Press Information Notice: IMF Concludes Article IV Consultation with Guinea-Bissau
IMF News, March 26, 1998
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- Published: March 26, 1998
Background and program history
- Adjustment began with two programs supported by the annual arrangements under the Structural Adjustment Facility (SAF) in 1987-89.
- A financial stabilization period in 1993-94 led to a three-year arrangement under the Enhanced Structural Adjustment Facility (ESAF), approved in January 1995.
- Macroeconomic and structural policies in 1995-97 led to substantial improvement: growth was strong, inflation fell, and internal and external imbalances were reduced.
Macroeconomic performance and stabilization (1995–1997)
- GDP growth:
- "GDP growth reached 4.5 percent on average in 1995-96, and is estimated to have risen to 5 percent in 1997."
- Inflation and exchange rate developments:
- Mid-1996 market pressures on the Guinea-Bissau peso led to sharp depreciation and higher domestic prices.
- Exchange rate stabilized in the last quarter of 1996 after monetary tightening and clarifications on WAMU entry; inflation declined to "about 1 percent per month in the last quarter of the year."
- "Over the whole year, the rate of inflation was 66 percent."
- "Inflation fell sharply in 1997 to 16 percent on an end-year basis, with the price level declining in the last four months of the year."
- WAEMU/WAEMU accession:
- Guinea-Bissau joined the WAEMU effective "May 2, 1997"; currency exchanged at "PG 65 per CFA franc."
- Currency conversion carried out in "May-July 1997."
- Central Bank of Guinea-Bissau incorporated into the BCEAO after recapitalization with government and donor/creditor assistance.
- Fiscal consolidation and reforms:
- Revenue/GDP ratio rose to "15.4 percent of GDP in 1997, up from 12.5 percent in 1996."
- "Current primary surplus reached 5.5 percent, compared with 3.3 percent in 1997."
- Comprehensive tax reform adopted in "October 1997" introducing a generalized sales tax, streamlined customs tariff, and excise tax reforms (including on petroleum prices); reforms entered into effect in early 1998.
- Government began major civil service reform to improve pay incentives and efficiency.
- Monetary and banking sector:
- Expansion of credit was moderate; money supply increase largely due to rise in net foreign assets of the banking system.
- Recapitalization of the largest commercial bank noted; Central Bank recapitalization occurred.
- External sector:
- Balance of payments improved in 1997; "external current account deficit declining to 14.2 percent of GDP, from 20.6 percent," as cashew nut exports reached a record level including sale of large unsold 1996 stocks.
Prospects for 1998 (projections)
- Real GDP: "projected at 5.5 percent in 1998."
- Inflation: "end-year inflation declining to about 7 percent."
- External current account (excluding official transfers): expected to deteriorate to "18 percent of GDP" as exports decline relative to 1997 when boosted by stock sales.
- Fiscal outlook:
- "Current primary fiscal surplus is projected to attain 5 percent of GDP."
- Tax revenue expected to be boosted by newly adopted tax reforms.
- Domestic contribution to investment will increase to strengthen education and health; current expenditure will be contained.
Executive Board assessment — findings and policy recommendations
- Positive assessments:
- Budgetary revenue and primary surplus targets for 1997 were exceeded due to stronger non-tax revenue, vigorous year-end tax collection, and expenditure containment.
- Economic growth remained robust; inflation fell sharply following WAEMU/WAEMU entry.
- Return to price stability improved the investment climate and facilitated privatization; progress made in other structural reforms.
- Remaining vulnerabilities:
- Economy remains vulnerable to external shocks.
- High external debt burden and widespread poverty.
- Priority recommendations:
- Strengthen public finances and deepen structural reforms to consolidate progress and achieve strong, sustainable growth.
- Thorough and timely implementation of comprehensive tax reform (including generalized sales tax due on "April 1, 1998") and continued improvements in tax and customs administration.
- Further strengthen expenditure management, including elimination of domestic arrears.
- Implement civil service reform with determination and without delays to improve public services and allow reallocation to social sectors and infrastructure.
- Continue and broaden privatization; ensure private management of public services (e.g., post and telecommunications) occurs under competitive conditions to increase efficiency.
- Intensify banking system reforms and recapitalization efforts; use restored price stability to broaden the financial system and develop savings and loan institutions for small-scale enterprise financing.
- Improve debt management: establish and operationalize national debt monitoring, computerized debt management, and regularize relations with all creditors (Paris Club, non-Paris Club, regional multilateral creditors).
- Recognized that Guinea-Bissau's "very heavy external debt burden" implies a need for a strong, sustained track record in policy implementation before reaching a decision point under the HIPC debt initiative.
Selected economic indicators (as presented)
- Annual percentage change:
- Change in real GDP: 1994: "3.2"; 1995: "4.4"; 1996: "4.6"; 1997: "5.1"; 1998 Prog.: "5.5"
- GDP deflator: 1994: "23.3"; 1995: "44.7"; 1996: "49.8"; 1997: "39.5"; 1998: "10.2"
- Change in consumer prices (end of period): 1994: "19.3"; 1995: "49.7"; 1996: "65.6"; 1997: "16.8"; 1998: "7.0"
- Percent of GDP:
- Gross domestic investment: 1994: "21.8"; 1995: "22.3"; 1996: "23.0"; 1997: "19.1"
- Gross domestic savings: 1994: "3.9"; 1995: "-1.2"; 1996: "1.8"; 1997: "3.3"; 1998: "2.5"
- Gross national savings: 1994: "11.5"; 1995: "6.2"; 1996: "8.3"; 1997: "14.0"
- In millions of U.S. dollars (noted unless otherwise):
- Export, f.o.b.: 1994: "20.5"; 1995: "23.9"; 1996: "21.6"; 1997: "53.9"; 1998: "42.4"
- Imports, f.o.b.: 1994: "-53.8"; 1995: "-59.3"; 1996: "-56.8"; 1997: "-67.9"; 1998: "-73.7"
- Current account balance, excluding official transfers: 1994: "-48.6"; 1995: "-59.9"; 1996: "-55.8"; 1997: "-37.7"; 1998: "-57.2"
- Capital account balance: 1994: "-10.2"; 1995: "24.1"; 1996: "20.0"; 1997: "22.5"
- Gross official reserves: 1994: "18.4"; 1995: "20.3"; 1996: "11.8"; 1997: "31.2"; 1998: "..."
- Current account balance, excluding official transfers (in percent of GDP): 1994: "-16.2"; 1995: "-23.6"; 1996: "-20.6"; 1997: "-14.2"; 1998: "-18.5"
- Change in real effective exchange rate (in percent)3: 1994: "-11.0"; 1995: "-7.6"; 1996: "4.8"; 1997: "12.4"
- External public debt (in percent of GDP): 1994: "376.5"; 1995: "367.1"; 1996: "339.1"; 1997: "356.4"
- Financial variables (in percent of GDP unless noted):
- Government revenue: 1994: "12.7"; 1995: "12.5"; 1996: "15.4"; 1997: "14.7"
- Government expenditure and net lending4: 1994: "35.5"; 1995: "30.4"; 1996: "33.6"; 1997: "37.5"; 1998: "29.3"
- Current primary fiscal balance: 1994: "4.0"; 1995: "5.0"
- Overall government balance5: 1994: "-4.6"; 1995: "-17.7"; 1996: "-18.0"; 1997: "-12.6"; 1998: "-14.6"
- Change in broad money (in percent): 1994: "33.9"; 1995: "25.9"; 1996: "33.2"; 1997: "53.5"; 1998: "15.0"
- Interest rate (in percent)6: 1994: "26.0"; 1995: "39.0"; 1996: "54.0"
- Notes from the table:
- 1IMF staff estimates.
- 2Unless otherwise noted.
- 3(+)=appreciation.
- 4Includes in 1997 the cost of the recapitalization of the Central Bank.
- 5Excluding grants and restructuring operations.
- 6Central Bank rediscount rate.
Press Information Notice, March 26, 1998 — IMF External Relations Department, Public Affairs, Media Relations.