## Press Information Notice: IMF Concludes Article IV Consultation with Guinea-Bissau

_IMF News, March 26, 1998_

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**Canonical URL:** [Press Information Notice: IMF Concludes Article IV Consultation with Guinea-Bissau](https://www.imf.org/en/news/articles/2015/09/28/04/53/pn9820)

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## Bibliographic details
- Published: March 26, 1998

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### Background and program history
- Adjustment began with two programs supported by the annual arrangements under the Structural Adjustment Facility (SAF) in 1987-89.
- A financial stabilization period in 1993-94 led to a three-year arrangement under the Enhanced Structural Adjustment Facility (ESAF), approved in January 1995.
- Macroeconomic and structural policies in 1995-97 led to substantial improvement: growth was strong, inflation fell, and internal and external imbalances were reduced.

### Macroeconomic performance and stabilization (1995–1997)
- GDP growth:
  - "GDP growth reached 4.5 percent on average in 1995-96, and is estimated to have risen to 5 percent in 1997."
- Inflation and exchange rate developments:
  - Mid-1996 market pressures on the Guinea-Bissau peso led to sharp depreciation and higher domestic prices.
  - Exchange rate stabilized in the last quarter of 1996 after monetary tightening and clarifications on WAMU entry; inflation declined to "about 1 percent per month in the last quarter of the year."
  - "Over the whole year, the rate of inflation was 66 percent."
  - "Inflation fell sharply in 1997 to 16 percent on an end-year basis, with the price level declining in the last four months of the year."
- WAEMU/WAEMU accession:
  - Guinea-Bissau joined the WAEMU effective "May 2, 1997"; currency exchanged at "PG 65 per CFA franc."
  - Currency conversion carried out in "May-July 1997."
  - Central Bank of Guinea-Bissau incorporated into the BCEAO after recapitalization with government and donor/creditor assistance.
- Fiscal consolidation and reforms:
  - Revenue/GDP ratio rose to "15.4 percent of GDP in 1997, up from 12.5 percent in 1996."
  - "Current primary surplus reached 5.5 percent, compared with 3.3 percent in 1997."
  - Comprehensive tax reform adopted in "October 1997" introducing a generalized sales tax, streamlined customs tariff, and excise tax reforms (including on petroleum prices); reforms entered into effect in early 1998.
  - Government began major civil service reform to improve pay incentives and efficiency.
- Monetary and banking sector:
  - Expansion of credit was moderate; money supply increase largely due to rise in net foreign assets of the banking system.
  - Recapitalization of the largest commercial bank noted; Central Bank recapitalization occurred.
- External sector:
  - Balance of payments improved in 1997; "external current account deficit declining to 14.2 percent of GDP, from 20.6 percent," as cashew nut exports reached a record level including sale of large unsold 1996 stocks.

### Prospects for 1998 (projections)
- Real GDP: "projected at 5.5 percent in 1998."
- Inflation: "end-year inflation declining to about 7 percent."
- External current account (excluding official transfers): expected to deteriorate to "18 percent of GDP" as exports decline relative to 1997 when boosted by stock sales.
- Fiscal outlook:
  - "Current primary fiscal surplus is projected to attain 5 percent of GDP."
  - Tax revenue expected to be boosted by newly adopted tax reforms.
  - Domestic contribution to investment will increase to strengthen education and health; current expenditure will be contained.

### Executive Board assessment — findings and policy recommendations
- Positive assessments:
  - Budgetary revenue and primary surplus targets for 1997 were exceeded due to stronger non-tax revenue, vigorous year-end tax collection, and expenditure containment.
  - Economic growth remained robust; inflation fell sharply following WAEMU/WAEMU entry.
  - Return to price stability improved the investment climate and facilitated privatization; progress made in other structural reforms.
- Remaining vulnerabilities:
  - Economy remains vulnerable to external shocks.
  - High external debt burden and widespread poverty.
- Priority recommendations:
  - Strengthen public finances and deepen structural reforms to consolidate progress and achieve strong, sustainable growth.
  - Thorough and timely implementation of comprehensive tax reform (including generalized sales tax due on "April 1, 1998") and continued improvements in tax and customs administration.
  - Further strengthen expenditure management, including elimination of domestic arrears.
  - Implement civil service reform with determination and without delays to improve public services and allow reallocation to social sectors and infrastructure.
  - Continue and broaden privatization; ensure private management of public services (e.g., post and telecommunications) occurs under competitive conditions to increase efficiency.
  - Intensify banking system reforms and recapitalization efforts; use restored price stability to broaden the financial system and develop savings and loan institutions for small-scale enterprise financing.
  - Improve debt management: establish and operationalize national debt monitoring, computerized debt management, and regularize relations with all creditors (Paris Club, non-Paris Club, regional multilateral creditors).
  - Recognized that Guinea-Bissau's "very heavy external debt burden" implies a need for a strong, sustained track record in policy implementation before reaching a decision point under the HIPC debt initiative.

### Selected economic indicators (as presented)
- Annual percentage change:
  - Change in real GDP: 1994: "3.2"; 1995: "4.4"; 1996: "4.6"; 1997: "5.1"; 1998 Prog.: "5.5"
  - GDP deflator: 1994: "23.3"; 1995: "44.7"; 1996: "49.8"; 1997: "39.5"; 1998: "10.2"
  - Change in consumer prices (end of period): 1994: "19.3"; 1995: "49.7"; 1996: "65.6"; 1997: "16.8"; 1998: "7.0"
- Percent of GDP:
  - Gross domestic investment: 1994: "21.8"; 1995: "22.3"; 1996: "23.0"; 1997: "19.1"
  - Gross domestic savings: 1994: "3.9"; 1995: "-1.2"; 1996: "1.8"; 1997: "3.3"; 1998: "2.5"
  - Gross national savings: 1994: "11.5"; 1995: "6.2"; 1996: "8.3"; 1997: "14.0"
- In millions of U.S. dollars (noted unless otherwise):
  - Export, f.o.b.: 1994: "20.5"; 1995: "23.9"; 1996: "21.6"; 1997: "53.9"; 1998: "42.4"
  - Imports, f.o.b.: 1994: "-53.8"; 1995: "-59.3"; 1996: "-56.8"; 1997: "-67.9"; 1998: "-73.7"
  - Current account balance, excluding official transfers: 1994: "-48.6"; 1995: "-59.9"; 1996: "-55.8"; 1997: "-37.7"; 1998: "-57.2"
  - Capital account balance: 1994: "-10.2"; 1995: "24.1"; 1996: "20.0"; 1997: "22.5"
  - Gross official reserves: 1994: "18.4"; 1995: "20.3"; 1996: "11.8"; 1997: "31.2"; 1998: "..."
- Current account balance, excluding official transfers (in percent of GDP): 1994: "-16.2"; 1995: "-23.6"; 1996: "-20.6"; 1997: "-14.2"; 1998: "-18.5"
- Change in real effective exchange rate (in percent)3: 1994: "-11.0"; 1995: "-7.6"; 1996: "4.8"; 1997: "12.4"
- External public debt (in percent of GDP): 1994: "376.5"; 1995: "367.1"; 1996: "339.1"; 1997: "356.4"
- Financial variables (in percent of GDP unless noted):
  - Government revenue: 1994: "12.7"; 1995: "12.5"; 1996: "15.4"; 1997: "14.7"
  - Government expenditure and net lending4: 1994: "35.5"; 1995: "30.4"; 1996: "33.6"; 1997: "37.5"; 1998: "29.3"
  - Current primary fiscal balance: 1994: "4.0"; 1995: "5.0"
  - Overall government balance5: 1994: "-4.6"; 1995: "-17.7"; 1996: "-18.0"; 1997: "-12.6"; 1998: "-14.6"
  - Change in broad money (in percent): 1994: "33.9"; 1995: "25.9"; 1996: "33.2"; 1997: "53.5"; 1998: "15.0"
  - Interest rate (in percent)6: 1994: "26.0"; 1995: "39.0"; 1996: "54.0"
- Notes from the table:
  - 1IMF staff estimates.
  - 2Unless otherwise noted.
  - 3(+)=appreciation.
  - 4Includes in 1997 the cost of the recapitalization of the Central Bank.
  - 5Excluding grants and restructuring operations.
  - 6Central Bank rediscount rate.

*Press Information Notice, March 26, 1998 — IMF External Relations Department, Public Affairs, Media Relations.*

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## References

- [Guinea-Bissau and the IMF](http://www.imf.org/external/country/GNB/index.htm)
- [Public Information Notices](https://www.imf.org/en/news/searchnews)
- [Article IV](https://www.imf.org/external/pubs/ft/aa/aa04.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn9820_