## _cr16261 - 7.9 percent in April 2016 driven by stronger domestic demand, and a weaker exchange rate.

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### Recent developments and near-term momentum
- Growth headline: "7.9 percent in April 2016 driven by stronger domestic demand, and a weaker exchange rate."
- Financial and external buffers:
  - Bank credit to the private sector grew 24 percent (annual) as of April 2016.
  - Reserve buffers stabilized at 2.4 months of imports after significant losses in 2014–15.
- Recovery and near-term drivers:
  - Guinea declared free of Ebola on June 1st 2016 (42 days after last confirmed case); Ebola claimed 2,544 lives.
  - Projected rebound in 2016 supported by:
    - Kaleta hydroelectric dam (240 MW);
    - rapid increase in bauxite production from a company that started operations in 2015;
    - execution of construction contracts representing 15 percent of GDP signed in 2014–15.
- Fiscal and policy developments:
  - Exchange rate allowed to depreciate by about 12 percent since January 2016.
  - New bilateral FX auction mechanism eliminated the premium between official and bureaus’ exchange rates.
  - Preliminary data: all end-March indicative targets were met with sizable margin except priority sector spending.

### Medium-term outlook and key projections
- Growth and inflation projections:
  - Growth: projected to average 4.5 percent over the next five years.
  - Inflation: projected to decline gradually to 5 percent by 2019.
- Fiscal and reserves projections:
  - Basic fiscal balance: projected to remain around ½ percent of GDP.
  - Gross available reserves (months of imports): 2016 = 3.0; 2017 = 3.0; 2018 = 3.2; 2019 = 3.4; 2020 = 3.7; 2021 = 3.8 (note also 4.0 shown further out).
- Selected annual series (annual percentage change or percent of GDP as presented):
  - GDP at constant prices: 2016 = 4.0; 2017 = 3.7; 2018 = 4.3; 2019 = 4.5; 2020 = 4.8; 2021 = 5.0.
  - Consumer price index (end of period): 2016 = 8.5; 2017 = 9.1; 2018 = 7.5; 2019 = 6.0; 2020 = 5.0; 2021 = 5.0.
  - Overall budget balance, incl. grants (percent of GDP): 2016 = -1.3; 2017 = -1.2; 2018 = -0.9; 2019 = -0.6; 2020 = -0.3; 2021 = -0.2.
  - Basic fiscal balance (percent of GDP): 2016 = -0.4; 2017 = -0.5; 2018 = -0.7; 2019 = -0.3; 2020 = -0.2; 2021 = -0.2.
  - External public debt, incl. IMF (percent of GDP): 2016 = 28.4; 2017 = 28.4; 2018 = 30.7; 2019 = 31.4; 2020 = 31.2; 2021 = 30.6.
  - Total public debt, incl. IMF (percent of GDP): 2016 = 44.7; 2017 = 48.6; 2018 = 48.1; 2019 = 46.4; 2020 = 44.4; 2021 = 42.1.

### Program scenarios and assumptions
- Authorities’ baseline scenario:
  - Growth rebound to 5.1 percent (from 2.2 percent average during 2011–15).
  - Current account deficit increases to around 17 percent of GDP, financed by FDI.
  - Reserve coverage increases to 3.8 months of imports.
- Authorities’ alternative (ambitious) scenario:
  - Growth projected to reach 8.6 percent on average with inclusion of Souapiti and faster road upgrades (3 percent of GDP).
  - Projected cost of private and public projects by 2021 estimated at $17 billion (260 percent of 2016 GDP).
- IMF staff’s conservative scenario:
  - Excludes Simandou and Souapiti; growth would average 4.5 percent over next five years.
  - Inflation declines to 5 percent by 2019 and remains at that level thereafter.
  - Public investment rate maintained at 9 percent.
  - Reserve coverage increases gradually to around 3 months of imports.

### Key risks to the outlook
- Main downside risk categories:
  - Sharper-than-expected global slowdown delaying mining projects.
  - Deterioration in regional security.
  - Resurgence of the Ebola epidemic.
  - Political uncertainty and domestic socio-political tensions.
- Additional vulnerabilities flagged by Directors:
  - Fiscal risks from the energy sector and limited fiscal space.
  - Risks from recourse to nonconcessional financing.
  - Financial sector weaknesses requiring enhanced risk-based supervision and strengthened AML/CFT regime.

### Authorities’ strategy and structural priorities
- Medium-term strategy (2016–22, under preparation) aims to unlock broad-based, inclusive growth through investments in electricity, roads, and agriculture.
- Private sector role emphasized via new mining projects, transformation units for agricultural products, large residential housing and administrative buildings through PPPs.
- Structural priorities:
  - Enact a new mining code and reform agriculture.
  - Improve business climate, governance, and public service delivery.
  - Strengthen debt management and reduce domestic arrears.
  - Advance financial inclusion and reform the National Strategy for Financial Inclusion.

### Policy recommendations (staff and Executive Directors)
- Fiscal policy and public finance management:
  - Effect the 2016 fiscal consolidation consistent with the available financing envelope.
  - Anchor the medium-term fiscal deficit to available concessional financing.
  - Tap the property tax base and enforce the automatic fuel pricing mechanism.
  - Rationalize subsidies to reduce them by 1 percentage point of GDP and cap the wage bill to 6 percent of GDP.
  - Prioritize investment projects and concessional financing; enforce the public finance management organic law and the procurement code.
  - Strengthen debt management and reduce domestic arrears.
- Monetary and exchange rate policy:
  - Support a prudent monetary policy stance to raise international reserves cover and contain inflation.
  - Implement Safeguards Assessment recommendations to strengthen central bank independence.
  - Finalize foreign exchange market reform to support exchange rate flexibility and close remaining exchange rate misalignment.
- Structural reforms:
  - Finalize the ECF arrangement’s structural reform agenda.
  - Develop reforms in inclusive finance, agriculture, electricity, and justice to strengthen external competitiveness and resilience.
- Investment and financing caution:
  - Exercise caution on large public investments, account for available financing, and apply strong project selection and management processes.
  - Limit recourse to nonconcessional finance and seek concessional financing where possible.

### Souapiti Hydroelectric Dam — project details and fiscal implications
- Project specifics:
  - 450-MW Souapiti dam; estimated cost: $1.567 billion (23 percent of GDP).
  - Planned financing: 85/15 debt to equity; debt contract under negotiation: $1.175 billion.
- DIG model findings and policy implications:
  - Under optimistic assumption that dam raises GDP per capita growth by 1 percentage point over five years:
    - Authorities would need to increase the VAT rate by 10 percentage points to keep debt sustainable.
    - That VAT increase is equivalent to raising revenues (or reducing spending) by 2–4 percentage points of GDP in the short-run.
  - Staff urged increasing the grant element of the loan (currently 22 percent) and inviting other development partners to limit fiscal and debt sustainability impact.
  - Authorities indicated they will not sign the loan this year and are considering a donor roundtable; awaiting Kaleta dam valuation.

### Monetary policy, reserves, and central bank governance
- Recent tightening actions:
  - Interest rate on Titres de Régulation Monétaire (TRM) increased from 6.5 percent to 8.5 percent.
  - Main refinancing (pension) rate raised from 11 percent to 12.5 percent.
  - Reserve requirement ratio maintained at 18 percent.
  - Interest rates on Treasury bills increased by 300bp.
- Reserve adequacy and targets:
  - Fund’s ARA-CC approach suggests 3.3 months of imports could be adequate; authorities prefer 4–5 months for higher risk aversion.
  - Staff recommendation: rebuild reserves to 3–4 months of imports; loosening monetary policy only after fiscal consolidation and reserve targets met.
- Central bank governance and safeguards:
  - Safeguards Assessment: enforce legal limits on monetary financing, reform appointment rules, reduce concentration of power of the Governor.
  - BCRG submitted law amendments to Parliament; Board members from economic ministries to have no voting rights.
  - Staff recommended strengthening BCRG Law, internal controls, Audit Committee oversight, and external audit verification of program monetary data.

### Financial sector soundness and supervision
- Deterioration in 2015 due to rapid credit expansion linked to guaranteed loans program:
  - NPL ratio reached a 6-year high in April 2016.
  - Rapid credit expansion reduced banks’ equity-to-risk weighted assets and FX liquidity ratios; several major banks did not observe FX liquidity ratio.
  - Net banking income (NBI) increased by more than 23 percent in 2015; composition: credit with clientele 41 percent; banking fees 26 percent; cash and interbank transactions 22 percent; other products 11 percent.
  - Preferential treatment under guaranteed loans included uncollateralized refinancing at 6 percent to participating banks versus 11 percent for others.
- Supervisory actions:
  - On-site inspections planned.
  - Staff advised accelerating adoption of risk-based supervision and strengthening banking supervision directorate.
  - Recent prudential measures: cap on risk concentration to 100 percent of regulatory capital; exceptional provision requirement up to 15 percent of NBI for banks breaching prudential norms.

### Public Financial Management, taxation and public investment management
- Tax potential and reform:
  - IMF staff estimate unrealized tax potential at 3–5 percent of GDP.
  - Baseline reforms deliver an improvement of 1 percentage point of GDP over medium term.
  - Blueprint measures: tighten commercial tax base control, advance taxpayer identification, strengthen audits, simplify and expand income taxes, revise excises upward, safeguard fuel taxes within automatic price-adjusting structure, roll-out real estate taxation, gradually eliminate tax exemptions.
- Recurrent spending and wage bill:
  - Staff recommendation: keep wage bill below 6 percent of GDP.
  - Options to reduce current spending by up to 1 percent of GDP include cutting recurrent costs of fuel and travel, allowing EDG to adjust tariffs to cost recovery (0.5 percent of GDP), and streamlining university subsidies.
  - Reallocate savings to nascent social safety net, primary education, and health system.
- Public Investment Management:
  - Investment spending should be kept around 5 percent of GDP until fiscal space materializes.
  - Enforce procurement code and require cost-benefit analysis for projects eligible for public funding.
  - DIG model: fully implementing priority projects would require adjusting consumption tax rate from 20 percent to 25 percent and would raise debt from 49 percent in 2015 to 67 percent by 2036 under optimistic assumptions.
- Debt management and PFM reforms:
  - Continue reliance on concessional financing and improve debt management.
  - Finalize reform of institutional framework for debt policy and empower CNDP.
  - Approve PPP law by year-end; strengthen capacity to conduct DSAs and annex them to budgets starting with the 2017 budget.
  - Expand TSA coverage to all government revenue collectors by mid-2017 and roll out new budget nomenclature.

### External sector and exchange rate assessment
- External balances and financing:
  - Current account deteriorated to 18.7 percent of GDP in 2015.
  - Projection: external current account expected to improve in 2016 then widen over medium term; by 2021 current account deficit expected to reach 20.1 percent of GDP.
  - Imports growth projection: "Imports are expected to grow by 9.2 percent per year on average between 2017 and 2021."
  - Exports growth projection: "Exports are projected to grow by almost 8.6 percent per year on average over the same period."
- Exchange rate misalignment (EBA-lite and REER findings):
  - Real exchange rate gap (percent): 16.5 percent (2015).
  - REER approach indicates overvaluation of 32 percent in 2015.
  - Residual exchange rate misalignment about 12 percent as of April 2016 after early-2016 correction.
  - Policy actions recommended: launch rules-based FX intervention strategy, develop two-sided FX market, limit central bank FX purchases to established market, discontinue purchases from FX bureaus, artisanal gold miners and private corporations.

### Program performance, targets, and structural benchmarks (selected)
- Central Government Operations, 2016Q1 (Percent of GDP) — select entries:
  - Revenue and grants: Prog. 5.1; Act. 4.4; Diff. -0.7.
  - Expenditure: Prog. 5.7; Act. 3.2; Diff. -2.5.
  - Basic fiscal balance: Prog. -1.3; Act. 1.2; Diff. 2.4.
  - Overall balance (1): Prog. -0.6; Act. 1.3; Diff. 1.9.
- Program performance indicators and statuses (selected):
  - Basic fiscal balance (floor; cumulative change): several instances "Not Met" and some "Met" entries across program timeline as presented.
  - Net domestic assets of the central bank (ceiling): some instances "Not Met" and some "Met".
  - Net international reserves of the central bank (floor; US$ million): series include 419; 420; 93 (Not Met); 369; 375; 77 (Not Met); 248; 151; 238 (Met); 256.
  - Indicative target — Expenditure in priority sectors (floor): multiple "Not Met" entries noted.

### Governance, competitiveness and social indicators
- Competitiveness and governance:
  - Global Competitiveness Index (GCI 2015-16): Guinea rank 140 out of 140; Points 2.8.
  - Doing Business: improved from 171st to 165th in 2016.
  - Enabling Trade Index (2014): Overall rank 135 out of 138.
  - Governance indicators (selected WGI series): voice and accountability and other governance indicators show negative values and weak performance across years presented.
- Social and MDG-related indicators:
  - Post-Ebola Recovery Plan (PAPP) total cost: 2,577.2 million US$.
    - Health, Nutrition and WASH: 1,584.4 (61.5 percent of total) — Health: 1,176.0 (45.6 percent); Hydraulics: 408.4 (15.8 percent).
    - Socio-economic Revitalization: 583.4 (22.6 percent).
    - Total Funding Obtained: 812.0 (31.5 percent).
    - Government Contribution Fund: 231.7 (9.0 percent).
    - Funding to be sought: 1,533.6 (59.5 percent).

### Executive Board Assessment (summary)
- Directors welcomed recovery from Ebola and program progress but noted a serious socio-economic setback from the epidemic and commodity price decline.
- Emphasized: safeguard fiscal sustainability; build fiscal space for priority investment and social spending; implement structural reforms to strengthen resilience and long-term growth.
- Supported prudent monetary policy, welcomed FX system reform, and recommended moving toward exchange rate flexibility in the medium term.
- Called for enhanced financial sector supervision, improved financial intermediation and inclusion, and strengthening AML/CFT regime.

*Source: Staff report for the 2016 Article IV Consultation (Guinea), July 6, 2016.*

### 7.9 percent in April 2016 driven by stronger domestic demand, and a weaker exchange rate.

### _cr16261 - 7.9 percent in April 2016 driven by stronger domestic demand, and a weaker exchange rate.

### Recent developments and near-term momentum
- Growth headline: "7.9 percent in April 2016 driven by stronger domestic demand, and a weaker exchange rate."
- Bank credit to the private sector continued to grow at rapid rates; reserve buffers increased and stabilized at 2.4 months of imports after significant losses in 2014–15.
- The economy is recovering from the Ebola epidemic but facing headwinds from the decline in commodity prices and domestic policy slippages.
- Executive Directors welcomed Guinea’s ongoing recovery and progress under the Fund-supported program, noting a strong fiscal adjustment in Q1 2016, but emphasized socio-economic setbacks from the epidemic and commodity price declines.

### Medium-term outlook and key projections
- Growth: projected to average 4.5 percent over the next five years.
- Inflation: projected to decline gradually to 5 percent by 2019.
- Basic fiscal balance: projected to remain around ½ percent of GDP, reflecting financing constraints and prudent policies to strengthen reserves.
- Table highlights (selected annual figures):
  - GDP at constant prices: 2016 = 4.0; 2017 = 3.7; 2018 = 4.3; 2019 = 4.5; 2020 = 4.8; 2021 = 5.0 (annual percentage change).
  - Consumer price index (end of period): 2016 = 8.5; 2017 = 9.1; 2018 = 7.5; 2019 = 6.0; 2020 = 5.0; 2021 = 5.0.
  - Gross available reserves (months of imports): 2016 = 3.0; 2017 = 3.0; 2018 = 3.2; 2019 = 3.4; 2020 = 3.7; 2021 = 3.8; 2021 note also shows 4.0 in the same series further out.
  - Overall budget balance, incl. grants (percent of GDP): 2016 = -1.3; 2017 = -1.2; 2018 = -0.9; 2019 = -0.6; 2020 = -0.3; 2021 = -0.2.
  - Basic fiscal balance (percent of GDP): 2016 = -0.4; 2017 = -0.5; 2018 = -0.7; 2019 = -0.3; 2020 = -0.2; 2021 = -0.2.
  - External public debt, incl. IMF (percent of GDP): 2016 = 28.4; 2017 = 28.4; 2018 = 30.7; 2019 = 31.4; 2020 = 31.2; 2021 = 30.6.
  - Total public debt, incl. IMF (percent of GDP): 2016 = 44.7; 2017 = 48.6; 2018 = 48.1; 2019 = 46.4; 2020 = 44.4; 2021 = 42.1.

### Risks to the outlook
- Main downside risks identified:
  - A sharper-than-expected global slowdown that would delay mining projects.
  - A deterioration in the region’s security.
  - A resurgence of the Ebola epidemic.
  - Political uncertainty.
- Additional vulnerabilities noted by Directors:
  - Fiscal risks from the energy sector.
  - Limited fiscal space and risks from recourse to nonconcessional financing.
  - Financial sector weaknesses requiring enhanced risk-based supervision and strengthened AML/CFT regime.

### Authorities’ strategy and structural priorities
- Authorities’ economic strategy for 2016–22 (under preparation) aims to unlock broad-based and inclusive growth through investments in electricity, roads, and agriculture.
- Role of private sector: new mining projects, transformation units for agricultural products, large residential housing projects and administrative buildings through PPPs.
- Structural priorities highlighted:
  - Enact a new mining code and reform agriculture.
  - Improve business climate, governance, and public service delivery.
  - Strengthen debt management and reduce domestic arrears.
  - Advance financial inclusion and reform the National Strategy for Financial Inclusion.

### Policy recommendations (staff and Executive Directors)
- Fiscal policy and public finance management:
  - Effect the 2016 fiscal consolidation consistent with the available financing envelope.
  - Anchor the medium-term fiscal deficit to available concessional financing.
  - Tap the property tax base and enforce the automatic fuel pricing mechanism.
  - Rationalize subsidies to reduce them by 1 percentage point of GDP and cap the wage bill to 6 percent of GDP.
  - Prioritize investment projects and concessional financing; enforce the public finance management organic law and the procurement code.
  - Redouble efforts to strengthen debt management and reduce domestic arrears.
- Monetary and exchange rate policy:
  - Support a prudent monetary policy stance aimed at raising international reserves cover and containing inflation.
  - Implement the Safeguards Assessment’s recommendations to strengthen the independence of the central bank.
  - Finalize the foreign exchange market reform to support exchange rate flexibility and close remaining exchange rate misalignment.
- Structural reforms:
  - Finalize the ECF arrangement’s structural reform agenda.
  - Develop a new set of reforms in inclusive finance, agriculture, electricity, and justice to strengthen external competitiveness and resilience to shocks.
- Investment and financing caution:
  - Directors recommended caution in undertaking large public investments, taking into account available financing and a strong process for selecting and managing investment projects.
  - Limit recourse to nonconcessional finance and seek concessional financing to the extent possible.

### Executive Board Assessment (summary)
- Directors welcomed recovery from Ebola and program progress, but noted a serious socio-economic setback from the epidemic and commodity price decline.
- Emphasized safeguarding fiscal sustainability, building fiscal space for priority investment and social spending, and implementing structural reforms to strengthen resilience and long-term growth.
- Supported prudent monetary policy, welcome reform of the foreign exchange system, and recommended moving toward exchange rate flexibility in the medium term.
- Called for enhanced financial sector supervision, improved financial intermediation and inclusion, and strengthening the AML/CFT regime.

*Source: Staff report for the 2016 Article IV Consultation (Guinea), July 6, 2016.*

### 3.      The economy is recovering from the effects of the Ebola outbreak (Table 1).

### 3.      The economy is recovering from the effects of the Ebola outbreak (Table 1).

### Recovery and near-term growth outlook
- Guinea was declared free of Ebola by the World Health Organization on June 1st 2016, 42 days after its last confirmed case. The disease claimed 2,544 lives.
- Growth is projected to rebound to 3.7 percent in 2016, supported by:
  - higher electricity provision from the Kaleta hydroelectric dam (240 MW);
  - a rapid increase in production from a bauxite company that started operations in 2015;
  - execution of construction contracts (15 percent of GDP) signed in 2014–15.
- Inflation increased to 7.9 percent in April 2016 driven by stronger domestic demand and a weaker exchange rate.
- Bank credit to the private sector grew at 24 percent on annual terms as of April 2016.
- Reserve buffers increased and stabilized at 2.4 months of imports after significant losses in 2014–15.

### Socio-political environment and security risks
- Opposition demands: restructuring of the electoral commission before local elections scheduled in the second half of 2016.
- Labor unions organized strikes against elements of the 2016 budget and for a reduction in pump prices.
- Political debate over President Condé’s alleged interest in seeking a third term despite the constitutional two-term limit.
- Regional attacks (Mali, Burkina Faso, Côte d’Ivoire) have heightened domestic security concerns.
- A resurgence of Ebola is identified as a risk that could derail economic prospects.

### Authorities’ strategy and medium-term investment plans
- The government appointed in January 2016 is developing an ambitious five-year plan prioritizing electricity and agriculture.
- The Prime Minister presented a Statement of Economic Policies to the National Assembly on May 4, 2016; the strategy aims to transform Guinea into a modern emerging economy via large investment projects in electricity generation, roads, education and health.
- The Post-Ebola Recovery Plan (PAPP) totals 2,577.2 million US$ in costs:
  - Health, Nutrition and Water, Sanitation, and Hygiene for All: 1,584.4 (61.5 percent of total)
    - Health: 1,176.0 (45.6 percent)
    - Hydraulics: 408.4 (15.8 percent)
  - Governance, Peace Consolidation and Social Cohesion: 119.3 (4.6 percent)
    - Civil service and protection, territorial administration, and communication: 74.8 (2.9 percent)
    - Public funding: 44.5 (1.7 percent)
  - Education, Social and Child Protection, and Basic Services: 290.2 (11.3 percent)
    - Education: 163.3 (6.3 percent)
    - Social action: 126.9 (4.9 percent)
  - Socio-economic Revitalization: 583.4 (22.6 percent)
    - Agriculture, livestock, fisheries, and environment: 187.0 (7.3 percent)
    - Trade and industry and ICT: 214.1 (8.3 percent)
    - Transportation and Public works: 182.3 (7.1 percent)
  - Total Funding Obtained: 812.0 (31.5 percent)
  - Government Contribution Fund: 231.7 (9.0 percent)
  - Funding to be sought: 1,533.6 (59.5 percent)

### Program implementation, fiscal consolidation and risks
- Authorities adhered to agreed adjustment measures under the ECF-supported arrangement.
- Fiscal deficit projected to contract to 0.4 percent of GDP in 2016 from 7.1 percent in 2015.
- The exchange rate was allowed to depreciate by about 12 percent since January 2016.
- A new bilateral FX auction mechanism eliminated the premium between official and bureaus’ exchange rates.
- Preliminary data indicate all end-March indicative targets were met with a sizable margin, except priority sector spending.
- Text Table 1: Central Government Operations, 2016Q1 (Percent of GDP)
  - Revenue and grants: Prog. 5.1; Act. 4.4; Diff. -0.7
  - Revenue: Prog. 4.1; Act. 4.2; Diff. 0.1
  - Grants: Prog. 1; Act. 1.0; Diff. 0.2
  - Expenditure: Prog. 5.7; Act. 3.2; Diff. -2.5
    - o/w: Goods and services: Prog. 1.4; Act. 0.8; Diff. -0.6
    - Domestic investment: Prog. 1.5; Act. 0.5; Diff. -1.0
  - Basic fiscal balance: Prog. -1.3; Act. 1.2; Diff. 2.4
  - Overall balance (1): Prog. -0.6; Act. 1.3; Diff. 1.9
  - Financing (1): Prog. 0.6; Act. -1.3; Diff. -1.9
    - Domestic: Prog. -0.2; Act. -0.9; Diff. -0.7
    - External: Prog. 0.8; Act. -0.1; Diff. -0.9
  - Errors and omissions (2): Prog. 0.0; Act. -0.3; Diff. -0.3
  - Notes: 1 Excluding project grants and loans. 2 Includes errors and ommissions and accounting differences on central bank financing.
- Energy sector risks to the budget:
  - Budget assumed oil prices of $35–$40 per barrel for 2016.
  - A $2 increase in oil prices roughly translates into a 0.1 percent of GDP loss in revenue, ceteris paribus.
  - Increased installed thermal electricity capacity could raise the total cost of electricity production by 2.1 percent of GDP in 2016, implying higher subsidies and/or arrears absent tariff increases.

### Monetary policy and reserves
- The central bank (BCRG) tightened monetary policy to meet net international reserves targets:
  - Interest rate on Titres de Régulation Monétaire (TRM) increased from 6.5 percent to 8.5 percent.
  - Main refinancing (pension) rate raised from 11 to 12.5 percent.
  - Reserve requirement ratio maintained at 18 percent.
- TRMs helped absorb liquidity already tightened by the depreciation of the GNF in early-2016.
- Interest rates on Treasury bills increased by 300bp.
- Banks massively increased use of BCRG refinancing facilities, including the Overnight window.
- Reserve coverage stabilized at 2.4 months of imports; staff project reserve coverage to increase to 3.8 months of imports under the authorities’ baseline medium-term scenario.

### Financial sector soundness
- Financial soundness indicators deteriorated in 2015 due to rapid credit expansion linked to the guaranteed loans program.
- The NPL ratio reached a 6-year high in April 2016.
- Rapid credit expansion reduced banks’ equity-to-risk weighted assets and deteriorated liquidity indicators, including FX liquidity ratios; several major banks did not observe the FX liquidity ratio.
- Net banking income (NBI) increased by more than 23 percent in 2015.
  - NBI composition in 2015: credit with clientele 41 percent; banking fees 26 percent (mainly on FX operations); cash and interbank transactions 22 percent (notably interest on Treasury bills); other products 11 percent.
- Preferential treatment under the guaranteed loans program included uncollateralized refinancing at 6 percent to participating banks versus 11 percent for other banks, and waivers for non-compliance on reserve requirements.
- On-site inspections are planned to examine banks’ problems and take corrective measures.

### Medium-term outlook and scenarios
- Authorities’ baseline scenario:
  - Growth rebound to 5.1 percent (from 2.2 percent average during 2011–15).
  - Drivers: improved infrastructure services (health, energy, transport), support for agriculture, resumption in 2016 of Simandou iron ore project operations, successful expansion at CBG and SMB.
  - Inflation declines gradually to 5 percent in 2019 and stabilizes thereafter.
  - Current account deficit increases to around 17 percent of GDP, financed by FDI.
  - Reserve coverage increases to 3.8 months of imports.
- Authorities’ alternative (ambitious) scenario:
  - Growth projected to reach 8.6 percent on average based on more ambitious investment plans and inclusion of the Souapiti project, faster road upgrades (3 percent of GDP), and higher agricultural investments.
  - Private sector role through execution of 7 projects in bauxite, iron-ore and gold sectors; development of transformation units and PPP housing/administrative projects.
  - Projected cost of private and public projects by 2021 estimated at $17 billion (260 percent of 2016 GDP).
- IMF staff’s conservative scenario:
  - Reflects limited financing and structural bottlenecks; excludes Simandou and Souapiti projects and assumes less optimistic expansion at SMB and CBG.
  - Growth would average 4.5 percent over the next five years.
  - Inflation declines gradually to 5 percent by 2019 and remains at that level thereafter.
  - Public investment rate maintained at 9 percent given historical external financing trends.
  - Current account deteriorates and is financed by debt and FDI.
  - Overall balance improves, allowing reserve coverage to increase gradually to around 3 months of imports.
- Key downside risks across scenarios:
  - Failure to deliver the planned 2016 adjustment, depleting central bank international reserves.
  - Further declines in commodity prices jeopardizing mining prospects.
  - Increased political instability and higher country risk ahead of local elections.
  - Resurgence of Ebola.
  - Continued weakness in advanced (Euro zone) and emerging (China) economies delaying mining expansion and financing for infrastructure.
  - Potential spillovers from security dislocations in North Africa.
  - Exacerbation of risks if structural reforms, especially in PFM, stall.

*International Monetary Fund — Selected excerpts from the IMF staff report on Guinea.*

### 15.      The authorities are confident in their capacity to mobilize funding for their ambitious

### _cr16261 - 15.      The authorities are confident in their capacity to mobilize funding for their ambitious

### Funding projections and sources for the PIP
- Authorities project significant increases in tax revenue over the medium term driven by:
  - high growth;
  - full application of the VAT increase;
  - creation of the property taxation unit;
  - higher mining sector revenue from expansion of existing bauxite production capacity;
  - closer coordination between the Tax and Customs departments.
- Additional fiscal space expected from:
  - savings on public pensions from the biometric census of pensioners;
  - savings on electricity subsidies from deployment of pre-paid electricity meters.
- Remaining financing for the PIP expected from pledges under the Ebola Recovery Plan.

### Box 4 — Souapiti Hydroelectric Dam Project: project details and fiscal implications
- Project specifics:
  - 450-MW hydroelectric Souapiti dam.
  - Estimated cost: $1.567 billion (23 percent of GDP).
  - Planned financing structure: 85/15 debt to equity component.
  - Debt contract under negotiation: $1.175 billion.
  - Equity portion to be funded by a divesture of part of the government’s shares in the Kaleta dam.
- Fiscal and growth implications:
  - Project will improve electricity services and reduce a major constraint to private investment and growth.
  - Debt, Investment and Growth (DIG) model results suggest strong fiscal adjustment needed to maintain debt sustainability even accounting for growth impacts of Souapiti.
  - Under optimistic assumption that the dam increases growth of GDP per capita by 1 percentage point over the next five years:
    - Authorities would need to increase the VAT rate by 10 percentage points to keep debt sustainable.
    - This VAT increase would be equivalent to raising revenues (or reducing spending) by 2–4 percentage points of GDP in the short-run.
  - Even with improvements in structural factors (higher efficiency of investment, higher rate of return, higher rate of infrastructure user fees), a large adjustment would still be required.
- Debt financing considerations and donor engagement:
  - Staff urged negotiations to increase the grant element of a loan currently at 22 percent and to invite other development partners to limit fiscal and debt sustainability impact.
  - Authorities indicated they will not sign the loan this year and are considering a donor roundtable; they will await results of the Kaleta dam valuation which could reduce residual financing requirement and debt.

### Near-term priorities: rebuilding policy buffers
- Fiscal consolidation to preserve macroeconomic stability and rebuild buffers is prioritized given limited financing prospects.
- Authorities ruled out cuts in fuel prices before end-2016 but did not commit to raising fuel pump prices if international oil prices continue to increase.
- Authorities intend to raise electricity tariffs in the year to contain electricity subsidies and to keep electricity production consistent with available government support to the loss-making public electricity company.
- Staff recommendations and actions:
  - Address looming fiscal risks.
  - Offset potential petroleum revenue losses and reduce arrears to the electricity company.
  - Continue negotiations to increase grant element of Souapiti loan and mobilize donor support.
  - Await valuation of Kaleta dam to potentially reduce financing needs.

### Monetary policy, liquidity, and exchange rate management
- Current monetary policy stance described as appropriate with a tightening bias given pick-up in inflation.
- Staff and authorities concurred a loosening of monetary policy could fuel inflation and impair end-year international reserve targets.
- Recommended limited policy actions to improve banks’ local currency liquidity, including allowing reserves in FX on FX-denominated deposits.
- Measures to incite banks to tap alternative sources of GNF liquidity:
  - raising interest rates on deposits;
  - using the BCRG’s credit facilities (including the pensions facility (term repo) and the new TPO (Taux des Pensions Overnight));
  - tapping the nascent interbank market;
  - selling FX to the central bank against local currency.
- Overvaluation and FX market reforms:
  - Model-based assessments as of end-2015 suggest an overvaluation of 17–32 percent that contributed to depletion of official reserves and banking sector net foreign assets in 2015.
  - About half of this misalignment was absorbed in early 2016 with currency depreciation.
  - Residual exchange rate misalignment about 12 percent as of April 2016.
  - Staff advised launch of a rules-based FX intervention strategy and developing the FX market into a two-sided market, while limiting central bank FX purchases to the established market and discontinuing purchases from FX bureaus, artisanal gold miners and private corporations.
  - BCRG requested technical assistance to improve monitoring of FX bureaus and ensure they are limited to retail transactions.

### Medium-term priorities: fiscal framework to scale up infrastructure and diversify the economy
- Fiscal stance and buffers:
  - Staff argued for maintaining the basic fiscal deficit around 0.5 percent of GDP over the medium term to support potential growth, make room for private sector credit, and repay domestic arrears to the private sector.
  - Authorities prefer boosting growth and exports through higher spending on infrastructure and human capital but acknowledge financing and debt sustainability implications.
- Revenue mobilization and tax potential:
  - IMF staff estimate Guinea’s unrealized tax potential at 3–5 percent of GDP.
  - Baseline scenario retains reforms delivering an improvement in revenue performance of 1 percentage point of GDP over the medium term.
  - About half of the projected improvement expected from direct taxes collected from higher income quintiles; the other half from indirect taxes, including fuel taxes.
- Blueprint for tax reform (Box 5) — key measures:
  - Tighten control of the commercial tax base given under-declaration of sales (over ¾ of commercial imports do not show up in Tax Department turnovers).
  - Advance taxpayer identification, information collection, and strengthen audit procedures.
  - Simplify and expand income taxes to new taxpayers; revise rates and thresholds introduced in 2011.
  - Streamline and revise excises upward; safeguard fuel taxes within an automatic price-adjusting structure.
  - Consider selected revisions to mining conventions and implement transfer pricing mechanisms.
  - Rapid roll-out of real estate taxation and gradual elimination of tax exemptions.

### Recurrent spending, wage bill, and prioritized reallocations
- Salaries as share of GDP are now comparable to many African countries after large base salary adjustments since 2011.
- Staff recommendation: keep the wage bill below 6 percent of GDP to safeguard budget flexibility and redirect savings to public investment.
- Other options to reduce current spending by up to 1 percent of GDP:
  - cutting recurrent costs of fuel and travel;
  - allowing EDG to automatically adjust electricity tariffs to cost recovery levels (0.5 percent of GDP);
  - streamlining subsidies for universities.
- Recommended reallocation of savings to:
  - nascent social safety net;
  - primary education;
  - health system.
- Staff advised developing a medium-term framework for wage negotiations with unions.

### Public Investment Management (PIM), investment envelope and efficiency
- Given budget rigidities and financing constraints, investment spending should be kept at around 5 percent of GDP until fiscal space materializes.
- Recommendations to improve quality and rates of return of investments:
  - enforce the procurement code, including competitive bidding for investment projects;
  - reform the selection process to require cost-benefit analysis for projects eligible for public funding.
- DIG model results presented:
  - Fully implementing priority projects would require adjusting the consumption tax rate from 20 percent to 25 percent.
  - Would increase debt from 49 percent in 2015 to 67 percent by 2036, despite optimistic growth assumptions.

### Debt management, concessional financing, and PFM reforms
- Staff advice:
  - Continue reliance on concessional financing and improve debt management to contain vulnerabilities.
  - Finalize reform of institutional framework for debt policy and management; empower the National Committee for Public Debt (CNDP) to ensure new borrowing aligns with national public debt policy.
  - Approve the PPP law by year-end and strengthen capacity to conduct Debt Sustainability Analyses (DSAs) and annex them to budgets starting with the 2017 budget.
  - Prioritize concessional financing and request technical assistance on management of fiscal risks from PPPs.
- Aligning PFM with new public finance organic law (LORF) to improve transparency and unlock donor support:
  - Priority actions include:
    - Expanding coverage of the Single Treasury Account to all government bodies collecting public revenue by mid-2017.
    - Rolling out the new budget nomenclature to improve monitoring and protection of priority spending.
    - Increasing training, especially for line ministries in social sectors to initiate and execute budget appropriations according to the LORF.

*Source: IMF staff summary of Guinea policy discussions and Selected Issues Papers contained in the provided content.*

### 27.      Monetary policy should focus on reducing inflation to 5 percent and on rebuilding

### _cr16261 - 27.      Monetary policy should focus on reducing inflation to 5 percent and on rebuilding

### Monetary policy and reserves
- Monetary policy should focus on reducing inflation to 5 percent and on rebuilding reserves to 3–4 months of imports.
- The level of reserves is in line with the ECOWAS goal and strikes a good balance between the costs and benefits of holding reserves (Box 7).
- Inflation is projected to be driven mainly by fiscal and monetary developments, given Guinea’s robust agricultural potential and projected food production.
- Loosening monetary policy should only be considered once the 2016 fiscal consolidation is effected and after international reserves reach the target of 3 months of imports.
- Other triggers for cutting the reserve requirement rate:
  - a drying up of banks liquidity combined with a slowdown in private sector credit growth below that of nominal GDP, in a context of downward trending inflation.
- In the meantime, banks should continue to use the BCRG’s refinancing facilities, interbank lending, and FX sales for their liquidity management.
- Transitioning to exchange rate flexibility over the medium term will support reserves, competitiveness, and economic diversification.

### Priority operational actions (December 2015 MCM technical assistance)
- Develop liquidity forecasting based on sound calibration of the BCRG’s open market operations.
- Support the development of a yield curve through more regular government security issuances and the publication of reference rates for interbank transactions.
- Address market segmentation by introducing a two-way FX auction and promoting collateralized transactions in the GNF interbank market to mitigate perceived counterparty risk.

### Public Financial Management reform (Box 6)
- Key milestones since 2011:
  - adoption of the Loi organique relative aux finances publiques (LORF) in 2012;
  - adoption of the General Regulations on Budget Management and Public Accounting (RGGBCP) in 2013;
  - adoption in May 2015 of the law on the management of public entities;
  - adoption in 2015 of a new procurement code;
  - establishment of a Treasury Single Account (TSA).
- Remaining compliance and implementation gaps mean enforcing the new framework fully will improve efficiency of public spending and delivery of public services, and facilitate donor mobilization.
- Priority steps to advance PFM:
  - adopt a medium term budget framework, based on a consensual medium-term macroeconomic framework to anchor revenue projections and expenditure planning (current forecasts not harmonized; revenue projections reflect historical performance and anecdotal factors; tracking of foreign aid is cumbersome);
  - streamline budget management processes (avoid derogatory procedures; execute spending in line with the spending chain; delegate budget execution to line ministries);
  - strengthen data management processes (budget execution information spread across several IT systems and stand-alone files; core system dates to 2000 and is not accessible by line ministries; improve invoice management and netting-out of standing balances);
  - fully anchor budget implementation in the TSA (about 1,400 governmental bank accounts spread in commercial banks in 2012 have been redirected to the BCRG, but the TSA is not yet fully operational; many balances are not available or not used; record-keeping and forecasting functions have deficiencies);
  - complete the census of public entities and SOEs (current count stands at 159, but many entities attached to line ministries have not been included).

### Reserve adequacy estimates (Box 7)
- The Fund’s ARA-CC approach ("Assessing Reserve Adequacy in Credit-Constrained-Economies") is used to estimate optimal level of international reserves for Guinea.
- On average, results suggest that 3.3 months of imports could be considered an adequate level for Guinea.
- This 3.3 months estimate is a lower-bound for at least two reasons:
  - the net cost of holding reserves may be over-estimated given Guinea’s positive inflation differential against advanced economies, which implies the GNF may continue to depreciate, thereby reducing the cost of holding reserves;
  - the ARA-CC rests on the hypothesis of precautionary motives for holding reserves under risk neutrality, but authorities may wish to hold additional reserves because of risk aversion; a higher degree of risk aversion could alter the results.
- Guinean authorities expressed a preference for a higher level of reserves in the medium term (between 4 and 5 months of imports) than what is derived from the ARA-CC approach, on the basis of higher risk aversion and macro-prudential motives.

### Financial system supervision and intermediation
- Improvements in the quality of financial system supervision would allow better intermediation of local savings.
- Staff advised accelerating the adoption of risk-based supervision in line with the timeline agreed with AFRITAC West (AFW) and strengthening the directorate of banking supervision.
- The BCRG committed to AFW’s recommendations and attributed implementation delays to capacity constraints, including staffing shortages being resolved.
- Recent prudential measures:
  - cap on risk concentration to 100 percent of regulatory capital;
  - requirement to constitute exceptional provision of up to 15 percent of net banking income imposed on banks that breach the prudential norm on the division of risks.
- Staff noted continued breaches of this norm by banks involved in food and fuel imports call for strengthening banks’ capital beyond the GNF 100 billion target of June 2016.

### Financial inclusion and microfinance (Box 8)
- Improving competition in the banking sector and lifting structural impediments to microfinance will promote financial inclusion.
- Guinea’s financial system characteristics:
  - credit-to-GDP ratio and proportion of individuals and companies using financial services are well below peers;
  - banks rank among the most profitable in the world given negative real interest rates on deposits, and high interest rate spreads and banking fees.
- Constraints include low income, lack of competition, limited physical access, financial illiteracy, weak property rights and bankruptcy procedures.
- Three banks hold about 75 percent of total assets of the banking system.
- Reforms noted:
  - reform of the 2005 microfinance law and the National Strategy of Financial Inclusion (SNFI) under preparation.
  - SNFI focuses on enhancing the poor’s access to financial services rather than keeping interest rates low, and on stricter enforcement of prudential regulations to lift governance standards.
- Mobile banking and e-money:
  - mobile phone services grew 21 percent on average since 2010;
  - number of subscribers rose from 4.2 million in 2010 to 10.7 million in 2015.
  - BCRG regulation (March 2015) requires Electronic Money Institutions (EMIs) to be registered at the central bank, prohibits remuneration of deposits or supply of credit by EMIs, and sets minimum social capital standards; quarterly reporting and external audit requirements apply.
  - planned amendments include: new financial products, deposit protection, disclosures, competition and taxation.
- Central bank intends to develop a framework for compilation of Financial Soundness Indicators (FSIs) within a three-year TA project.

### Central bank governance and safeguards
- Strengthening the operational independence of the central bank is critical.
- Key measures in the updated Safeguards Assessment:
  - enforce legal limits to monetary financing of the budget;
  - reform appointment rules of the BCRG’s board members;
  - reduce concentration of power of the Governor.
- BCRG submitted law amendments to Parliament after consultation with staff.
- BCRG reluctant to ban civil servants from the board due to shallow pool of competencies; Board members holding positions in economic ministries (budget, finance, planning) will not have voting rights.
- Safeguards update (June 2016) noted limited progress and a recent case of misreporting following issuance of large BCRG guarantees to commercial banks at the request of the government suggests fiscal dominance.
- Staff recommendations include strengthening the BCRG Law, enhancing oversight of internal controls and operations via the Audit Committee, and continuation of external auditors verifying program monetary data at test dates.
- The BCRG is finalizing a revised BCRG Law for submission to Parliament.
- The BCRG sent a letter in November 2015 to the Ministry of Finance to initiate discussions on the reimbursement of the 2014-15 central bank advances, and on the modalities of its recapitalization.

### Structural reforms and priorities
- Structural reform discussions focused on raising governance indicators, promoting economic diversification, and improving delivery of public services.
- Authorities agreed to finalize pending ECF arrangement structural reforms to improve credibility of economic institutions by:
  - enforcing the public procurement code;
  - implementing the Government’s action plan to reform the legal system and the AML/CFT framework.
- Staff encouraged full enactment of the new mining code (considered by experts to be in line with international standards) and advised caution in adding additional regulation that could erode comparative advantage.
- Agriculture reforms should roll out support mechanisms to enhance productivity and poor farmers’ income while reducing the need for government support over the medium term.
- Reforms of support mechanisms for education should align them with social returns and boost human capital.
- PPPs carry potentially large fiscal risks and should be used with caution.

### Data, capacity building, and Article VIII issues
- Data provision is broadly adequate for surveillance with key shortcomings in national accounts and fiscal statistics.
- Approval of 2013 national accounts statistics is progress; staff encouraged swift reconciliation of different data sources due to significant differences with GDP estimates used for policy making.
- Authorities requested AFW technical assistance to reconcile databases.
- Staff recommendations:
  - improve coordination between government agencies to correct data discrepancies;
  - develop indicators for intra-year updates of GDP forecasts;
  - update the base year (2002) of CPI data as soon as the household survey is finalized and extend coverage outside Conakry;
  - modernize compilation methodology of government financial operations and ensure consistency with central bank financing data.
- Capacity building: Guinea is a pilot country under the Capacity Building Framework for fragile states; TA expected to increase with focus on revenue mobilization, debt management, expenditure rationalization, public investment processes, monetary and exchange rate policies, and macroeconomic statistics.
- Article VIII: staff advised the central bank to avoid a multiple currency practice (MCP) in the multi-price auction by ensuring exchange rates of accepted bids at the auction do not deviate by more than 2 percent, and to remove the MCP arising from the official rate lagging the weighted average commercial bank rate by one day. Central bank requested MCM support to identify measures to remove the MCP.

### Staff appraisal and recommendations
- The authorities’ commitment to ongoing fiscal adjustment is appropriate.
- Delivering the planned fiscal adjustment, rebuilding reserves to three months of imports, and finalizing reform of the foreign exchange market will:
  - lay the basis for strong medium-term growth;
  - improve Guinea’s track record and credibility of economic policies;
  - help unlock further donor support.
- Scaling-up public investment should be carefully considered based on realistic assessment:
  - scaling up investment in energy and transport will increase long-term potential only if effective and consistent with macroeconomic stability;
  - authorities should develop a realistic economic scenario and policies reflecting available financing and capacity constraints;
  - implement projects gradually while keeping the deficit in line with available financing;
  - tap tax potential, enhance quality and value for money of public spending, and rely as much as possible on concessional borrowing to provide fiscal space;
  - PPPs should be used with caution due to potentially large fiscal risks.
- Addressing structural impediments to growth is a top priority to strengthen external competitiveness and resilience to shocks:
  - short-term focus: finalize the ECF arrangement reform agenda;
  - medium-term focus: strengthen electricity and agriculture sectors to boost growth while safeguarding public resources.

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

### 39.      A more independent central bank will help reduce fiscal dominance and support external

### A more independent central bank will help reduce fiscal dominance and support external

### Monetary policy and central bank independence
- Monetary policy should focus on maintaining price stability and rebuilding external buffers to at least 3 months of imports.
- Authorities should consider publicly announcing an inflation objective to improve the conduct of monetary policy and accountability of the BCRG.
- The amendments of the central bank law are an important step forward, but delivering the expected benefits requires strict enforcement.

### Financial sector policies
- Aim to increase domestic savings by improving financial intermediation and inclusion.
- Strengthen financial supervision.
- Introduce policies to lower the costs of intermediation to strengthen resilience to economic shocks.

### Exchange rate policy and external stability
- Staff’s analysis suggests that Guinea’s exchange rate remains somewhat overvalued.
- Staff encourages the authorities to:
  - allow more flexibility of the exchange rate,
  - swiftly implement the pending reforms to the FX market,
  - consider launching a rules-based FX purchase program to rebuild reserves.

### Multiple currency practice
- The authorities did not request and staff does not recommend approval of the multiple currency practice maintained inconsistent with Article VIII obligations.
- This multiple currency practice arises from the value of the official rate lagging by one day from the weighted average of commercial bank rates.
- Currently, the authorities have no plans for its removal.

*Source: IMF staff summary provided in the content unit.*

### 43.      The next Article IV consultation is expected to take place on a 24-month cycle.

### _cr16261 - 43.      The next Article IV consultation is expected to take place on a 24-month cycle.

### Article IV consultation timing
- The next Article IV consultation is expected to take place on a 24-month cycle.

### Recent economic developments (figure captions and summary observations)
- "Shocks and policy slippages adversely impacted growth..."
- "Inflation fell to single digit levels..."
- "The fiscal expansion was more pronounced than envisioned in the last Article IV..."
- "The current account deteriorated on account of lower commodity prices..."
- "Reserve buffers were depleted on account of policy slippages in 2015, and are slowly recovering..."
- "Credit to the private sector increased sharply despite low GDP growth while banks’ excess reserves are hovering around zero..."

### Fiscal indicators (high-level points from figures and tables)
- Fiscal expansion in 2015 exceeded the outlook in the previous Article IV consultation.
- Basic fiscal balance and revenue/expenditure trends are shown in figure summaries (Base fiscal balance (RHS); Revenue; Expenditure).
- Table highlights (percent of GDP basis, selected indicators):
  - Basic fiscal balance (Table 2b): -2.8, -6.4, -6.9, -0.4, -0.5, -0.7, -0.3, -0.2, -0.2 (series shown in table).
  - Overall balance (cash basis), including grants (Table 2b): -5.2, -4.1, -8.7, -1.3, -1.2, -0.9, -0.6, -0.3, -0.2 (series shown in table).
  - Total revenue and grants (percent of GDP, Table 2b): 19.9, 21.9, 19.0, 24.3, 23.5, 23.9, 24.3, 24.5, 24.6 (series shown in table).

### Monetary and financial sector developments
- Credit to the private sector increased significantly while excess reserves fell toward zero (figure captions).
- Central bank financing to the government increased (figure caption: "As well as Central Bank financing to the government...").
- Monetary aggregates and bank balance-sheet indicators (selected table entries):
  - Broad money (M2) (Table 3b, levels): 13,068; 14,672; 17,644; 19,587; 19,622; 23,337; 25,953; 27,959; 32,091 (GNF billions, series shown).
  - Reserve money (annual percentage change, Table 3b): 15.7, 14.5, 2.6, 8.1, 9.5, 21.4, 10.4, 6.3, 17.6 (series shown).
  - Commercial bank credit to the private sector (annual percentage change, Table 3b): 35.4, 44.5, 26.1, 13.3, 12.1, 11.2, 13.7, 12.9, 12.3 (series shown).
  - Money multiplier (M2/reserve money, Table 3b): 1.8, 1.7, 2.0, 2.0, 2.0, 2.0, 2.0, 2.0, 2.0 (series shown).

### External sector developments
- Exports were held back by delays on Simandou and lower commodity prices (figure caption).
- Lower import demand reflected slower growth (figure caption).
- Policy slippages in 2015 led to reserve depletion but reserves are slowly recovering (figure captions).
- Real exchange rate appreciation driven by high inflation differentials against main trading partners (figure caption).
- Selected balance-of-payments and reserve indicators (Table 4 and Table 1 memorandum items):
  - Gross available reserves (months of imports)³: 3.0; 3.7; 2.1; 3.0; 3.0; 3.2; 3.4; 3.7; 3.8; 4.0.
  - Net foreign assets of the central bank (US$ millions, Table 1 memorandum): 448.9; 453.4; 161.2; 259.5; 267.4; 484.4; 611.9; 698.1; 925.7; 1,173.4 (series shown).
  - Overall balance of payments (US$ millions, Table 1 memorandum): 29.0; -61.7; -347.4; 105.6; 104.0; 224.2; 130.5; 87.9; 231.7; 287.9 (series shown).

### Key numeric series and projections (selected time-series as presented)
- Real GDP growth (Table 3b / figures): 2.3; 1.1; 0.1; 4.0; 3.7; 4.3; 4.5; 4.8; 5.0 (annual percent changes shown in tables/figures).
- Consumer prices (average, Table 1): 11.9; 9.7; 8.2; 7.9; 8.4; 8.3; 6.8; 5.5; 5.0; 5.0 (series shown).
- Current account balance (percent of GDP, Table 1 memorandum): -16.9; -17.3; -18.7; -13.1; -14.7; -13.2; -15.8; -17.9; -16.1; -20.0 (including official transfers, series shown).

*Sources: Guinean authorities; and IMF staff estimates and projections (content and figures as presented in the source PDF)._

### 1. Gross financing requirements

### _cr16261 - 1. Gross financing requirements

### Gross financing requirements and composition
- Total gross financing requirements (annual rows appear over multiple years in source; excerpt shows sequence): 1,143; 1,283; 994; 1,254; 1,393; 1,280; 1,414; 1,627; 1,708.
- Components (annual sequences matching above where provided):
  - External current account deficit: 1,076; 1,296; 1,293; 955; 1,083; 1,006; 1,251; 1,490; 1,445.
  - Capital account balance: 2; -12; -15; -16; -16; -16; -17; -17; -18; -18.
  - Debt amortization: 49; 60; 52; 64; 60; 66; 50; 67; 57.
  - Change in arrears, net: 3; -4; -7; -11; 94; 94; 0; 0; 0; 0.
  - Gross reserves accumulation: 61; 47; -291; 156; 149; 224; 131; 88; 228.
  - IMF Repayments: 4; -28; -96; -33; 0; 23; 0; 0; 0; -4.
- Notes in source:
  - "In 2015 includes debt cancellation (under IMF repayments) and debt relief provided under the IMF's CCR Trust."

### Available financing (identified flows)
- Total available financing sequences: 1,143; 1,283; 997; 1,203; 1,325; 1,280; 1,414; 1,627; 1,716.
- Major components (annual sequences where provided):
  - Foreign direct investment, net: 5: 770; 680; 620; 660; 786; 771; 918; 1,128; 1,209.
    - Note: "Includes private short-term capital flows."
  - Identified disbursements: 311; 345; 269; 449; 445; 509; 496; 499; 507.
  - Grants: 92; 166; 45; 261; 260; 281; 307; 327; 350.
    - Project grants: 67; 46; 33; 166; 166; 185; 206; 219; 234.
    - Program grants: 26; 120; 12; 95; 94; 96; 101; 108; 115.
  - Loans: 218; 179; 223; 188; 185; 228; 189; 172; 157.
    - Project loans: 183; 60; 187; 117; 107; 86; 96; 89; 82.
    - Program loans: 35; 118; 36; 71; 78; 142; 93; 84; 75.
  - Other flows: 61; 254; 66; 0; 0; 0; 0; 0; 0.
  - Debt relief: 2,3: 1; 5; 43; 94; 94; 0; 0; 0; 0.
    - Note: "Projected clearance of outstanding debt arrears to non-Paris Club official creditors and commercial creditors through debt relief."
- IMF program disbursements and treatment:
  - Residual financing rows: 0; 0; -3; 51; 68; 0; 0; 0; -8.
  - ECF and RCF disbursement: 28; 96; -3; 51; 23; 0; 0; 0; 0.

### Key financial soundness indicators (selected exact ratios and levels)
- Capital Adequacy:
  - Total bank regulatory capital to risk-weighted assets: 17.0%; 14.6%; 18.2%; 15.6%; 17.3%; 16.5% (Dec-10 to Dec-15).
  - Percentage of banks greater or equal to 10 percent: 100.0%; 83.3%; 92.3%; 93.0%; 93.0%; 100.0%.
  - Share of these banks/total banking system assets: 100.0%; 58.8%; 98.5%; 94.5%; 94.2%; 100.0%.
- Asset Quality:
  - Non-performing loans to total loans: 5.9%; 3.2%; 4.8%; 6.5%; 4.1%; 6.2%.
  - Non-performing loans net of provision to capital: 2.5%; 3.5%; 3.5%; 11.2%; 12.6%; 9.9%.
  - FX loans to total loans: 36.0%; 48.1%; 22.6%; 23.1%; 28.1%; 30.7%.
- Earnings and Profitability:
  - Net income to average assets (ROA): 2.0%; 2.5%; 2.2%; 2.2%; 1.8%; 2.2%.
  - Net income to average capital (ROE): 35.1%; 41.3%; 28.8%; 27.8%; 21.2%; 27.4%.
  - Non interest expense to gross income: 14.0%; 24.5%; 57.9%; 93.1%; 133.8%; 156.5%.
  - Non interest income to gross income: 48.0%; 55.7%; 91.1%; 124.8%; 164.7%; 182.4%.
- Liquidity:
  - Liquid assets to total assets: 75.9%; 69.0%; 67.3%; 62.3%; 56.6%; 46.6%.
  - Liquid assets to short-term liabilities: 86.1%; 74.1%; 77.4%; 72.5%; 67.1%; 60.2%.
  - Loan/deposits: 24.6%; 38.1%; 38.0%; 45.7%; 56.4%; 58.5%.
  - Liquid assets/total deposits: 91.4%; 91.1%; 85.5%; 80.6%; 74.8%; 66.7%.
- Sensitivity to market/FX risk:
  - Foreign exchange liabilities/total liabilities: 22.0%; 28.0%; 33.0%; 26.5%; 23.2%; 23.9%.
  - Foreign currency deposits/official reserves: 89.0%; 36.0%; 55.0% (incomplete series in source).

### Program performance criteria and indicative targets (selected results and statuses)
- Basic fiscal balance (floor; cumulative change for the year): reported sequences include -1,276; -1,278; -1,373 (Status: Not Met); -2,101; -2,115; -3,022 (Not Met); -743; -531; 664 (Met); -682.
- Net domestic assets of the central bank (ceiling; stock): 4,628; 4,510; 6,604 (Not Met); 5,109; 4,650; 7,437 (Not Met); 7,414; 8,308; 7,312 (Met); 7,329.
- Net domestic bank financing of the government (ceiling; cumulative change for the year): 794; 676; 1,074 (Not Met); 1,194; 736; 2,535 (Not Met); -135; 759; -627 (Met); -186.
- Net international reserves of the central bank (floor; stock); US$ million: 2: 419; 420; 93 (Not Met); 369; 375; 77 (Not Met); 248; 151; 238 (Met); 256.
- New non-concessional medium or long-term external debt contracted or guaranteed by the government or central bank (ceiling); US$ million: 80; 80; 152 (Not Met); 80; 80; 152 (Not Met); 0; 0; 0 (Met); 0.
  - Footnote: "Corresponds to the issuance of a EUR65 million guarantee on a non-concessional loan for the Kankan-Kissidougou road project and of the EUR79 million new debt to finance the Kaleta hydroelectric dam - Conakry transmission line project."
- Indicative target — Expenditure in priority sectors (floor): 2,616; 2,616; 2,121 (Not Met); 4,124; 4,124; 2,461 (Not Met); 1,252; 1,252; 508 (Not Met); 2,849.

### Structural benchmarks and program implementation status (2016)
- Approve a timetable for clearing domestic payment arrears, distinguishing between arrears from budget years 2011–13 and those from 2005–10.
  - Date: End-April 2016. Status: Not met. Ongoing.
  - Macroeconomic rationale: Support the Guinean private sector and enhance government credibility.
- Bring budget and accounting management of government agencies benefiting from revenues allocated into compliance with the provisions of the LORF and the RGGBCP.
  - Date: End-August 2016. Status: Ongoing.
  - Rationale: Ensure the integrity of the government’s budget and improve its cash management.
- Adopt a civil service reform plan, based on the results of the ongoing biometric survey and the action plan for the program to reform the State and modernize the government.
  - Date: End-August 2016. Status: Ongoing.
  - Rationale: Restrain the wage bill and improve the productivity of public administration.

### Risk Assessment Matrix — key risks, likelihood, impact, and policy responses
- Tighter or more volatile global financial conditions (surge in the US dollar).
  - Relative Likelihood: High. Impact If Realized: Medium.
  - Impact: Competitiveness could be further impaired, and strain reserve buffers.
  - Policy Response: Advance the structural reform agenda to remove bottlenecks and allow greater exchange rate flexibility.
- Sharper-than-expected global growth slowdown.
  - Relative Likelihood: High/Medium (AEs); Low/Medium (EMEs). Impact If Realized: High.
  - Impact: Investment in large-scale mining projects (iron ore, bauxite) would likely be delayed, lowering medium-term growth prospects.
  - Policy Response: Intensify structural reform to improve the business climate. Allow the exchange rate to adjust.
- Heightened risk of fragmentation/security dislocation in the Middle East, Africa, and Europe.
  - Relative Likelihood: High. Impact If Realized: Medium.
  - Impact: Large-scale investment projects would likely be postponed. Progress out of fragility would be in doubt.
  - Policy Response: Intensify structural reform to remove bottlenecks to growth, and protect buffers. Fiscal policy to focus on revenue mobilization, and delivery of public services.
- Deterioration of the domestic socio-political and security situation.
  - Relative Likelihood: Medium. Impact If Realized: High.
  - Impact: Investment and growth would be affected; poverty could increase; Implementation of program could weaken. Macroeconomic stability would be at risk.
  - Policy Response: Refocus reform on areas less sensitive to socio-political environment. Aim to maintain fiscal control.
- Resurgence of Ebola.
  - Relative Likelihood: Low. Impact If Realized: High.
  - Impact: Investor sentiment and consumer confidence would deteriorate further. Mining investments would be delayed.
  - Policy Response: Intensify structural reform. Fiscal accommodation should remain within the limits of available financing, and focus on priority sector spending.

### External stability assessment — exchange rate misalignment and balance of payments outlook
- Current account and outlook:
  - "Guinea’s external current account deficit deteriorated slightly in 2015, standing at 18.7 percent of GDP."
  - Projection: "The external current account is expected to improve in 2016 due to the depreciation of the exchange rate which will reduce imports before widening again over the medium term. By 2021, the current account deficit is expected to reach 20.1 percent of GDP."
  - Imports growth projection: "Imports are expected to grow by 9.2 percent per year on average between 2017 and 2021."
  - Exports growth projection: "Exports are projected to grow by almost 8.6 percent per year on average over the same period."
- Exchange rate developments and misalignment (EBA-lite findings; exact figures preserved):
  - Current account: Actual: -18.7% (of GDP).
  - Current account: Fitted: -6.7%.
  - Policy Gap: 0.0%.
  - Current account: norm: -6.6%.
  - Current account: gap: -12.1%.
  - Elasticity of CA to REER (ratio): -0.73.
  - Real exchange rate gap (percent): 16.5%.
  - EBA-lite summarized conclusions:
    - Current account approach suggests the real exchange rate is overvalued by 16.5 percent in 2015.
    - REER approach indicates the real exchange rate is overvalued by 32 percent in 2015.
  - Contributing factors to misalignment:
    - Official foreign exchange auction interventions prevented exchange rate correction and depleted reserves.
    - Expansionary fiscal stance with the overall fiscal deficit rising almost 5 percentage points in 2015.
    - Non-price factors: governance and infrastructure quality.
  - Policy measures taken and recommended:
    - January 2016 reform of the FX market to improve market forces and allow greater flexibility; resulted in reduction of the premium between official and bureau rates to below 1 percent and a 12.2 percent depreciation of the real effective exchange rate between December 2015 and April 2016.
    - Further FX market reforms suggested: allow foreign exchange purchases through two-way (buy-sell) auctions; central bank purchases consistent with reserve target to exert downward pressure on the domestic currency to reduce misalignment.
    - Fiscal policy: "A full adjustment of the exchange rate misalignment will be supported by further reforms in the foreign exchange market, including the possibility of foreign exchange purchases through two-way (buy-sell) auctions. Central bank purchases of foreign exchange, consistent with the international reserve target, leading to downward pressure on the domestic currency would help reduce the exchange rate misalignment. A correction of the misalignment will also be supported by the sizeable contraction in the fiscal deficit targeted in 2016—the overall deficit (after grants) is projected to be cut by 7½ percent of GDP."

*Sources: Guinean authorities; and IMF staff estimates and projections.*

### 7. A sustained improvement in competitiveness will also require an improvement in

### 7. A sustained improvement in competitiveness will also require an improvement in

### Non-price competitiveness: findings and implications
- Indicators of Guinea’s non price competitiveness are weak and only a slight improvement has been achieved in recent years, stressing the need to accelerate reforms to improve these indicators, including by boosting infrastructure.
- Structural Competitiveness: Guinea’s non-price indicators of competiveness have slightly improved since 2012 but further progress is needed.

### Global Competitiveness Index and Doing Business
- According to the Global Competitiveness Index (GCI 2016), Guinea ranked last out of 140 countries, from 141 out of 144 in 2012.
- In almost all the categories, Guinea performs worse than the Sub Saharan Africa average and is often among the worst performers, except in labor market efficiency.
- The performance of Guinea worsened in almost all sectors (except macroeconomic environment) between 2012 and 2015.
- Guinea has slightly improved its rankings in the World Bank’s survey-based “Doing Business Index” moving from the 171st position to the 165th position in 2016.
- The performance of Guinea improved in almost all sectors between the 2012 and 2016 reports.

### Enabling Trade and trade constraints
- Guinea ranks 135th out of 138th countries in the Enabling Trade index prepared by the World Economic Forum.
- In terms of constraints to exporting and importing identified by firms:
  - Access to trade finance is the most problematic factor for exporting.
  - Burdensome imports procedures are the most problematic factor for importing.

### Governance and institutional indicators
- Various indicators point to a weak governance situation in Guinea:
  - According to the 2015 Mo Ibrahim index of African Governance, Guinea ranks 40th over 54 in Africa.
  - The 2014 Transparency International report ranks Guinea 139th out of 174 in terms of Corruption Perception Index (CPI).
  - According to the 2016 Index of Economic Freedom, Guinea falls within the category of mostly unfree economy, with a rank of 136th out of 165 countries overall.
- Additional governance scores and trends (World Bank Institute/WGI series):
  - Voice and accountability: -1.35 (1996), -1.18 (2000), -0.95 (2010), -0.94 (2011), -1.06 (2012), -1.06 (2013), -0.89 (2014).
  - Political stability: -1.24 (1996), -2.03 (2000), -1.68 (2010), -1.39 (2011), -1.28 (2012), -1.22 (2013), -0.93 (2014).
  - Government effectiveness: -1.24 (1996), -1.17 (2000), -1.13 (2010), -1.15 (2011), -1.28 (2012), -1.23 (2013), -1.21 (2014).
  - Regulatory quality: -0.71 (1996), -0.60 (2000), -1.08 (2010), -1.00 (2011), -1.02 (2012), -1.01 (2013), -1.10 (2014).
  - Rule of law: -1.51 (1996), -1.42 (2000), -1.54 (2010), -1.47 (2011), -1.43 (2012), -1.42 (2013), -1.38 (2014).
  - Control of corruption: -0.46 (1996), -0.75 (2000), -1.19 (2010), -1.11 (2011), -1.07 (2012), -1.05 (2013), -1.07 (2014).

### Competitiveness subindices and rankings (selected exact values)
- Global Competitiveness Index, CGI 2015-16 (Out of 140): Guinea rank 140; Points (1-7) 2.8; Sub-Saharan Africa average Points 3.6.
- CGI component ranks and points (selected):
  - Basic Requirements (60%): rank 140; Points 2.8; SSA Points 3.8.
  - Institutions: rank 136; Points 2.8; SSA Points 3.7.
  - Infrastructure: rank 139; Points 1.8; SSA Points 2.8.
  - Macroeconomic Environment: rank 129; Points 3.5; SSA Points 4.1.
  - Health and Primary Education: rank 138; Points 3.3; SSA Points 4.3.
  - Efficiency enhancers (35.0%): rank 137; Points 2.9; SSA Points 3.5.
  - Higher education and training: rank 137; Points 2.2; SSA Points 3.1.
  - Goods market efficiency: rank 135; Points 3.5; SSA Points 4.1.
  - Labor market efficiency: rank 91; Points 4.0; SSA Points 4.2.
  - Financial market development: rank 137; Points 2.7; SSA Points 3.5.
  - Technological readiness: rank 134; Points 2.4; SSA Points 2.9.
  - Market size: rank 128; Points 2.4; SSA Points 2.9.
  - Innovation and sophistication factors (5.0%): rank 138; Points 2.6; SSA Points 3.3.
  - Business sophistication: rank 137; Points 2.9; SSA Points 3.6.
  - Innovation: rank 139; Points 2.2; SSA Points 3.1.

- Enabling Trade Index (2014) exact rankings:
  - Overall Enabling Trade Index Ranking (out of 138): Guinea 135; SSA 108.
  - Market Access: Guinea 131; SSA 79.
    - Domestic market access: Guinea 119; SSA 89.
    - Foreign market access: Guinea 92; SSA 60.
  - Border Administration: Guinea 122; SSA 106.
    - Efficiency and Transparency of border administration: Guinea 122; SSA 106.
  - Infrastructure: Guinea 137; SSA 111.
    - Availability and quality of transport infrastructure: Guinea 137; SSA 103.
    - Availability and quality of transport services: Guinea 131; SSA 107.
    - Availability and use of ICTs: Guinea 136; SSA 113.
  - Operating Environment: Guinea 129; SSA 97.

### Policy priorities and suggested focus (from source analysis)
- Accelerate reforms to improve non-price competitiveness indicators.
- Boost infrastructure to support improvements in structural competitiveness.
- Address constraints identified by firms:
  - Improve access to trade finance to ease exporting.
  - Streamline and simplify import procedures to reduce burdens for importing.
- Strengthen governance, regulatory quality, rule of law, and control of corruption given weak scores and rankings across governance indicators.

*Source: IMF staff report text, July 6, 2016.*

### 1. The Bank’s Country Strategy Paper (CSP) 2012–16, approved by the Board on

### 1. The Bank’s Country Strategy Paper (CSP) 2012–16, approved by the Board on

### Strategic focus and adjustment
- Two pillars of the CSP 2012–16:
  - (i) economic and financial governance;
  - (ii) infrastructure for development.
- Pillar (i) priorities: building public financial management capacity, improving governance in the extractive sector, and strengthening the central government’s budget.
- Pillar (ii) priorities: reducing the power generation gap and further developing transport infrastructure.
- Mid-term review:
  - Delayed due to the Ebola crisis; conducted in February 2016.
  - Result: extension of the CSP end date from 2016 to 2017; two pillars maintained.
  - Extension objectives:
    - (i) allow implementation of reforms and operations delayed due to the MVE;
    - (ii) allow better preparation of the next country strategy paper (2017–21) aligned with the new national development plan 2016–20 expected to be finalized in October 2016.
  - Agreement to support agricultural sector and a value chain program targeting sector reforms (including land reform), entrepreneurship and business management (including youth), and financing (credit and guarantees).

### Lending operations and financing envelope
- Abu Dhabi donor and investment conference commitment:
  - AfDB announced UA 163 million ($250 million) additional resources for the 2014–16 period.
- Debt Sustainability and Country Risk Analysis:
  - To be conducted in 2016 (last quarter) in close coordination with the IMF to assess headroom for accessing the Bank’s ADB window for 2017 infrastructure finance.
  - 2017 Indicative Operational Program (IOP) will be fully financed in 2017 if analysis results in increased access to the ADB window.

### Governance sector support and planned budget support
- Prior and approved operations:
  - Budget support allocation of UA 20 million in 2011.
  - Fragile State Facility (FSF) support of UA 2.5 million.
  - Reallocation of UA 7.5 million in 2011 to an economic governance project (from restructured non-performing projects).
  - Institutional support project approved end-2013: UA 11.4 million (focus: governance in mining contract management; public investment and project management).
  - Budget support operation approved end-June 2014: UA 12 million targeting private sector environment and PPPs frameworks, governance (mining, PFM, and public investment management); UA 6.39 million disbursed end-December 2014.
- Planned submissions and operations (timing noted as end-July 2016 unless specified):
  - Programmatic budget support operation: UA 10.5 million in 2016 and indicative UA 10 million in 2017 (targeting public financial management and the business climate).
  - Capacity building project to scale up government capacity to manage the Simandou Mining project (mining one stop shop, local content policy, communities, etc.).
  - Small dedicated capacity building operation targeting Central Bank (BCRG): UA 2 million by end-2016.
  - Agricultural project in 2017: at least UA 10 million at the beginning of the program (targeting governance of the sector, entrepreneurship including youth, and financing issues — credit and guarantees).

### Energy sub-sector projects and expected outcomes
- Projects signed end-2013 and implementation started 2014:
  - Second Conakry Electrical Networks Rehabilitation and Extension Project (PREREC.2): UA 11 million.
  - Côte d’Ivoire-Liberia-Sierra Leone-Guinea power regional interconnection project: UA 40.2 million; entails construction of 1,360 km of 225 kV transmission lines and 12 sub-stations.
- 2015 approval:
  - Financing for OMVG interconnection project (Kaleta dam and 240 MW hydro-power plant) — project already financed by government with a loan from China.
- Expected implementation results:
  - (i) increase in the average electricity access rate;
  - (ii) reduction in the kWh generating cost;
  - (iii) reduction in the number of power outages;
  - (iv) creation of temporary and permanent jobs;
  - (v) reduction in greenhouse gas emissions.
- Contingent financing:
  - Potential financing for the Guinee-Mali interconnection project, possibly submitted for Board approval in 2017, contingent on resource mobilisation strategy and headroom from debt and country risk analysis.

### Transport sub-sector projects and regional integration
- December 2014 Board approval:
  - Road development and Transport Facilitation Programme within the MRU including:
    - Road Danané (Côte d’Ivoire) - Frontier of Guinea and frontier to N’zoo-Lola (Guinea).
  - This regional project also includes key roads:
    - Zantiébougou-Kolondiéba-Kadiana-Frontier of Côte d’Ivoire (140 km) linking Bamako to Abidjan and San-Pédro through the axe Tengréla-Boundiali-Séguéla-Daloa;
    - Duekoué-Guiglo-Bloléquin-Toulepleu-Frontier of Liberia.
  - These roads are part of the Transafrican Dakar-Abidjan-Lagos road.
- Planned co-financing in 2017 (with the European Union) for:
  - Coyah-Farmoriah-Pamelap road towards Sierra Leone;
  - Boké (Guinea)-Quebo (Guinea-Bissau) road (part of the ECOWAS Regional Transport Programme);
  - Feasibility studies for the Kankan-Mandiana-Odiene road.
- Contingent financing (dependent on headroom from Debt and Country risk analysis):
  - Finance in 2017 the building of interchanges on four key crossroads (Hamdalaye, Cosa, Bambeto, Encho5).

### Support to private sector operations and large infrastructure finance
- 2014–17 period objective: support private sector operations with high and transformative impact.
- Simandou mining project:
  - AfDB envisages providing an A loan of about UA 200 million equivalent to about USD 300 million to leverage at least a USD 700 million billion loan.
  - Africa50 will also contribute at a later stage.
  - AfDB will support capacity building and provide technical assistance to enable government commitments for Simandou implementation.
- Global Alumina Bauxite project:
  - AfDB intends to provide an A loan of about USD 100 million for financing part of the project.

### Non-lending operations and technical assistance
- Economic and sector work (ESWs) to be finalized in 2015 (in collaboration with UNDP) on:
  - (i) private sector profile;
  - (ii) local taxation.
- Technical assistance and dialogue to be enhanced on:
  - PPP (PPP law and PPP Unit);
  - mining sector governance.
- Continued Bank support for:
  - Implementation of PRSP (direct support to CTSP and SP-SRP coordinating monitoring of economic reforms and PRSP);
  - Post-Abu Dhabi commitments implementation;
  - Link between macroeconomic/budget framework sector policies and the public investment plan.
- FSF programme support to:
  - National Statistics Development Strategy (NSDS);
  - Conduct of the Third General Population and Housing Census (RGPH-III).

### Trust funds and additional instruments
- Beyond ADF and FSF allocations, potential mobilization of:
  - ADB private sector window resources (including enclave operations in mining sector infrastructure);
  - Trust Fund resources to finance complementary operations in sectors covered by the 2012–16 CSP.
- Example instruments and initiatives mentioned:
  - Rural Water Supply and Sanitation Initiative (strategy could be prepared);
  - Partial Risk Guarantee Instrument;
  - Global Environment Fund;
  - Africa Carbon Facility and Green Fund.

### Response to the Ebola crisis and post-Ebola recovery support
- Regional approach adopted by AfDB.
- Emergency and grant support:
  - April 2014: emergency support of USD 2 million UA equivalent to USD 3 million grant for MRU countries (Guinea, Liberia, Sierra Leone).
  - July 2014: AfDB approved UA 40 million equivalent to USD 60 million grant for countries fighting Ebola.
  - October 2014: AfDB approved UA 100 million sector budget support for the three most affected countries.
  - October 2014: AfDB approved UA 7.7 million Technical Assistance Capacity Building Programme to support national and foreign health workers programs.
- Total Bank support for Guinea:
  - UA 35 million (USD 52 million) aimed at enhancing immediate response and structuring a medium to long term plan.
- Post-Ebola recovery role:
  - AfDB will support the government’s 2015-2017 post-Ebola recovery plan by accelerating execution of planned projects and mobilizing additional resources for new operations/projects.

*Source: _cr16261 - 1. The Bank’s Country Strategy Paper (CSP) 2012–16, approved by the Board on*

### 10. African Development Bank and Fund staff collaboration: sharing of information on the

### _cr16261 - 10. African Development Bank and Fund staff collaboration: sharing of information on the

### ADF 13 and FSF Operations Programming (summary)
- Total programmed ADF/ADB and FSF funding: Total 485.5 (UA million) broken down as:
  - ADF/ADB: 355.5 (UA million)
  - FSF (Pillar III): 8.5 (UA million)
  - Regional & Other Funds: 121.5 (UA million)
- Pillar I – Economic and Financial Governance Support (Sub-Total 54.5 (UA million)):
  - Budget support 2011: 20.0 (UA million)
  - Targeted support 2011: 2.5 (UA million)
  - Budget support 2014/15: 12.0 (UA million)
  - Capacity building (Mining One-Stop Shop and Simandou) 2016: 4.0 (ADF/ADB) ; 2.0 (Regional & Other) ; total line shows 8.0 (UA million)
  - Targeted support for capacity building (Central Bank) 2016: 2.0 (Regional & Other) (UA million)
  - Agriculture (Governance, entrepreneurship, and financing) 2017: 10.0 (ADF/ADB) (UA million)
- Pillar II – Infrastructure Support (Sub-Total 431.0 (UA million)):
  - CLSG Interconnection (electricity) 2013: 16.0 (ADF/ADB) ; 24.2 (Regional & Other) ; total 40.2 (UA million)
  - Rehabilitation of electric power networks 2013: 11.0 (ADF/ADB) (UA million)
  - Institutional support project - Public investment management and mining 2013: 11.4 (ADF/ADB) (UA million)
  - Mano River Union road (CI-Liberia, linked to Mali) 2014: 13.1 (ADF/ADB) ; 20.3 (Regional & Other) ; total 33.3 (UA million)
  - OMVG 2015: 20.0 (ADF/ADB) ; 30.0 (Regional & Other) ; total 50.0 (UA million)
  - Coyah-Farmoriah-Pamelap road including a study for the Kankan-Mandiana-Odiene project 2017: 44.0 (ADF/ADB) ; 21.0 (Regional & Other) ; total 65.0 (UA million)
  - Boké-Quebo road 2017: 49.0 (ADF/ADB) ; 21.0 (Regional & Other) ; total 70.0 (UA million)
  - Sanitation and Rural water supply 2017: 10.0 (ADF/ADB) ; 5.0 (Regional & Other) ; total 15.0 (UA million)
  - Guinea-Mali interconnection (energy) 2017: 35.0 (ADF/ADB) (UA million)
  - Building Interchanges on 4 key crossroads (Hamdalaye, Cosa, Bambeto, Encho5) 2017: 100 (ADF/ADB) (UA million)
- Economic and Sector Work (analytical support) items listed (years where provided):
  - Study on financial sector reforms 2013
  - Private sector profile 2015
  - Private sector strategy 2016
  - Guinea Vision 2040 2016
  - PPP law 2016
  - Local taxation 2016

### Millennium Development Goals (selected indicators and targets)
- MDG Target year referenced: 2015
- Goal 1 (Eradicate extreme poverty and hunger) highlights:
  - Employment to population ratio, 15+, total (%) series: 69 69 70 70 71 65
  - Employment to population ratio, ages 15-24, total (%) series: 52 52 52 53 54 47
  - Income share held by lowest 20%: 35 ... 6 ...... (values as presented)
  - Malnutrition prevalence, weight for age (% of children under 5): ... 29 23 ...... 13
  - Poverty gap at $1.90 a day (2011 PPP) (%): 63 19 26 24 .........
  - Poverty headcount ratio at $1.25 a day (PPP) (% of population): 92 49 62 60 .........
- Goal 2 (Achieve universal primary education):
  - Literacy rate, youth female (% of female ages 15-24): ... 13 .. 30 ...... 100
  - Literacy rate, youth male (% of males ages 15-24): ... 44 ... 34 ...... 
  - Persistence to last grade of primary, total (% of cohort): 47 ...... 74 ... 100
  - Primary completion rate, total (% of relevant age group): 20 19 31 55 62 69 100
  - Total enrollment, primary (% net): 26 ... 45 65 75 77 100
- Goal 3 (Promote gender equality and empower women):
  - Proportion of seats held by women in national parliament (%): ...... 9 19 22 22 21 100
  - Ratios of female to male enrollment vary across levels; examples given as numerical series, some entries: 45 51 67 80 82 93 100
- Goal 4 (Reduce child mortality):
  - Immunization, measles (% of children ages 12-23 months): 35 61 42 51 52 73
  - Mortality rate, infant (per 1,000 births): 141 122 103 85 63 58
  - Mortality rate, under 5 (per 1,000): 238 206 170 137 97 86 78
- Goal 5 (Improve maternal health):
  - Births attended by skilled health staff (% of total): ......... 38 ...... 
  - Maternal mortality ratio (modeled estimate, per 100,000 live births): 1,040 964 976 695 688 560 (>75% reduction target)
- Goal 6 (Combat HIV/AIDS, malaria and other diseases):
  - Incidence of tuberculosis (per 100,000 people): 249 250 228 210 177 ... (Halt/reverse)
  - Prevalence of HIV and related indicators provided with series including small integers and "Halt/reverse" targets.
- Goal 7 (Ensure environmental sustainability):
  - Forest area (% of land area): 30 29 28 27 26 26
  - Improved sanitation facilities (% of population with access): 81 11 13 15 20 29 57
  - Improved water source (% of population with access): 52 58 63 68 77 67 72
  - Net ODA received per capita (current US$): 48 53 17 21 43 50
- Goal 8 (Develop a global partnership for development):
  - Debt service (PPG and IMF only, % of exports, excluding workers' remittances): 20 24 15 13 4 5
  - Internet users (per 100 people): 0 0 0 12 19
- Other indicators:
  - GNI per capita, Atlas method (current US$) series: 430 470 380 340 470 1709
  - GNI, Atlas method (current US$ billions) series: 3 4 3 3 6 5
  - Gross capital formation (% of GDP) series: 25 21 20 20 14 22
  - Life expectancy at birth, total (years) series: 50 52 51 53 56 57
  - Population, total (millions) series: 6 8 9 10 12 94? (as presented)
- Source for MDG table: Millenium Development Goals Database, November 2015.

### Statistical issues — Assessment and data quality (As of March 1, 2016)
- Overall assessment:
  - "Data provision is broadly adequate for surveillance with some key data shortcomings in national accounts and fiscal statistics."
- National Accounts:
  - Real sector statistics: incomplete and published with insufficient timeliness.
  - Monthly surveys of mining, industrial and agricultural production are produced with delays.
  - Series based on 1993 SNA released August 2014; plan to implement 2008 SNA with 2015 as new benchmark year.
  - Employment and population statistics: published annually.
- Price Statistics:
  - Monthly CPI covers only Conakry, published in a timely manner with 2002 base year.
- Government Finance Statistics:
  - Ministry compiles comprehensive monthly central government data on cash basis for revenue, commitment and cash basis for expenditure; national presentation not comparable to international standards.
  - GFS TA mission: public finance reforms progressing slowly; adoption of new budget nomenclature and State’s chart of accounts achieved.
  - TOFE compilation methodology needs modernization; production of TOFE based on GFSM 2001/2014 will require use of data outside general accounting system.
  - Cash-based general accounts need improvement and gradual implementation of accrual accounting; reforms require new IT systems, training and manuals.
  - Debt office data of fair quality but does not yet include financing of new infrastructural projects.
  - Data on extra-budgetary units, local government, and central government investments in public and private corporations available but need GFS assessment.
  - Complete accounts for social security funds sub-sector of good quality are available.
- Monetary and Financial Statistics:
  - Central Bank and deposit money bank accounts and monetary survey compiled and shared monthly with African Department for program monitoring.
  - Some delays with commercial banks data; coordination between Central Bank and Ministry improving.
  - Ongoing migration to a new accounting system at the Central Bank has led to frequent data changes and delays in monetary statistics provision.
  - Monetary data used to assess program performance are certified by an independent external auditor regularly.
  - Monetary and financial sector data reports to STA experience significant delays; latest available data corresponds to June 2012.
  - In January 2014, STA provided TA to BCRG to start reporting monetary data using SRFs.
- Financial Sector Surveillance:
  - Financial Soundness Indicators (FSI) consolidated quarterly by the Central Bank; Guinea does not report FSIs to STA.
- External Sector Statistics:
  - Central Bank compiles annual Balance of Payments and IIP statistics in line with BPM5.
  - Quality of ESS improved since 2008; central bank does not exploit all internal data sources.
  - Balance of payments survey implemented with response rate over 75 percent.
- Data Standards and Quality:
  - Guinea participates in the General Data Dissemination System; metadata not updated since 2003.
  - No data ROSC is available.

### Table of Common Indicators Required for Surveillance (As of June 27, 2016) — selected entries
- Exchange Rates: Date of Latest Information 06/23/2016; Date Received 06/23/2016; Frequency of Data D; Frequency of Reporting D; Frequency of Publication D.
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Information 05/31/2016; Date Received 06/27/2016; Frequency M / Reporting M / Publication M.
- Reserve/Base money, Broad Money, Central Bank Balance Sheet, Consolidated Balance Sheet of the Banking System: Latest Information 05/31/2016; Date Received 06/27/2016; Frequency M / Reporting M / Publication M.
- Interest Rates: Latest Information 04/30/2016; Date Received 05/26/2016; Frequency M / Reporting M / Publication M.
- Consumer Price Index: Latest Information 05/31/2016; Date Received 06/21/2016; Frequency M / Reporting M / Publication M.
- Revenue, Expenditure, Balance and Composition of Financing — Central Government: Latest Information 05/31/2016; Date Received 06/21/2016; Frequency M / Reporting M / Publication M.
- Stocks of Central Government and Central Government - Guaranteed Debt: Latest Information 12/31/2015; Date Received 04/21/2016; Frequency A / Reporting A / Publication A.
- External Current Account Balance: Latest Information 12/31/2015; Date Received 04/16/2016; Frequency Q / Reporting NA / Publication A.
- Exports and Imports of Goods and Services: Latest Information 12/31/2015; Date Received 04/16/2016; Frequency Q / Reporting NA / Publication A.
- GDP/GNP: Latest Information 12/31/2013; Date Received 03/01/2014; Frequency A / Reporting A / Publication A.
- Gross External Debt: Latest Information 12/31/2015; Date Received 02/24/2016; Frequency A / Reporting A / Publication A.
- International Investment Position: NA entries for dates and frequencies.
- Note on frequency codes: Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Not Available (NA).

### Statement by Ngueto Tiraina Yambaye, Executive Director for Guinea (July 22, 2016) — key points and policy intentions
- Context and progress:
  - Guinea implementing an ECF-supported program; 6th and 7th reviews completed in March 2016.
  - Post-Ebola recovery: after averaging 1.8 percent over 2012–15, growth projected to rebound to 3.7 percent in 2016.
  - Inflation picked up to 7.9 percent and projected to decline gradually to 5 percent in 2019.
  - Basic fiscal balance turned to a surplus of 1.2 percent of GDP during Q1 2016, "2.4 percent of GDP above the program target."
  - Fiscal deficit projected to contract to 0.4 percent of GDP in 2016 from 7.1 percent in 2015.
  - International buffers reported at 3 months of imports.
- Authorities’ medium-term outlook and scenarios:
  - Authorities' baseline scenario (Post-Ebola Recovery Plan) assumes growth at 5.1 percent in the medium term.
  - Staff's conservative scenario assumes growth at 4.5 percent.
  - Government’s five-year plan under discussion sets more ambitious goals; focus on energy (Souapiti dam), roads, mining output, and agriculture.
- Fiscal policy actions:
  - Continued fiscal consolidation with a freeze on spending and measures to boost revenue.
  - Electricity subsidies maintained as programmed in the 2016 budget.
  - Revenue-strengthening measures underway include:
    - (i) eliminating tax exemptions;
    - (ii) registering informal commercial outlets;
    - (iii) setting up mechanisms to cross-check and exploit Customs and Tax databases;
    - (iv) creating a property taxation unit;
    - (v) improving efficiency of the Tax Department.
  - Authorities welcomed staff’s blueprint for tax reform to tap the "3–5 percent of GDP tax potential."
  - Commitment to public financial management reforms: enforce laws and procedures, emphasize public procurements and value for money in investment spending.
  - Debt sustainability: intend to seek concessional resources where possible; financing scenarios under discussion for Souapiti to minimize costs to public finances.
- Monetary and exchange rate policy:
  - Reform of fiscal-monetary relationship to strengthen operational independence of the Central Bank; recommendations from the Safeguards Assessment included in new BCRG law draft.
  - Draft law changes: enforce legal limits to monetary financing of the budget; reduce concentration of power of the Governor; limit ministry officials on Board to non-voting roles.
  - BCRG reforms on exchange rate determination to enhance market role; gap between official and parallel exchange rates narrowed.
  - Continued efforts to strengthen international reserves and meet medium-term inflation target.
- Financial sector and inclusion:
  - Agreement with staff assessment on shallowness of financial sector, limited competition and access.
  - Initiatives to strengthen banks, improve supervision and competition, and promote financial inclusion.
  - BCRG implementing risk-based supervision with AFRITAC West; multi-pronged National Strategy for Financial Inclusion adopted in 2014 (implementation slowed by Ebola, undergoing revision).
  - National Strategy pillars: mobile-based financial services policy/regulatory framework, regulation frameworks, consumer literacy and protection, and data collection.
  - Actions to increase competition, reduce intermediation costs, facilitate mobile financial services, improve financial literacy, simplify regulations, and improve judicial system to reduce risks for banks.
  - Commitments to revamp microfinance sector and lift governance standards in banks.
- Structural reforms:
  - Priorities: improve business environment, enact new mining code, enforce public procurement code, reform agriculture sector.
  - Agriculture and electricity prioritized: develop cashew, palm, coffee, cocoa; increase rice production via irrigation, rural roads, storage; consider processing of agricultural products to diversify economy and create jobs.
  - Improve judicial system, physical infrastructure, and run campaigns to showcase Guinea as investment destination.
  - Commitments to enhance democracy and promote peaceful elections.
- Conclusion:
  - Post-Ebola recovery underway, country Ebola-free.
  - Fiscal adjustment of 2016 aimed at macroeconomic stability, building buffers, and creating space for investment under development plan.
  - Structural reforms to diversify economy and create jobs; continued support from international financial community, including the Fund, considered instrumental.

*Source: _cr16261 - 10. African Development Bank and Fund staff collaboration: sharing of information on the*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16261.pdf_