Press Release: IMF Approves Extension and Augmentation of ESAF for Guinea-Bissau
IMF News, July 25, 1997
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- Published: July 25, 1997
Approval and financing
- IMF approved the government's request to extend the three-year arrangement under the Enhanced Structural Adjustment Facility (ESAF) to end-March 1998, and to augment the amount available by SDR 1.05 million (about US$1.4 million).
- This augmentation provides SDR 4.725 million (about US$6.5 million) to support the government’s economic program for 1997-98.
- The IMF had approved a three-year ESAF loan for Guinea-Bissau equivalent to SDR 9.45 million (about US$13 million) on January 18, 1995.
- Note on ESAF terms: ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years, with a 5½-year grace period.
Background: economic performance in 1996
- Real GDP growth in 1996 is estimated at 5 percent, compared to 4.4 percent in 1995.
- External current account deficit improved in 1996.
- Inflation remained a source of concern: 51 percent on an average annual basis in 1996.
- High inflation was fueled by monetary expansion in the first half of 1996 and a sharp depreciation of the peso in the third quarter linked to uncertainties about entry into WAEMU.
- After significant monetary tightening late in 1996, monthly inflation leveled off to 1 percent during the first quarter of 1997, down from an average of 5.5 percent in 1996.
- Fiscal developments in 1996: revenue lower and current expenditure higher than planned.
- Progress in structural reforms was largely on track.
- At end-December 1996, agreement was reached with BCEAO and WAEMU countries on Guinea-Bissau’s entry into WAEMU and on implementing the currency conversion from the peso to the CFA franc on May 2, 1997.
Medium-term strategy and the 1997-98 program
- Medium-term objectives for 1997-99:
- Maintain annual economic growth of about 5 percent.
- Lower the average annual rate of inflation to about 6 percent in 1999 from 51 percent in 1996.
- Reduce the external current account deficit (excluding grants) by about 5 percentage points to 16 percent of GDP by 1999.
- Maintain investment at 22 percent of GDP while raising gross domestic saving to 4 percent of GDP in 1999 from 1 percent of GDP in 1996.
- 1997-98 program targets (supported by the third annual ESAF loan):
- Annual real GDP growth of about 5 percent.
- Contain annual inflation (end-period basis) at about 10 percent in 1997 and 7 percent in 1998.
- Reduce the external current account deficit (excluding grants) to 18 percent of GDP in 1997 and to 16.4 percent of GDP in 1998.
- Fiscal policy priorities:
- Raise the current primary surplus through an increase in the revenue/GDP ratio and overhaul the tax system.
- Reduce the central government deficit to 12.3 percent of GDP in 1997 from 18 percent of GDP in 1996.
- Introduce a general sales tax and a major reform of external tariffs; reduce export taxes; revise excise taxes, particularly on petroleum.
- Contain nonessential outlays and streamline the civil service to allow higher salaries for skilled personnel, particularly teachers.
- Strengthen budgetary procedures in 1997: prior authorization of the Ministry of Finance Budget Directorate required for all expenditure commitments.
- Monetary policy: domestic credit policy to remain tight to quell inflationary expectations.
Structural reforms
- Continued focus on:
- Accelerating public enterprise privatization.
- Increasing efficiency in the energy sector.
- Enhancing private sector role in agriculture, fisheries, and forestry.
- Improving social services.
- Reforming the civil service.
Addressing social needs
- Growth strategy relies on broad-based and export-led development of agriculture, with important contributions from fisheries and forestry.
- Poverty alleviation approach:
- Rural-centered and labor-intensive growth.
- Securing access to primary health, education, and sanitation services, especially in rural areas.
The challenge ahead
- External debt situation remains extremely burdensome; debt indicators are significantly above thresholds of sustainability.
- External financing requirement for 1997 expected to be filled with bilateral and multilateral assistance, including debt relief under negotiation from non-Paris Club creditors.
- IMF membership and quota:
- Guinea-Bissau joined the IMF on March 24, 1977.
- Quota is SDR 10.5 million (about US$14 million).
- Outstanding use of IMF financing currently totals SDR 7 million (about US$10 million).
Selected economic indicators (sources: Guinea-Bissau authorities; IMF staff estimates and projections)
- Percent change
- Real GDP:
- 1995: 4.4
- 1996*: 5.1
- 1997**: 4.9
- Consumer prices (end of period):
- 1995: 49.7
- 1996*: 65.6
- 1997**: 10.3
- 1998**: 7.0
- 1999**: 5.0
- Percent of GDP
- Overall fiscal balance, excluding official transfers (deficit -):
- 1995: -17.7
- 1996*: -18.0
- 1997**: -12.3
- 1998**: -12.7
- 1999**: -12.2
- External current account balance (deficit -):
- 1996*: -23.6
- 1997**: -20.5
- 1998**: -16.4
- 1999**: -15.5
- Months of imports
- Gross international reserves:
- 1995: 2.7
- 1996*: 2.6
- 1997**: ...
*Estimate. **Program.