## Press Release: IMF Approves Extension and Augmentation of ESAF for Guinea-Bissau

_IMF News, July 25, 1997_

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## Bibliographic details
- Published: July 25, 1997

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### 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.

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## References

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_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9734_