Press Release No. 10/364

Press Release: Statement at the end of an IMF Mission to Guinea-Bissau

September 29, 2010

An International Monetary Fund (IMF) mission led by Mr. Paulo Drummond visited Guinea-Bissau from September 16 through September 29, 2010. The mission reviewed performance for the first half of the year under the Extended Credit Facility (ECF) approved in May 2010 (see Press Release No. 10/185); reviewed the authorities’ fiscal plans for 2011, consistent with the government’s economic program; and assessed progress toward the completion point under the Heavily Indebted Poor Countries (HIPC) Initiative.¹ The mission met with President Malam Bacaí Sanhá, Prime Minister Carlos Gomes, Jr., Minister of Finance José Mario Vaz, Minister of Economy Helena Embaló, President of the Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO) João Fadía, and other government officials. The mission also held discussions with representatives of the private sector, civil society, the donor community, and other development partners.

At the conclusion of the visit, Mr. Drummond issued the following statement:

“In the first half of 2010, Guinea Bissau adjusted to a shortfall in budget support amid challenging political circumstances. Higher prices for cashews, the predominant export,and stable remittances helped sustain incomes and alleviated fiscal and balance of payments pressures. Construction activity has been buoyant despite a delay in the government investment program. Overall, the IMF mission expects real GDP to grow by 3.5 percent in 2010. A continued recovery in the global economy and a rebound in cashew production should contribute to a moderate pick-up in growth to 4.3 percent in 2011. Continued political stability and improved security continue to be critical to economic prospects.

“Performance under the 2010 ECF-supported program through June was satisfactory. All performance criteria were observed, and all structural benchmarks for the first review were met. Except for the indicative target on social and priority spending, all quantitative targets for end-June also were met. The fiscal performance reflects sustained economic activity and stronger revenue collection efforts, while domestic spending was kept below program targets to address shortfalls in budget support and uncertainty about its prospects.

“The mission reached understandings on policies for the remainder of 2010 and for 2011, consistent with the authorities’ economic objectives under the ECF-supported program. The authorities’ fiscal plans for 2010 were adjusted in light of a potential shortfall in budget assistance. The budget for 2011 will keep current-year spending within available resources; increase tax revenues by reinforcing revenue administration and raising the customs reference price of certain product; and continue to reduce the large stock of domestic arrears.

“Satisfactory performance under the program and progress under the HIPC Initiative will help pave the way for Guinea-Bissau to reach the HIPC completion point at year-end. Debt relief under the HIPC Initiative and the Multilateral Debt Relief Initiative (MDRI), combined with additional debt relief from bilateral creditors beyond HIPC, will alleviate the debt burden and help restore external and fiscal sustainability.

“The IMF's Executive Board is scheduled to discuss the first review of Guinea-Bissau’s economic program under the ECF in early December 2010 when the next disbursement of SDR 2.414 million (approximately US$ 3.658 million) becomes available.”

¹ The ECF is a concessional IMF facility for low-income countries. ECF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the country's Poverty Reduction Strategy Paper. ECF loans carry a zero interest rate until end-2011 and an annual interest rate of no more than 0.5 percent thereafter. The loans are repayable over 10 years with a 5½ -year grace period on principal payments.