## IMF Executive Board Completes Fourth Review Under the ECF Arrangement, Approves US$ 4.3 Million Disbursement, and Concludes 2017 Article IV Consultation with Guinea-Bissau

_IMF News, December 11, 2017_

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## Bibliographic details
- Published: December 11, 2017

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### Program review and disbursement
- The Executive Board completed the fourth review of the arrangement under the Extended Credit Facility (ECF).
- Completion enables the release of SDR 3.03 million (about US$4.3 million).
- Total disbursements under the arrangement to date amount to SDR 14.01 million (about US$19.8 million).
- Guinea-Bissau’s three-year ECF arrangement totals SDR 17.04 million (60 percent of quota), approved on July 10, 2015.
- The ECF-supported program aims to restore macroeconomic stability, promote efficiency in public service delivery, and foster inclusive growth.
- All performance criteria and indicative targets for end-June were met; most structural benchmarks were met. Two benchmarks (debt management operations and financial reporting on the public electricity company) were not met but are likely to be implemented with delay.

### Macroeconomic developments and recent performance
- Real GDP growth averaged almost 6 percent in 2015-2016, supported by favorable terms of trade.
- There was a surplus on the external current account and inflation below 2 percent a year in the period noted.
- The 2017 fiscal deficit is projected to fall under 2 percent of GDP, more than halving the 2016 level.
- Weak financial intermediation is a drag on growth, with banks burdened by high levels of nonperforming loans and unresolved issues from the voided 2015 bank bailout.
- Quoted statement by Mr. Tao Zhang, Deputy Managing Director and Acting Chair:
  - “Economic policy implementation in Guinea-Bissau has been satisfactory and in line with the objectives of the Fund-supported program. Economic growth has remained strong, buoyed by high cashew prices, while improvements in fiscal management have bolstered macroeconomic stability.”
  - On banking: authorities’ determination to minimize state costs while resolving the voided 2015 bank bailout and ensuring compliance with prudential norms is welcome; minimum capital requirements should be rigorously enforced.
  - On fiscal policy: low government revenue indicates a need to strengthen tax and customs administration and carefully manage public expenditures; borrowing for priority projects should be contained and rely to the maximum extent possible on concessional financing.
  - On governance and business environment: improvements are critical to maintain growth momentum; authorities need to entrench the rule of law, promote policy stability, instill transparency, reduce corruption and rent seeking, and combat money laundering and the financing of terrorism.

### Outlook and risks
- Growth is projected at 5 percent over the medium term.
- Positive contributors: ongoing investments in road and other infrastructure, improvements in electricity and water supply, and policies to improve the business environment.
- Key risks:
  - History of fragility and continued political tensions.
  - Undiversified export base.
  - Weak financial intermediation and unresolved banking-sector issues related to the voided 2015 bank bailout.

### Executive Board assessment and recommendations
- Directors agreed with the staff appraisal and welcomed authorities’ commitment and progress, including strong growth and improved fiscal position.
- Encouraged actions:
  - Leverage favorable conditions to advance reforms addressing infrastructure gaps, strengthen social spending, and improve the business environment.
  - Accelerate structural reforms to reinforce domestic revenue mobilization, further fiscal discipline, and improve the quality of public spending to enable stepped-up priority infrastructure and social spending.
  - Adhere to weekly cash management meetings and enhance procedures for project selection and planning/execution frameworks.
  - Address gaps in electricity and transport infrastructure and seek development partner support, notably technical assistance, to improve management of the public power and water utility, EAGB.
  - Anchor debt sustainability by seeking grants and loans on highly-concessional terms; careful borrowing is essential given high public debt and vulnerability to shocks.
  - Strengthen debt management, avoid contingent liabilities, and instill financial discipline in state-owned enterprises through regular financial reporting and audits.
  - Strengthen the banking system and financial inclusion; commit to minimizing state costs while resolving the voided bank bailout of 2015 and ensure adequate capitalization of banks.
  - Safeguard financial stability through remedial actions and strict enforcement of prudential norms in collaboration with the regional bank regulator.
  - Develop a national plan for financial inclusion to deepen the financial system.
  - Firmly entrench good and transparent governance, reduce corruption, and strengthen the AML/CFT framework.
  - Improve the quality and timeliness of economic statistics, enhance coordination across institutions, and allocate adequate resources for compilation and dissemination.

### Key statistics and selected economic indicators
- Population (mln, 2016): 1.7
- Main products and exports: Cashew nuts
- Literacy rate (% total, 2015): 59.8
- Quota (mln SDR, % total): 28.4 (0.01%)
- Key export markets: India and Europe
- Poverty rate (% total, 2010): 69.3
- Per capita GDP (US$, 2016): 694

- Selected historical and projected indicators (annual percent change unless otherwise indicated; Projections labeled as “Proj.”):
  - Real GDP at market prices: 2014: 1.0; 2015: 6.1; 2016: 5.8; 2017: 5.0; 2018: 5.5
  - Real GDP per capita: 2014: -1.2; 2015: 3.8; 2016: 3.5; 2017: 2.7; 2018: 3.2
  - GDP deflator: 2014: -0.1; 2015: 10.8; 2016: 6.6; 2017: 2.4; 2018: 7.2
  - Consumer price index (annual average): 2014: 1.6; 2015: 1.9; 2016: 2.1; 2017: 2.2; 2018: 2.5; 2019: 2.3; 2020: 2.6; 2021: 2.8; 2022: 3.0
  - Exports, f.o.b. (based on US$ values): 2014: 8.8; 2015: 54.6; 2016: 6.8; 2017: 5.7; 2018: 24.5; 2019: 7.1; 2020: 9.3; 2021: 9.4; 2022: 9.7
  - Imports, f.o.b. (based on US$ values): 2014: 17.3; 2015: -3.6; 2016: 6.9; 2017: 30.0; 2018: 13.2; 2019: 9.0; 2020: 8.5; 2021: 8.2
  - Export volume: 2014: -4.9; 2015: 26.3; 2016: 10.7; 2017: -4.5; 2018: -8.6; 2019: 5.1; 2020: 7.0; 2021: 7.3
  - Import volume: 2014: 30.5; 2015: 15.6; 2016: 18.6; 2017: 10.3; 2018: 6.4
  - Terms of trade (deterioration = -): 2014: 23.2; 2015: 54.4; 2016: 13.9; 2017: 11.4; 2018: 28.7; 2019: 0.6; 2020: 0.9; 2021: 0.8; 2022: 1.3
  - Real effective exchange rate (depreciation = -): 2014: -0.8; 2015: -2.6
  - Exchange rate (CFAF per US$; average): 2014: 493.6; 2015: 591.2; 2016: 592.7
  - Domestic revenue (excluding grants): 2014: 59.4; 2015: 29.4; 2016: -0.6; 2017: 15.1; 2018: 8.7; 2019: 22.9; 2020: 11.7; 2021: 11.0; 2022: 10.4; 2023: 11.8
  - Domestic revenue (excluding grants and one-offs): 2014: 47.7; 2015: 30.4; 2016: 5.2; 2017: 16.5; 2018: 10.0
  - Total expenditure: 2014: 89.1; 2015: 11.3; 2016: -2.3; 2017: -5.2; 2018: 15.7; 2019: 10.9; 2020: 10.2; 2021: 9.5; 2022: 10.6
  - Current expenditure: 2014: 79.5; 2015: -8.0; 2016: -12.2; 2017: 12.3; 2018: 10.1; 2019: 12.6
  - Capital expenditure: 2014: 115.4; 2015: 25.5; 2016: -14.2; 2017: 11.6; 2018: 22.3; 2019: 7.6; 2020: 8.4
  - Net domestic assets2: 2014: 7.8; 2015: 18.2; 2016: -2.5; 2017: -2.0; 2018: -9.7; 2019: 1.2
  - Credit to government (net): 2014: 9.1; 2015: 4.6; 2016: 1.8; 2017: 0.0; 2018: -0.5
  - Credit to the economy: 2014: 13.0; 2015: 0.7; 2016: -8.3; 2017: 1.1
  - Gross investment: 2014: 8.0; 2015: 11.1; 2016: 9.2
  - Government investment (of which): 2014: 8.1; 2015: 6.2; 2016: 6.5
  - Gross domestic savings: 2014: 0.2; 2015: 3.9; 2016: 4.0; 2017: 2.9; 2018: 3.1; 2019: 3.7
  - Gross national savings: 2014: 12.0; 2015: 10.5; 2016: 6.3; 2017: 6.7
  - Total revenue: 2014: 13.8; 2015: 12.2; 2016: 13.5; 2017: 14.1; 2018: 14.6; 2019: 15.0
  - Total domestic primary expenditure: 2014: 16.7; 2015: 15.4; 2016: 14.3; 2017: 12.8; 2018: 13.7; 2019: 14.2; 2020: 14.8
  - Domestic primary balance: 2014: -4.1; 2015: -1.5; 2016: -2.1
  - Overall balance (commitment basis) including grants: 2014: -3.0; 2015: -4.7; 2016: -1.9; 2017: -1.7
  - Overall balance (commitment basis) excluding grants: 2014: -12.1; 2015: -9.5; 2016: -8.7; 2017: -6.0; 2018: -5.8; 2019: -5.5; 2020: -5.6; 2021: -5.7
  - External current account: 2014: 0.5; 2015: -2.8; 2016: -2.9
  - External current account excluding official current transfers: 2014: -3.9; 2015: -0.4
  - Stock of central government debt: 2014: 55.1; 2015: 52.8; 2016: 54.1; 2017: 50.2; 2018: 49.2; 2019: 48.3; 2020: 47.3; 2021: 46.1; 2022: 44.7; 2023: 43.4
  - Of which: external debt: 2014: 15.2; 2015: 14.4; 2016: 13.3; 2017: 12.5; 2018: 14.5; 2019: 15.3; 2020: 16.0
  - Memorandum item: Nominal GDP at market prices (CFAF billions): 2014: 520.9; 2015: 612.5; 2016: 690.5; 2017: 734.1; 2018: 780.7; 2019: 832.7; 2020: 890.9; 2021: 955.1; 2022: 1025.4; 2023: 1103.5

- Note: Values exclude the 2015 bank bailout of CFA 34.2 billion. A final determination by the courts on the legality of the bailout contracts is still pending.
- Sources: Guinea-Bissau authorities; and IMF staff estimates and projections.

*IMF Press Release No. 17/481, December 11, 2017.*

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## References

- [Tao Zhang](https://www.imf.org/en/About/senior-officials/Bios/tao-zhang)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Press Release No. 15/331](http://www.imf.org/external/np/sec/pr/2015/pr15331.htm)
- [http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2017/12/11/pr17481-imf-board-concludes-2017-article-iv-consultation-with-guinea-bissau_