IMF Executive Board Completes Fourth Review Under the ECF Arrangement, Approves US$ 4.3 Million Disbursement, and Concludes 2017 Article IV Consultation with Guinea-Bissau
IMF News, December 11, 2017
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- Published: December 11, 2017
Program review and disbursement
- The Executive Board completed the fourth review of the arrangement under the Extended Credit Facility (ECF).
- Completion enables the release of SDR 3.03 million (about US$4.3 million).
- Total disbursements under the arrangement to date amount to SDR 14.01 million (about US$19.8 million).
- Guinea-Bissau’s three-year ECF arrangement totals SDR 17.04 million (60 percent of quota), approved on July 10, 2015.
- The ECF-supported program aims to restore macroeconomic stability, promote efficiency in public service delivery, and foster inclusive growth.
- All performance criteria and indicative targets for end-June were met; most structural benchmarks were met. Two benchmarks (debt management operations and financial reporting on the public electricity company) were not met but are likely to be implemented with delay.
Macroeconomic developments and recent performance
- Real GDP growth averaged almost 6 percent in 2015-2016, supported by favorable terms of trade.
- There was a surplus on the external current account and inflation below 2 percent a year in the period noted.
- The 2017 fiscal deficit is projected to fall under 2 percent of GDP, more than halving the 2016 level.
- Weak financial intermediation is a drag on growth, with banks burdened by high levels of nonperforming loans and unresolved issues from the voided 2015 bank bailout.
- Quoted statement by Mr. Tao Zhang, Deputy Managing Director and Acting Chair:
- “Economic policy implementation in Guinea-Bissau has been satisfactory and in line with the objectives of the Fund-supported program. Economic growth has remained strong, buoyed by high cashew prices, while improvements in fiscal management have bolstered macroeconomic stability.”
- On banking: authorities’ determination to minimize state costs while resolving the voided 2015 bank bailout and ensuring compliance with prudential norms is welcome; minimum capital requirements should be rigorously enforced.
- On fiscal policy: low government revenue indicates a need to strengthen tax and customs administration and carefully manage public expenditures; borrowing for priority projects should be contained and rely to the maximum extent possible on concessional financing.
- On governance and business environment: improvements are critical to maintain growth momentum; authorities need to entrench the rule of law, promote policy stability, instill transparency, reduce corruption and rent seeking, and combat money laundering and the financing of terrorism.
Outlook and risks
- Growth is projected at 5 percent over the medium term.
- Positive contributors: ongoing investments in road and other infrastructure, improvements in electricity and water supply, and policies to improve the business environment.
- Key risks:
- History of fragility and continued political tensions.
- Undiversified export base.
- Weak financial intermediation and unresolved banking-sector issues related to the voided 2015 bank bailout.
Executive Board assessment and recommendations
- Directors agreed with the staff appraisal and welcomed authorities’ commitment and progress, including strong growth and improved fiscal position.
- Encouraged actions:
- Leverage favorable conditions to advance reforms addressing infrastructure gaps, strengthen social spending, and improve the business environment.
- Accelerate structural reforms to reinforce domestic revenue mobilization, further fiscal discipline, and improve the quality of public spending to enable stepped-up priority infrastructure and social spending.
- Adhere to weekly cash management meetings and enhance procedures for project selection and planning/execution frameworks.
- Address gaps in electricity and transport infrastructure and seek development partner support, notably technical assistance, to improve management of the public power and water utility, EAGB.
- Anchor debt sustainability by seeking grants and loans on highly-concessional terms; careful borrowing is essential given high public debt and vulnerability to shocks.
- Strengthen debt management, avoid contingent liabilities, and instill financial discipline in state-owned enterprises through regular financial reporting and audits.
- Strengthen the banking system and financial inclusion; commit to minimizing state costs while resolving the voided bank bailout of 2015 and ensure adequate capitalization of banks.
- Safeguard financial stability through remedial actions and strict enforcement of prudential norms in collaboration with the regional bank regulator.
- Develop a national plan for financial inclusion to deepen the financial system.
- Firmly entrench good and transparent governance, reduce corruption, and strengthen the AML/CFT framework.
- Improve the quality and timeliness of economic statistics, enhance coordination across institutions, and allocate adequate resources for compilation and dissemination.
Key statistics and selected economic indicators
- Population (mln, 2016): 1.7
- Main products and exports: Cashew nuts
- Literacy rate (% total, 2015): 59.8
- Quota (mln SDR, % total): 28.4 (0.01%)
- Key export markets: India and Europe
- Poverty rate (% total, 2010): 69.3
- Per capita GDP (US$, 2016): 694
- Selected historical and projected indicators (annual percent change unless otherwise indicated; Projections labeled as “Proj.”):
- Real GDP at market prices: 2014: 1.0; 2015: 6.1; 2016: 5.8; 2017: 5.0; 2018: 5.5
- Real GDP per capita: 2014: -1.2; 2015: 3.8; 2016: 3.5; 2017: 2.7; 2018: 3.2
- GDP deflator: 2014: -0.1; 2015: 10.8; 2016: 6.6; 2017: 2.4; 2018: 7.2
- Consumer price index (annual average): 2014: 1.6; 2015: 1.9; 2016: 2.1; 2017: 2.2; 2018: 2.5; 2019: 2.3; 2020: 2.6; 2021: 2.8; 2022: 3.0
- Exports, f.o.b. (based on US$ values): 2014: 8.8; 2015: 54.6; 2016: 6.8; 2017: 5.7; 2018: 24.5; 2019: 7.1; 2020: 9.3; 2021: 9.4; 2022: 9.7
- Imports, f.o.b. (based on US$ values): 2014: 17.3; 2015: -3.6; 2016: 6.9; 2017: 30.0; 2018: 13.2; 2019: 9.0; 2020: 8.5; 2021: 8.2
- Export volume: 2014: -4.9; 2015: 26.3; 2016: 10.7; 2017: -4.5; 2018: -8.6; 2019: 5.1; 2020: 7.0; 2021: 7.3
- Import volume: 2014: 30.5; 2015: 15.6; 2016: 18.6; 2017: 10.3; 2018: 6.4
- Terms of trade (deterioration = -): 2014: 23.2; 2015: 54.4; 2016: 13.9; 2017: 11.4; 2018: 28.7; 2019: 0.6; 2020: 0.9; 2021: 0.8; 2022: 1.3
- Real effective exchange rate (depreciation = -): 2014: -0.8; 2015: -2.6
- Exchange rate (CFAF per US$; average): 2014: 493.6; 2015: 591.2; 2016: 592.7
- Domestic revenue (excluding grants): 2014: 59.4; 2015: 29.4; 2016: -0.6; 2017: 15.1; 2018: 8.7; 2019: 22.9; 2020: 11.7; 2021: 11.0; 2022: 10.4; 2023: 11.8
- Domestic revenue (excluding grants and one-offs): 2014: 47.7; 2015: 30.4; 2016: 5.2; 2017: 16.5; 2018: 10.0
- Total expenditure: 2014: 89.1; 2015: 11.3; 2016: -2.3; 2017: -5.2; 2018: 15.7; 2019: 10.9; 2020: 10.2; 2021: 9.5; 2022: 10.6
- Current expenditure: 2014: 79.5; 2015: -8.0; 2016: -12.2; 2017: 12.3; 2018: 10.1; 2019: 12.6
- Capital expenditure: 2014: 115.4; 2015: 25.5; 2016: -14.2; 2017: 11.6; 2018: 22.3; 2019: 7.6; 2020: 8.4
- Net domestic assets2: 2014: 7.8; 2015: 18.2; 2016: -2.5; 2017: -2.0; 2018: -9.7; 2019: 1.2
- Credit to government (net): 2014: 9.1; 2015: 4.6; 2016: 1.8; 2017: 0.0; 2018: -0.5
- Credit to the economy: 2014: 13.0; 2015: 0.7; 2016: -8.3; 2017: 1.1
- Gross investment: 2014: 8.0; 2015: 11.1; 2016: 9.2
- Government investment (of which): 2014: 8.1; 2015: 6.2; 2016: 6.5
- Gross domestic savings: 2014: 0.2; 2015: 3.9; 2016: 4.0; 2017: 2.9; 2018: 3.1; 2019: 3.7
- Gross national savings: 2014: 12.0; 2015: 10.5; 2016: 6.3; 2017: 6.7
- Total revenue: 2014: 13.8; 2015: 12.2; 2016: 13.5; 2017: 14.1; 2018: 14.6; 2019: 15.0
- Total domestic primary expenditure: 2014: 16.7; 2015: 15.4; 2016: 14.3; 2017: 12.8; 2018: 13.7; 2019: 14.2; 2020: 14.8
- Domestic primary balance: 2014: -4.1; 2015: -1.5; 2016: -2.1
- Overall balance (commitment basis) including grants: 2014: -3.0; 2015: -4.7; 2016: -1.9; 2017: -1.7
- Overall balance (commitment basis) excluding grants: 2014: -12.1; 2015: -9.5; 2016: -8.7; 2017: -6.0; 2018: -5.8; 2019: -5.5; 2020: -5.6; 2021: -5.7
- External current account: 2014: 0.5; 2015: -2.8; 2016: -2.9
- External current account excluding official current transfers: 2014: -3.9; 2015: -0.4
- Stock of central government debt: 2014: 55.1; 2015: 52.8; 2016: 54.1; 2017: 50.2; 2018: 49.2; 2019: 48.3; 2020: 47.3; 2021: 46.1; 2022: 44.7; 2023: 43.4
- Of which: external debt: 2014: 15.2; 2015: 14.4; 2016: 13.3; 2017: 12.5; 2018: 14.5; 2019: 15.3; 2020: 16.0
- Memorandum item: Nominal GDP at market prices (CFAF billions): 2014: 520.9; 2015: 612.5; 2016: 690.5; 2017: 734.1; 2018: 780.7; 2019: 832.7; 2020: 890.9; 2021: 955.1; 2022: 1025.4; 2023: 1103.5
- Note: Values exclude the 2015 bank bailout of CFA 34.2 billion. A final determination by the courts on the legality of the bailout contracts is still pending.
- Sources: Guinea-Bissau authorities; and IMF staff estimates and projections.
IMF Press Release No. 17/481, December 11, 2017.