Press Release No. 00/70

The Executive Board of the International Monetary Fund (IMF) today approved a three-year arrangement for Guinea-Bissau under the Poverty Reduction and Growth Facility (PRGF)¹ in a total amount equivalent to SDR 14.20 million (about US$18 million) to support the government's 2000-03 economic program. The first annual loan, equivalent to SDR 8.12 million (about US$10 million), will be available in three installments, with the equivalent of SDR 5.08 million (about US$7 million) available immediately.

In commenting on the Executive Board's discussion, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman of the Board, made the following statement:

"The Fund approved Guinea-Bissau's request for a three-year arrangement under the PRGF in an amount of SDR 14.2 million and the first disbursement thereunder. The efforts of the new authorities to resume the economic and structural reform program interrupted during 1998-99, which have been supported by the Fund through emergency post-conflict assistance are commended.

"The new three-year program provides a framework to restore economic growth, promote structural reform, and improve socioeconomic indicators. The program is based on an improvement of the fiscal and external situation, the removal of obstacles to economic development, and the implementation of a broadly-based strategy to reduce poverty. The program has been conceived within the context of increased regional integration under the West African Economic and Monetary Union.

"The basic macroeconomic objectives for 2000-03 include a real GDP growth target of 8-9 percent per year (permitting Guinea-Bissau to reach its pre-war real GDP level by 2003), the reduction of average annual inflation to a level consistent with Guinea-Bissau's membership in the CFA franc zone, and the containment of the current account deficit.

"The priorities of the first annual program focus on strengthening fiscal policy, in particular through the adoption of a budget structure for reducing poverty, the reinforcement of revenue collection, and improvement in overall governance. The programs for military demobilization and civil service reform are key anchors in the proposed fiscal policy framework. Structural reform is a major component of the authorities' program, specially in the important banking and energy sectors and in the area of privatization. The normalization of relations with external creditors, within the context of assistance under the HIPC Initiative, are also essential components of the authorities' program.

"The authorities' Interim Poverty Reduction Strategy Paper (I-PRSP), developed jointly with the country's civil society is welcome and is a sound basis for the Fund's concessional assistance. The I-PRSP is a serious initial effort to put together a comprehensive package to promote sustained growth and poverty reduction. The I-PRSP attaches key importance to improved governance and measures to reinforce the institutional capacity to assess and monitor the progress made in implementing a comprehensive poverty reduction strategy. The authorities are encouraged to continue their efforts to prepare a full PRSP, based on a broadening of the participatory process for the preparation of the I- PRSP," Mr. Sugisaki said.

ANNEX

Program Summary

Guinea-Bissau made significant progress in stabilizing its macroeconomic and financial situation under the 1995-98 Enhanced Structural Adjustment Facility (ESAF), which was implemented in a satisfactory manner.

The 2000-03 program's overall objectives are to ensure sustainable growth, reduce poverty and enhance access to social services, and achieve a sustainable external position.
The quantitative objectives are to achieve GDP growth of 8-9 percent a year, reduce average annual inflation from an expected 10 percent in 2000 to a level consistent with Guinea-Bissau's membership in the CFA franc zone, and to contain the external current account deficit. The projected growth of real GDP in 2000-03 reflects recovery after the June 1998-May 1999 military conflict, the strengthening of private sector confidence, the removal of bottlenecks to growth in the energy and banking sectors, and the positive effects on entry into the West African Economic and Monetary Union (WAEMU) zone.

The priorities of the first annual program (2001) focus on strengthening fiscal policy, in particular through the adoption of a pro-poor budget structure and the reinforcement of revenue collection. At the same time, the authorities place key emphasis on measures to enhance the budget process, improve transparency in the fiscal accounts, and monitor the use of fiscal resources (including improvements in treasury management, a reform of the budget procurement system, public expenditure reviews, the publication of semi-annual budget execution reports, and the adoption of WAEMU budget regulations). The programs for military demobilization and civil service reform also are key anchors in the proposed fiscal policy framework, which will allow the reallocation of expenditures toward poverty-reduction activities.

Structural reform is a major component of the authorities' program, especially in the important banking and energy sectors and in the area of privatization. The normalization of relations with external creditors and the application of all relevant monetary, regulatory, and supervisory policies of the BCEAO are also essential components. The proposed program is framed within the authorities' Interim Poverty Reduction Strategy Paper (I-PRSP).

Improving the delivery and quality of education and health services is a key component of the authorities' strategy to strengthen human development and reduce poverty. To meet its objectives, the government has decided to focus its policy actions on increasing the population's access to primary education and basic health care services. The government is committed to launching low-cost, income-generating initiatives specifically targeted at those most in need.

The government's I-PRSP that has been submitted to the IMF's Board describes the main policy objectives and discusses in detail the targets to measure progress toward achieving these objectives. A full PRSP is expected to be developed by end-2001.

Guinea-Bissau joined the IMF on March 24, 1977; its quota² is SDR 14.20 million (about US$18 million). Guinea-Bissau's outstanding use of IMF resources totals SDR 13.89 million (about US$18 million).

Guinea-Bissau: Selected Economic and Financial Indicators, 1997-2003   1997 1998 1999 2000 2001 2002 2003   Actual Actual Prog. Actual Prog. Prog. Proj. Proj.   (Annual percentage change, unless otherwise indicated) National accounts and prices                 Real GDP at market prices 4.8 -28.1 8.7 7.8 9.3 8.5 8.2 8.6 GDP deflator 7.4 7.6 3.1 2.8 8.8 3.5 3.3 3.0 Consumer price index, period average 49.1 8.0 -0.9 -2.1 9.1 2.2 3.5 3.0 Consumer price index, end of period 16.7 7.9 -2.1 -7.9 16.2 4.0 3.0 3.0                   Money and credit 1/                 Claims on the government (net) 2/ 3.9 15.5 16.7 14.8 -10.3 0.3 ... ... Credit to the economy -9.5 62.9 7.2 8.7 6.8 17.2 ... ... Broad money 101.8 0.2 6.9 7.8 16.4 15.1 ... ... Six-month deposit rate (percent per annum; end of period) 5.0 5.0 ... ... ... ... ... ... Velocity (GDP/broad money) 4.3 3.3 3.2 3.4 3.5 3.4 ... ... Gross official reserves (in months of the following year's imports of goods and services) 5.0 4.8 3.0 3.3 3.8 4.4 ... ... (in percent of base money) 81.6 106.4 101.5 91.8 105.7 105.3 ... ...                   External sector                 Exports, f.o.b.(based on U.S. dollar values) 124.5 -46.5 80.0 97.4 28.9 13.2 10.3 11.0 Imports, f.o.b. (based on U.S. dollar values) 28.7 -30.1 14.6 28.4 37.2 23.2 4.7 13.0 Export volume 115.6 -37.3 61.1 63.5 18.9 8.5 7.0 7.7 Import volume 29.7 -26.1 20.1 27.0 27.5 23.1 6.1 11.0 Terms of trade (deterioration -) 4.9 -9.8 17.1 19.5 0.7 4.3 4.4 1.3 Real effective exchange rate (depreciation -) 12.4 6.6 ... -5.1 ... ... ... ...                     (In percent of GDP, unless otherwise indicated) Investments and savings                 Gross domestic investment 21.8 11.4 13.7 16.3 19.2 23.6 23.5 23.8 Of which: government investment 15.6 6.2 8.8 11.1 13.9 18.1 17.5 17.4 Of which: restructuring programs 3/ 0.0 0.0 0.0 0.0 0.9 3.8 1.7 0.6 Gross domestic savings 2.9 -10.0 -5.4 -2.2 -3.6 -0.5 3.3 3.7 Of which: government savings -2.9 -14.8 -6.2 -5.6 -7.0 -9.0 -8.1 -7.7 Gross national savings 13.0 -1.8 2.7 3.9 2.0 3.5 7.1 7.6                   Government finances                 Budgetary revenue 15.3 5.4 15.1 17.8 15.9 16.4 16.4 16.5 (excluding fishing licenses) 9.6 4.8 9.0 11.5 11.2 12.0 12.4 12.8 Total primary expenditure 27.6 18.1 21.4 25.7 28.8 33.6 32.7 32.8 Current primary balance 5.4 -6.5 2.5 3.2 1.1 0.8 1.3 1.1 Overall balance (commitment basis)                 Including grants -13.8 -16.2 -7.1 -9.9 -7.4 -13.4 -10.2 -8.8 Excluding grants -17.8 -19.4 -12.8 -14.4 -17.9 -22.7 -20.9 -20.2                   External current account (including official current transfers) 4/ -8.8 -13.2 -11.0 -12.4 -18.2 -22.7 -18.9 -18.7 Excluding official current transfers -23.4 -20.5 -20.0 -22.9 -26.2 -29.4 -24.9 -24.5 Excluding official transfers other than fishing licenses -17.7 -19.9 -13.9 -17.1 -21.5 -25.0 -20.8 -20.7 Net present value of external debt/exports of goods and nonfactor services (in percent) 5/ ... ... ... 994.6 891.5 682.9 587.7 523.2                   Memorandum items: (In units indicated)                   Exchange rate                 CFA franc/U.S. dollar (period average) 583.7 590.0 610.0 615.7 697.7 707.6 699.3 692.7 Nominal GDP at market prices                 In billions of CFA francs 156.7 121.3 135.9 134.4 159.9 179.6 200.8 224.7 In millions of U.S. dollars 268.6 205.7 222.8 218.3 229.2 253.8 287.2 324.4 GDP per capita (in U.S. dollars) 238.0 178.6 188.7 185.0 189.4 204.7 225.9 249.0 Sources: Guinea-Bissau authorities; and IMF staff estimates and projections.   1/ In 1997, at constant exchange rates and excluding recapitalization of the Central Bank of Guinea-Bissau (BCGB). 2/ In percent of beginning-of-period stock of broad money. 3/ Includes cost of demobilization and public service reform. 4/ For 2000-03, only includes project grants. 5/ After application of traditional debt-relief mechanisms. 1On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed the Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It was intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. At this time for Guinea-Bissau, pending completion of a PRSP, a preliminary framework has been set out in an interim PRSP, and preparations for a participatory process are under way. It is understood that all policy undertakings in the interim PRSP beyond the first year are subject to reexamination and modification in line with the strategy that is to be elaborated in the PRSP. Once completed and broadly endorsed by the Executive Boards of the IMF and the World Bank, the PRSP will provide the policy framework for future reviews under this PRGF arrangement. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments. 2A member's quota in the IMF determines, in particular, the amount of its subscriptions, its voting weight, its access to IMF financing, and its allocation of SDRs.