January 7, 2000
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The International Monetary Fund (IMF) today approved a credit of SDR 1.42 million (about US$2 million) in emergency post-conflict assistance for Guinea-Bissau to support the government's reconstruction and economic recovery program in the aftermath of the 1998-99 armed conflict. The credit is available immediately.
In commenting on the Executive Board's discussion of the request by Guinea-Bissau, Shigemitsu Sugisaki, Deputy Managing Director made the following statement:
"The authorities had made commendable progress in recovering from the civil conflict of 1998 and early 1999, but the post-conflict normalization was not yet complete. Of particular importance was the need to accelerate the process of demobilization and to reduce military spending. The need for timely donor assistance to support the reconstruction of health and educational facilities was also stressed.
"Lower military spending and further strengthening of budgetary revenues were seen as essential to provide the fiscal resources for the comprehensive program of poverty reduction that the government is formulating with the participation of civil society.
"To foster sustained growth, a favorable environment for private sector activity was needed, including good governance and a strong financial system.
"The authorities were encouraged to make early progress in finalizing a broad-based three-year program of structural adjustment and poverty reduction that could be supported under the Fund's Poverty Reduction and Growth Facility and provide the basis for assistance under the enhanced Initiative for Heavily Indebted Poor Countries," Sugisaki said.
ANNEX
Program Summary
Although significant progress has been made in recent months toward meeting the objectives of the emergency program, Guinea-Bissau continues to suffer in many ways from the disruption caused by the domestic conflict, which resulted in intense warfare from mid-1998 to February 1999. The government still needs to deal with specific post-conflict issues, including putting in place a comprehensive demobilization program, further reducing domestic arrears, continuing to strengthen tax administration, and accelerating the rehabilitation of key infrastructure.
The government considers that the measures it is now implementing, with the support of post-conflict assistance from the international community, are laying the basis for a more comprehensive three-year program that could be supported by the IMF's Poverty Reduction and Growth Facility.1 Currently, it is taking steps to prepare a well-focused poverty reduction strategy, building on the existing donor-supported programs in the social sectors. The government intends to finalize such a program in the next few months, following the completion of the electoral process in mid-January 2000.
Despite the slow start in reconstructing infrastructure, the program supported under the IMF's emergency post-conflict assistance policy is being implemented in a satisfactory manner. Real GDP growth is projected to reach 8.7% in 1999, following a decline of 28% in 1998. This boost is mainly the result of a strong rebound in agricultural production and a rise in the export of cashew nuts, the main export commodity. With the improvement in food supply, the consumer price index declined in the first nine months of 1999. The external current account deficit, including grants, is estimated to have declined by 3 percentage points of GDP to 11% of GDP in 1999.
Fiscal performance in 1999 was encouraging and budgetary revenue is expected to exceed program projections by 4 percentage points of GDP, owing to good collection of customs duties and indirect taxes, as well as tax arrears. The primary budget deficit, excluding foreign-financed investment expenditure, will be significantly lower, at 0.8% of GDP, than the earlier projection of 4.2% of GDP.
The government's draft budget for 2000 targets an increase in budgetary revenue as a ratio of GDP of 0.7 percentage points to 14%, with a further strengthening of tax administration. Priority will also be given to reducing domestic arrears, with donor support. The budget draft also includes increased spending for rehabilitating social services and higher wages to improve professional workers' pay scales. Furthermore, public investment outlays, mostly externally financed, are projected to more than double, as road construction and the reconstruction of health and educational facilities resumes.
Structural reforms will focus on recapitalizing the major bank, which is under foreign control, and restructuring electricity, port, and telecommunications facilities.
A comprehensive program for demobilizing ex-combatants is being prepared with World Bank technical assistance and financing. A pilot program will be launched by the third quarter of 2000.
Guinea-Bissau joined the IMF on March 24, 1977, and its quota2 is SDR 14.2 million (about US$20 million). Its outstanding use of IMF financing currently totals SDR 13 million (about US$17 million).
