## _cr1695

## Source details

**Canonical URL:** [_cr1695](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1695.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1695.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1695.pdf.json)

---

### EXECUTIVE SUMMARY — Facing headwinds and Ebola impacts
- Ebola epidemic (since December 2013): claimed 2,536 lives in Guinea and affected 3,804 persons in Guinea; country declared Ebola-free by WHO on December 28, 2015.
- Ebola response plan estimated cost: about $315 million.
- Socioeconomic impacts:
  - UNICEF estimates 6,220 orphans from Ebola victims.
  - Foreign investments virtually halted; services, trade, and transport activity declined.
  - Schools prolongedly closed; use of health facilities dropped drastically.
- Political context: Presidential elections on October 11, 2015; President Alpha Condé re-elected with about 58 percent of votes; new Cabinet appointed early January 2016.
- Commodity price declines (end-2015 vs recent peaks):
  - Bauxite: from 68.9 to 48.4 ($/T).
  - Diamonds: 172.9 to 112.1.
  - Gold: 1,266.2 to 1,160.1 ($/oz).
  - Iron ore: 96.8 to 55.2 ($/MT).
- Macroeconomic consequence: revised estimates suggest close to zero growth for 2014–15; real GDP per capita declined by almost 4 percent over the interim period; poverty likely increased from its 2012 level of 55 percent.

### Macroeconomic policies and outcomes in 2015
- Growth outlook:
  - After two years of stagnant activity, growth expected to rebound in 2016, lifting growth to around 4 percent; drivers: pent-up demand, robust agricultural growth, improved electricity provision.
- Policy relaxation and imbalances:
  - Authorities accelerated public investment spending supported by central bank guarantees.
  - Exchange rate mechanism kept official rate below market pressures; average premium between official market exchange rate and bureaus’ rate around 12 percent by end-2015.
  - Real appreciation of the currency: 12.5 percent.
  - Nominal depreciation of the local currency: about 11 percent.
  - Inflation: 12-month inflation declined to 7.3 percent from 10.5 percent at end-2013.
- Fiscal outturns and vulnerabilities:
  - Basic fiscal deficit increased to 7.1 percent of GDP.
  - Central bank advances financed 3.3 percent of GDP more than in the 2015 revised budget.
  - Accumulation of domestic arrears 0.9 percent of GDP higher than in the 2015 revised budget.
  - Revenue shortfalls: about 2¾ percent of GDP relative to revised 2015 budget projections, partly due to keeping fuel pump prices 20 percent below budget envisaged levels and loss of import tax revenue from local production of flour and cement.
  - Government exceeded investment targets for the first time since program start.
- Monetary and financial developments:
  - Reserve requirement cut from 20 percent to 18 percent; policy rate cut to 11 percent in February 2015.
  - Commercial bank credit increased by 26 percent (roughly evenly split between private sector and government).
  - Deposits increased by 21 percent; bank capital increased by 14 percent.
  - Liquidity in local currency dried up despite deposit growth; interest rates on government debt rose: 600 bps for three-month paper; 190 bps for one-year paper.
  - Central bank FX interventions: average monthly FX sales doubled to $30 million during the first semester, reducing reserves to 2 months of imports by end-2015.

### Central bank guarantees and fiscal risks (Box 2 summary)
- Central bank issued guarantees in 2014–2015 for public works contracts with total contract value equivalent to $1,017 million (15.2 percent of GDP); 85 percent of this benefited from central bank guarantees, most in foreign exchange.
- Foreign-currency denominated payments falling due in 2016 associated with these guarantees: about $75 million.
- Guarantees add $72 million to the stock of public and public-guaranteed external debt.
- Implications: reduced budget flexibility, increased budgetary risks, encumbrance of BCRG net international reserves, large central bank financing of government, increased debt vulnerabilities.

### Program implementation under ECF and IMF actions
- 2015 program performance: after solid performance in 2014, implementation weakened in 2015; most performance criteria for end-June and indicative targets for end-September 2015 were missed.
- Attribution for deviations: Ebola impact, large public investment program guaranteed by the central bank, and policy decision to keep fuel pump price low.
- Structural reforms: stalled, partly due to difficulties securing technical assistance.
- Corrective measures and 2016 budget:
  - Authorities adopted a sustainable 2016 budget and reformed the foreign exchange market to unify official rate and bureaus’ rate, implying a devaluation of about 12 percent.
  - Revenue measures in 2016 budget include VAT rate increase and new taxes on telecommunications.
  - Authorities restructured or cancelled one third of central bank guarantees to align 2015–2016 spending with available financing; restructured, cancelled, or rescheduled to 2016 and beyond an amount of $270 million (3¾ percent of GDP) of guarantees normally falling due during Q4 2015.
- IMF staff support and requests:
  - Staff supports completion of the 6th and 7th reviews under the ECF arrangement, the financing assurances review, and requests for waivers of nonobservance of performance criteria, extension of the arrangement, and re-phasing of disbursements.
  - Completion of the reviews will result in disbursement of SDR18.36 million (8.6 percent of quota).
  - Authorities requested extension of the ECF arrangement to end-March 2016 (and subsequently to end-October 2016) and re-phasing of remaining disbursements.

### Short-term outlook, risks, and policy priorities
- Short-term outlook:
  - Recovery expected to be gradual given severity of 2014–15 shocks and depressed commodity prices.
  - 2016 rebound drivers: pent-up demand, robust agricultural growth, improved electricity provision.
- Key risks (Risk Assessment Matrix highlights):
  - Persistent dollar strength: Relative Likelihood: High; Impact If Realized: Medium; Policy Response: advance structural reform and allow greater exchange rate flexibility.
  - Structurally weak growth in advanced/emerging economies: Relative Likelihood: High (AEs) / Medium (EMEs); Impact: High; Policy Response: intensify structural reform; allow exchange rate to absorb shocks.
  - Deterioration of domestic socio-political situation: Relative Likelihood: Medium; Impact: High; Policy Response: maintain fiscal control and refocus reforms.
  - Prolonged and uncontained Ebola epidemic: Relative Likelihood: Low; Impact: High; Policy Response: fiscal accommodation within available financing; focus on priority spending.
- Policy priorities to restore stability and build buffers:
  - Fiscal: restore sustainability, rebuild domestic buffers via credible budgetary measures (including VAT increase and telecom taxes), and contain public guarantees.
  - Monetary and exchange rate: unify foreign exchange market and rebuild external buffers; manage reserves after heavy FX sales and guarantee-related contingent claims.
  - External sector and debt management: address vulnerabilities from guarantees and commodity shocks; monitor external financing and reserves.
  - Structural reforms: finalize and implement reform agenda to improve business environment (including mining) and strengthen public service delivery.
  - Medium-term: build resilience through Post-Ebola Recovery Plan and prioritize reforms to catalyze private investment and employment.

### The Gold Purchase Program and implications
- BCRG launched program to replenish international reserves via purchase of artisanal gold starting February 2015, totaling about $102 million through end-April 2015.
- BCRG gold holdings increased from $9 million at end-2014 to $102 million at end-April 2015.
- Drawbacks identified:
  - Inconsistent with BCRG’s Reserves Investment Policy adopted in 2014; transaction costs implied a loss.
  - Pro-cyclical bias: gold production represented about 17 percent of GDP and 53 percent of exports in 2014; increasing gold in reserves amplifies pro-cyclicality and compresses external buffers if gold prices fall.
  - Temporary reduction of buffers: $55 million in new gold purchased through end-March could not be counted as part of NIR in end-June due to refining delays (monetary gold needs 995/1000 purity).
- Program discontinued in May 2015; accrued a loss of about 10 million because of decline in gold prices between February and May 2015.

### Recent domestic and financial developments (select findings)
- Exchange rate and reserves:
  - Guinean franc traded in narrow range vs US$ since 2012; classified as “stabilized arrangement” up to early 2016, changed to “other managed” after reform.
  - Net international reserves recovered from $10 million at end-October to $63 million in December 2015.
- Banking sector:
  - Total regulatory capital fell to 16.7 percent of RWA in September 2015, from 18 percent a year earlier.
  - FX-denominated loans increased by 48 percent year-on-year as of October 2015.
- External sector and balance of payments:
  - External current account deficit estimated to have narrowed in 2015 to 22.4 percent of GDP, owed primarily to a decline in imports.
  - Overall balance of payments deficit estimated to have widened to 5.2 percent of GDP in 2015, leading to rundown in gross reserves to below 2 1/2 months of imports.
  - Large positive errors and omissions in 2014 and 2015 reflect under-reporting of sizeable donor financing for Ebola-related imports; with winding down of Ebola in 2015, errors and omissions estimated to have declined.
  - Financing expected in 2015 from World Bank ($40 million) and EU (€12 million) was delayed to 2016.

### Program quantitative performance — selected outcomes
- Performance criteria:
  - Out of seven PCs, government met five at end-2014, but missed four at end-June 2015.
  - BCRG missed continuous PC on not introducing multiple currency practice (MCP); competitive auction in January 2016 resulted in MCP due to lack of mechanism to keep exchange rates of accepted bids within ±2 percent.
- Fiscal and monetary targets (selected):
  - Basic fiscal balance worsened to -7.1 percent of GDP in 2015.
  - Net domestic assets of the central bank exceeded program projections and net international reserves fell sharply.
  - Net international reserves (floor; US$ million) — examples: Mar. (Act.) 2,516; Jun. (Act.) 522; Dec. (PC) 372 — Status: Not Met (selected entries as reported).
- Prior actions achieved for program continuation:
  - Closed 2015 financing gap without increasing central bank advances and domestic arrears from end-October 2015 level (prior action).
  - Government tabled and National Assembly approved 2016 budget (prior action).
  - BCRG implemented IMF (MCM) TA recommendations to improve exchange rate flexibility (prior action) and ceased gold purchases.

### Fiscal policy stance and 2016 budget measures
- 2016 targets and aggregates:
  - Basic fiscal balance target: -0.4 percent of GDP.
  - Budgetary contraction relative to 2015: 6¾ percent of GDP.
  - Total revenues projected: 24.4 percent of GDP.
  - Tax and non-tax revenues: 20.4 percent of GDP.
  - Budgetary grants: 1.4 percent of GDP.
  - Project grants: 2.5 percent of GDP.
  - Revenue-enhancing measures with revenue impact of over 2 percent of GDP in 2016 (prior action) include:
    1. Increasing VAT rate from 18 percent to 20 percent (0.5 percent of GDP).
    2. Extending VAT to flour and edible oils (+0.2 percent of GDP).
    3. Raising excise taxes on tobacco, alcohol, and vehicles (0.1 percent of GDP).
    4. Updating reference values on imported used vehicles and imports by land (0.1 percent of GDP).
    5. Increasing some service costs on registrations and new biometric passports (0.4 percent of GDP).
    6. Administrative measures related to taxes (0.3 percent of GDP).
  - Total expenditures projected: 25.7 percent of GDP.
  - Domestically financed expenditures: 21.4 percent of GDP (downsizing of domestically financed expenditures: 3.8 percent of GDP vs 2015).
  - Investment expenditures fall from 6.6 percent of GDP in 2015 to 5.1 percent of GDP in 2016; guarantees limited to 1.7 percent of GDP after reschedulings and cancellations.
  - Wage bill expected to increase to 5.8 percent of GDP (+0.6 percent of GDP for recruitments: 1,000 health workers; 4,372 educational staff; 631 police officers; 1,193 forest rangers).
- Financing and debt management:
  - Government to reimburse BCRG part (½ percent of GDP) of 2015 advances and reduce arrears to private sector (0.3 percent of GDP); reimbursement of central bank advances spread over six years per schedule established February 2016.
  - External borrowing plan for 2016: government wishes to sign up for US$780.1 million in 2016.

### Monetary policy, exchange rate framework, and financial sector measures
- BCRG priorities for 2016:
  - Strengthen international reserves while supporting economic activity.
  - Keep required reserve ratio at current level through first six months.
  - Reform of FX rate determination (January 2016): modulate bank liquidity using monetary regulation securities; objective to develop dual FX market where BCRG not sole FX supplier; settlement rates to remain within ±2 percent band.
  - Introduce a second refinancing window to strengthen money market operations (end-March 2016).
- Financial sector strengthening:
  - Establish Credit Information System in 2016 with World Bank support.
  - Banks required to increase capital to minimum GNF 100 billion by end-June 2016.
  - New insurance code to be adopted in May 2016.
  - National financial inclusion strategy by end-May 2016; draft microfinance law planned for 2017.
- Safeguards and governance:
  - Draft revision of BCRG statutes by April 2016 to prohibit issuing guarantees for private sector.
  - Memorandum of understanding between BCRG and ministry of finance on reimbursement of 2015 advances by end-March 2016.
  - Plan to recapitalize BCRG and methods to be agreed by end-March 2016.

### Energy, electricity reforms, and recovery plan financing
- Energy sector operational measures:
  - Introduce meters for customers; conduct exhaustive census of user connections; adopt plan to improve EDG commercial performance.
  - Note: "Electricity subsidies would increase with the production of electricity until the reform of the governance of the sector and of the electricity company is finalized."
- Post-Ebola Recovery Plan and financing:
  - Authorities’ post-Ebola recovery plan totals US$2.3 billion and is ambitious but significantly under-financed.
  - Recovery contingent on large public spending: rehabilitate health sector; strengthen infrastructure; scale up social safety net.
  - Recovery plan’s estimated financing gap: US$1.3 billion.
  - Staff recommends focusing the recovery plan given limited space for additional debt.
- Electricity production:
  - Kaleta hydroelectric plant operational since July 2015; increased electricity production and planned tariff actions (25 percent rate increase during first half of 2016 anticipated).

### Mining sector prospects and policy recommendations (Box 5 highlights)
- Guinea’s mineral endowment:
  - Over one quarter of world bauxite reserves; largest unexploited world-class iron ore deposit (Simandou); considerable gold and diamond reserves.
- Project pipeline:
  - Investments of about $41,200 (USD millions) across projects; projected jobs: 19,328 (table of major projects and revised timelines provided).
  - Notable project entries (as presented): SIMFER (Simandou) Value (USD millions) 20,000; Jobs 3,000; Timeline: 2018; Revised timeline: 2023-24. Total pipeline value: 41,200; Jobs: 19,328.
- Constraints and recommendations:
  - Constraints: political risk; low human capital; inadequate infrastructure; weak institutional settings.
  - Key policy actions to unlock revenue and support growth:
    - Finalize mining code implementing regulations.
    - Conduct review of mining contracts.
    - Start operations of newly established one-stop shop for large mining projects.
    - Address structural bottlenecks (human capital, infrastructure, institutional support).
- Donor engagement: donors stressed need to address impediments; conservative commodity outlook could delay projects; end of Ebola should help implementation.

### Debt dynamics, DSA conclusions, and vulnerabilities
- External public debt stock (end-2015): Total US$1,723.6 million; Percent of GDP 27.7.
- Total including C2D: US$1,862.5 million; Percent of GDP 29.9.
- Memo — Arrears (end-2015): US$148.1 million; Percent of GDP 2.4.
- Public domestic debt rose by almost 65 percent from end-2013 to end-2015 (from 20.3 percent to 28.2 percent of GDP).
- Central bank guarantees:
  - Total public works contracts before restructurings: USD 870.8 million (13.0 percent of GDP); after restructurings: USD 601.0 million (9.0 percent of GDP).
  - Guarantees added about USD72 million to PPG external debt stock.
- DSA assessment:
  - Guinea continues to face a moderate risk of debt distress, but debt vulnerabilities have deteriorated.
  - Public sector debt: 2015: 55.7 percent of GDP (compared with 46.0 percent projected in prior DSA).
  - PV of total public debt-GDP indicator marginally below benchmark in 2016: 37.7 percent vs threshold 38 percent; indicator pushed above benchmark at 45.6 percent in 2015 due to domestic debt and guarantees.
  - Stress tests show vulnerabilities worsen under adverse macro shocks; inclusion of domestic debt heightens near-term pressures.
- Policy recommendations:
  - Rely primarily on concessional external financing.
  - Support public investment needs via enhanced revenue performance.
  - Sustain near-term fiscal realignment; strengthen debt management (National Public Debt Policy, MTDS) and coordination via National Committee for Public Debt.
  - Amend Central Bank law to forbid guarantees to private entities and strengthen monitoring/enforcement of procurement and guarantees.

### Macroeconomic medium- and long-term assumptions (Box 2 summary)
- Growth path:
  - 2014–15: average growth projected at 0.6.
  - 2016–22: growth expected to rebound to average of 5.7 percent.
  - 2023–28 (including Simandou): projected 6.2 percent as Simandou production begins.
  - After 2029: projected average growth of 4.3 percent per year.
- Inflation:
  - Declined from 21 percent in December 2010 to about 7 percent in December 2015.
  - Projected to fall to 5 percent by 2019; long-run GDP deflator in US$ terms around "around 4½ percent".
- External current account:
  - Expected to expand with Simandou construction, peak at almost 51 percent of GDP by 2024, move into surplus in 2025 as exports begin, then return to deficit post-2029.
- International reserves:
  - Fell to 2.3 months of imports at end-2015; expected to recover and reach just over 6 months of imports over the long run.
- Concessionality of new borrowing:
  - Share of concessional loans projected to decline over time: 60 percent during 2016–18; 40 percent during 2019–23; 30 percent during 2024–27; gradually to 10 percent by 2034.

### Data, monitoring, and transparency commitments
- Reporting and monitoring:
  - Authorities undertake to provide IMF with all information necessary for program monitoring.
  - Detailed reporting schedules and data (monetary, fiscal, banking, balance of payments, TOFE, debt) defined with monthly/quarterly/annual deadlines.
- Statistical issues:
  - Data broadly adequate but shortcomings in national accounts and fiscal statistics; CPI covers Conakry only.
  - National accounts updates planned; monetary data certified regularly by external auditor.
- Safeguards and audits:
  - External auditor certified BCRG 2014 financial statements without qualification; recommended improvements in off-balance-sheet accounting and controls; auditors unable to be present at physical cash count due to Ebola.

### Selected financing and programming figures (selected exact entries)
- Gross financing requirements (selected row): 1,766; 1,923; 1,253; 1,219; 1,254 (table row entries as presented).
- Available financing (identified) — Total available financing: 1,738; 1,827; 938; 1,219; 1,203 (table row entries as presented).
- IMF obligations based on existing credit — Credit outstanding (SDR millions): 142.79; 142.79; 142.79; 142.79; 139.84; 111.61; 78.87; 47.97; 24.40; 4.51; 0.00; 0.00 (series as presented).
- IMF prospective ECF credit outstanding (SDR millions): 0.00; 36.72; 36.72; 36.72; 36.72; 36.72; 34.89; 27.54; 20.20; 12.86; 5.51; 0.00 (series as presented).
- ECF disbursement schedule (selected): individual disbursements listed at 8.571 percent of quota / 18.360 Millions of SDRs recurring, plus one disbursement of 21.071 percent of quota / 45.135 Millions of SDRs (as specified).

*Source: IMF staff report — EXECUTIVE SUMMARY (March 3, 2016).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Facing Headwinds — Background and Ebola Impacts
- The Ebola epidemic (since December 2013) claimed 2,536 lives in Guinea and affected 3,804 persons in Guinea; the country was declared Ebola-free by WHO on December 28, 2015.
- The Ebola response plan was estimated to cost about $315 million.
- Socioeconomic impacts:
  - UNICEF estimates 6,220 orphans from Ebola victims.
  - Foreign investments virtually halted; services, trade, and transport activity declined.
  - Schools were prolongedly closed; use of health facilities dropped drastically.
- Political developments:
  - Presidential elections held on October 11, 2015; President Alpha Condé re-elected with about 58 percent of votes; new Cabinet appointed early January 2016.
- Commodity price declines (end-2015 compared to recent peaks):
  - Bauxite: from 68.9 to 48.4 ($/T).
  - Diamonds: 172.9 to 112.1.
  - Gold: 1,266.2 to 1,160.1 ($/oz).
  - Iron ore: 96.8 to 55.2 ($/MT).
- Macroeconomic consequence: revised estimates suggest close to zero growth for 2014–15; real GDP per capita declined by almost 4 percent over the interim period; poverty likely increased from its 2012 level of 55 percent.

### Macroeconomic Policies and Outcomes in 2015
- Growth outlook:
  - After two years of stagnant activity, growth is expected to rebound in 2016, lifting growth to around 4 percent, driven by pent-up demand, robust agricultural growth, and improved electricity provision.
- Policy relaxation and imbalances:
  - Authorities accelerated public investment spending supported by central bank guarantees.
  - The exchange rate mechanism kept the official rate below market pressures, with the average premium between the official market exchange rate and bureaus’ rate around 12 percent by end-2015.
  - Real appreciation of the currency: 12.5 percent.
  - Nominal depreciation of the local currency: about 11 percent.
  - Inflation: 12-month inflation declined to 7.3 percent from 10.5 percent at end-2013.
- Fiscal outcomes and vulnerabilities:
  - Basic fiscal deficit increased to 7.1 percent of GDP (MEFP ¶ 4).
  - Financing composition:
    - Central bank advances financed 3.3 percent of GDP more than in the 2015 revised budget.
    - Accumulation of domestic arrears was 0.9 percent of GDP higher than in the 2015 revised budget.
  - Revenue shortfalls were about 2¾ percent of GDP relative to the revised 2015 budget projections, partly due to keeping fuel pump prices 20 percent below budget envisaged levels and loss of import tax revenue from local production of flour and cement.
  - Government exceeded investment targets for the first time since program start.
- Monetary and financial sector developments:
  - Central bank policy changes: reserve requirement cut from 20 percent to 18 percent; policy rate cut to 11 percent in February 2015.
  - Commercial bank credit increased by 26 percent, roughly evenly split between private sector and government.
  - Deposits increased by 21 percent; bank capital increased by 14 percent.
  - Liquidity in local currency dried up despite deposit growth; interest rates on government debt rose (600 bps for three-month paper; 190 bps for one-year paper).
  - Central bank FX interventions: average monthly FX sales doubled to $30 million during the first semester, reducing reserves to 2 months of imports by end-2015.
- Central bank guarantees and fiscal risks (Box 2):
  - Central bank issued guarantees in 2014–2015 for public works contracts with total contract value equivalent to $1,017 million (15.2 percent of GDP); 85 percent of this benefited from central bank guarantees, most in foreign exchange.
  - Foreign-currency denominated payments falling due in 2016 associated with these guarantees are about $75 million.
  - Guarantees add $72 million to the stock of public and public-guaranteed external debt.
  - Implications: reduced budget flexibility, increased budgetary risks, encumbrance of BCRG net international reserves, large central bank financing of government, increased debt vulnerabilities.

### Program Implementation and IMF Reviews
- ECF program performance:
  - After solid performance in 2014, implementation weakened in 2015: most performance criteria for end-June and indicative targets for end-September 2015 were missed.
  - Net domestic assets of the central bank exceeded program projections and net international reserves fell sharply.
  - Deviations attributed to Ebola impact, large public investment program guaranteed by the central bank, and policy decision to keep fuel pump price low.
  - Structural reforms stalled, partly due to difficulties in securing technical assistance.
- Policy corrective measures and 2016 budget:
  - Authorities adopted a sustainable 2016 budget and reformed the foreign exchange market to unify the official rate and bureaus’ rate, implying a devaluation of about 12 percent.
  - Revenue measures in the 2016 budget include an increase in the VAT rate and new taxes on telecommunications.
  - Authorities restructured or cancelled one third of central bank guarantees to align 2015–2016 spending with available financing.
- IMF staff actions and requests:
  - Staff supports completion of the 6th and 7th reviews under the ECF arrangement, the financing assurances review, and requests for waivers of nonobservance of performance criteria, extension of the arrangement, and re-phasing of disbursements.
  - Completion of the reviews will result in the disbursement of SDR18.36 million (8.6 percent of quota).

### Outlook, Risks, and Policy Priorities
- Short-term outlook:
  - Recovery expected to be gradual given severity of shocks in 2014–15 and continued depressed commodity prices.
  - Key drivers of 2016 rebound: pent-up demand, robust agricultural growth, improved electricity provision.
- Policy priorities to restore stability and build buffers:
  - Fiscal: restore sustainability and rebuild domestic buffers through credible budgetary measures (including VAT rate increase and telecommunications taxes) and containment of public guarantees.
  - Monetary and exchange rate: unify the foreign exchange market and rebuild external buffers; manage reserves after heavy FX sales and guarantee-related contingent claims.
  - External sector and debt management: address vulnerabilities from guarantees and commodity price shocks; monitor external financing and reserves.
  - Structural reforms: finalize and implement the program’s reform agenda to improve business environment (including in the mining sector) and strengthen delivery of public services.
  - Medium-term: build resilience through the Post-Ebola Recovery Plan and prioritize reforms that catalyze private investment and employment.

*Source: IMF staff report — EXECUTIVE SUMMARY (March 3, 2016).*

### 15.2 percent in November 2015, despite the widening from ±3 percent to ±4 percent of the band

### _cr1695 - 15.2 percent in November 2015, despite the widening from ±3 percent to ±4 percent of the band

### The Gold Purchase Program and Its Implications
- The BCRG launched a program to replenish international reserves via the purchase of artisanal gold starting in February 2015, totaling about $102 million through end-April 2015.
- Increase in BCRG gold holdings: from $9 million at end-2014 to $102 million at end-April 2015.
- Drawbacks identified:
  - Reserves Portfolio and Investment Policy: The increase in gold holdings is inconsistent with the BCRG’s Reserves Investment Policy adopted in 2014; transaction costs for purchasing, storing, transporting, and refining non-monetary gold stocks implied a loss.
  - Pro-cyclical Bias for Reserves: Gold production represented about 17 percent of GDP and 53 percent of exports in 2014; increasing gold in reserves amplifies pro-cyclicality and compresses external buffers if gold prices fall.
  - Temporary Reduction of Buffers: Monetary gold needs to be refined to at least 995/1000 purity to be counted as part of net international reserves (NIR); $55 million in new gold purchased through end-March could not be counted as part of NIR in end-June due to refining delays.
- The BCRG discontinued the program in May 2015; it accrued a loss of about 10 million because of the decline in gold prices between February and May 2015.

### Recent Domestic and Financial Developments (select findings)
- Exchange rate dynamics:
  - Guinean franc traded within a relatively narrow range vis-à-vis the US dollar since 2012; classified as a “stabilized arrangement” up to early 2016, later changed to “other managed” in early 2016 after reform.
  - Net international reserves recovered from a low of $10 million at end-October to $63 million in December 2015.
- Banking sector and prudential indicators:
  - Total regulatory capital fell to 16.7 percent of risk-weighted assets (RWA) in September 2015, from 18 percent a year earlier.
  - FX-denominated loans increased by 48 percent year-on-year as of October 2015.
- Fiscal and monetary:
  - Fiscal expansion in 2015 was more pronounced than envisioned; central bank advances to the government jumped and credit growth to the private sector remained high, drying up liquidity.
  - Monetary policy was relaxed: reductions in policy instruments including Required Reserve Ratio and Policy Rate evidenced.

### External Sector and Balance of Payments
- External current account deficit estimated to have narrowed in 2015 to 22.4 percent of GDP, owed primarily to a decline in imports.
- Overall balance of payments deficit estimated to have widened to 5.2 percent of GDP in 2015, leading to a rundown in gross reserves to below 2 1/2 months of imports.
- Large positive errors and omissions in 2014 and 2015 reflect under-reporting of sizeable donor financing for Ebola-related imports; with the winding down of Ebola in 2015, errors and omissions are estimated to have declined.
- International financing:
  - Financing expected in 2015 from the World Bank ($40 million) and the European Union (€12 million) was delayed to 2016.
  - After issuance of GNF550 billion (1 percent of GDP) in 3-year bonds in June, banks lost appetite for longer maturities during 2015H2; pressures intensified in 2015Q4 when two treasury auctions failed.

### Program Implementation under the ECF Arrangement
- The sixth review under the ECF arrangement could not be completed as envisioned; program went off-track in 2015 due to larger-than-envisaged adverse shocks, policy slippages, and delays in structural reform implementation.
- Performance criteria:
  - Out of seven performance criteria (PCs), the government met five at end-2014, but missed four at end-June 2015.
  - The BCRG missed the continuous performance criterion on not introducing a multiple currency practice (MCP); the competitive auction introduced in January 2016 resulted in an MCP due to lack of a mechanism to keep exchange rates of accepted bids within ±2 percent.
- Structural benchmarks: Only one out of 6 structural benchmarks was met (approval of a decree redefining the role of SOGUIPAMI); others were delayed or reprogrammed.
- Corrective measures and financing actions:
  - Authorities requested an extension of the arrangement to end-March 2016 and reached technical understandings to close the 2015 projected financing gap without increasing central bank advances and domestic arrears from end-October levels (prior action).
  - To alleviate pressures, the authorities restructured, cancelled, or rescheduled to 2016 and beyond an amount of $270 million (3¾ percent of GDP) of guarantees normally falling due during the last quarter of 2015.
  - Text Table 2 (selected): Restructured guarantees — Transportation; Electricity — financial impact 293.1 (million of US$). Cancelled guarantees — Roads; Electricity; other services — financial impact 4,177.3 (million of US$). Total ... 6,270.3 (million of US$).

### Short-Term Economic Outlook and Risks
- Activity and growth:
  - Projected rebound in activity for 2016 revised downward to 4 percent compared to the fifth ECF review, because of the protracted presence of Ebola, limited room for fiscal impulse, and impact of lower commodity prices on megaprojects like Simandou.
  - Gold production projected to contract further reflecting the decline in gold prices; diamond production would stall.
  - Mining sector projected to rebound on the back of an ambitious production plan of Société Minière de Boké.
  - Electricity production should continue to grow at a much slower pace; end of Ebola and return of expatriates expected to boost manufacturing, construction, and services.
- Inflation and fiscal measures:
  - An uptick in inflation to 8.5 percent at end-2016 is projected from the depreciation of the Guinean franc, as the impact of the cut in fuel pump prices in early 2015 vanishes.
  - Some 2016 fiscal measures expected to contribute to upward price pressures include a two-percentage point increase in the VAT rate, the reduction of some subsidies, and increases in telecommunication taxes.

*Source: IMF staff analysis and Guinean authorities as presented in the provided IMF document excerpt.*

### Box 4. Guinea: Net Inflation Pass-Through of Exchange Rate and Fuel Price Changes

### Box 4. Guinea: Net Inflation Pass-Through of Exchange Rate and Fuel Price Changes

### Key findings
- Inflation and changes in the exchange rate and pump prices are closely related over time.
- A regression explaining the growth rate of the consumer price index by the growth rates of the exchange rate and of the domestic fuel price (controlling for international oil prices and broad money supply) yields the following estimated partial impacts:
  - A 10 percent depreciation of the exchange rate is significantly associated with an increase in inflation of 1.5 percentage point over the same quarter.
  - A decline in pump prices of 10 percent translates into a 1 percentage point reduction in inflation.
- Based on end-December 2015 data:
  - Inflation declined steadily to 7.3 percent in December, thanks to a 20 percent decline in pump prices, and despite an annual 10.6 percent depreciation of the official exchange rate.
- Programed policy assumptions and likely impacts to end-2016:
  - Full implementation of the fuel automatic pricing mechanism could trigger incremental declines of up to 10 percent by end-2016, with an impact on inflation of up to 1 percentage point.
  - Recent depreciation of the official and bureaus exchange rates could add about 1 percentage point to inflation in the coming months.
  - In total, prices would increase but remain within single digits in 2016, as envisioned in the revised program.

### Regression results and key statistics (Text Table 1)
- Dependent variable: ∆Log(CPI)
- Estimated coefficients (OLS; robust t-stats in parentheses; significance: ***, **, * at 1, 5, 10 percent):
  - ∆Log(Exchange Rate) 0.15*** (3.29)
  - ∆Log(Pump Prices) 0.10** (2.60)
  - ∆Log(Inter. Oil Prices) 0.02 (1.60)
  - ∆Log(M2) -1 0.14* (1.96)
- Note: OLS estimates over 1996Q2-2015Q4. Constant term included but not reported. Robust t-stats (using Newey-West standard errors) are shown in parentheses.

### Methodological notes and robustness
- Unit root tests suggest all variables are integrated of order one (non-stationary in levels but stationary in first difference).
- The Johansen (1988) trace test indicates the presence of several cointegration relationships.
- Estimation of a VECM does not show any positive impact on inflation of the lagged growth rates of pump prices or the exchange rate but only of current quarter’s changes in these variables.
- Results are qualitatively similar when controlling for the growth rate of credit-financed public spending or a measure of the output gap.

### Policy implications and authorities’ measures referenced
- The authorities envision implementing fully the fuel automatic pricing mechanism.
- The recent exchange rate depreciation and the fuel price dynamics imply offsetting effects on inflation, with net effects likely keeping inflation in single digits in 2016 under program assumptions.
- These empirical results ease concerns that the exchange rate depreciation envisioned in the program would produce significantly higher-than-programmed inflation.

*Source: IMF staff (Box 4 text provided).*

### introduction of meters for customers of the electricity company. The authorities should also

### _cr1695 - introduction of meters for customers of the electricity company. The authorities should also

### Energy sector operational measures
- Introduce meters for customers of the electricity company.
- Conduct an exhaustive census of user connections to the electricity grids.
- Adopt a plan to improve the commercial performance of EDG.
- Ensure that initiatives to strengthen energy infrastructure are consistent with debt sustainability (see attached DSA).
- Note: "Electricity subsidies would increase with the production of electricity until the reform of the governance of the sector and of the electricity company is finalized." (footnote text as presented)

### Medium-term recovery framework and financing
- The authorities’ post-Ebola recovery plan totals US$2.3 billion and is characterized as ambitious but significantly under-financed.
- The medium-term economic recovery is contingent on large public spending to:
  - rehabilitate the health sector,
  - strengthen infrastructure,
  - scale up the social safety net.
- Authorities expect a large growth dividend from productivity improvements facilitated by investments in human and physical capital.
- Agriculture is expected to grow by more than 5 percent on average in the medium term on the back of ongoing reforms.
- Electricity production experienced a large increase with the operation of the hydroelectric power plant Kaleta since July 2015.
- Rapid growth in agriculture and electricity "will provide limited revenue" to cover the recovery plan’s estimated financing gap of US$1.3 billion.
- Staff recommendations include focusing the recovery plan given limited space for large additional debt.

### Expenditure priorities and fiscal adjustments
- Expenditure priorities should be aligned with the recovery plan, with supportive measures put in place.
- Recent fiscal policy slippages have:
  - added to medium-term financing gaps and debt,
  - impaired budget flexibility.
- Expenditure rationalization measures should address increases in spending on goods and services and on subsidies to free space for more social spending.
- Addressing Guinea’s low absorptive capacity and lack of transparency in procurement processes would help unlock more donor support.

### Mining sector opportunities and reforms
- New growth and financing opportunities could come from mining sector projects.
- Guinea faces a fundamental shift in its outlook because commodity prices are expected to remain relatively low for a prolonged period.
- The challenge is to accelerate and deepen mining sector reforms to reduce uncertainty and increase investor appetite.
- Key measures recommended:
  - Finalize the review of mining contracts.
  - Start operations of the newly established one-stop shop for large mining projects (MEFP ¶24).

*Source: Excerpt from IMF staff report content provided in the input.*

### Box 5. Guinea: Mining Sector Prospects

### Box 5. Guinea: Mining Sector Prospects

### Overview
- Expanding production at existing mines, developing new projects, and a supportive institutional setting would allow Guinea to leverage its large mineral wealth to reduce poverty and exit fragility.
- The end of the commodity super-cycle, shocks (Ebola), and structural bottlenecks could weigh on the sector’s prospects going forward.
- Advances in the structural reform agenda would allow Guinea to limit the effects of these shocks.

### Mineral endowment and binding constraints
- Guinea has over one quarter of the world’s bauxite reserves, the largest unexploited world-class iron ore deposit in the world (Simandou), and considerable gold and diamonds reserves.
- Guinea’s share of world production is well below its share of reserves.
- Development of the mining sector has been hindered by:
  - high levels of political risk;
  - structural bottlenecks, such as low levels of human capital;
  - lack of adequate infrastructure; and
  - lack of supportive institutional settings.
- Macroeconomic stabilization gains in recent years and the positive price environment for Guinea’s main commodity exports in 2012 increased investor appetite and led to planned projects.

### Project pipeline and projected impact
- The project pipeline includes investments of about $41 billion dollars in the bauxite, alumina, and iron ore sectors that would imply the creation of more than 19,000 jobs and significant government revenue.
- However, the onset of some projects and the coming on-stream of other projects has been pushed forward several times.

- Guinea: Summary of Main Mining Sector Projects (Source: Guinean authorities.)
  - SIMFER (Simandou)
    - Value (USD millions): 20,000
    - Jobs: 3,000
    - Sector: Iron ore
    - Timeline: 2018
    - Revised timeline: 2023-24
  - China Powers Investments
    - Value (USD millions): 6,000
    - Jobs: 3,500
    - Sector: Bauxite/Alumina
    - Timeline: 2019
    - Revised timeline: Delays expected
  - Guinea Alumina Corporation
    - Value (USD millions): 5,200
    - Jobs: 1,500
    - Sector: Alumina
    - Timeline: 2017
    - Revised timeline: Delays expected
  - Bellzone (Kalia)
    - Value (USD millions): 4,500
    - Jobs: 3,500
    - Sector: Iron Oore
    - Timeline: 2019
    - Revised timeline: Delays expected
  - COBAD S. A.
    - Value (USD millions): 4,000
    - Jobs: 2,500
    - Sector: Bauxite/Alumina
    - Timeline: 2017
    - Revised timeline: Delays expected
  - Compagnie des Bauxites de Guinée
    - Value (USD millions): 1,300
    - Jobs: 2,328
    - Sector: Bauxite
    - Timeline: 2018
    - Revised timeline: 2018
  - Société Minière de Boké
    - Value (USD millions): 200
    - Jobs: 3,000
    - Sector: Bauxite
    - Timeline: 2016
    - Revised timeline: 2016
  - Total
    - Value (USD millions): 41,200
    - Jobs: 19,328

### Key policy recommendations to unlock revenue and support growth
- Focus efforts to ensure the main projects envisioned are implemented.
- Stabilize the legal environment:
  - finalize mining code implementing regulations;
  - conduct review of mining contracts.
- Accelerate the starting of the new one-stop shop for large projects.
- Address structural bottlenecks (implicit from constraints above) including human capital, infrastructure, and institutional support.

### Donor engagement and near-term prospects
- The mission reached out to donors to assess prospects for sustained assistance to Guinea in the near term; donors stressed the need to address the impediments outlined above.
- A more conservative outlook for commodity prices would weigh on mining sector growth by delaying ongoing and prospective projects, such as the large Simandou iron-ore mine.
- On the upside, the end of the Ebola epidemic should boost growth, in particular in the mining sector, and improve the implementation of reforms with the full resumption of technical assistance in the country.

*Source: Guinean authorities (Box 5. Guinea: Mining Sector Prospects).*

### 1. Gross financing requirements1,7661,9231,2531,2191,254

### _cr1695 - 1. Gross financing requirements1,7661,9231,2531,2191,254

### Gross financing requirements (summary table)
- Gross financing requirements: 1,766; 1,923; 1,253; 1,219; 1,254
- External current account deficit: 1,671; 1,839; 1,293; 1,515; 955
- Capital account balance: -12; -15; -90; -16; -16
- Debt amortization: 49; 60; 57; 52; 64
- Change in arrears, net: -4; -7; 15; 4; -1; 94
- Gross reserves accumulation: 6; 14; 7; -160; -291; 156
- IMF Repayments: 0; 0; 0; -300

### Available financing (identified)
- Total available financing: 1,738; 1,827; 938; 1,219; 1,203
- Foreign direct investment, net: 770; 680; 260; 454; 660
- Identified disbursements: 311; 345; 52; 426; 449
  - Grants: 92; 16; 619; 64; 526; 1
  - Project: 674; 610; 133; 166
  - Program: 261; 209; 512; 95
  - Loans: 218; 179; 328; 223; 188
  - Project (loans?): 183; 603; 281; 87; 117
  - Program (loans?): 351; 180; 367; 1
  - Other flows: 657; 797; 045; 40
- Debt relief: 15; 15; 44; 39; 4
- HIPC completion point debt cancellation: (not numerically specified in table)

### Residual financing
- Residual financing: 289; 631; 505; 1
  - ECF and RCF disbursement: 289; 611; 190; 51
  - Ebola-related donor pledges: 0
  - Additional financing/Adjustment measures: 0

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

### IMF obligations and capacity to repay (2015–26, selected figures)
- Fund obligations based on existing credit — Credit outstanding (SDR millions): 142.79; 142.79; 142.79; 142.79; 139.84; 111.61; 78.87; 47.97; 24.40; 4.51; 0.00; 0.00
- Percent of quota: 2; 133.32; 66.66; 66.66; 66.66; 65.28; 52.11; 36.82; 22.39; 11.39; 2.11; 0.00; 0.00
- Repayment of principal (annual): 21.40; 0.00; 0.00; 0.00; 2.95; 28.23; 32.74; 30.91; 23.56; 19.89; 4.51; 0.00
- Charges and interest (annual): 0.00; 0.00; 0.00; 0.00; 0.29; 0.25; 0.19; 0.12; 0.06; 0.02; 0.00; 0.00

- Fund obligations from prospective drawings under the ECF — Credit outstanding (SDR millions): 0.00; 36.72; 36.72; 36.72; 36.72; 36.72; 34.89; 27.54; 20.20; 12.86; 5.51; 0.00
- Percent of quota: 0.00; 17.14; 17.14; 17.14; 17.14; 17.14; 16.29; 12.86; 9.43; 6.00; 2.57; 0.00
- Repayment of principal (prospective, annual): 0.00; 0.00; 0.00; 0.00; 0.00; 0.00; 1.84; 7.34; 7.34; 7.34; 7.34; 5.51
- Charges and interest (prospective, annual): 0.00; 0.00; 0.00; 0.00; 0.09; 0.09; 0.09; 0.08; 0.06; 0.04; 0.02; 0.00

- Total obligations based on existing and prospective credit — Credit outstanding (SDR millions): 142.79; 179.51; 179.51; 179.51; 176.56; 148.33; 113.76; 75.51; 44.60; 17.37; 5.51; 0.00
- Percent of quota: 66.66; 83.80; 83.80; 83.80; 82.43; 69.25; 53.11; 35.25; 20.82; 8.11; 2.57; 0.00
- Percent of gross foreign available reserves: 43.34; 40.18; 37.24; 28.71; 28.76; 18.48; 12.79; 7.09; 3.81; 1.21; 0.35; 0.00
- Total payments to the IMF (annual): 0.00; 0.00; 0.00; 0.00; 3.33; 28.57; 34.86; 38.45; 31.03; 27.30; 11.88; 5.51
- Percent of exports of goods and services: 0.00; 0.00; 0.00; 0.00; 0.26; 2.06; 2.36; 2.45; 1.19; 0.59; 0.19; 0.08
- Percent of external public debt service: 0.00; 0.00; 0.00; 0.00; 3.93; 19.16; 21.58; 22.92; 18.33; 15.72; 8.12; 4.03

- Memorandum items:
  - Disbursements: 45.14; 36.72
  - Exports of goods and services, US$ millions: 1,407.0; 1,507.6; 1,589.8; 1,695.5; 1,811.2; 1,931.3; 2,060.4; 2,188.0; 3,640.3; 6,497.7; 8,508.6; 10,102.6

*Notes: Guinea’s quota increased on February 11, 2016 from SDR107.1 million to SDR214.2 million. PRGT interest waived through end-2016. RCF interest set at zero percent and no longer subject to biannual Board reviews. Projected interest charge assumptions and inclusion of CCR debt relief are specified in the source.*

### Financial soundness indicators (selected, end periods)
- Total bank regulatory capital to risk-weighted assets: 17.0% (Dec-10); 14.6% (Dec-11); 18.2% (Dec-12); 15.6% (Dec-13); 17.3% (Dec-14); 17.0% (Sep-15)
- Percentage of banks greater or equal to 10 percent: 100.0% (Dec-10); 83.3%; 92.3%; 93.0%; 93.0%; 100.0% (Sep-15)
- Total capital (net worth) to assets: 7.8%; 8.2%; 11.6%; 11.8%; 12.5%; 12.0%
- Non-performing loans to total loans: 5.9%; 3.2%; 4.8%; 6.5%; 4.1%; 6.5%
- Non-performing loans net of provision to capital: 2.5%; 3.5%; 3.5%; 11.2%; 12.6%; 13.8%
- FX loans to total loans: 36.0%; 48.1%; 22.6%; 23.1%; 28.1%; 28.9%
- Net income to average assets (ROA): 2.0%; 2.5%; 2.2%; 2.2%; 1.8%; 1.4%
- Net income to average capital (ROE): 35.1%; 41.3%; 28.8%; 27.8%; 21.2%; 17.3%
- Liquid assets to total assets: 75.9%; 69.0%; 67.3%; 62.3%; 56.6%; 49.2%
- Loan/deposits: 24.6%; 38.1%; 38.0%; 45.7%; 56.4%; 57.9%

### Risk Assessment Matrix (RAM) — key risks, likelihood, impact and policy responses
- Persistent dollar strength as a result of tighter or more volatile global financial conditions
  - Relative Likelihood: High
  - Impact If Realized: Medium
  - Policy Response: Advance the structural reform agenda to remove bottlenecks and allow greater exchange rate flexibility
- Structurally weak growth in key advanced and emerging economies
  - Relative Likelihood: High (AEs) / Medium (EMEs)
  - Impact If Realized: High
  - Policy Response: Intensify structural reform and efforts to improve the business climate; allow the exchange rate to play a shock absorbing role
- Heightened risk of fragmentation/state failure/security dislocation in the Middle East and some countries in Africa
  - Relative Likelihood: Medium
  - Impact If Realized: Medium
  - Policy Response: Intensify structural reform; fiscal policy to focus on revenue mobilization and efficient delivery of public services
- Deterioration of the domestic socio-political and security situation
  - Relative Likelihood: Medium
  - Impact If Realized: High
  - Policy Response: Refocus reform on areas less sensitive to socio-political environment; aim to maintain fiscal control
- Prolonged and uncontained Ebola epidemic
  - Relative Likelihood: Low
  - Impact If Realized: High
  - Policy Response: Intensify structural reform; fiscal accommodation should remain within the limits of available financing, and focus on priority sector spending

### ECF disbursement schedules (original and proposed, selected totals)
- Original Schedule Total: 81.071 percent of quota; 173.655 Millions of SDRs
- Proposed Schedule Total: 81.071 percent of quota; 173.655 Millions of SDRs
- Individual disbursements listed at 8.571 percent of quota / 18.360 Millions of SDRs recurring, plus one disbursement of 21.071 percent of quota / 45.135 Millions of SDRs, and smaller rephased amounts of 4.286 / 9.180 Millions of SDRs as specified.

### Letter of Intent — key program developments, outlook, and government requests (Conakry, March 1, 2016)
- Recent shocks and effects:
  - Ebola epidemic: last case recorded on November 17, 2015; WHO formally declared end of epidemic in Guinea later.
  - Fall in commodity prices and uncertainty relating to the October 2015 presidential elections.
  - Result: sharp slowdown in economic growth in 2014 and 2015; economic growth close to zero despite strong agricultural output.
- Program implementation and structural reforms:
  - Most end-December 2014 performance criteria met; several end-June 2015 PCs missed.
  - Causes of missed PCs include central bank guarantees to support public investment and delays in technical assistance.
  - Actions taken: recruited a management partner for the state-owned electricity company; eliminated ghost workers from the public payroll after the civil service biometric census; started three-month inspections of civil servant physical presence in November 2015.
- Waiver requests:
  - Waivers requested for nonobservance of PCs at end-2014 on net international reserves of the central bank and multiple end-June 2015 PCs (basic fiscal balance; net domestic assets of the central bank; domestic bank financing of the government; net international reserves of the central bank) and the continuous PC on new medium- and long-term non-concessional external debt.
  - Waiver for continuous PC on multiple currency practices (MCP) related to multi-price foreign exchange auctions; BCRG will ensure accepted bid exchange rates remain within ±2 percent of each other.
- 2016 macroeconomic outlook and financing:
  - Growth projected to rebound to 4 percent in 2016.
  - Recovery drivers: new mining sector production; higher agricultural productivity; services and manufacturing recovery after Ebola; full-year impact of increased electricity from the Kaleta dam.
  - Policy aims: maintain single digit inflation levels; improve reserve coverage of imports to three months.
  - Financing gap: USD 112 million for 2016, that is 1.7 percent of GDP.
- Requests to the IMF:
  - Approval of the sixth and seventh reviews of the program and disbursement of SDR 18.36 million equivalent to 8.6 percent of quota.
  - Extension of the ECF arrangement to end-October 2016 and re-phasing of remaining disbursements; proposed indicative targets for end-March 2016 and performance criteria for end-June 2016.
  - Statement: total IMF support in 2016 should cover approximately 22 percent of the projected balance of payments financing needs.
- Government commitments:
  - Continue implementing ECF-supported program in 2016; approved budget maintaining fiscal deficit in line with available financing; reformed exchange rate determination mechanism; discontinued gold purchasing program.
  - Created a special budget account (BAS) to channel Ebola-related spending resources.
  - Continue progress on structural reforms in public financial management, the business climate, electricity and mining sectors.
  - Undertakes to consult IMF staff before adopting additional measures and to provide required information for program monitoring.

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

### 9.      In accordance with our policy of transparency in government operations, we authorize the

### _cr1695 - 9.      In accordance with our policy of transparency in government operations, we authorize the 

### Recent developments and program implementation
- Ebola epidemic: appeared December 2013 in the Guinea Forest Region; affected 3,351 people and killed 2,083 as of November 25, 2015; affected 26 prefectures and the five municipalities of Conakry; eradicated as of mid-November and declared ended on December 29, 2015.
- Other shocks: decline in commodity prices and political uncertainty related to October 2015 presidential elections.
- Growth and inflation:
  - Growth: estimated growth rate of 0.1 percent in 2015.
  - Inflation: 7.3 percent at end-December 2015.
- External sector and reserves:
  - External current account: improved in 2015 after deterioration in 2014.
  - Overall balance of payments: deteriorated.
  - Foreign exchange reserves: 3.6 months of imports at end-2014; 2.3 months of imports at end-2015.
- ECF program performance:
  - Met all performance criteria (PCs) at end-2014 except the PC on the central bank’s net international reserves and the continuous PC on new nonconcessional medium- or long-term debt.
  - End-June 2015: met only the PC on external arrears and the continuous PC on the stock of outstanding short-term external debt.
  - Missed the continuous PC on the non-introduction of multiple currency practice (MCP) due to adoption of a new instruction to reform the exchange rate determination mechanism.
- Structural reforms and benchmarks:
  - June 19, 2015: recruited private partner for management of EDG (structural benchmark at end-March 2015); operations began September 2015.
  - February 12, 2015: decree clarifying roles of SOGUIPAMI (structural benchmark at end-February 2015).
  - Production of administrative accounts for 2011–13 (structural benchmark at end-April 2015) delayed until December 2015; management accounts produced in December.
  - Progress limited on other structural benchmarks due to difficulties mobilizing technical assistance.
  - Budgetary/accounting management: National Council for the Regulation of Post and Telecommunications will adopt the budget and accounts of the ARPT; Patrimoine Bâti Public (Public Building Agency) will receive budgetary appropriations commensurate with operating expenses.
- 2015 budget and financing:
  - Basic balance: deteriorated from -6.5 percent of GDP in 2014 to -7.1 percent of GDP in 2015.
  - Revenue shortfalls: 2¾ percent of GDP, partly from keeping fuel pump prices 20 percent below revised budget level.
  - Public works contracts covered by BCRG guarantees amounted to 15.2 percent of GDP, of which 3.8 percent of GDP were executed as of end-December 2015.
  - Domestic financing in 2015: reached 5.5 percent of GDP (central bank advances 3.6 percent of GDP; short-term bills and medium-term bonds 1.5 percent of GDP; financing from a mining company 0.5 percent of GDP; accumulated domestic arrears 0.5 percent of GDP).
- Fiscal transparency and debt management:
  - BAS for Ebola: unspent 2014 Ebola financing GNF 153.9 billion; additional financing GNF 423.1 billion; financed expenditure of GNF 463.7 billion as of end-December 2015.
  - Manual of procedures for debt management finalized and operational since December 2015.
  - Audit of procurement contracts benefiting from BCRG guarantees initiated by a reputable foreign firm.
- Monetary policy and banking sector:
  - Required reserves ratio lowered from 20 percent to 18 percent; BCRG policy rate lowered from 13 percent to 11 percent on February 25, 2015.
  - Interest rate on Treasury bills averaged 10.5 percent.
  - BCRG issued guarantees enabling banks to lend to companies executing public infrastructure.
  - Banks’ net foreign exchange assets decreased from US$150 million at end-March 2014 to US$62.8 million at end-December 2015.
  - Guinean franc depreciated by 9.7 percent against the dollar in 2015; premium on bureaus peaked at nearly 15 percent.
  - MIC exchange rate band widened from +/- 3 percent to +/- 4 percent on May 14, 2015.
  - Financial soundness: banks’ net foreign assets fell to US$10 million at end-October 2015; as of end-September 2015, 24 cases where prudential standard was exceeded (involving 11 of the 16 banks), 19 covered by exemptions.
- Audits:
  - External auditor certified BCRG’s financial statements for 2014 without qualification; confirmed end-June 2015 program data on February 15, 2016.
  - Auditor recommended improvements in accounting of off-balance sheet transactions; noted inability to be present at physical count of cash in vaults due to Ebola.

### Macroeconomic outlook
- Overall outlook: positive for 2016 and medium term; aim to strengthen BCRG international reserves and keep inflation single digit while increasing growth and reducing poverty.
- 2016 projections:
  - Growth rebound to 4 percent in 2016.
  - Mining sector growth: 5.7 percent (Boké Mining Company production plan).
  - Inflation: increase from 7.3 percent at end-2015 to 8.5 percent.
  - External current account deficit: fall to 17.0 percent of GDP.
  - BCRG international reserves: increase to at least three months of imports.
- Medium-term (2017–21) projections:
  - Growth expected to increase to about 6 percent.
  - Post-Ebola recovery plan: aims to improve physical and human capital; complements PRSP III, 2013–15, and five-year 2011–15 plan; pillars: (i) strengthening human and institutional capacities; (ii) promotion of accelerated, diversified, and sustainable growth; (iii) development of growth-supporting infrastructures; (iv) strengthening access to basic social services and households’ resilience.
  - Financing for recovery plan estimated at US$2.6 billion; financing not fully secured.

### Policy actions implemented and prior actions
- Closed the 2015 financing gap without increasing central bank advances and domestic arrears from end-October 2015 level (prior action).
- Government tabled draft budget law for 2016 on December 18, 2015 (prior action); National Assembly approved it on January 16, 2016.
- BCRG implemented IMF (MCM) technical assistance recommendations to improve exchange rate flexibility (prior action), reforming exchange rate determination mechanism and almost eliminating the exchange premium on the bureaus market.
- BCRG ceased gold purchases and decided to maintain a diversified portfolio of reserves consistent with its reserve investment policy.

### Fiscal policy (2016 stance and measures)
- Objective: reduce budget deficit significantly to limit recourse to commercial bank financing and strengthen central bank reserves.
- Targets and aggregates:
  - Basic fiscal balance target: -0.4 percent of GDP.
  - Budgetary contraction relative to 2015: 6¾ percent of GDP.
  - Budget financing needs: 1.3 percent of GDP to be covered primarily by grants and budgetary loans and concessional budgetary loans.
- Revenues (projected):
  - Total revenues: 24.4 percent of GDP.
  - Tax and non-tax revenues: 20.4 percent of GDP.
  - Budgetary grants: 1.4 percent of GDP.
  - Project grants: 2.5 percent of GDP.
  - Increase in tax and non-tax revenues compared to 2015: +2.5 percent of GDP.
  - Revenue-enhancing measures with revenue impact of over 2 percent of GDP in 2016 (prior action), including:
    1. Increasing VAT rate from 18 percent to 20 percent (0.5 percent of GDP).
    2. Extending VAT to flour and edible oils (+0.2 percent of GDP).
    3. Raising excise taxes on tobacco, alcohol, and vehicles (0.1 percent of GDP).
    4. Updating reference values on imported used vehicles and imports by land (0.1 percent of GDP).
    5. Increasing some service costs on registrations and new biometric passports (0.4 percent of GDP).
    6. Administrative measures related to taxes (0.3 percent of GDP).
  - Administrative measures based on cross-checks; preliminary calculations indicate under-reporting of at least 27 percent of GDP for a subset of 58 importers.
  - Budgetary grants expected to increase by 1.2 percent of GDP compared to 2015 projection due to EU and World Bank disbursements.
- Expenditures (projected totals and composition):
  - Total expenditures: 25.7 percent of GDP.
  - Domestically financed expenditures: 21.4 percent of GDP.
  - Downsizing of domestically financed expenditures: 3.8 percent of GDP compared to 2015.
  - Reductions due to disappearance of Ebola and election-related spending: 1.8 percent of GDP.
  - Net additional measures: 1.9 percent of GDP.
  - Wage bill: expected to increase to 5.8 percent of GDP (+0.6 percent of GDP due to recruitments of 1,000 health workers, 4,372 educational staff, 631 police officers, and 1,193 forest rangers).
  - Government operations expenditures to be reduced by 1.7 percent of GDP.
  - Transfers reduced by 1.9 percent of GDP due to reduction of EDG subsidy.
  - Investment expenditures: fall by 1.5 percent of GDP (from 6.6 percent of GDP in 2015 to 5.1 percent of GDP in 2016), including only 1.7 percent of GDP on guarantees following reschedulings and cancellations.
  - Part of reduction (0.6 percent of GDP) from transferring projects from domestically financed to foreign-financed budget and creating a special appropriations budget (BAS) tied to an Abu Dhabi grant.
- Debt and arrears management:
  - Nearly zero net external non-project financing and issues from commercial banks of 0.2 percent of GDP projected.
  - Government will reimburse BCRG part (½ percent of GDP) of its 2015 advances and reduce arrears to private sector (0.3 percent of GDP).
  - Reimbursement of central bank advances spread over six years per schedule established February 2016.
  - Reduction of fiscal deficit to facilitate central bank’s independent monetary policy.

### Monetary and foreign exchange policy
- (Heading present in source; no additional textual content supplied beyond this heading in the provided excerpt.)

*IMF staff report excerpt: Sixth and Seventh reviews of the Fund’s ECF-supported program; Attachment I: Guinea: Sixth Supplement to the Memorandum of Economic and Financial Policies, March 1, 2016.*

### 16. The BCRG’s priority for 2016 remains to strengthen international reserves, while

### _cr1695 - 16. The BCRG’s priority for 2016 remains to strengthen international reserves, while

### Monetary policy and exchange rate framework
- Priority: strengthen international reserves while supporting economic activity.
- Fiscal contraction expected to help contain inflationary pressures and keep inflation below 10 percent.
- Exchange rate depreciation pressures should be offset by the decline in prices on world markets, particularly for petroleum products.
- Required reserve ratio to be kept at its current level until the end of the first six months.
- Reform introduced in January 2016 to foreign exchange rate determination mechanism:
  - BCRG will more precisely modulate bank liquidity in Guinean francs using monetary regulation securities.
  - Initial objective: help develop a dual foreign exchange market where the BCRG is not the only entity offering foreign exchange.
  - Settlement rates in the new FX market to remain within a band of ±2 percent.
- Additional monetary operations:
  - Introduce a second refinancing window to strengthen money market operations (end-March 2016).

### Financial sector strengthening and supervision
- Establish a Credit Information System in 2016 with World Bank technical and financial assistance to support bank risk analysis and improve credit distribution.
- Banks required to increase capital to comply with minimum capital of GNF 100 billion by end-June 2016.
- New insurance code to be adopted in May 2016 to improve sector supervision and meet international standards.
- Action plan for a national strategy to improve financial inclusion to be introduced by end-May 2016.
- Draft law on microfinance in line with international standards planned for 2017.

### Safeguards, transparency, and central bank governance
- Continue reforms suggested by the safeguards assessment:
  - Strengthen transparency of annual financial statements by clarifying the nature of risks associated with financial assets and liabilities and providing more information on loans to the government, including the type and quality of guarantees.
  - Implement external auditor recommendations on weak accounting controls, including preparation of a report on all suspense accounts identified by the auditors.
- Government actions:
  - Adopt by April 2016 a draft revision of the BCRG’s statutes to prohibit it from issuing guarantees for the private sector.
  - BCRG and ministry of finance to sign a memorandum of understandings by end-March 2016 on reimbursement of central bank advances to the treasury in 2015 based on market conditions prevailing at the time of signature.
  - Sign a memorandum with the government by end-March 2016 specifying the need to recapitalize the BCRG and the methods (including a schedule) for recapitalization, taking into account budgetary cost and need to ensure financial and operational flexibility of the BCRG (based on IMF technical assistance).

### Structural reforms — overview and priorities
- Finalize structural reform program and ensure effective implementation of measures already taken.
- Key objectives:
  - Finalize reform of the mining sector.
  - Rehabilitate the electricity sector while increasing output.
  - Strengthen public procurement and central bank independence to limit budget and contingent liability risks.
- Request partner support for accelerated user training to ensure effective implementation of public finance reforms.

### Public finance management — benchmarks and measures
- Rescheduled benchmarks and clarified interim steps to prevent new delays.
- Compliance of budgetary and accounting management of public agencies with LORF provisions (structural benchmark as of end-March 2015, rescheduled for August 2016) through:
  - Adoption of the implementing decree of the law on governance of public enterprises by end-March 2016.
  - Survey of public enterprises by end-June 2016 prior to alignment of their statutes (port authority, OGP, central pharmacy, Sotragui, SNAPE, University Gamal Abdel Nasser of Conakry, Mining Fund).
- Timetable for clearing domestic arrears:
  - Differentiate arrears for the 2011–13 budget years from those for the 2005–10 budget years by end-September 2015 (structural benchmark as of end-June 2015, rescheduled for April 2016).
  - On March 31, 2016 the government will validate the consultant’s report recruited with support from the French Development Agency in June 2015.
- Other public finance measures:
  - Publication of the audit of public procurement contracts that benefited from central bank guarantees by end-August 2016; adopt by end-July 2016 a plan to ensure full enforcement of the new procurement code.
  - Preparation of new budget documents for transfer to the LORF environment by end-June 2016.
  - Preparation of new directives for the production of the TOFE in line with the IMF’s 2001 government financial statistics manual by end-June 2016.
  - Production of management accounts and budget control laws for exceptional years (2005–10) based on Mali’s example by end-May 2016.
  - Effective implementation of the new VAT credit reimbursement mechanism and adoption by May 2016 of a multiyear program to repay arrears agreed upon with mining companies.

### Poverty reduction and civil service reform
- PRS III extension:
  - Extend PRSP III of 2013–15 until 2017; align guidelines with next National Development Plan (NDP) and 2013–2014 PRS III implementation reports.
- Civil service actions:
  - Adopt a civil service reform plan based on biometric survey and PREMA action plan (structural benchmark at end-March 2015, rescheduled for August 2016).
  - Finalize the Ongoing Physical Monitoring operation in all units by February 2016.
  - Distribute biometric cards to civil servants by April-May 2016, after installation of electronic tallying machines in ministries in December 2015.
  - Purge registries (for retirees and contractual workers) by June 2016.
  - Establish a permanent system of control of staffing, structures, and enforcement of laws and regulations on organization and operation of public service units and human resource management (ongoing).

### Mining sector reforms
- Finalize environment for large mining projects and implement mining code regulations.
- Actions and timelines:
  - Set up the Permanent Secretariat (SP) of the Technical Committee (CT) by end-May 2015 to support the Interministerial Committee for the Monitoring of Integrated Mining Projects (CISPMI).
  - Strategic Committee (CS) to approve a new timetable for completion by end-March 2016, specifying required resources to be provided in the budget to the CT.
  - Completion of mining code implementing regulations anticipated by end-March 2016 under the new timetable approved by the Technical Support Committee for the Council of Economic and Reform Coordination (CCER).

### Energy sector measures and tariffs
- Focus on seven priority projects to ensure sustainable supply and quality of electrical services.
- Management contract:
  - Four-year management contract aimed at improving EDG’s technical, commercial, and financial performance in line with performance contract between EDG and the government.
  - Complete a rate study during the first half of 2016 to support the management contract.
- Tariff action:
  - Implement a 25 percent rate increase during the first half of 2016, anticipated since 2013, given increased production with Kaleta dam startup.
- Upcoming projects:
  - For projects including the Souapiti dam construction project, the government will communicate to the IMF any information relative to financing and construction.

### Program financing and debt management
- Government considers 2016 program financing requirements fully covered; budget deficit reduced and kept to available financing.
- Most financing from external sources; reduced use of domestic financing.
- Paris Club and multilateral creditors have signed; other partners could sign bilateral agreements for HIPC debt relief in the near future.
- Government discussions on debt relief with non Paris Club official creditors; several have not yet responded.
- Government invited commercial creditors to open discussions to clear arrears in line with IMF policy on lending into arrears; several have not responded.
- IMF disbursements under ECF to cover residual balance of payment financing needs.
- Debt management measures with technical assistance from IMF, World Bank, and EU:
  - National government debt policy expected to be adopted by CCER by end-March 2016. AFRITAC assistance to be mobilized to improve quality in issuance of domestic debt securities.
  - Medium-term debt strategy (MTDS) expected to be complete before end-April 2016 with technical assistance; objectives include establishing guidelines for future government financing by measuring costs and risks and developing the financial market.
  - MTDS will include introduction of medium-term instruments (2- and 3- year bonds by 2019) and an external debt policy based on concessional financing.
- External borrowing plan for 2016:
  - Government wishes to sign up for the amount of US$780.1 million in 2016; reserves right to revise during next ECF review.
- IMF support:
  - Request disbursement of SDR18.36 million under the ECF equivalent to 8.6 percent of quota as part of the sixth and seventh reviews.
  - Request rescheduling of the disbursement amount originally provided for the seventh review after approval of the eighth review.
  - Total IMF support in 2016 will reach US$52 million; it should cover approximately 22 percent of the financing requirement for 2016.

### Program monitoring, statistical improvements, and review requests
- Statistical system upgrades:
  - National accounts for 2006 to 2011 adopted and distributed in March 2015.
  - Production of national accounts for 2012 (final) and 2013 (provisional) planned for end-March 2016 using 2010 as base year.
  - Government will request IMF technical assistance to develop economic indicators to be monitored in the Status Report on the Economy and a methodology for annual growth estimates using monthly indicators.
- Program monitoring committees:
  - Conseil de Coordination Economique et des Réformes (CCER), Technical Support Committee, and Cellule Technique de Suivi des Programmes (CTSP) are operational to continue program monitoring.
- Waiver requests:
  - Request waivers for missed performance criteria at end-December 2014 on central bank’s net international reserves, and end-June 2015 on basic fiscal balance, net domestic assets of the central bank, domestic bank financing of the government, net international reserves of the central bank, and inobservance of continuous performance criterion on new nonconcessional medium- or long-term external loans contracted or guaranteed by the government or the central bank.
  - Waiver request based on budget adjustment measures, reforming exchange rate determination mechanism, abandoning gold purchase program, commitment to revise central bank statutes to prohibit issuance of guarantees, and commitment to complete structural reform program supported by the ECF by end of the third quarter of 2016.
- Requests regarding ECF arrangement:
  - Request extension of the ECF arrangement to end-October 2016 and re-phasing of disbursements.
  - Request introduction of an eighth review to evaluate performance during first half of 2016; extension to end-October 2016 will allow time for eighth review.
- Review schedule:
  - Program to be reviewed semiannually by the IMF Executive Board on the basis of quantitative performance criteria and indicators and structural benchmarks (Tables 1–3 attached).
  - Indicators defined in the Technical Memorandum of Understanding (TMU, Attachment II).
  - Eighth program review, based on performance criteria at end-June 2016, should be completed on or after August 15, 2016.

*Source: IMF country report content provided in the input.*

### 34. During the program period, the government undertakes to adopt, in consultation with

### _cr1695 - 34. During the program period, the government undertakes to adopt, in consultation with

### Government commitments and information provision
- During the program period, the government undertakes to adopt, in consultation with IMF staff, any new financial or structural measures that may prove necessary for the program’s success.
- The government undertakes to provide to the IMF all the information necessary for monitoring implementation of program measures and the achievement of program objectives.

### Quantitative performance criteria (selected outcomes and status)
- Basic fiscal balance (floor; cumulative change for the year)
  - Mar. (Act.): -2,628
  - Jun. (Act.): -3,637
  - Dec. (PC): -3,070 — Status: Met
  - Mar. (Adj. PC): -773 — Status: Met
  - Jun. (Adj. PC): -794 — Status: Met
  - Sep. (Act.): -619 — Status: Met
  - Dec. (Act.): -1,276
  - Dec. (Adj. PC): -1,272
  - Dec. (PC): -1,373 — Status: Not Met
  - Dec. (Proposed IT): -2,101
  - Dec. (Proposed PC): -3,022 — Status: Not Met
  - Mem. item entries: -743; -682
- Net domestic assets of the central bank (ceiling; stock)
  - Mar. (Act.): 5,318 — Status: Met
  - Jun. (Act.): 5,277
  - Dec. (PC): 5,244 — Status: Met
  - Mar. (Adj. PC): 4,048 — Status: Met
  - Jun. (Adj. PC): 3,997
  - Sep. (Act.): 5,667 — Status: Not Met
  - Dec. (Act.): 4,628
  - Dec. (Adj. PC): 4,536
  - Dec. (PC): 6,604 — Status: Not Met
  - Dec. (Proposed IT): 5,109
  - Dec. (Proposed PC): 7,43
  - Dec. (Proposed PC, other cell): 7 — Status: Not Met
  - Mem. item entries: 7,414; 7,329
- Net domestic bank financing of the government (ceiling; cumulative change for the year)
  - Mar. (Act.): 1,452 — Status: Met
  - Jun. (Act.): 1,412
  - Dec. (PC): 1,104 — Status: Met
  - Mar. (Adj. PC): 394 — Status: Met
  - Jun. (Adj. PC): 344
  - Sep. (Act.): 341 — Status: Met
  - Dec. (Act.): 794
  - Dec. (Adj. PC): 702
  - Dec. (PC): 996 — Status: Not Met
  - Dec. (Proposed IT): 1,194
  - Dec. (Proposed PC): 2,449 — Status: Not Met
  - Mem. item entry: -135; -186
- Net international reserves of the central bank (floor; stock); US$ million
  - Mar. (Act.): 2,516
  - Jun. (Act.): 522
  - Dec. (PC): 372 — Status: Not Met
  - Mar. (Adj. PC): 482
  - Jun. (Adj. PC): 493
  - Sep. (Act.): 292 — Status: Not Met
  - Dec. (Act.): 419
  - Dec. (Adj. PC): 417
  - Dec. (PC): 157 — Status: Not Met
  - Dec. (Proposed IT): 369
  - Dec. (Proposed PC): 205 — Status: Not Met
  - Mem. item entries: 248; 256
- New non-concessional medium or long-term external debt contracted or guaranteed by the government or central bank (ceiling); US$ million
  - Ceiling references: 3, 4, 9
  - Mar. (Act.): 80
  - Mar. (Adj. PC): 80
  - Dec. (PC): 40 — Status: Not Met
  - Jun. (Act.): 80
  - Jun. (Adj. PC): 80
  - Sep. (Act.): 119 — Status: Not Met
  - Dec. (Act.): 80
  - Dec. (Adj. PC): 80
  - Dec. (PC): 152 — Status: Not Met
  - Dec. (Proposed IT): 80
  - Dec. (Proposed PC): 152 — Status: Not Met
  - Mem. note: The ceiling for 2014 is tied to new debt to finance the Kaleta hydroelectric dam - Conakry transmission line project.
- Stock of outstanding short-term external debt contracted or guaranteed by the government or the central bank (ceiling); US$ million
  - All reported entries: 0 — Status: Met across periods
- New external arrears (ceiling)
  - All reported entries: 0 — Status: Met across periods

### Indicative targets and priority expenditure
- Expenditure in priority sectors (floor) 8
  - Mar. (2014 Act.): 4,706
  - Mar. (2015 Act.): 4,717 — Status: Met
  - Jun. (2015 Act.): 1,252 — Status: Met
  - Sep. (2015 Act.): 1,268 — Status: Met
  - Dec. (2015 Act.): 2,616
  - Dec. (Adj. IT): 2,616
  - Dec. (PC): 2,121 — Status: Not Met
  - Dec. (Proposed IT): 4,124
  - Dec. (Proposed PC): 2,461 — Status: Not Met
  - Mem. item entries: 1,252; 2,849
- Memorandum items (selected)
  - New concessional external debt contracted or guaranteed by the government or central bank, cumulative US$ million: 780; 780 (repeated entries)
  - Reserve money (selected entries): 7,830; 8,521; 6,620; 8,764; 6,760; 8,787; 6,889; 8,857; 9,016; 9,072
  - Net external assistance (selected entries): 1,003; 2,012; 196; 300; 404; 381; 317; 354; 1,193; 1,371
  - Ebola-related grants and loans (selected entries): 595; 763; 99; 259; 268
  - Change in the float (selected entries): 45; -38; 13; -75; 35; -113; 290; -100; -147

### Structural benchmarks and prior actions (summary of execution and rationale)
- Structural benchmarks (2014)
  - Adopt the draft law on public entities to make it consistent with the new Budget Framework Law (LORF) and the General Regulations on Fiscal Management and Public Accounting (RGGBCP)
    - Date: End-September 2014 — Status: Not met. Implemented on December 15, 2014
    - Rationale: Limit risks for the government budget and strengthen central control over external public debt
  - Transfer the accounts of autonomous public entities to the Treasury Single Account at the BCRG
    - Date: End-September 2014 — Status: Not met. Rescheduled
    - Rationale: Ensure the integrity of the budget and improve cash management
  - Adopt and implement the recommendations of the study on the role of the SOGUIPAMI and its relationship with public administration
    - Date: End-September 2014 — Status: Not met. Rescheduled
    - Rationale: Keep the government’s mining sector assets under government control, protect government revenues, and limit financial risks
  - Adopt, in consultation with donors, a new budget nomenclature, including a functional classification
    - Date: End-September 2014 — Status: Not met. Implemented on October 9, 2014
    - Rationale: Improve the monitoring of poverty reduction efforts
  - Produce management and administrative government accounts for 2011–2013
    - Date: End-December 2014 — Status: Not met. Only management accounts produced. Reformulated and rescheduled
    - Rationale: Improve public financial management and transparency
  - Adopt a civil service reform plan based on biometric survey and HCREMA action plan
    - Date: End-December 2014 — Status: Not met. Plans validated in November 2014. Rescheduled
    - Rationale: Restrain the wage bill and improve productivity of public administration
  - Recruit a management partner for EDG with World Bank and IFC assistance
    - Date: End-December 2014 — Status: Not met. Rescheduled
    - Rationale: Improve power supply and reduce fiscal risks
  - Approve a timetable for clearing domestic payment arrears, distinguishing between arrears from budget years 2011–13 and those from 2005–10
    - Date: End-December 2014 — Status: Not met. Rescheduled
    - Rationale: Support the Guinean private sector and enhance government credibility
- Prior actions and structural benchmarks (2015–16) — selected items
  - Prior Actions (December 2015)
    - Submission to Parliament of a 2016 budget in line with the revised program
      - Date: December 16, 2015 — Status: Met
    - Exclusion from the public payroll of all workers not identified in the 2015 biometric census
      - Date: December 21, 2015 — Status: Met. Ministerial decree 2015/6552/MFPR... — Rationale: Ensure budget sustainability
    - Adoption of a package of revenue-enhancing measures with a revenue impact of at least 2 percent of GDP in 2016
      - Included in the 2016 budget — Status: Met
    - Close the 2015 financing gap without increasing central bank advances and domestic arrears from end-October 2015 level
      - Date: End-December 2015 — Status: Met
    - Implement recommendations from IMF (MCM) technical assistance of December 2015 to improve exchange rate flexibility
      - January 2016 — Instruction BCRG 0056/DGCC/DCH/16 of January 4th, 2016
  - Structural Benchmarks (2015)
    - Adopt and implement recommendations from the study on SOGUIPAMI relationship with public administration
      - Date: End-February 2015 — Status: Met. Decree signed on February 12, 2015
    - Bring budget and accounting management of government agencies benefiting from allocated revenues into compliance with LORF and RGGBCP
      - Date: End-March 2015 — Status: Not met. Rescheduled to August 2016
    - Adopt a civil service reform plan based on biometric survey and HCREMA action plan
      - Date: End-March 2015 — Status: Not met. Rescheduled to August 2016
    - Recruit a management partner for EDG with World Bank and IFC assistance
      - Date: End-March 2015 — Status: Not met. Done on June 19, 2015
    - Produce administrative accounts for 2011–13
      - Date: End-April 2015 — Status: Not met. Done on December 17, 2015
    - Approve a timetable for clearing domestic payment arrears (distinguish 2011–13 and 2005–10)
      - Date: End-June 2015 — Status: Not met. Rescheduled to April 2016

### Summary of external borrowing program, 2016 (Table 4)
- Total sources of debt financing (2016): 780.3 (Millions of U.S. Dollars)
  - Concessional Debt: 780.3
    - Multilateral Debt: 468.1
    - Bilateral Debt: 312.2
  - Non-Concessional: 0.0
- Use of amounts borrowed (2016) — Millions of U.S. Dollars
  - Budgetary Assistance: 32.0
  - Infrastructure (roads, bridges, etc): 270.4
  - Water and Energy: 384.6
  - Agriculture: 40.3
  - Social (education, health, etc): 43.0
  - Other: 10.0

### Technical Memorandum of Understanding — key definitions and adjustments
- Government definition: central government of the Republic of Guinea; excludes local governments, BCRG, and autonomous public entities.
- Basic fiscal balance: difference between government revenue, excluding grants, and basic government expenditures; definitions consistent with TOFE (Section E).
- Net domestic assets (NDA) of the BCRG: NDA = Reserve Money - Net Foreign Assets (NFA), based on the BCRG balance sheet.
- Domestic bank financing of the government: comprises (i) central bank financing of the Treasury (change in net position of the Treasury with the central bank, NTP1, including certain accounts but excluding “satellite” accounts PNT2), and (ii) commercial bank financing of the Treasury (changes in stock of Treasury bills held by banks, excluding “satellite” accounts in commercial banks).
- Net international reserves (NIR) of the BCRG: reserve assets minus foreign exchange liabilities (excluding long-term liabilities such as SDR allocations). Gold valued at US$1,060.0000 per ounce for first half of 2016 (price in effect on December 30, 2015). Program exchange rates specified for valuation: first half of 2016 exchange rates in effect on December 31, 2015 (GNF8,003.7445/US$, US$1.38573/SDR, US$1.0887/EUR); second half uses exchange rates in effect on June 30, 2016.
- Medium- and long-term external debt: external debt contracted for period of one year or more. Concessional if grant element is at least 35 percent of NPV; NPV calculated with a discount of 5 percent. Definition excludes IMF financing.
- Short-term external debt: stock as of specific date of external debt with initial contractual maturity of less than one year; excludes normal import-related suppliers’ credits and foreign currency deposits at the central bank.
- New external arrears: external debt service obligations (principal and interest) due but not paid on the due date; obligations unpaid within 30 days after falling due are “program” arrears.
- Float: flow of expenditures accepted by the Treasury but not yet paid; net change in float is difference between accumulation and payments.
- Adjustments to program performance criteria: quantitative targets are calculated on basis of projected amounts of (1) net external assistance; (2) net change in “program” arrears; and (3) net change in the float. Net external assistance = cumulative budgetary assistance (grants and loans) + impact of debt relief + net change in “non-program” arrears, less cumulative payments of external debt service due after relief for loans with debt relief.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1695.pdf*

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

### _cr1695 - 19.      The floor for NIR, the ceilings on NDA of the BCRG and bank financing of the

### Scope of adjustments
- The floor for NIR, the ceilings on NDA of the BCRG and bank financing of the government, and the floor for the basic fiscal balance will be adjusted if any of the following differ from the projected amounts:
  - net external assistance,
  - the net change in “program” arrears,
  - exceptional mining revenues,
  - and/or the net change in the float.

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

*Source: _cr1695 - 19.      The floor for NIR, the ceilings on NDA of the BCRG and bank financing of the*

### 21.      Adjustments related to the net change in “program” arrears:

### _cr1695 - 21.      Adjustments related to the net change in “program” arrears:

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

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

### Definitions for the TOFE (Treasury and Government Fiscal Operations)
- Government revenue:
  - Includes tax and nontax revenues.
  - Excludes external grants, proceeds from privatizations, and exceptional mining revenues (the latter two recorded as financing by agreement of the parties).
  - Tax revenue categories (cash basis, per Section IV.A.I of the 1986 GFS Manual):
    - Title 1: taxes on income, profit, and dividends.
    - Title 2: taxes on property.
    - Title 3: taxes on international trade, including import duties, export duties (droit fiscal de sortie), surtax on consumption, liquidation levy (redevance de liquidation), and penalties related to international trade.
    - Title 4: taxes on goods and services, including general sales taxes, value-added taxes on domestic sales and on imports, the single tax on vehicles (TUV), the business tax (TAF), the tax on telecommunications, taxes on petroleum products, and export taxes on mining products, including taxes on mining products, taxes on diamonds, and the tax on precious metals.
    - Title 5: other tax revenues including stamp taxes and registration fees.
    - Tax receipts also include taxes borne by the government for the purchase of externally financed capital goods.
  - Nontax revenue:
    - Royalties and dividends (excluding revenue from the sale of telephone licenses).
    - Administrative duties and fees, and fines and forfeitures (Title 6).
    - Other nontax revenue (Title 7), including incidental revenues.
    - Capital revenues (Title 8), including proceeds from sale of government assets but excluding privatization proceeds.
- Government expenditure:
  - Measured at the stage of acceptance by the Treasury, regardless of execution procedure.
  - For regular and simplified procedures: accepted immediately after the payment order is issued.
  - For delegated spending authority or payments without prior payment authorization: accepted at the time payment is ordered; no expenditure is recorded on the basis of adjusting payment orders when adjustment is done.
  - Includes all central government expenditure, subsidies and transfers to autonomous public entities, and loans granted or on-lent by the government to public enterprises and other sectors of the economy, net of repayments on such loans.
- Basic expenditures:
  - Defined as total fiscal expenditure, less expenditures on interest on the external debt and expenditure financed by external grants or loans or by counterpart funds.
- External financing comprises:
  - (i) disbursements of external loans;
  - (ii) principal owed on government external debt net of amortization;
  - (iii) relief and rescheduling of government external debt;
  - (iv) the net change in external arrears (interest and principal, to be shown separately).

### Data to be reported for program monitoring (reporting modalities and deadlines)
- Structural benchmarks:
  - Implementation/execution information on structural benchmarks (as specified in Table 5 of the Supplement) to be reported to the IMF’s African Department within two weeks of the planned date of their collection and/or implementation.
  - Status of implementation of other structural measures included in the program to be transmitted within 30 days of the end of each month.
- Authorities will report the information summarized in Table 1 to the IMF’s African Department by the deadlines set in that table; authorities undertake to supply any additional information requested by Fund staff for program monitoring purposes.
- Selected entries from Table 1 (Type of data — Frequency — Deadline):
  - Central bank balance sheet, consolidated commercial bank balance sheet, monetary survey (at the current exchange rate as well as at the program exchange rate) — Monthly — 30th of the month for previous month’s data
  - Detailed net treasury position (NTP) and net government position (NGP) — Monthly — 30th of the month for previous month’s data
  - Interest rates and stock of government and central bank securities (BDT and TRM) — Monthly — 30th of the month for previous month’s data
  - Prudential indicators for commercial banks — Quarterly — One month after the end of the quarter
  - Foreign exchange budget — Monthly — 30th of the month for previous month’s data
  - Status report, including detailed statement of revenue, expenditure, and cash flow operations — Monthly — 30th of the month for previous month’s data
  - Monthly report of the high-level committee on budgetary revenue monitoring — Monthly — 15th of the month for previous month’s data
  - General Treasury balances — Monthly — 30th of the month for previous month’s data
  - Cash flow plan — Monthly — 30th of the month for previous month’s data
  - Government Fiscal Operations Table (TOFE) — Monthly — 30th of the month for previous month’s data
  - Use of exceptional mining revenues — Quarterly — 30th of the month after the end of the quarter
  - Execution of budgetary expenditures from HIPC resources and other priority expenditures — Monthly — 30th of the month for previous month’s data
  - Balance of current expenditures, VAT credits to be refunded, and domestic debt arrears — Monthly — 30th of the month for previous month’s data
  - Nonbank financing, indicating operations in Guinean francs and those in foreign currencies — Monthly — 30th of the month for previous month’s data
  - Consumer price index, Conakry — Monthly — 30th of the month for previous month’s data
  - National accounts — Annual — Summary estimates: three months after the end of the year
  - Imports by use and exports by major products, trade balance — Quarterly — Three months after the end of the quarter
  - Price and volume indices of imports and exports — Quarterly — Three months after the end of the quarter
  - Consolidated balance of payments estimates — Annual — Summary estimates: six months after the end of the year
  - Debt service due before and after debt relief — Monthly — 30th of the month for previous month’s data
  - Debt service paid — Monthly — 30th of the month for previous month’s data
  - Debt service reconciliation table — Monthly — 30th of the month for previous month’s data
  - End-of-month outstanding debt and stock of daily debt service outstanding (after relief) and unpaid, stock of daily arrears according to the program definition — Monthly — 30th of the month for previous month’s data
  - Drawings on new loans — Monthly — 30th of the month for previous month’s data
  - Disbursements of external grants and loans — Quarterly — 30th of the last month of the quarter for previous quarter’s data

*Source: _cr1695 - 21.      Adjustments related to the net change in “program” arrears:*

### 6.39 million was disbursed end-December 2014. The Bank intends to submit to board approval by

### _cr1695 - 6.39 million was disbursed end-December 2014. The Bank intends to submit to board approval by

### Bank disbursement and planned budget support
- 6.39 million was disbursed end-December 2014.
- The Bank intends to submit to board approval by end-June 2016 an urgent budget support operation (UA 10.5 million) targeting public financial management and the business climate.

### Capacity building and sectoral support plans
- The Bank intends to submit for Board approval a capacity building project aimed at scaling-up and enhancing the government capacity to manage the Simandou Mining project (mining one stop shop, local content policy, communities, etc.).
- By end 2016 the Bank will support two small dedicated capacity building operations targeting:
  - (i) budget management for UA 2 million (revenue generation and fiscal space); and
  - (ii) Central Bank (BCRG) for UA 2 million.
- The Agricultural project the Bank intends to support in 2017 for at least UA 10 million at the beginning of the program will target:
  - governance of the sector;
  - entrepreneurship (including youth); and
  - financing issues (credit and guarantees).

### Energy sub-sector projects
- In the energy sub-sector, two projects were signed at the end of 2013 and began implementation in 2014.
- The first project is the second Conakry Electrical Networks Rehabilitation and Extension Project (PREREC.2) for UA 11 million.
- The second project is the Côte d’Ivoire-Liberia-Sierra Leone-Guinea power regional interconnection project for UA

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1695.pdf*

### 40.2 million that will see the construction of 1,360 km of 225 kV transmission lines and 12

### _cr1695 - 40.2 million that will see the construction of 1,360 km of 225 kV transmission lines and 12

### Infrastructure projects — Energy
- Project scope and expected outcomes:
  - Construction of 1,360 km of 225 kV transmission lines and 12 sub-stations.
  - OMVG interconnection project: construction of a dam and a 240 MW hydro-power plant at Kaleta (already financed by the government with a loan from China).
- Expected impacts from implementation of these projects:
  - (i) an increase in the average electricity access rate;
  - (ii) a reduction in the kWh generating cost;
  - (iii) a reduction in the number of power outages;
  - (iv) the creation of temporary and permanent jobs;
  - (v) a reduction in greenhouse gas emissions.
- Planned future work:
  - Contingent on resource mobilisation, the Bank is working on financing for the Guinee-Mali interconnection project, which could be submitted to the Board approval in 2017.
- Table highlights (ADF/ADB, FSF, Regional & Other Funds; UA million):
  - CLSG Interconnection (electricity) 2013: 16.0 (ADF/ADB) + 24.2 (Regional & Other Funds) = 40.2 (Total).
  - OMVG 2015: 20.0 (Regional & Other Funds) + 30.0 = 50.0 (Total).
  - Guinea-Mali interconnection (energy) 2017: 35.0 (ADF/ADB) = 35.0 (Total).

### Infrastructure projects — Transport
- Regional road priorities and scope:
  - Road Danané (Côte d’Ivoire) — Frontier of Guinea — N’zoo-Lola (Guinea) (part of MRU road development).
  - 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 form part of the Transafrican Dakar-Abidjan-Lagos road.
- Co-financing and feasibility:
  - Bank intends to co-finance in 2017 with the European Union a road program including:
    - Coyah-Farmoriah-Pamelap road towards Sierra Leone,
    - Boké (Guinea)-Quebo (Guinea-Bissau) road (part of ECOWAS Regional Transport Programme),
    - Feasibility studies for the Kankan-Mandiana-Odiene road.
- Table highlights (ADF/ADB, Regional & Other Funds; UA million):
  - Mano River Union road (CI-Liberia, linked to Mali) 2014: 13.1 (ADF/ADB) + 20.3 (Regional & Other Funds) = 33.3 (Total).
  - Coyah-Farmoriah-Pamelap road including a study for the Kankan-Mandiana-Odiene project 2017: 33.0 (ADF/ADB) + 21.0 = 54.0 (Total).
  - Boké-Quebo road 2017: 33.0 (ADF/ADB) + 21.0 = 54.0 (Total).

### Support to private sector operations
- Planned Bank support (2014–17) for high and transformative private sector operations:
  - AfDB envisages contributing to mobilise resources for the infrastructure part of the Simandou mining project.
    - AfDB intends to provide an A loan of about UA 200 million equivalent to about USD 300 million which will leverage at least a USD 700 million billion loan.
    - Africa50 will also contribute to the financing of this project at a later stage.
  - AfDB intends to provide an A loan of about USD 100 million for financing part of the Global Alumina Bauxite project.
  - AfDB will support capacity building and provide technical assistance to enable the government to fulfil commitments pertaining to the implementation of the Simandou project.

### Non-lending operations and capacity building
- Planned economic and sector work (ESWs) and technical assistance:
  - In 2015, the Bank will help finalize, in collaboration with UNDP, ESWs on:
    - (i) private sector profile
    - (ii) local taxation.
  - The Bank will enhance dialogue and provide technical assistance on PPP (PPP law and PPP Unit) and on mining sector governance.
  - Continued Bank support:
    - Implementation of PRSP (direct support to CTSP and SP-SRP coordinating monitoring of reforms and PRSP).
    - Post-Abu Dhabi commitments implementation.
    - Linking macroeconomic/budget framework sector policies and the public investment plan.
    - Support through the FSF programme to the National Statistics Development Strategy (NSDS) and the conduct of the Third General Population and Housing Census (RGPH-III).
- Economic and Sector Work table entries:
  - Study on financial sector reforms 2013: x
  - Private sector profile 2015: x
  - Guinea Vision 2035 2016: x
  - Local taxation 2015: x
  - PPP law 2016: x

### Trust Funds and other financing instruments
- Potential supplementary resources and instruments:
  - ADB private sector window (including enclave operations in mining sector infrastructure).
  - Trust Fund resources to finance complementary operations in sectors covered in the 2012–16 Country Strategy Paper (CSP).
  - Rural Water Supply and Sanitation Initiative strategy preparation.
  - Other instruments:
    - Partial Risk Guarantee Instrument,
    - Global Environment Fund,
    - Africa Carbon Facility and Green Fund.
- Table summary totals (ADF/ADB, FSF (Pillar III), Regional & Other Funds; UA million):
  - Pillar I Sub-Total: 48.0 (ADF/ADB) + 8.5 (FSF) = 56.5 (Total).
  - Pillar II Sub-Total: 182.5 (ADF/ADB) + 121.5 (Regional & Other Funds) = 303.9 (Total).
  - Total: 230.5 (ADF/ADB) + 8.5 (FSF) + 121.5 (Regional & Other Funds) = 360.4 (Total).

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

### Statistical issues and data adequacy (As of March 1, 2016)
- General assessment:
  - Data provision is broadly adequate for surveillance with some key shortcomings in national accounts and fiscal statistics.
- National Accounts:
  - Real sector statistics are incomplete and published with insufficient timeliness.
  - Monthly surveys of mining, industrial and agricultural production are produced with delays.
  - A series based on 1993 SNA was released in August 2014.
  - National Institute of Statistics plans to implement the 2008 SNA with 2015 as new benchmark year.
- Price Statistics:
  - Monthly CPI covers only Conakry, published timely with 2002 as base year.
- Government Finance Statistics:
  - Ministry compiles comprehensive monthly central government data: revenue on a cash basis; expenditure on commitment and cash basis; national presentation not comparable to international standards.
  - Need to modernize compilation methodology of the government operations tables (TOFE) and implement GFSM 2001/2014.
  - Cash-based general accounts must be improved and gradual implementation of accrual accounting needed.
  - Debt office data of fair quality but does not yet include financing of new infrastructural projects.
- Monetary and Financial Statistics:
  - Central Bank and deposit money bank accounts and monetary survey compiled monthly for program monitoring.
  - Delays in commercial bank data; migration to new accounting system at Central Bank caused frequent data changes and delays.
  - Monetary data used to assess program performance are certified by an independent external auditor on a regular basis.
  - Monetary and financial sector data reports to STA experience delays; latest available data corresponds to June 2012.
  - In January 2014, STA provided TA to the BCRG to start reporting monetary data using SRFs.
- External Sector Statistics:
  - Central Bank compiles annual Balance of Payments and International Investment Position statistics in line with BPM5.
  - A balance of payments survey implemented with response rate over 75 percent.
- Data Standards:
  - Guinea participates in the General Data Dissemination System, but metadata have not been updated since 2003.
  - No data ROSC is available.

### Debt Sustainability Analysis (DSA) — Sixth and Seventh Reviews under the ECF Arrangement
- Overall conclusion:
  - The DSA concludes that Guinea continues to face a moderate risk of debt distress, but debt vulnerabilities have deteriorated.
- Key updates and drivers:
  - Compared to prior DSA:
    - Actual external debt stock at end-2015 was lower than previously projected.
    - Domestic debt was substantially higher, reflecting recourse to sizeable central bank and commercial bank borrowing, and central bank guarantees on private sector loans.
    - In the near term, the DSA includes a sharp fiscal adjustment, resulting in lower financing needs.
    - External borrowing is slightly lower, while the share of concessional borrowing is lower in the longer run.
    - Macroeconomic assumptions updated to reflect lower world commodity and food prices, faster depreciation of the GNF vis-a-vis the US dollar, and a 3–4-year delay in the start of iron ore exports from the Simondou mining project.
- Baseline and stress-test results:
  - Under the baseline scenario, there are no breaches of the respective policy-dependent thresholds for any of the debt indicators.
  - Stress tests suggest that vulnerability of the external debt outlook to adverse macroeconomic shocks has deteriorated.
  - After taking into account domestic debt, Guinea’s overall risk of debt distress is now heightened.
- Historical context and recent debt trajectory:
  - Following Guinea’s completion point under the enhanced HIPC Initiative in 2012, external debt position and vulnerability improved.
  - Since 2012 government used borrowing space to finance investment plans, notably in energy and road sectors; Kaleta hydroelectric dam construction and transmission extension/rehabilitation account for a large part of the rise in external debt.
  - Outstanding public and publicly guaranteed (PPG) external debt increased from $1.1 billion at end-2012 to 1.7 billion at end-2015.
- Policy recommendations to maintain sustainability:
  - Rely primarily on concessional sources of external financing.
  - Support public spending needs for investment primarily through efforts to enhance revenue performance.
  - Sustain the near-term realignment in fiscal spending and revenues over the long-term.
  - Advance structural reforms and improvements in the business environment, particularly in mining and agriculture, to realize growth potential, increase resilience to exogenous shocks, and promote economic diversification.
  - Strengthen debt management:
    - Complete and operationalize the National Public Debt Policy Statement, a manual of operational procedures in the debt department, and a medium-term debt strategy (2015-19).
    - Better coordination and management of debt through the National Committee for Public Debt (CNDP).

*Prepared by the International Monetary Fund and the International Development Association; March 3, 2016.*

### 19.7 percent at end-2012 to 27.7 percent at end-2015.

### _cr1695 - 19.7 percent at end-2012 to 27.7 percent at end-2015.

### External public debt stock and arrears
- Total external public debt (end-2015): "Total" US Dollars (millions) 1,723.6; Percent of Total 100.0; Percent of GDP 27.7.
- Total, including C2D: US Dollars (millions) 1,862.5; Percent of Total 108.1; Percent of GDP 29.9.
- Multilateral Creditors: US Dollars (millions) 684.0; Percent of Total 39.7; Percent of GDP 11.0.
  - IMF: US Dollars (millions) 197.9; Percent of Total 11.5; Percent of GDP 3.2.
  - World Bank: US Dollars (millions) 161.1; Percent of Total 9.3; Percent of GDP 2.6.
  - AfDB Group: US Dollars (millions) 111.2; Percent of Total 6.5; Percent of GDP 1.8.
  - IsDB: US Dollars (millions) 113.0; Percent of Total 6.6; Percent of GDP 1.8.
  - EU: US Dollars (millions) 0.0; Percent of Total 0.0; Percent of GDP 0.0.
  - Other Multilateral Creditors: US Dollars (millions) 100.8; Percent of Total 5.8; Percent of GDP 1.6.
- Official Bilateral Creditors: US Dollars (millions) 980.0; Percent of Total 56.9; Percent of GDP 15.7.
  - Paris Club (excl. C2D): US Dollars (millions) 53.5; Percent of Total 3.1; Percent of GDP 0.9.
  - Non-Paris Club: US Dollars (millions) 795.5; Percent of Total 46.2; Percent of GDP 12.8.
  - Arab Funds: US Dollars (millions) 131.0; Percent of Total 7.6; Percent of GDP 2.1.
- Commercial Creditors: US Dollars (millions) 59.6; Percent of Total 3.5; Percent of GDP 1.0.
- Memo — Arrears (end-2015): US Dollars (millions) 148.1; Percent of Total 8.6; Percent of GDP 2.4.
  - Arrears primarily to non-Paris Club official bilateral creditors ($88.5 million) and commercial creditors ($65.6 million).
  - Arrears concern debt outstanding on which there is no remaining debt service obligations falling due.
  - Authorities invited these creditors for discussions on debt relief and normalization; most creditors have not responded nor requested payment.

### Public domestic debt developments (2013–2015)
- Public domestic debt rose by almost 65 percent from end-2013 to end-2015 (from 20.3 percent to 28.2 percent of GDP).
- Drivers of the increase:
  - Revenue shortfalls and spending pressures linked to the fight against the Ebola epidemic.
  - Issuance of guarantees by the central bank (BCRG) in 2014–15 on loans by local banks pre-financing public projects.
  - In 2015: large run-up in central bank advances to the government; issuance of medium-term bonds to commercial banks; net issuance of short-term treasury bills to commercial banks (equivalent to just over 1½ percent of GDP).
- Composition of domestic debt at end-2015:
  - "dette conventionnée" owed to the central bank: 44.3 percent of domestic debt.
  - Treasury bills held by domestic banks: 20.1 percent.
  - Central bank loan guarantees to local banks: 14.7 percent.
  - Central bank advances: 12.8 percent.
  - Securitized debt to enterprises: remainder.

### Central bank guarantees of public investment projects (Box 1)
- BCRG issued guarantees during 2014 and 2015 to local and foreign banks on behalf of 12 companies executing public works contracts.
- Total value of public works contracts: 15.2 percent of GDP ($1,017 million), of which 85 percent benefited from central bank guarantees, most in foreign exchange.
- Guarantees add about USD72 million dollars to the stock of public and public-guaranteed external debt.
- Guarantees were called on the central bank in 2015 due to budgetary revenue shortfalls and less-than-expected external budget support; the central bank charged the payment against the government’s account, triggering large central bank financing of the government.
- To protect international reserves and contain central bank financing in 2015, authorities engaged banks in restructuring discussions; planned investments were either cancelled or guarantee payments rescheduled.
- The DSA consolidates the guarantees as part of public sector debt and uses the restructured amounts and payment profile.

Text Table — Guarantees of Public Works Contracts (Before and After Restructurings)
- Total (USD Million): Before Restructurings 870.8; After Restructurings 601.0.
- Total (Percent of GDP): Before Restructurings 13.0; After Restructurings 9.0.
- Sector breakdown (USD Million / Percent of GDP):
  - Roads: Before Restructurings 366.2 / 5.5; After Restructurings 233.1 / 3.5.
  - Electricity services: Before Restructurings 443.0 / 6.6; After Restructurings 308.9 / 4.6.
  - Water services: Before Restructurings 22.5 / 0.3; After Restructurings 22.5 / 0.3.
  - Other: Before Restructurings 39.1 / 0.6; After Restructurings 36.5 / 0.5.
- Currency Composition (Percent): Before Restructurings vs After Restructurings shown as GNF / EUR / USD (chart values preserved in text form: Before Restructurings 49.5 / 51.8 / 33.1 / 23.0 / 17.4 / 25.2 — presented in source as comparative percent bars).

Additional note on guarantees:
- In 2014–15, central bank guarantees initially amounted to 13 percent of GDP (of which 3 percent was to foreign banks); guarantees were restructured in 2015 and reduced by about one-third to 9 percent of GDP (of which 1 percent of GDP to foreign banks).
- Guarantees falling due in 2016, and associated spending, were reduced by 2.2 percent of GDP, to 2.3 percent of GDP.

### Comparison with previous DSA and drivers of divergence
- Public debt at end-2015: 55.7 percent of GDP versus projected 46.0 percent in the last DSA (base year 2013).
- Reasons for divergence:
  - Lower-than-projected external debt stock at end-2015 primarily due to significantly lower external borrowing during 2014–15.
  - Projected external debt relief (about $60 million) in 2015 did not materialize; offset by unforeseen debt relief: debt cancellation from France (about $40 million) and IMF’s Catastrophe and Containment Trust (about $30 million) to help cope with Ebola.
  - Nominal GDP in US dollar terms lower than projected in 2015 due to a more depreciated GNF/USD exchange rate (in 2015, base year, the GNF/USD exchange rate was more depreciated than assumed in the last DSA by 7 percent on average and 13 percent at end-year).
  - Higher-than-projected domestic debt stock due to:
    - Central bank guarantees on bank loans to public works contractors.
    - Sharp increase in central bank advances to the government because of a shortfall in budget revenues.
    - Securitization of the public utility’s debt to the private sector.

### Underlying assumptions and baseline changes relative to the 2015 LIC-DSA
- Simandou iron ore project:
  - Start-up of production projected delayed by three years to late 2023–24.
  - Construction phase and related infrastructure also delayed.
- Real GDP growth:
  - Projected somewhat lower during 2016–20 reflecting a more muted rebound partly due to lower commodity prices.
  - Long-run growth rate slightly higher, primarily reflecting addition of new bauxite production during 2015–17, adding one third to previously projected levels.
- Nominal GDP in US dollar terms:
  - Lower due to more depreciated national currency (GNF/USD exchange rate more depreciated in 2015 by 7 percent on average and 13 percent at end-year relative to last DSA assumptions).
- Fiscal assumptions:
  - Primary fiscal deficit is lower, particularly in the medium term, because of sharp fiscal realignment in the near term and stronger assumed revenue effort over the long run.
  - Revenue measures in the 2016 budget projected to yield additional revenue of just over 2 percent of GDP; include increase in the VAT rate from 18 percent to 20 percent.
  - Projected current spending reflects lower subsidies and transfers offsetting the medium-term impact of the 2015–16 increase in civil servant salaries.
  - Decline in budget subsidies due to lower transfers to the public electric utility thanks to lower fuel prices, planned tariff increase, and cost savings from improved governance via a private sector management contract.
  - Grants projected higher in 2016 reflecting committed multilateral budget support; sustained over medium term for post-Ebola recovery.
- External current account and FDI:
  - Imports reflect lower projected import prices for oil, other commodity, and food prices.
  - Near-term external current account projected to improve on the back of lower oil and food import prices.
  - Decline in world iron ore and bauxite prices has virtually no impact because iron ore production is not projected until Simandou comes on stream; bulk of bauxite prices set in long-term contracts that pre-date recent declines.
  - Medium-term imports for the mining sector and FDI reflect delay in Simandou construction phase.
  - Exports slightly lower on average over the long term than in last DSA due to delayed iron ore exports and lower food prices; partly offset by higher bauxite exports with new production coming on stream 2015–17.
- Debt and debt service assumptions:
  - Domestic debt higher over the medium term than in last DSA reflecting higher 2015 debt stock.
  - Debt service higher because of:
    - Repayment over 6 years of advances to the government by the central bank in 2015.
    - Payments on government-securitized liabilities of EDG.
    - Payments on guarantees falling due through to 2019.
  - Included actual terms of a 2015 medium-term bond issue: interest rate of 12 percent and amortization over 5 years; amount GNF 550 billion (GNF 150 billion higher than in the last DSA).
  - External debt projections assume arrears are cleared one year in 2016 (previously 2015) and incorporate debt relief (rescheduling and partial cancellation (50 percent)) from France on loans to two public utilities.
- New external borrowing:
  - Slightly lower on average reflecting lower overall fiscal deficits.
  - Projections assume share of new borrowing from concessional multilateral financing falls progressively from 60 percent to 10 percent (60–30 percent in the last DSA).

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

### Box 2. Guinea: Macroeconomic Assumptions for 2015–36

### Box 2. Guinea: Macroeconomic Assumptions for 2015–36

### Medium- and long-term scenario overview
- Assumptions are influenced heavily by the lasting effects of the Ebola outbreak, assume a large mining project starts production in 2023, and that sound macroeconomic policies are implemented.
- Growth drivers include: post-Ebola recovery, the Simandou iron ore project (production start in 2023), support to agriculture, expansion of electricity supply (Kaleta hydroelectric dam), improvements in the business environment, and greater integration of mining activities into the local economy.

### Real GDP growth
- Ebola impact:
  - 2014–15: average growth projected at 0.6 (Ebola-imposed slowdown; agriculture and services significantly affected).
- Rebound and medium term:
  - 2016–22: growth expected to rebound to an average of 5.7 percent.
- Mining project impact:
  - 2023–28 (including Simandou): projected at 6.2 percent as Simandou production begins and ramps up.
- Long run after mining full capacity:
  - After 2029: projected average growth of 4.3 percent per year.
- Non-mining sector contribution:
  - Projected to contribute a growth impulse of about 5 percent per year over the long run.

### Inflation
- Decline observed:
  - From 21 percent in December 2010 to about 7 percent in December 2015.
- Projection:
  - Projected to fall to 5 percent by 2019.
  - Long-run (GDP deflator in US dollar terms): projected around 4½ percent (stated as "around 4½ percent").

### Fiscal policy and public expenditure
- 2015 fiscal outcome:
  - Overall fiscal deficit (excluding grants) expected to deteriorate to 10.6 percent of GDP in 2015, reflecting costs of guaranteed investments, additional transfers to EDG, establishment of new constitution-mandated institutions, and a 40 percent increase in base salaries.
- Medium term fiscal path:
  - From 2016 onwards: overall deficit expected to decline to between 5 and 6 percent in the final years of the current decade.
  - Outer years of projection period: roughly 2 percent of GDP.
- Adjustment drivers:
  - Strong revenue measures and sharp realignment of expenditures with available financing, including reductions in domestically-financed capital expenditures.
- Central bank financing and exceptional mining revenues:
  - No central bank financing or exceptional mining revenues are projected after 2015.
- Investment and spending composition:
  - Increased mining revenues in the mid-2020s assumed to allow further increase of domestically-financed investment.
  - Total investment expenditures would rise gradually to just over 12 percent of GDP in the long run.
  - Current spending would gradually decline as a share of GDP and be just over 15 percent of GDP on average after 2030.

### External current account (excluding official transfers)
- Commodity price effects:
  - Recent significant fall in world oil price and declines in other commodity and rice prices will have a positive impact on external accounts over the medium term.
- Simandou project impacts:
  - Current account deficit expected to expand beginning in 2017 and peak at almost 51 percent of GDP by 2024 as imports and services for Simandou ramp up (preparatory and construction phases).
  - Current account projected to move into surplus in 2025 as mining investment imports decline and mining exports come on stream.
  - Mining exports rise through 2029 and then stabilize.
  - From 2029 onward: external current account moves back into deficit as non-mining GDP expands (fueling import growth) and distribution of large mining profits begins.
- International reserves:
  - After falling to 2.3 of months of imports at end-2015, the international reserve position is expected to recover steadily and reach just over 6 months of imports over the long run.

### External financing and grants/loans composition
- Grants and loans:
  - Official grants expected to pick up in 2016 and amount to around 4 percent of GDP.
  - Loans expected to amount to 3–4 percent of GDP over the medium term.
  - Over the remainder of the projection horizon, grants financing would gradually decline.
  - Loans would decline as domestically-financed investment (backed by rising mining revenues) substitutes for externally financed investment, but then would increase somewhat towards the end of the projection period.
- Concessionality of new borrowing:
  - Share of concessional loans expected to decline over time:
    - 60 percent during 2016–18
    - 40 percent during 2019–23
    - 30 percent during 2024–27
    - Gradually decline thereafter to 10 percent by 2034

### Foreign direct investment (FDI)
- Net FDI path:
  - Surge expected during 2017–23, peaking at around 40 percent of GDP in 2019–20 due to mining-related activities buildup.
  - Subsequently net FDI falls, turning negative during 2025–28 as mining profits are repatriated.
  - Net FDI then turns positive again on the back of broad based FDI inflows.

### LIC DSA key macro assumptions (selected figures from Table 2)
- Note: Table expresses ratios in terms of GDP excluding Simandou (consistent with main text).
- Selected nominal and real GDP and fiscal/balance figures (as presented):
  - Nominal GDP ($ Million): 6,638; 7,155; 12,174; 19,997; 33,084; 6,696.2; 8,744.4; 15,292.6; 32,027.2
  - Real GDP (Percentage change): 0.4; -0.3; 8.2; 5.0; 4.5; 0.1; 6.3; 6.0; 4.6
  - Nominal GDP, excl. megaprojects ($ Million): 6,637.5; 7,154.9; 11,130.7; 15,357.6; 27,487.3; 6,696.2; 8,744.4; 12,692.2; 27,006.1
  - Real GDP, excl. megaprojects (Percentage change): 0.4; -0.3; 5.1; 4.4; 4.8; 0.1; 6.3; 4.4; 4.9
  - Revenue and grants: 25.3; 25.7; 23.5; 25.2; 24.9; 19.3; 25.9; 27.6; 27.4
  - Primary Expenditure: 28.9; 32.5; 23.9; 25.5; 25.3; 27.4; 26.9; 27.5; 28.2
  - Of which: Capital expenditure and net lending: 11.9; 13.0; 8.7; 10.1; 10.5; 10.0; 12.9; 13.1; 13.3
  - Primary Fiscal Balance: -3.6; -6.7; -0.5; -0.3; -0.3; -8.1; -1.1; 0.1; -0.7
  - New external borrowing: 5.3; 7.5; 2.2; 1.8; 1.6; ...; 3.1; 1.8; 2.0
  - Grant element of new external borrowing (%): 37.9; 34.0; 44.0; 44.1; 44.1; 93.5; 16...; 44.0; 41.8; 23.2
  - Exports of goods and services: 23.4; 23.1; 34.4; 76.9; 48.7; 21.0; 22.1; 67.0; 49.8
  - Imports of goods and services: -40.3; -37.0; -75.5; -60.5; -46.8; -40.6; -70.2; -58.7; -45.5
  - Current account (including transfers): -18.1; -14.0; -41.2; 8.9; -7.8; -22.4; -47.3; 7.2; -6.1
  - Foreign direct investment: 0.9; 1.0; 43.7; 5.9; 4.4; 1.3; 44.5; 4.2; 4.4
- Source note in table: figures exclude C2D related grants from fiscal revenue and grants and balance of payments grants; includes publicly guaranteed external borrowing; table ratios are in terms of GDP excluding Simandou.

### External debt sustainability (LIC-DSA) — external debt
- Baseline assessment:
  - Results confirm that Guinea’s debt dynamics are sustainable.
  - Risk of debt distress remains at a moderate level (unchanged from previous DSA).
- Improvement drivers:
  - Baseline debt indicators improved compared to previous DSA and remain below policy-dependent thresholds.
  - Medium-term improvement reflects sharp fiscal adjustment in 2015 and realignment of fiscal spending to available financing.
  - Addition of bauxite production by 1/3 during 2015–17 and long-term contract prices that pre-date recent ore price falls contributed to improved debt indicators relative to exports.
- Data caveats:
  - Relatively large external debt dynamic residuals in some years reflect weaknesses in coverage of balance of payments data; interpret results with caution.
- Debt-service dynamics:
  - Rise in debt-service-to-exports indicator in early 2020s due to onset of IMF repayments and amortization on projected new debt; subsequent decline owed to end of IMF repayments and onset of iron ore exports.

### Alternative scenarios and stress tests
- Indicators deterioration:
  - Under alternative scenarios and bound tests, debt vulnerabilities deteriorated.
  - Under alternative scenarios, debt indicators breach thresholds only under the historical average test.
- Historical average test details:
  - Worsening reflects 2-year shift in 10-year period used to calculate average current account deficit (16.2 percent of GDP compared to 10.2 percent in last DSA).
- Bounds tests:
  - Breaches occur only for debt stock indicators under GDP, exports, and non-debt creating inflows shocks and in the combination shock.
  - Breaches range from 2 to 6 years.
- Relative to last DSA:
  - Under the most extreme shock, debt vulnerability indicators are worse than in the last DSA; breaches of debt-to-GDP and debt-to-exports thresholds are larger and longer in duration.
  - Threshold for debt-to-revenue indicator is breached under the combination shock (was not breached in last DSA).

### Souapati dam and large infrastructure projects
- Souapati dam proposal:
  - Government intends to build a major 550 MW hydroelectric dam (Souapati).
  - Reported cost range: USD1.2-1.6 billion (around 20 percent of GDP and greater than external debt at end-2015).
  - In 2015 the government signed a protocol with a private stakeholder for a joint venture under a PPP structure; protocol envisages mix of equity and debt financing and potential sale of part of government equity in Kaleta to meet participation.
- Fiscal and debt implications:
  - Sizeable government participation in financing on commercial terms could majorly affect fiscal and external debt sustainability and risk breaching thresholds for moderate risk of debt distress.
  - Under DSA assumptions, sizeable non-concessional government debt financing in next few years would risk breaching thresholds and significantly raise debt service costs and crowd out capacity to take on other debt.
- Potential benefits:
  - Construction would more than double existing energy capacity, could raise growth, support mining expansion, boost government revenues (including via higher growth), finance priority spending, and strengthen fiscal and debt sustainability in the longer term.
  - Could contribute to OMVG regional electricity project by exporting surplus electricity to neighboring countries, reducing their dependence on oil imports and supporting their growth.
- Staff recommendations and cautions:
  - No decisions yet on government equity stake or participation in debt financing; studies pending.
  - Bank and Fund staff stand ready to work with authorities to ensure any agreement is transparent, highly concessional as possible, does not jeopardize debt sustainability, and has a high economic return.
  - PPPs can be useful to preserve external debt sustainability but carry risks of contingent liabilities; government capacity must be strengthened to avoid assuming contingent liabilities and to ensure revenue projections cover PPP financing costs.

### Total public debt (including domestic debt)
- Near-term impact of including domestic debt:
  - PV of total public debt-GDP indicator is marginally below threshold in 2016: 37.7 percent compared to threshold of 38 percent.
  - Large run up in domestic debt and debt guarantees in 2015 pushed indicator above public debt benchmark threshold at 45.6 percent in 2015.
  - With public debt close to or above benchmark, overall risk of debt distress is heightened.
- Outlook:
  - Indicator declines rapidly during 2016–17 when bulk of debt guarantees are extinguished.
  - In the longer term the indicator improves steadily as remaining new domestic debt accumulated in 2015 is repaid and amortization payments on the “dette conventionée” owed to the central commence in 2023.

### Conclusion (debt risk and vulnerabilities)
- Overall assessment:
  - Guinea remains at a moderate risk of debt distress, risk rating unchanged from previous DSA (February 2015).
  - In the baseline, all debt indicators remain below policy-dependent thresholds.
  - Stress tests indicate external debt outlook has become more vulnerable to macroeconomic shocks, particularly growth, exports, FDI flows and fiscal performance.
  - Inclusion of domestic debt leads to temporary deterioration in debt indicators because of sizeable one-off net issuance of domestic debt and bank loan guarantees in 2015, but does not significantly change the overall moderate risk designation.

*Source: Box 2. Guinea: Macroeconomic Assumptions for 2015–36, IMF staff report content provided.*

### conclusions of the external DSA, in particular as regards vulnerabilities to the public debt outlook. However,

### _cr1695 - conclusions of the external DSA, in particular as regards vulnerabilities to the public debt outlook. However,

### Key conclusions
- The sharp rise in total public debt in 2015 has significantly increased the debt service burden in the short term and heightened the overall risk of debt distress.
- It will be important to carefully monitor and contain the accumulation of new debt to avoid a rapid increase in the burden of debt service given limited budget flexibility (resulting from the sharp fiscal adjustment in 2015 and the burden of the bank loan guarantees) and the need to preserve priority spending.
- Sound macroeconomic policies and prudent debt management are essential to maintain a sustainable fiscal and external position and reduce external vulnerabilities.
- A strong structural reform effort and improvements in the business environment are needed to realize Guinea’s growth potential, particularly in the mining and agriculture sectors, and to improve fiscal and export revenue performance.
- Authorities concurred with the analysis and conclusions of this DSA.

### Vulnerabilities to the public debt outlook
- Short-term increase in debt service burden due to the 2015 rise in total public debt.
- Limited budget flexibility because of:
  - the sharp fiscal adjustment in 2015;
  - the burden of bank loan guarantees (payments related to guarantees are recorded under the investment budget as project expenditures).
- Contingent liabilities and guarantees remain a source of fiscal risk; the central bank will revise its statutes to ban the issuance of guarantees for private sector loans.
- Use of PPPs to mobilize private financing should be carefully monitored for direct or contingent liabilities to avoid compromising fiscal and debt sustainability.

### Debt management reforms and policy recommendations
- Reforms nearing completion:
  - National Public Debt Policy Statement.
  - Manual of operational procedures in the debt department.
  - Medium-term debt strategy (2015–19).
- Further actions requested/underway:
  - Government requested technical assistance to carry forward reforms and render them effective.
  - Requested TA from AFRITAC to improve programming of domestic debt issuance.
  - Ensure full effectiveness of reforms for better coordination and management of debt, in particular through the National Committee for Public Debt (CNDP), to ensure all new government and central bank borrowing and guaranteed borrowing is in line with the national public policy statement and fully monitored.
  - Amendments to the Central Bank law to forbid guarantees to private entities (to be submitted to the National Assembly by April 2016).
  - Strengthen monitoring of new external loans and guarantees; improve enforcement of the public procurement code; audit public procurement contracts that benefitted from Central Bank guarantees.
  - Restructured, cancelled, and transferred to the treasury a portion of existing guarantees.

### DSA projections and selected indicators (baseline and fiscal context)
- Public sector debt:
  - 2013: 42.8 (percent of GDP)
  - 2014: 47.1
  - 2015: 55.7
  - 2016 (estimate): 49.4
  - 2016-21 Average: 44.3
  - 2026: 25.6
  - 2036: 18.3
- Foreign-currency denominated (public sector):
  - 2013: 22.5 (percent of GDP)
  - 2014: 29.1
  - 2015: 29.7
  - 2016: 29.9
  - 2016-21 Average: 28.2
  - 2026: 22.1
  - 2036: 17.3
- PV of PPG external debt (percent of exports):
  - 2016: 83.0
  - 2017: 72.4
  - 2018: 70.9
  - 2019: 72.2
  - 2020: 76.0
  - 2021: 79.2
  - 2026: 22.0
  - 2036: 26.6
- Debt service and debt burden ratios:
  - Debt service-to-exports ratio (in percent): 2016: 3.1; 2017: 3.1; 2018: 3.9; 2019: 7.2; 2020: 6.0.
  - PPG debt service-to-revenue ratio (in percent): 2016: 3.8; 2017: 3.7; 2018: 4.6; 2019: 8.2; 2020: 6.8.
  - Debt service-to-revenue and grants ratio (in percent): 2016: 8.6; 2017: 8.0; 2018: 8.7; 2019: 11.8; 2020: 9.8.
- Gross financing need (Billions of U.S. dollars):
  - 2013: 1.6
  - 2014: 1.7
  - 2015: 1.4
  - 2016: 0.6
  - 2017: 0.5
  - 2018: 0.3
  - 2019: 0.6
  - 2020: 0.3
  - 2021: 0.5
  - 2026: 0.3
  - 2036: 0.7

### Stress tests, scenarios, and sensitivity analysis
- The most extreme stress tests through 2026 are generally Combination shocks across indicators (debt accumulation, PV of debt-to-GDP, PV of debt-to-exports, PV of debt-to-revenue, debt service-to-exports, debt service-to-revenue).
- Selected baseline projection snapshots (from sensitivity tables):
  - PV of debt-to-GDP ratio (projection series includes values; baseline examples): 2016: 72? (table context presents multiple series; stress variants produce higher ratios).
  - PV of debt-to-exports ratio and PV of debt-to-revenue ratio show large increases under adverse scenarios (see stress tables for scenario-specific percent outcomes).
- Bound tests include:
  - B1. Real GDP growth at historical average minus one standard deviation.
  - B2. Export value growth at historical average minus one standard deviation (exports assumed permanently lower).
  - B3. US dollar GDP deflator at historical average minus one standard deviation.
  - B4. Net non-debt creating flows at historical average minus one standard deviation.
  - B5. Combination of B1–B4 using one-half standard deviation shocks.
  - B6. One-time 30 percent nominal depreciation relative to the baseline in 2017.
- Alternative Scenarios include:
  - A1. Key variables at their historical averages in 2016–2036.
  - A2. New public sector loans on less favorable terms in 2016–2036 (assumes interest rate on new borrowing is by 2 percentage points higher than baseline; grace and maturity unchanged).

### Authorities' statement and recent economic developments
- Statement by Ngueto Tiraina Yambaye, Executive Director for Guinea and Siradiou Bah, Senior Advisor to Executive Director — March 14, 2016.
- Key points from the authorities:
  - Appreciation for IMF support via ECF, RCF, CCR trust; IMF support was instrumental in maintaining macroeconomic stability and mobilizing donor assistance.
  - Guinea declared Ebola free by WHO; authorities will intensify reform efforts and need continued development partner assistance.
  - Ebola epidemic (Dec 2013–Nov 2015): over 3,300 affected, 2,083 died; economic activity slowed considerably; growth rate in 2015 was less than 1 percent.
  - Additional shocks: sharp decline in commodity prices and political uncertainty ahead of Oct 2015 presidential elections.
  - Impact on program implementation: several end-June 2015 performance criteria were missed mainly due to central bank guarantees and public investment to contain Ebola impact and maintain growth.
  - Corrective measures and requests:
    - Enhanced information sharing with Fund staff on external debt.
    - Amend Central Bank law to forbid guarantees to private entities (to be submitted by April 2016).
    - Strengthen monitoring of external loans and guarantees; improve public procurement enforcement; implement debt management measures consistent with Public Debt Policy.
    - Restructured, cancelled, and transferred to the treasury a portion of existing guarantees.
    - Request for waiver for non-observance of continuous performance criterion on ceiling on new medium-and long-term non concessional external debt contracted or guaranteed by central government or BCRG.
    - Request extension of the ECF arrangement to end-October 2016 to assess implementation at end-June 2016 and rephasing of remaining disbursement; request waivers of nonobservance of performance criteria at end-2014 and end-June 2015.
- Recent macro-fiscal developments:
  - Basic fiscal deficit increased to 7.1 percent of GDP in 2015.
  - Foreign exchange reserves fell to 2.3 months of imports at end-2015 from 3.6 months in 2014.
  - Inflation has continued to fall (series truncated in source).

*Sources: Country authorities; and staff estimates and projections as presented in the DSA and accompanying statement.*

### 7.3 percent at end-December 2015 and the current account improved in 2015 due mainly to a

### _cr1695 - 7.3 percent at end-December 2015 and the current account improved in 2015 due mainly to a

### Economic performance and outlook
- Growth slowed through 2014–2015 with the financing situation making full implementation of the ECF-supported program difficult.
- External/current account: "the current account improved in 2015 due mainly to a decline in imports reflecting the slowdown in growth."
- Reserve and inflation objectives:
  - Central Bank international reserves target: "cover 3 months of imports of goods and services."
  - Inflation target: "kept within single digit figures."
- Growth projections:
  - "growth is projected to rebound to 4 percent in 2016"
  - "increase to about 6 percent over the medium-term."
- Key contributors to projected growth: "Continued growth of agriculture, thanks to intensified use of fertilizers and irrigation, the return of investors, notably in the mining sector, the full use of the Kaleta hydroelectric dam capacity and the implementation of the post-Ebola recovery plan."

### Fiscal policy (2016)
- Broad objectives:
  - "reduce significantly the budget deficit while limiting the financing from the banking system."
  - 2016 budget: "fully financed and in line with the revised program."
  - Basic fiscal balance target: "reduced to -0.4 percent of GDP."
- Revenue measures adopted:
  - "(i) increasing the VAT rate from 18 to 20 percent;"
  - "(ii) extending the VAT to flour and edible oils;"
  - "(iii) raising excise taxes on tobacco, alcohol and vehicles"
  - "(iv) updating the reference values on imports by land"
  - "(v) increasing some service costs on registrations"
  - "(vi) administrative measures related to taxes."
- Expenditure strategy:
  - Expenditures will be "kept at 25. 7 percent of GDP" with a "sharp downsizing of domestically financed spending."
  - Measures to reduce public spending:
    - "(i) across-the-board cuts on all outlays on goods and services;"
    - "(ii) improved governance at the electricity company and thanks to the impact of lower oil prices save almost 2 percent of GDP;"
    - "(iii) the exclusion from the public payroll of all workers non identified in the context of 2015 biometric census."
  - Additional fiscal actions: "wind down some projects started in 2015; postpone all new projects to after 2016; renegotiate some projects guaranteed by the Central Bank."
  - Intended fiscal-financial outcomes: "less recourse to commercial banks credit and allow for partial repayment of the 2015 Central Bank advances."
  - Fiscal contraction aim: "facilitate the central bank’s implementation of its monetary policy and provide room for a healthy increase in commercial bank credit to the private sector."

### Debt management and risk
- External debt risk assessment: "recent debt sustainability analysis (DSA) that concludes that Guinea continues to face a moderate risk of debt distress although debt vulnerabilities have increased."
- Policy commitments:
  - "rely on concessional sources of external financing."
  - Strengthen debt management capacity to "execute a prudent borrowing policy and manage contingent risks."
- Institutional steps:
  - Operationalization of "the national Public Debt Policy statement, a manual of operational procedures in the debt department and a medium-term strategy for 2015–19."
  - "coordination and management of debt will be further enforced through the National Committee for Public Debt."

### Monetary and financial policies
- Monetary policy objectives: "containing inflation and increasing the central bank’s international reserves while supporting economic activity."
- Interaction with fiscal policy: "The fiscal contraction envisaged for 2016 will help contain inflationary pressures and keep inflation in single digits."
- Operational changes and reforms:
  - January 2016 reform: "introduced in January 2016 a reform in the determination of the foreign exchange rate to modulate bank liquidity in Guinean francs through the use of monetary regulation securities."
  - Plans to "introducing a second refinancing window to enhance the money market."
  - Under World Bank assistance: "a Credit Information System will be established to support risks analysis by the banks and improve the distribution of credit."
  - Central Bank governance reforms: "continue implementing the reforms recommended by the safeguards assessment" and "adopt by April 2016 a draft revision of its status prohibiting the issuance of guaranties for the private sector."

### Structural reforms
- Public financial management:
  - Enforce measures "to limit contingent liabilities" and ensure "compliance of budgetary and accounting management of public agencies with LORF provisions."
  - "A timetable for clearing domestic arrears for the 2005–10 budgets will be approved by April 2016."
- Civil service and administration: "make further progress in the reform of the administration and civil service to contain the wage bill and modernize and enhance the public administration."
- Mining sector reforms:
  - Improve environment for large mining projects and ensure effective implementation of the mining code.
  - Strengthen "the Interministerial Committee for the Monitoring of Integrated Mining Projects (CISPMI)" to "facilitate and accelerate administrative procedures required for a rapid implementation of mining projects."
- Energy sector:
  - Infrastructure: "they have successfully built the Kaleta hydroelectric dam to produce more than 200 megawatt."
  - Operational reform: "signed a management contract to improve the electricity company (EDG) technical, commercial and financial performance."
  - Future plans: "develop other priority projects while ensuring the sustainability of their financing as well as the external public debt."

### Program implementation and requests to the Fund
- Program status: Implementation of the ECF-supported program was "in a difficult environment" in 2014 and 2015 and "adversely impacted on the program performance."
- Authorities’ commitments: "remain strongly committed to continue implementing, under the ECF-supported arrangement, the needed policies and reforms to foster higher and sustained growth, alleviate poverty and preserve the macroeconomic stability."
- Specific requests:
  - "they have requested an extension of the ECF arrangement to end-October 2016 and a re-phasing of the remaining disbursements under the arrangement."
  - Request for IMF support: "would greatly appreciate Directors support for our Guinean authorities’ efforts by granting the requested waivers and extension and completing the sixth and seventh reviews under the ECF-arrangement."

*Document: _cr1695 - 7.3 percent at end-December 2015 and the current account improved in 2015 due mainly to a*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1695.pdf_