inconsistent with Article VIII of the IMF Articles of Agreement; - (iv) imposing or intensifying import restrictions for balance of payments purposes. - The authorities undertake to adopt, in consultation with Fund staff, any new financial or structural measures that may prove necessary for the program’s success. - The government undertakes to provide the Fund with any information required to monitor the implementation of program measures and for the achievement of program objectives. ### Quantitative performance criteria and indicative targets (Table 1; 2014–15) — selected figures reported exactly as in the source - Basic fiscal balance (floor; cumulative change for the year) - Mar.: -635 -676 -260 Status: Met - Jun.: -1,570 -1,537 -947 Status: Met - Sep.: -2,628 -773 -1,276 -2,101 - Net domestic assets of the central bank (ceiling; stock) - Mar.: 5,018 4,910 4,171 Status: Met - Jun.: 4,789 4,921 5,217 Status: Not Met - Sep.: 5,318 4,048 4,628 5,109 - Net domestic bank financing of the government (ceiling; cumulative change for the year) - Mar.: 879 771 43 Status: Met - Jun.: 1,077 1,208 652 Status: Met - Sep.: 1,452 394 794 1,194 - Net international reserves of the central bank (floor; stock); US$ million - Mar.: 459 459 552 Status: Met - Jun.: 513 495 557 Status: Met - Sep.: 516 482 419 369 - New non-concessional medium or long-term external debt contracted or guaranteed by the government or central bank (ceiling); US$ million - (Table entries appear as) ´⁴´⁶ 000Met 80800Met 80 80 80 80 - Stock of outstanding short-term external debt contracted or guaranteed by the government or the central bank (ceiling); US$ million - (Table entries appear as) ⁴ 000Met 000Met 0 0 0 0 - New external arrears (ceiling) - (Table entries appear as) ⁴ 000Met 000Met 0 000 - Expenditure in priority sectors (floor) (indicative targets) - Mar.: 2,167 2,167 2,276 Status: Met - Jun.: 2,633 2,633 2,425 Status: Not Met - Sep.: 4,706 1,252 2,616 4,124 - Memorandum items: Reserve money (ceiling) - 7,441 ... 7,183 7,306 ... 8,303 7,830 6,620 6,760 6,889 - Memorandum items: Net external assistance - 94 ... 136 237 ... 72 408 196 404 933 - of which, Ebola-related grants: ... ... ... ... ... 0 792 ... ... 615 - Change in the float - -72 ... 36 240 ... -214 5 -71 -143 -113 ### Structural benchmarks and implementation status (selected entries from Tables 2 and 3) - Table 2 — Structural benchmarks for 2014 (measure / date / implementation status / macroeconomic rationale) - Adopt the proposed law on public entities to conform to the new Budget Framework Law (LORF) and the General Regulations on Fiscal Management and Public Accounting (RGGBCP). - End-September 2014 — Not met — Completed December 15, 2014 (¶9) - Macroeconomic rationale: Limit risks for the government budget; strengthen central control of external public debt - Transfer the accounts of autonomous public entities to the Treasury single account at the BCRG - End-September 2014 — Not met (¶9) - Rationale: Ensure budget integrity and improve cash flow management - Adopt and implement the recommendations of the study on the SOGUIPAMI's role and relations with the public administration - End-September 2014 — Not met — Reprogrammed (¶11 and ¶31) - Rationale: Maintain government control of assets in the mining sector; protect government revenue; and limit financial risks - Produce the government's end-year Treasury account and the budget execution account for 2011 and 2012 - End-December 2014 — Not met — Management accounts only were produced. Reformulated and reprogrammed (¶9 and ¶26) - Rationale: Improve public financial management and transparency - Adopt a civil service reform plan based on the results of the biometric census under way and the action plan for PREMA - End-December 2014 — Not met. Plans validated with donors and civil society in November 2014 (¶13 and ¶28) — Reprogrammed - Rationale: Control the wage bill and improve the administration's productivity - Recruit a management partner for EDG with assistance from the World Bank and the IFC - End-December 2014 — Not met (¶12 and ¶34) - Rationale: Increase electricity production and reduce fiscal risks - Approve a timetable for clearing domestic payment arrears, distinguishing arrears for budget years 2011–13 from 2005–10 arrears - End-December 2014 — Not met (¶10 and ¶26) - Rationale: Support the Guinean private sector and enhance the government’s credibility - Table 3 — Prior actions and structural benchmarks for 2015 (selected) - Prior action: Set by ministerial decision the thresholds for public procurements and harmonize the standard documents for tender offers with those of donors (¶26) - Rationale: Ensure the transparency and effectiveness of public expenditure - Structural benchmarks (measure / date / rationale): - Adopt and implement the recommendations of the study on the SOGUIPAMI's role and relations with the public administration (¶31) — End-February 2015 — Maintain government control of assets in the mining sector; protect government revenue; and limit financial risks - Ensure compliance of the fiscal and accounting management of public bodies receiving public revenue with the provisions of the LORF and RGGBCP (¶26) — End-March 2015 — Ensure budget integrity and improve cash flow management - Adopt a civil service reform plan based on the biometric census and PREMA (¶28) — End-March 2015 — Control the wage bill and improve the administration's productivity - Recruit a management partner for EDG with assistance from the World Bank and the IFC (¶34) — End-March 2015 — Increase electricity production and reduce fiscal risks - Produce the administrative accounts for 2011–13 (¶26) — End-April 2015 — Improve public financial management and transparency - Approve a timetable for clearing domestic payment arrears, distinguishing arrears for budget years 2011–13 from 2005–10 arrears (¶26) — End-June 2015 — Support the Guinean private sector and enhance the government’s credibility ### Definitions and measurement conventions (Attachment II — selected extracts) - Government definition (¶3) - Government = central government of the Republic of Guinea; excludes local governments, the Central Bank of the Republic of Guinea (BCRG), and any other public entity with autonomous legal personality (notably établissements publics administratifs). - Basic fiscal balance (¶4) - Calculated as the difference between government revenue, excluding grants, and basic government expenditure. Definitions follow the government fiscal reporting table (TOFE). - Net domestic assets (NDA) of the BCRG (¶5) - NDA = Reserve Money - Net Foreign Assets (NFA), based on the BCRG balance sheet. - Domestic bank financing of the government (¶6) - Comprises: (i) central bank financing of the Treasury (change in net position of the Treasury with the central bank, NTP1, including HIPC account and accounts for exceptional resources such as SIF, but excluding satellite government accounts with the central bank, 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 (¶7) - NIR = reserve assets readily available to and controlled by the BCRG (per the sixth edition of the IMF’s Balance of Payments Manual) minus BCRG foreign exchange liabilities to residents and nonresidents (including local banks' foreign exchange deposits with the BCRG and off-balance sheet liabilities). Long-term liabilities such as SDR allocations are excluded. - Valuation conventions for gold and exchange rates (¶7–8) - Gold valuations and program exchange rates for test dates: - For the second half of 2014: gold valued at US$1,315 per oz.; exchange rates on June 30, 2014: 7,017.4097 GNF/US$, SDR 1.5456 US$/SDR, Euro 1.3535 US$/EUR. - For the first half of 2015: gold price in effect on December 30, 2014 (US$1,206 per oz.); exchange rates on December 31, 2014: 7,227.6632 GNF/US$, SDR 1.4699 US$/SDR, Euro 1.2324 US$/EUR. - For the second half of 2015: exchange rates in effect on June 30, 2015 (specific rates for that date as published). - Additional historical valuation conventions (¶8): - For the second half of 2013: gold price in effect on June 28, 2013; exchange rates on June 28, 2013: 6808.8444 GNF/US$, SDR 1.5039 US$/SDR, Euro 1.3080 US$/EUR. - For the first half of 2014: gold price on December 31, 2013 (US$1,205.9 per oz.); exchange rates on December 31, 2013: 7005.8314 GNF/US$, SDR 1.5400 US$/SDR, Euro 1.3783 US$/EUR. - External debt definitions and rules (¶9–17) - Medium- and long-term external debt: amount of external debt contracted by government or central bank for period ≥ one year. A debt is concessional if its grant element ≥ 35 percent (NPV calculated with a discount rate of 5 percent). IMF financing excluded from this concessionality definition. - Short-term external debt: stock as of a specific date of external debt with initial contractual maturity < one year; excludes normal import-related suppliers’ credits and foreign currency deposits at the central bank. - New external arrears: external debt-service obligations (principal and interest) due but unpaid; an obligation unpaid within 30 days after falling due is considered a “program” arrear. Non-program arrears include (i) arrears on debt for which a rescheduling/restructuring request exists and/or (ii) litigious amounts. - The government and the central bank agree not to contract or guarantee any nonconcessional external debt as defined above, except for reschedulings and those specified in paragraph 17; the government will consult with IMF staff on terms and concessionality of all proposed new loan agreements before contracting or guaranteeing external debt. *Source: Attachment II and Tables 1–3 excerpts from the IMF staff report text provided in the content unit.* ### 18. The performance criteria for new nonconcessional medium-term external debt ### 18. The performance criteria for new nonconcessional medium-term external debt ### Provision for electricity network project financing - Includes a provision in 2014–15 relating to financing for a project to expand, rehabilitate, and modernize the electricity network between the Kaleta hydroelectric dam and Conakry. - The amount stipulated under this provision is US$80 million. - The government will inform the Fund prior to contracting a loan to finance the project, and will provide: - information on the terms of the loan; - a summary of the project to be financed; and - its profitability, including an independent evaluation. ### D. Adjustments to the Program Performance Criteria — overview - Quantitative performance targets are calculated on the basis of projected amounts of: - net external assistance; - exceptional revenues from the mining sector; - the change in "program" arrears; and - the net change in the float. - Net external assistance (program definition) = difference between: - a) cumulative budgetary assistance (grants and loans), the impact of debt relief granted by external creditors, and the net change in "non-program" arrears; and - b) cumulative payments of external debt service due after relief, for loans on which debt relief is secured. - Net change in "program" arrears = cumulative "program arrears" in respect of the current debt maturity dates, less cumulative cash payments to pay down these arrears. - The floor for NIR, the ceilings NDA of the BCRG and bank financing of the government, and the floor for the basic fiscal balance will be adjusted if net external assistance, the net change in "program" arrears, exceptional mining revenues, and/or the net change in the float differ from projected amounts.3 ### Adjustment for net external assistance (detailed rules) - If net external assistance exceeds program projections: - The floor for the basic fiscal balance will be adjusted downward by an amount equal to the surplus external assistance (enabling the entire surplus to be used for supplementary expenditures). - The floor for NIR and the ceilings on BCRG NDA 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). ### Adjustments related to the net change in "program" arrears - If the net change in “program” arrears exceeds program projections: - The floor for NIR will be adjusted upward by an amount equal to the surplus net change in arrears. - The ceilings on NDA of the BCRG and bank financing of the government will be adjusted downward by an amount equal to the surplus net change in arrears. - The floor for the basic fiscal balance will not be adjusted. - If the net change in “program” arrears is below the program projections: - The floor on NIR will be adjusted downward by 80 percent of the difference. - The ceilings for NDA of the BCRG and bank financing of the government will be adjusted upward by 80 percent of the difference. - The floor for the basic fiscal balance will be adjusted upward by 20 percent of the difference (requiring a fiscal adjustment equivalent to 20 percent of the difference). ### Adjustments for exceptional mining receipts - The 2015 budget includes US$80 million in exceptional mining receipts for investment financing. - For exceptional mining receipts of between US$80 million and US$125 million: - The floor for NIR will be adjusted upward and the ceilings on BCRG NDA 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 use of up to US$16 million of the surplus for investment expenditures). - For exceptional mining receipts in excess of US$125 million: - The floor for NIR will be adjusted upward and the ceilings on BCRG NDA and bank financing of the government will be adjusted downward by an amount equal to 100 percent of the surplus in excess of US$125 million. - The floor for the basic fiscal balance will not be adjusted (i.e., the surplus beyond US$125 million will be retained in the Special Investment Fund, which will reduce the use of domestic financing to finance the deficit). ### Adjustments for net change in the expenditure 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. ### E. Definitions for the Fiscal Reporting Table (TOFE) — key definitions - Government revenue: - Includes tax and nontax revenue. - Does not include external grants, the proceeds of privatizations, or exceptional mining revenues (the latter two being recorded as financing by agreement of the parties). - Tax and nontax revenue defined per Section IV.A.1 of the 1986 edition of the IMF’s Government Finance Statistics Manual (GFS). - Tax revenue main categories (Titles): Title 1 (taxes on income, profit, and dividends); Title 2 (taxes on property); Title 3 (taxes on international trade) including import duties, export duties (droit fiscal de sortie), 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; Title 5 (other tax revenues) include stamp taxes and registration fees. - Tax receipts also include the taxes borne by the government for the purchase of externally financed capital goods. - Nontax revenue consists of royalties and dividends (excluding revenue from the sale of telephone licenses), administrative duties and fees, fines and forfeitures (Title 6), other nontax revenue (Title 7) including incidental revenues, and capital revenues (Title 8). Capital revenues include the proceeds from the sale of government assets, but exclude privatization proceeds. - Government expenditure: - Measured at the stage of acceptance by the Treasury, regardless of the execution procedure followed. - In regular and simplified delegated spending authority procedures, expenditures are accepted by the Treasury immediately after the payment order is issued. - In 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 the adjustment is done. - Includes all central government expenditure, 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). ### F. Reporting Requirements for Program Monitoring - Information on implementation and/or execution of the structural benchmarks under the program (as specified in Table 3 of the Supplement) will be reported to the IMF’s African Department within two weeks of the planned date of implementation. - The status of the implementation of other structural measures included in the program will be transmitted within 30 days of the end of each month. *Source: IMF staff and Guinean authorities (content unit _cr1539).* ### 30. The authorities will report the information summarized in Table 1 below to the IMF’s ### _cr1539 - 30. The authorities will report the information summarized in Table 1 below to the IMF’s ### Data reporting requirements for program monitoring (overview) - The authorities will report the information summarized in Table 1 to the IMF’s African Department by the deadlines set in the table. - Barring any indication to the contrary, the data will take the form as discussed between the authorities and the IMF. - The authorities will supply the Fund with any additional information that its staff may request for program monitoring purposes. ### Financial and monetary data (table entries and deadlines) - Central bank balance sheet, consolidated commercial bank balance sheet, monetary survey (at the current exchange rate as well as at the program exchange rate) - Frequency: Monthly - Deadline: 30th of the month for the previous month - Detailed net treasury position (NTP) and net government position (NGP) - Frequency: Monthly - Deadline: 30th of the month for the previous month - Interest rates and stock of government and central bank securities (BDT and TRM) - Frequency: Monthly - Deadline: 30th of the month for the previous month - Prudential indicators for commercial banks - Frequency: Quarterly - Deadline: One month after the end of the quarter - Foreign exchange budget - Frequency: Monthly - Deadline: 30th of the month for the previous month ### Fiscal data (table entries and deadlines) - Status report, including a detailed statement of revenue, expenditure, and cash-flow operations - Frequency: Monthly - Deadline: 30th of the month for the previous month - Monthly report of the high-level technical committee on revenue monitoring - Frequency: Monthly - Deadline: 15th of the month for the previous month - General Treasury balances - Frequency: Monthly - Deadline: 30th of the month for the previous month - Cash-flow plan - Frequency: Monthly - Deadline: 30th of the month for the previous month - Government fiscal reporting table (TOFE) - Frequency: Monthly - Deadline: 30th of the month for the previous month - Use of exceptional mining revenues - Frequency: Quarterly - Deadline: 30th of the month after the end of the quarter - Execution of budgetary expenditures from HIPC resources and other priority expenditures - Frequency: Monthly - Deadline: 30th of the month for the previous month - Balance of current expenditures, VAT credits to be refunded, and domestic debt arrears - Frequency: Monthly - Deadline: 30th of the month for the previous month - Nonbank financing, indicating operations in Guinean francs and those in foreign currencies - Frequency: Monthly - Deadline: 30th of the month for the previous month ### Real sector data and prices - Consumer price index, Conakry - Frequency: Monthly - Deadline: 30th of the month for the previous month - National accounts - Frequency: Annually - Deadline: Summary estimates three months after the end of the year ### Balance of payments data - Imports by use and exports by major product, trade balance - Frequency: Quarterly - Deadline: Three months after the end of the quarter - Price and volume indices of imports and of exports - Frequency: Quarterly - Deadline: Three months after end of quarter - Consolidated balance of payments estimates - Frequency: Annually - Deadline: Summary estimates: six months after the end of year ### External debt and related reporting - Debt service due before and after debt relief - Frequency: Monthly - Deadline: 30th of the month for the previous month - Debt service paid - Frequency: Monthly - Deadline: 30th of the month for the previous month - Debt service reconciliation table - Frequency: Monthly - Deadline: 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 - Frequency: Monthly - Deadline: 30th of the month for the previous month - Drawings on new loans - Frequency: Monthly - Deadline: 30th of the month for the previous month ### External grants and loans - Disbursements - Frequency: Quarterly - Deadline: 30th of the last month of the quarter for the previous quarter - Monthly transfers of debt relief amounts under the HIPC Initiative, by creditor - Frequency: Monthly - Deadline: 30th of the month for the previous month ### IMF relations, financial position, and recent arrangements (selected figures) - Membership Status: Joined: September 28, 1963 - General Resources Account: - Quota: 107.10 - Fund holdings of currency: 107.03 - %Quota: 100.00 (Quota), 99.93 (Fund holdings of currency) - Reserve Tranche Position: 0.08 (SDR Million), 0.07 (%Quota) - SDR Department: - Net cumulative allocation: 102.47 (%Allocation 100.00) - Holdings: 160.32; 156.46 - Outstanding Purchases and Loans: - RCF Loans: 26.78 (SDR Million) 25.00 (%Quota) - ECF Arrangements: 92.30; 86.19 - Latest Financial Arrangements: - ECF, Date of Arrangement Feb 24, 2012; Expiration Date Feb 23, 2015; Amount Approved (SDR Million) 128.52; Amount Drawn (SDR Million) 91.80 - ECF 1/, Date Dec 21, 2007; Expiration Date Dec 20, 2010; Amount Approved (SDR Million) 69.62; Amount Drawn (SDR Million) 24.48 - ECF 1/, Date May 02, 2001; Expiration Date May 01, 2004; Amount Approved (SDR Million) 64.26; Amount Drawn (SDR Million) 25.70 - Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs): - Forthcoming 2015 2016 2017 2018 2019 Principal 1.84 9.68 12.85 - Charges/Interest 0.00 0.00 0.00 0.00 0.26 - Total 0.00 0.00 0.30 9.69 13.11 ### HIPC Initiative implementation (selected figures) - Commitment of HIPC assistance (Enhanced) Decision point date Dec 2000 - Assistance committed by all creditors (US$ Million) 639.00 - Of which: IMF assistance (US$ million) 36.01 - (SDR equivalent in millions) 27.80 - Completion point date Sep 2012 - Disbursement of IMF assistance (SDR Million) - Assistance disbursed to the member 27.80 - Interim assistance 11.30 - Completion point balance 16.49 - Additional disbursement of interest income 7.45 - Total disbursements 35.25 ### Safeguards assessment and exchange rate arrangement (key points) - 2012 Safeguards Assessment of the Central Bank of the Republic of Guinea (BCRG) found that risks of misuse and misreporting remained high. - Mitigating measures proposed included: - (i) Board of the BCRG approve an investment policy and guidelines for the management of international reserves (approved on June 13, 2014 as a Prior Action for the 4th Review of the ECF); - (ii) external auditors continue to verify monetary data; - (iii) the BCRG publish audited annual financial statements within statutory deadlines; - (iv) the BCRG adopt and implement internationally-recognized financial reporting standards. - Exchange rate arrangement: - Classified as a managed float system with no predetermined path; de facto arrangement classified as “stabilized”. - System includes a multiple currency practice as the value of the official rate lags the weighted average commercial bank rate by one day. - A technical assistance mission from the Fund (MCM) visited Conakry in 2011 and a resident advisor financed by the IMF is assisting the BCRG. ### Technical assistance and program calendar (2011–2014 highlights) - Technical assistance providers included AFW, FAD, MCM, ST A/STA, LEG with activities on fiscal affairs, monetary and capital markets, statistics, and legal drafting. - Selected entries: - Calendar Year 2011: AFW Needs assessment (fiscal, real, financial sectors) Feb 2011; FAD Stocktaking and update of PFM strategy Apr-May 2011. - Calendar Year 2012: FAD Government accounting, chart of accounts, budget organic law Feb 2-15, 2012; MCM Central Banking (resident advisor) Feb 2012-Feb 2013. - Calendar Year 2013: FAD Manual on budget execution Jan 28-Feb 15, 2013; AFW Bank Supervision and Regulation in Guinea Feb 4-22, 2013. - Calendar Year 2014: FAD Fiscal forecasting and budgeting Feb 10-24, 2014; MCM Reserve management Jan 30 - Feb 7, 2014; MCM Monetary and FX operations and policies Sep 1-12, 2014. - Some 2014 items marked as planned. *Prepared by African Department (In Consultation with Other Departments), January 28, 2015* ### 3. In the governance sector, the Bank has already approved a budget support allocation of ### _cr1539 - 3. In the governance sector, the Bank has already approved a budget support allocation of ### Governance sector — Bank approvals, allocations, and planned support - Approved budget support allocation of UA20 million in 2011. - Support of UA 2.5 million through the Fragile State Facility (FSF). - Restructured non-performing projects and reallocated UA 7.5 million to an economic governance project in 2011 to improve public finance management and support reforms, especially in the extractive sector. - FSF support covers public administration capacity building, particularly in statistics and strategic planning. - End-2013: Bank approved an institutional support project of UA 11.4 million focused on: - improving governance in mining contract management, and - enhancing public investment and project management. - End-June 2014: Board approved a budget support operation of UA 12 million targeting: - private sector environment and PPP frameworks, - governance (mining, PFM, and public investment management). - UA 6.39 million was disbursed end December 2014. - Bank intends to submit to board approval by end June 2015 a capacity building project targeting: - public finance reforms (including budget preparation and implementation), - scaling-up and enhancing government capacity to manage the Simandou Mining project (mining one stop shop, local content policy, communities, etc.), - improvement of private sector and business environment. ### Energy sub-sector — projects, scale, and expected impacts - Two projects signed end-2013 and began implementation in 2014: - PREREC.2 (second Conakry Electrical Networks Rehabilitation and Extension Project) for UA 11 million. - Côte d’Ivoire-Liberia-Sierra Leone-Guinea (CLSG) power regional interconnection project for UA 40.2 million, to construct 1,360 km of 225 kV transmission lines and 12 sub-stations. - 2015: Bank will contribute to financing the OMVG interconnection project involving construction of a dam and a 240 MW hydro-power plant at Kaleta (already financed by the government with a loan from China). - Implementation of these three projects will result in: - an increase in the average electricity access rate; - a reduction in the kWh generating cost; - a reduction in the number of power outages; - the creation of temporary and permanent jobs; - a reduction in greenhouse gas emissions. ### Transport sub-sector — regional roads and integration objectives - December 2014: Board approved the road development and Transport Facilitation Programme within the MRU including: - road Danané (Côte d’Ivoire)-Frontier of Guinea and from the frontier to N’zoo-Lola (Guinea). - Project is part of a regional set of key roads including: - Zantiébougou-Kolondiéba-Kadiana-Frontier of Côte d’Ivoire (140 km) linking Bamako to Abidjan and San-Pédro through the axis Tengréla-Boundiali-Séguéla-Daloa; - Duekoué-Guiglo-Bloléquin-Toulepleu-Frontier of Liberia. - These roads form part of the Transafrican Dakar-Abidjan-Lagos road. - Bank intends also to finance Boké (Guinea)-Quebo (Guinea-Bissau) Road (part of the ECOWAS Regional Transport Programme). - Road construction aligned with NEPAD Short-Term Action Plan to have interstate roads without impediments to free movement of goods and persons. ### Support to private sector operations and Simandou financing - 2014–2016: Bank will support specific private sector operations with high and transformative impact. - At the government’s request, AfDB envisages contributing to mobilize resources for financing the infrastructure part of the Simandou mining project: - AfDB intends to provide an A loan of about UA 200 million equivalent to USD 300 million which will leverage at least a USD 900 million B loan. - Africa50 will also contribute to financing at a later stage. - AfDB will support capacity building and provide technical assistance to enable the government to fulfill commitments for Simandou implementation. ### Non-lending operations and technical assistance - 2014 (to be finalized in collaboration with UNDP under the first FSF programme): economic and sector work (ESWs) on: - study on financial sector reforms; - private sector profile; - studies relating to the management of the Port of Conakry. - Bank will enhance dialogue and provide technical assistance on PPP (PPP law and PPP Unit) and on mining sector governance. - Continued support for PRSP implementation (direct support to CTSP and SP-SRP coordinating monitoring of economic reforms programs and PRSP), post-Abu Dhabi commitments implementation, and linking macroeconomic/budget framework sector policies with the public investment plan. - Continued FSF programme support to the National Statistics Development Strategy (NSDS) and the conduct of the Third General Population and Housing Census (RGPH-III). ### Trust funds and additional financing instruments - In addition to ADF and FSF allocations, Bank could mobilize: - supplementary resources from the ADB private sector window (including enclave operations in mining sector infrastructure), - Trust Fund resources to finance complementary operations in sectors covered in the 2012–16 Country Strategy Paper (CSP). - Examples of other instruments: - Partial Risk Guarantee Instrument; - Global Environment Fund; - Africa Carbon Facility and Green Fund. - Example initiative: Rural Water Supply and Sanitation Initiative strategy preparation. ### Response to the Ebola crisis — regional approach and Guinea support - April 2014: Bank provided an emergency support of USD 2 million UA equivalent to USD 3 million grant to support Mano River Union (MRU) countries (Guinea, Liberia and Sierra Leone). - July 2014: AfDB approved a UA 40 million equivalent to USD 60 million grant for countries fighting Ebola. - October 2014: - AfDB approved UA 100 million sector budget support to support the three most affected countries. - AfDB approved a UA 7.7 million Technical Assistance Capacity Building Programme to support national and foreign health workers programs. - Total Bank’s support for Guinea amounts to UA 35 million (USD 52 million) aimed at enhancing immediate response and structuring a medium to long term plan. ### AfDB and Fund staff collaboration - Sharing of information on the ECF-supported program, the macroeconomic situation, the budget, progress in structural reform, planned missions, and mission reports. ### Table 1 highlights (ADF 13 (2011–16) and FSF Operations Programming — selected entries, UA million) - Pillar I – Economic and Financial Governance Support: - Budget support 2011: 20.0 (ADF) - Targeted support 2011: 2.5 (FSF) - Budget support 2014/15: 12.0 (ADF) - Sub-Total Pillar I: 32.0 (ADF) and 2.5 (FSF) totaling 34.5 - Pillar II – Infrastructure Support (Energy, Transport, etc.): - CLSG Interconnection (electricity) 2013: 16.0 (ADF) and 24.2 (Regional Funds) totaling 40.2 - Rehabilitation of electric power networks 2013: 11.0 (ADF) - Institutional support project - Public investment management and mining 2013: 11.4 (ADF) - Mano River Union road (CI-Liberia, linked to Mali) 2014: 13.06 (ADF) and 20.27 (Regional Funds) totaling 33.33 - OMVG 2015: 20.0 (ADF) and 30.0 (Regional Funds) totaling 50.0 - Sub-Total Pillar II: 71.46 (ADF) and 74.47 (Regional Funds) totaling 145.93 - Total (all pillars/funds in table): 103.46 (ADF) ; 2.5 (FSF) ; 74.7 (Regional Funds) ; 147.1 (Total) *Source: IMF/World Bank/AfDB material as reproduced in the provided content unit.* ### INTRODUCTION ### INTRODUCTION ### Overview - This is a full joint Bank-Fund LIC-DSA; the last LIC-DSA (an update) was considered by the Executive Board in September 2014 as part of Guinea’s request for a disbursement under the Rapid Credit Facility (RCF). - For the first time, the DSA excludes French claims which were cancelled in 2012 under debt-for-development swaps. - Guinea is assessed as being a weak policy performer and at a moderate risk of debt distress. - Near-term deterioration in some external debt indicators relative to the last DSA update reflects: - higher estimates of the negative economic effects of the Ebola epidemic in 2014 and its persistence through much of 2015; - the impact of the 2015 civil service increase. - The steep fall in world oil prices will have a positive impact through higher budget revenues and a lower oil import bill. ### Background - At end-2013, 13.9 percent or $219 million of Guinea’s external debt represents official claims under C2D debt-for–development swaps (Contrats de Désendettement et Développement). - Exclusion of C2D claims from end-2012 reduces the debt stock by 15.5 percent. - The C2D process: - returns the debt service due on these claims in the form of grants for development projects; - is implemented through agreements that cancel claims and specify amounts to be paid and returned as grants; - began in 2012 and is projected to take place through 2020. - For accounting purposes these claims remain on creditor/debtor balance sheets and are reduced in line with annual debt service payments under the C2D agreement; staff included C2D debt in previous DSAs but the current DSA excludes these claims and associated debt service payments beginning in 2012 following clarification with authorities. - At end-2013: - PPG external debt (excluding C2D) was $1.36 billion; - external debt arrears were $186 million (11 percent of total debt), virtually all to non-Paris Club official bilateral creditors and commercial creditors. - Following attainment of the enhanced HIPC initiative in 2012: - the stock of PPG external debt (excluding C2D) fell by 63 percent in 2012 and then rose by 23 percent in 2013 (increase primarily due to disbursements for the Kaleta hydroelectric dam). - the ratio of PPG external debt to GDP fell from 61.6 percent in 2011 to 19.6 percent in 2012 and then rose to 21.8 percent in 2013. - Public domestic debt (central government) was equivalent to 13.9 percent of GDP at end-2013; the stock is approximately divided equally between outstanding central bank advances and treasury bills held by domestic banks. - Up to 2014 the program under the current ECF arrangement provided for no new net bank financing other than the drawdown of exceptional mining revenues on deposit at the central bank. ### Underlying assumptions (baseline projections) - Baseline macroeconomic assumptions rely heavily on control of the Ebola outbreak by end-2015, a large mining project expected to start production in 2020, and continuation of strong macroeconomic policies. - Growth: - growth during 2014–15 reflects the negative impact of the Ebola epidemic (zero growth projected on average during 2014–15); - growth during 2016–20 is underpinned by large-scale foreign direct investment in the mining sector; - long-run growth projected at slightly over 4 ½ percent a year. - Borrowing assumptions: - external financing needs met primarily from concessional sources; - over the long run a gradual shift to non-concessional sources including some commercial borrowing in outer years; - the share of new borrowing from concessional multilateral financing falls progressively from 60 percent to 30 percent. - Outstanding external arrears are assumed to be cleared through a combination of partial cancellation and rescheduling. - 2015 financing: - government financing need in 2015 met in part from the banking sector (bank financing would amount to about 2.0 percent of GDP) using a mix of existing short-term and new longer-term funding instruments (3- to 5-year bonds); - subsequently the government would resume policy of no new net bank financing, with the 2015 issuance progressively rolled over and repaid over a ten year period. - Fiscal and external financing gaps in 2015 (excluding prospective IMF disbursements) are assumed to be filled by external grants; financing gaps in 2016-17 are assumed covered by external borrowing. ### Macroeconomic assumption highlights (from Box 1 and Table 2) - Real GDP growth projections (selected periods and notes as presented): - Output growth averaged 3 percent during the first half of the 2000s. - 2% in 2013. - zero growth projected on average during 2014–15 due to Ebola. - rebound to an average of 7.4% during 2016-2019. - 7.7% during 2020–22 as major mining project begins and ramps up. - average of 4.5 percent per year after 2022 (long run). - Inflation: - declined from 21 percent in December 2010 to 9 percent in December 2014 and is projected to fall to 7 percent by 2019. - long-run GDP deflator (U.S. dollar terms) projected around 6½ percent. - Fiscal policy: - overall fiscal balance expected to deteriorate to 10.6 percent of GDP in 2015 (costs of Ebola containment and a 40 percent general wage increase in 2015); - deficit expected to decline to an average of 4.8 percent in the final years of the current decade and to 2.1 percent of GDP in the outer years. - total investment expenditures would rise gradually to 11 percent of GDP in the long run; current spending on average 15 percent of GDP after 2030. - External current account: - current account deficit expected to expand sharply to over 40 percent of GDP by 2020 as imports for the mega mining project ramp up; - subsequently the current account is projected to move into surplus as mining exports come on stream; - long run external current account moves back into deficit as imports grow with non-mining GDP. - international reserve position projected to fall to 3 months of imports by end-2015, recover quickly, and remain at 4.5 months of imports over the long run. - External financing: - official financing (grants and loans) expected to fall sharply after 2015; - share of concessional loans expected to decline from 60 percent during 2014–18, to 40 percent during 2019–26 and 30 percent during 2027–34. - Foreign direct investment: - net FDI expected to surge during 2016–20 reaching over 40 percent of GDP in 2018–20, then fall and gradually decline over the long run. ### Key changes relative to previous (RCF) DSA - Real GDP growth is projected to be sharply lower during 2014–15 due to a reassessment of the Ebola impact. - Fiscal expenditures in 2015 are higher reflecting: - the 40 percent civil service salary increase; and - the cost of fighting the Ebola epidemic. - Additional cost of the government’s Ebola response plan is assumed to be met largely by grants. - Capital expenditures in 2015 are higher, in part financed by higher external borrowing, reflecting the government’s intention to maintain a strong investment effort. - Interest payments on domestic debt are higher beginning in 2016 through the mid-2020s, reflecting large domestic debt issuance in 2015 and subsequent repayment period. - During the 2020s, primary expenditures are slightly higher with a shift toward current expenditures to reinforce the health sector; capital expenditures are lower because of lower projected external borrowing. - Revenues benefit from the drop in oil prices. - During 2015–25 domestic debt is higher reflecting projected use of net bank financing in 2015 which is subsequently repaid over the following 9 years. - Debt projections incorporate debt relief given by the Islamic Development Bank in late 2014 amounting to SDR 17.73 million in present value terms involving rescheduling of debt service maturities over 25 years. - The DSA incorporates the authorities’ request for an increase in access under the current ECF arrangement of 42.1 percent of quota (SDR 45.135 million) to be disbursed in 2015. - In external accounts: - exports are higher reflecting upward revisions in artisanal diamond exports from 2014 onwards and higher gold exports in the longer run; - imports somewhat lower because of lower oil prices over the medium term. ### External debt sustainability analysis (summary findings) - The external DSA results confirm Guinea’s debt dynamics are sustainable. - Guinea’s risk of debt distress remains at a moderate level. - Excluding C2D debt and related debt service leads to a slight improvement in indicators. - Comparison with previous DSA (rerun excluding C2D) isolates the impact of changes in borrowing and macroeconomic projections. - Baseline debt indicators: - have worsened somewhat over the medium term but improved slightly over the longer run compared to the previous DSA. - under the baseline all debt indicators remain below policy-dependent variables. - External debt dynamics caveat: - relatively large external debt dynamic residuals in some years reflect weaknesses in coverage of balance of payments data; results should be interpreted with caution. - During 2014–19 compared to previous DSA (excluding C2D) new borrowing is higher (including augmentation in IMF financing) and GDP is lower, resulting in worsening of debt stock and debt service indicators despite higher exports. - PV of debt-to-exports ratio approaches the policy-dependent threshold (100 percent), reaching a maximum in 2019 of 99.3 percent under the baseline. - Scenario: if the 2015 financing gap (other than prospective IMF disbursements) were closed by loans, the policy-dependent threshold would be temporarily breached: - debt indicator would reach 100 percent in 2016 and rise to a maximum of 104.6 percent in 2019, then fall sharply as mining exports rise. - Policy implication: - limited scope for the government to take on more external debt before the projected rise in mining sector exports and fiscal revenues; - need for concessional external resources during the next five years. - authorities have indicated that if concessional external financing is insufficient in 2015, domestic adjustment measures will be implemented to close the gap. *Source: _cr1539 - INTRODUCTION* ### 10. The stress test indicators have for the most part worsened, but under the extreme shock ### 10. The stress test indicators have for the most part worsened, but under the extreme shock scenario have improved ### Stress test outcomes and headline findings - Except for the historical scenario, as in the previous DSA the PV of debt-to-GDP and debt–to-exports indicators breach the policy-dependent threshold, but only temporarily returning below the thresholds by 2020. - The PV of debt-to-revenues does not breach the threshold unlike the previous DSA. - The improvement in the extreme shock scenario primarily owes to the higher projected level of exports. - For the export-related indicators the extreme shock scenario is an export shock whereas in the previous DSA it was a combination shock. - The stress tests indicate that Guinea remains vulnerable to adverse shocks to growth, exports, foreign direct investment flows and fiscal performance. ### Historical scenario dynamics and drivers of deterioration - Under the historical scenario there is a sustained breach of the policy-dependent thresholds starting in the 2020s. - Staff view this finding as the result of an unrealistic stress test that assumes a high external current deficit regime over the second half of the DSA horizon. - The historical scenario is based on a historical average value and standard deviation for the external current account deficit that is atypically large because of a few outliers. - During the period up to the early 2020s this produces a lower trajectory of the debt indicators than under the baseline, which is based on larger projected external current account deficits albeit with higher levels of foreign direct investment. - Over the second half of the projection period, under the baseline mining sector foreign direct investment falls sharply while mining exports increase substantially, resulting in much smaller current account deficits. - The successful large-scale exploitation of Guinea’s natural resource wealth represents a structural break from the past; there is little reason to expect a high current account deficit to persist unless it reflects large foreign direct investment inflows. - The worsening of the historical scenario after 2019 relative to the last DSA owes primarily to a downward revision in factor income outflows (mining sector dividend payments) and a related change in the debt dynamics residuals, particularly during 2020–25, which triggers the onset of a path of unsustainable debt accumulation. - Footnote clarification: In the combination shock, the shock to exports is applied to the growth in export value in 2015. As the decline in export value is lower than in the previous DSA the resulting deterioration in the current account and the increase in the accumulation of debt is lower than in the previous DSA. - Footnote clarification: In the previous DSA high dividend outflows led to offsetting large positive short-term capital inflows in the balance of payments and generated sizeable negative residuals in the debt dynamics in the baseline. Under the historical scenario the baseline residuals are retained and had the effect of dampening the impact on the debt dynamics with a fixed non-interest current account deficit at its historical average value. Under the current balance of payment projections and DSA the large dividend outflows during 2020–25 were considered unrealistic and were revised downwards, resulting in a lower short-term capital inflows (in the balance of payments) and positive debt dynamic residuals in the DSA. Thus with the same fixed non-interest current deficit as in the last DSA the residuals increase the pace of debt accumulation during 2020–25 and trigger an unsustainable path of debt accumulation thereafter. ### Inclusion of domestic debt and short-term financing implications - The inclusion of domestic debt in the DSA worsens the debt burden indicators, including compared to the previous DSA, although the domestic debt burden is expected to decrease over time. - Under the baseline all debt indicators remain below the policy-dependent variables and therefore the addition of domestic debt does not point to a heightened risk of debt distress. - In the short term public debt indicators deteriorate because of the projected one-off recourse to domestic net bank financing in 2015. - The 2015 debt issuance impact is unwound over the following 9 years as the 2015 debt issuance is gradually repaid. - The stress test indicators of public debt point to the need to refrain from continuing the use of domestic financing in the short term on top of that undertaken in 2015. - As in the previous DSA, the public debt position is vulnerable notably with respect to policy reversals in maintaining fiscal discipline and shocks to growth. - Under the unchanged primary balance scenario, the deterioration in the debt indicators is larger than in the previous DSA because the projected primary balance in 2014 (the reference year for fixing the primary balance) is somewhat larger and projected GDP lower. - Staff considers the unchanged primary balance stress test to be an unlikely scenario and not informative, given the government’s commitment to sound fiscal policies as well as the scope to expand fiscal expenditures on the back of the large rise in mining sector revenues and gradually reduce the primary balance over time. ### Debt risk classification, vulnerabilities, and policy recommendations - Guinea remains at a moderate risk of debt distress. This is unchanged from the previous DSA in September 2013 (adjusted to exclude C2D obligations). - In the baseline scenario, all debt indicators remain below their respective policy-dependent thresholds. - Stress tests indicate that Guinea’s external debt outlook continues to be vulnerable to macroeconomic shocks, in particular to growth, exports, foreign direct investment flows and fiscal performance. - The inclusion of domestic debt leads to a temporary deterioration in debt indicators because of the sizeable one-off net issuance of domestic debt in 2015, but does not significantly change the conclusions of the external DSA regarding vulnerabilities to the public debt outlook. - The projected continuation of a strong and much-needed public investment effort results in projected baseline borrowing that provides limited scope to take on additional debt above projected amounts in the medium term without risking a temporary breach of the PV of debt-to-exports ratio threshold. - Recent public investment in part was financed by the drawdown of sizeable exceptional mining sector revenues in 2011 in lieu of borrowed resources. - Recommended policy priorities: - Maintain sound macroeconomic policies and prudent debt management. - Rely primarily on external financing on concessional terms. - Strengthen debt management to ensure a sound forward-looking debt strategy. - Pursue a strong structural reform effort and improvements in the business environment to realize growth potential, particularly in the mining and agriculture sectors, and to improve fiscal and export revenue performance. - Continue to rely primarily on concessional sources of external financing; the planned strengthening of debt management would be important to ensure a sound forward-looking debt strategy. *International Monetary Fund — GUINEA: PUBLIC DEBT SUSTAINABILITY ANALYSIS (extract).* ### 13. The authorities concurred with the analysis and conclusions of this DSA, including the ### _cr1539 - 13. The authorities concurred with the analysis and conclusions of this DSA, including the ### Authorities' response and program actions - The authorities concurred with the analysis and conclusions of this DSA, including the exclusion of the C2D debt and debt service. - IMF Executive Board actions (Press Release No. 15/49, February 11, 2015): - Completed the fifth review under the ECF arrangement for Guinea. - Approved immediate disbursement of SDR 45.135 million (about US$63.6 million). - Total disbursements under the arrangement reached SDR 136.935 million (about US$192.9 million). - Approved an augmentation of access under the ECF arrangement by SDR 45.135 million (about US$63.6 million or 42.1 percent of quota). - Extended the ECF arrangement to end-December 2015. - IMF management statement highlights: - Growth in 2014 estimated to have slowed markedly; real GDP projected to contract in 2015. - Inflation continued to decline; modest exchange rate depreciation; international reserves maintained at a satisfactory level. - Fiscal policy remained prudent despite a sizeable revenue shortfall and additional Ebola-related spending. - Structural reform progress slow largely due to Ebola-related capacity constraints and delays in technical assistance. - Central Bank intends to relax monetary policy to provide liquidity to the private sector. - Emphasis on civil service reform to keep the wage bill affordable and preserve space for priority expenditures. - International assistance via highly concessional loans, grants, and technical assistance remains critical. - Need to strengthen health sector and social safety nets; reforms in mining, electricity, and banking supervision to spur growth and poverty reduction. ### Key debt and macroeconomic indicators (selected exact figures from the DSA) - External debt (nominal), public and publicly guaranteed (PPG): - 2011: 67.5 (Percent of GDP) - 2014: 25.9 (Percent of GDP) - 2019: 32.5 (Percent of GDP) - 2024: 22.2 (Percent of GDP) - 2034: 16.4 (Percent of GDP) - Change in external debt (selected years): - 2011: -3.2 - 2012: -48.1 - 2013: 2.7 - 2014: 3.8 - 2019: -0.8 - 2024: -1.2 - 2034: -0.4 - Identified net debt-creating flows (selected years): - 2011: 10.6 - 2014: 17.2 - 2019: -1.0 - 2024: -14.6 - 2034: 2.1 - Non-interest current account deficit (selected years, percent of GDP): - 2011: 17.9 - 2014: 10.4 - 2019: 27.0 - 2024: 43.1 - 2034: 51.0 - Exports and imports (percent of GDP, selected): - Exports 2014: 23.4; 2019: 20.3; 2024: 57.4; 2034: 40.5 - Imports 2014: 40.3; 2019: 71.1; 2024: 46.2; 2034: 38.9 - Net FDI (negative = inflow): - 2011: -5.6 - 2014: -5.3 - 2019: -21.6 - 2024: -41.8 - 2034: -45.6 - Endogenous debt dynamics (contribution, selected years): - 2011: -1.7 - 2014: 0.1 - 2019: -1.6 - 2024: -0.8 - 2034: -0.5 - PV of external debt (selected projection points, percent of GDP): - 2014: 13.4 - 2019: 20.2 - 2024: 14.1 - 2034: 10.6 - PV of PPG external debt (selected): - 2014: 13.4 - 2019: 20.2 - 2024: 14.1 - 2034: 10.6 - PV of PPG external debt (in percent of exports, selected): - 2014: 53.0 - 2019: 95.5 - 2024: 24.5 - 2034: 26.3 - PV of PPG external debt (in percent of government revenues, selected): - 2014: 73.0 - 2019: 98.5 - 2024: 80.1 - 2034: 52.7 - Debt service ratios (selected): - Debt service-to-exports ratio (percent): 2011: 13.4; 2014: 2.8; 2019: 4.4; 2024: 1.8; 2034: 2.5 - PPG debt service-to-revenue ratio (percent): 2011: 25.8; 2014: 3.8; 2019: 4.3; 2024: 6.0; 2034: 5.0 - Total gross financing need (Billions of U.S. dollars, selected): - 2011: 0.9 - 2014: 1.2 - 2019: 0.2 - 2024: -2.4 - 2034: 1.2 - Non-interest current account deficit that stabilizes debt ratio (percent of GDP, selected): - 2011: 21.1 - 2014: 18.6 - 2019: 51.8 - 2024: -7.7 - 2034: 6.6 ### Key macroeconomic assumptions (selected exact values) - Real GDP growth (in percent, selected): - 2011: 3.9 - 2014: 2.6 - 2017: 0.4 - 2018: -0.3 - 2019: 6.5 - 2024: 8.3 - 2034: 4.5 - GDP deflator in US dollar terms (change in percent, selected): - 2014: 4.4 - 2015: 15.4 - 2019: 1.8 - 2024: 1.7 - 2034: 2.8 - Effective interest rate (percent, selected): - 2011: 1.4 - 2014: 0.2 - 2019: 1.3 - 2024: 1.3 - 2034: 1.5 - Growth of exports of G&S (US$ terms, percent, selected): - 2011: 12.9 - 2014: 6.6 - 2019: 9.0 - 2024: 7.2 - 2034: 15.1 - Growth of imports of G&S (US$ terms, percent, selected): - 2011: 49.7 - 2014: 14.0 - 2019: 34.2 - 2024: 45.7 - 2034: 4.2 - Grant element of new public sector borrowing (percent, selected projection years): - 2017: 37.9 - 2018: 40.8 - 2019: 44.8 - 2020: 48.4 - 2024: 42.0 - 2034: 38.7 - Government revenues (excluding grants, percent of GDP, selected): - 2011: 16.8 - 2014: 18.7 - 2019: 20.9 - 2024: 17.6 - 2034: 19.2 - Aid flows (Billions of US dollars, selected): - 2011: 0.2 - 2014: 0.6 - 2019: 0.4 - 2024: 0.4 - Grant-equivalent financing (percent of GDP, selected): - 2017: 8.6 - 2018: 8.1 - 2019: 4.9 - 2024: 1.0 - 2034: 1.8 - Nominal GDP (Billions of US dollars, selected): - 2011: 5.1 - 2014: 6.6 - 2019: 10.4 - 2024: 18.6 - 2034: 33.1 - PV of PPG external debt (Billions of US dollars, selected): - 2014: 1.4 - 2019: 2.5 - 2024: 3.4 ### Public sector debt metrics (selected exact figures) - Public sector debt (percent of GDP, selected): - 2011: 77.8 - 2014: 39.7 - 2019: 39.9 - 2024: 25.0 - 2034: 17.3 - Of which foreign-currency denominated (percent of GDP, selected): - 2011: 67.5 - 2014: 25.9 - 2019: 32.5 - 2024: 22.2 - 2034: 16.4 - Change in public sector debt (selected): - 2011: -21.9 - 2012: -45.9 - 2014: 3.8 - 2019: -2.1 - 2024: -1.6 - 2034: -0.5 - Primary deficit (selected): - 2011: -0.7 - 2014: 1.6 - 2019: 2.1 - 2024: 0.8 - 2034: 0.7 - Revenues and grants (percent of GDP, selected): - 2011: 20.2 - 2014: 25.3 - 2019: 23.0 - 2024: 19.3 - 2034: 20.7 - Automatic debt dynamics (contribution, selected): - 2011: -8.1 - 2014: -1.0 - 2019: -2.7 - 2024: -1.8 - 2034: -0.8 - PV of public sector debt (percent of GDP, selected): - 2014: 27.2 - 2019: 29.1 - 2024: 16.9 - 2034: 11.5 - Gross financing need (percent of GDP, selected): - 2011: 4.7 - 2014: 5.9 - 2019: 2.2 - 2024: 1.5 - 2034: 1.4 - PV of public sector debt-to-revenue and grants ratio (percent, selected): - 2014: 138.8 - 2019: 137.5 - 2024: 87.6 - 2034: 55.5 - Debt service-to-revenue and grants ratio (percent, selected): - 2011: 26.9 - 2014: 8.6 - 2019: 6.8 - 2024: 5.2 ### Sensitivity and stress test highlights - Stress tests and sensitivity analyses presented for 2014–34 include: - Alternative scenarios (variables at historical averages; less favorable financing terms). - Bound tests (real GDP growth shock, export value shock, US dollar GDP deflator shock, net non-debt creating flows shock, combination shocks, one-time 30 percent nominal depreciation in 2015). - Results shown for PV of debt-to-GDP ratio, PV of debt-to-exports ratio, PV of debt-to-revenue ratio, and debt service ratios under each scenario. - Selected illustrative values from Table 3b and Table 4b (projections and sensitivity outputs) are reported across scenarios and bound tests (figures printed in the DSA tables and charts). *Sources: Country authorities; and staff estimates and projections.* ### 26.775 million as budget support to help meet part of the fiscal cost of the Ebola response, as ### _cr1539 - 26.775 million as budget support to help meet part of the fiscal cost of the Ebola response, as ### Introduction and program request - Authorities express appreciation for IMF and partners’ support in addressing the Ebola Virus Disease and implementing the ECF-supported program. - Commitment enabled meeting all quantitative criteria and targets set for end-June and end-September 2014; only two structural benchmarks were satisfied due to focus on Ebola response. - Request to Executive Board: - Approve the fifth review of the ECF-supported arrangement. - Extension of the current arrangement to end-December 2015. - Augmentation in access: increase in Fund’s financial support of 42.1 percent of quota, of which 25 percent of the quota disbursed in the form of budget support under the fifth review and the remaining 17.1 percent disbursed in connection with the seventh ECF review. - Increased access intended to enhance international reserves and help cover budget and balance of payments financing needs from the Ebola response. - Special earmarked budget (BAS) established to record international community financial assistance and government resources for the Ebola response. ### Recent developments and performance under the program - Human and economic impact of Ebola: - Around three thousand people infected and number of deaths estimated at over 1700 by end-2014. - Economic impacts: border closures, population displacements, sharp decline in agricultural output, transport, trade, tourism and foreign investments. - Macroeconomic performance: - Growth estimated to have slowed sharply in 2014; fiscal deficit widened due to revenue shortfalls and higher Ebola-related spending including external assistance. - Inflation brought down to below 10 percent from 12 percent in 2013. - International reserves increased above the program’s objective. - Fiscal management: - Continued implementation of cash-based budget helped maintain expenditure within available financing. - Budget revenue fell short of projections at end-September 2014; budget support below projections. - Cuts in investment spending led to nonobservance of program indicative targets for priority expenditures. - Advances in public finance and governance: adoption of draft law on financial governance of public enterprises; signature of decree on governance framework of public finances; adoption of new budget nomenclature; adoption of revised draft of the custom code. - Implementation of medium-term action plan for debt management improvement. - Civil service reform: biometric census completed in August 2014. - Monetary and financial sector: - All program targets met except end-September indicative target on central bank’s net domestic assets. - Net international reserves exceeded program objectives. - Monetary policy relaxation: reduction of policy rate to 13 percent and decline of reserve requirement ratio to 20 percent. - Credit to private sector increased by 30 percent in 2014. - Financial system health improved: decline of nonperforming loans and rise of bank solvency ratio. - Ongoing discussions on new regulations for banking-insurance and microfinance. - Structural reforms: - Justice reform plan adopted in July 2014 to protect land tenure and enforce commercial contracts. - Presidential Council on Investment and Public-Private Partnership established in October 2014. - Progress in mining sector reforms; redefinition of Soguipami’s role and relations with public administration. - National Assembly adopted new petroleum code in December 2014. - PRSP progress: - First annual progress report (APR) for 2013 published in December 2014; APR for 2014 to be completed by mid-2015. ### Macroeconomic outlook and policy reforms for 2015 - Overall stance: - Authorities committed to sound macroeconomic policies and structural reforms; recognize near-term adverse impact of Ebola and intend to intensify fight against Ebola with development partners. - Fiscal policy cautious to absorb Ebola effects and support growth within available financing. - Monetary policy supportive of private sector growth; exchange rate policy focused on stability of the Guinean Franc and maintaining adequate international reserves. - Fiscal policy details: - 2015 Budget adopted by National Assembly on December 18, 2014, accounting for increased Ebola-related expenditures while maintaining investment efforts. - Expected basic balance deficit: 6.6 percent of GDP compared to an estimated 5.7 percent of GDP in 2014. - Revenues under the 2015 budget: 20.7 percent of GDP, or an increase of 2 percentage points of GDP relative to 2014, owing to significant augmentation of indirect taxes, improvement of revenue agencies, and introduction of new tax on telecommunications. - Expenditures projected to increase significantly due to Ebola expenses and implementation in three steps of agreement signed in early January 2015 with unions to augment the basic salary by 40 percent. - Measures to finance salary and expenditure increases: cancel recruitments in 2015 for non priority sectors; implement conclusions of biometric census; revise financial impact of application of specific statutes. - Fuel price at pump adjusted downward by 10 percent at end-January (taking into account decreased global oil prices) to strengthen credibility of price adjustment mechanism. - External financing expected mainly in grants and concessional loans; planned issuance of bills and bonds on the local market for a maximum projected equivalent to 2 percent of GDP. - Authorities requested Fund and World Bank technical assistance to prepare a medium-term strategy for local issuance. - BAS governance: Fund assistance to develop governance structure, regular implementation reports, and periodic audits by an internationally recognized firm. - Commitment to prioritize concessional loans and grants to enhance debt sustainability; recognition of potential difficulty financing large infrastructure projects given limited concessional resources. - Monetary and financial policy actions: - Continue gradual and cautious relaxation of monetary policy, taking into account inflationary developments. - Mobilize domestic financing through sale of securities to the public to mitigate Ebola effects. - Encourage interbank market in Guinean francs with implementation of an open market window by end-March 2015. - Reduce policy rate and reserve requirements to ensure sufficient liquidity and foster bank lending to private sector. - Increase currency sales in interbank foreign exchange to contain adverse effects of bank financing on inflation while achieving international reserves objective. - 2015 financial sector measures: strengthen banking supervision; adopt National Inclusive Finance Strategy; strengthen microfinance institutions; establish a credit information repository; finalize revision of insurance code; issue directives to encourage development of mobile financial services. - Structural reform priorities: - Strengthen public financial management. - Reform civil service. - Improve investment environment and pursue mining sector reform. - Increase electricity supply and restore financial viability of the electricity sector. - Pursue agricultural sector reforms: capacity-building of agencies in agronomic research, outreach, and farmers’ training and equipment. ### Conclusion and requests to Directors - Authorities remain determined to accelerate implementation of ECF-supported program despite Ebola and commodity price declines. - Request Directors’ support for: - Completion of the fifth review. - Extension of the ECF-arrangement to end-December 2015. - Increase in the Fund’s financial support (42.1 percent of quota, with 25 percent of quota disbursed as budget support under the fifth review and 17.1 percent in connection with the seventh review). - With continued IMF support, authorities are hopeful international community will continue strong assistance to address health challenges and support sustained, inclusive growth and poverty reduction. *Statement by Ngueto Tiraina Yambaye, Executive Director for Guinea and Siradiou Bah, Senior Advisor to Executive Director, February 11, 2015.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr1539.pdf_