IMF Management Completes Third Review of the Staff-Monitored Program and IMF Executive Board Concludes 2022 Article IV Consultation with Guinea-Bissau
IMF News, June 20, 2022
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- Published: June 20, 2022
Economic outlook and recent performance
- Growth is projected to reach 3.8 percent in 2022 supported by a continued strong performance of the cashew sector and a relatively stable political situation.
- Growth is estimated to have accelerated to 5 percent in 2021 on the back of record cashew nut production, public investment in infrastructure, the gradual lifting of COVID containment measures, and an improvement in business confidence associated with a more stable political situation.
- Following a modest GDP growth of 1.5 percent in 2020, growth developments by year:
- 2020: 1.5 percent
- 2021: 5 percent (estimated)
- 2022: 3.8 percent (projected)
- Inflation developments:
- Average inflation accelerated to 3.3 percent in 2021, reflecting pressures on prices of imported goods, especially food and fuel.
- Average inflation is expected to accelerate to 5.5 percent in 2022, reflecting renewed pressures on prices of imported goods, especially food and fuel.
- Risks to the outlook are tilted to the downside, including those stemming from the impact of the ongoing war in Ukraine, and the upcoming parliamentary elections at the national level.
Staff-Monitored Program (SMP) completion and implications
- IMF Management approved on May 25, 2022 the completion of the third and final review of Guinea-Bissau’s SMP, which was approved on July 19, 2021.
- The SMP completion is based on an overall satisfactory performance of the reform program despite COVID-19 and rising commodity prices associated with the war in Ukraine.
- Most quantitative targets assessed at end-March 2022 and structural benchmarks were met.
- The successful completion of the SMP:
- Reflects the authorities’ efforts to sustain strong fiscal management and to build a policy track record for an Extended Credit Facility (ECF) arrangement.
- Should provide a strong backing to the authorities’ reform program and help catalyze much-needed donor support.
- Is essential to create more room for spending on pro-growth areas such as education, physical infrastructure, and health including vaccination.
Fiscal policy, debt sustainability, and public spending priorities
- Authorities are committed to pursue fiscal consolidation in line with the 2022 budget objectives to continue securing overall debt sustainability.
- Policy priorities and actions identified:
- Increase social spending to address human capital needs.
- Improve the regulatory environment.
- Increase access to financial services.
- Remove infrastructural bottlenecks.
- Maintain political stability.
- Specific fiscal measures and risks:
- Authorities are determined to rein in the wage bill by finalizing the census of the public administration personnel and addressing irregular hiring.
- It is necessary to mitigate fiscal risks stemming from state-owned enterprises, which could erode debt sustainability.
- Revenue mobilization, non-priority expenditure control, and reliance on grants and highly concessional loans are important to support social and infrastructure spending.
- Strengthening debt management is important to prevent new arrears accumulation.
Governance, transparency, and institutional reforms
- Further addressing governance vulnerabilities and reducing corruption risks will strengthen economic policy and business confidence.
- Ongoing and planned governance reforms:
- Enhance public finance transparency, accountability and efficiency through enhanced domestic revenue and expenditure management.
- Gradual establishment of a Treasury Single Account as a critical governance reform of public finances.
- Implementation of the amended asset declaration regime once approved by Parliament.
- Strengthening resources for the audit court, the financial intelligence unit, and the public procurement authority.
- Publish audits of pandemic-related spending and public procurement contracts; amend the legal procurement framework.
- Strengthen the AML/CFT framework and general data provision.
Financial sector and inclusion
- Directors underlined the importance of fostering financial intermediation to boost growth.
- Measures urged:
- Promote financial inclusion.
- Manage banking sector vulnerabilities, including by addressing NPLs and designing a viable disengagement strategy of the large, undercapitalized bank.
Executive Board assessment and recommendations
- The Executive Board concluded the 2022 Article IV consultation with Guinea-Bissau on June 17, 2022.
- Executive Directors:
- Agreed with the thrust of the staff appraisal.
- Commended the authorities’ implementation of their fiscal consolidation and reform program under the SMP, as well as their successful vaccination campaign.
- Noted the crucial role of the Rapid Credit Facility (RCF) and SDR allocation, underpinned by the SMP, in helping to address the adverse impact of the pandemic, improve spending transparency, and mitigate debt vulnerabilities.
- Stressed the need to sustain fiscal consolidation and accelerate reforms, including in governance, to promote inclusive growth and diversification.
- Recommended standing ready to implement additional measures should downside risks materialize, including from a protracted pandemic, food inflation, and climate shocks.
- Welcomed the authorities’ request for an ECF arrangement to continue supporting the government’s reform program and catalyzing donor support.
- Specific Director recommendations:
- Continue tax administration and public financial management reforms.
- Remove distortionary tax exemptions and reform the income tax regime.
- Mobilize additional tax revenue, including recent revisions to the general tax code and VAT statute.
- Improve governance of utility state-owned enterprise to mitigate fiscal risks.
- Increase resources for the audit court, financial intelligence unit, and public procurement authority.
- It is expected that the next Article IV consultation with Guinea-Bissau will be held on the standard 12-month cycle.
Press Release No. PR22/214 — June 20, 2022. IMF Communications Department.