For more information, see Guinea and the IMF

Guinea—Enhanced Structural Adjustment Facility
Economic and Financial Policy Framework Paper, 1998–2000

I.  Introduction

1. With the support of the donor community, Guinea embarked upon an ambitious economic and financial rehabilitation program in 1985. Execution of this program yielded significant results in terms of economic growth. However, imbalances rapidly appeared, highlighting the need for in-depth reform of the entire economic, financial, administrative, legal, and social system.

2. In September 1996, with IMF and World Bank assistance, the authorities implemented a crisis management program aimed at restoring effective government and creating the conditions for sustained growth. In the face of this crisis, the government has been confronted with the following challenges: restoring an ethic of public service, reconciling rigorous economic policy with social stability, establishing a framework of incentives to facilitate the emergence of the private sector, and creating or rehabilitating basic infrastructure. Effective efforts to address these challenges are a prerequisite for alleviating poverty and ensuring the welfare of the general public.

3. Accordingly, in mid-1996 the government initiated discussions regarding a long-term development strategy for Guinea. This strategy, dubbed "Guinea—Vision 2010" sets major goals to be pursued by programs spread out over time. In the short term, the aim is to achieve economic stabilization, re-establish the major macroeconomic balances, and restore the confidence of development partners. In the medium term, the authorities will implement a program designed to encourage investment and stimulate growth by enhancing the effectiveness of the state and reappraising its role, promoting the private sector, and strengthening human and institutional capacities in a manner consistent with sustainable growth and significant reduction of poverty. A longer-term strategy is to focus efforts on achieving balanced economic and social progress, based on judicious measures to harness the country’s potential. In 1997, the government adopted bold fiscal consolidation measures in the form of efforts to combat tax evasion (particularly customs evasion), scale back exemptions, and reduce the government’s rate of expenditure. By end-1997, substantial headway had been made in achieving the short-term objectives, and the medium-term program had begun.

4. This policy framework paper (PFP) reviews the results obtained over the period 1995-97 and sets overall national objectives aimed at: (i) achieving rapid growth focusing on the private sector; (ii) enhancing the quality of public services with the aim of reducing poverty; and (iii) strengthening capacity in the core functions (prerogatives) of the state. In addition, the PFP describes the medium-term strategy adopted by the government. It sets forth the macroeconomic and sectoral policies to be implemented over the period 1998-2000. In addition, it discusses Guinea’s financing requirements for that period.


II.  Economic Developments over the Period 1995-97

5. Over the period 1995-97, real GDP grew by an average 4.5 percent, leading to an increase in per capita income. Although this growth rate is above the average for the West African subregion, it is still below the country’s output potential. Inflation was brought down from 5.6 percent in 1995 to 1.9 percent in 1997. However, the severe decline in the terms of trade which began in 1988 has resulted in a prolonged downturn in mining revenue, with a resultant reduction in exports and budgetary revenue. In 1997, the real GDP growth rate stood at 4.7 percent. This is primarily attributable to the favorable performance of the agriculture, construction, and public works sectors, as manufacturing activity has been stagnant for many years. With regard to government finance, successful fiscal consolidation measures have kept the budget deficit on a commitments basis (excluding grants) in line with program targets (6 percent of GDP in 1997). The domestic primary balance exceeded slightly the target of GF 112 billion, having climbed by about GF 60 billion over the corresponding figure for 1996. The balance of payments situation has led to an improvement in net official reserves, which were the equivalent of approximately 3 months of imports of goods and nonfactor services at end-1997.

6. Major reforms were enacted over the period 1995-97, including: (a) the adoption in 1996 of the value-added tax (VAT), the coverage of which was extended to the mining sector in 1997; (b) the abolition of all VAT exemptions not provided for by law, and the establishment of quotas in respect of imports exempted from tax under the Vienna Convention; (c) the contract with an international inspection company (S.G.S.) for customs valuation, tariff classification, assessment of customs duties, and monitoring of the collection of customs duties and taxes, which are paid directly to commercial banks; (d) the elimination of exemptions from the tax on petroleum products granted for gasoline and kerosene, the imposition of a tax on diesel oil (which had previously been exempt), and the increase in the price of gasoline to maintain tax revenue; (e) the setting of a realistic price structure for petroleum products reflecting all costs as of January 1998; and (f) authorization to open exchange bureaus in 1996. Steps were taken during the same period to develop human resources. These measures were reinforced by a new approach to government expenditure programming (the Medium-Term Expenditure Framework) based on national and sectoral priorities in four priority sectors. These efforts are designed to enhance budget execution and fiscal discipline by computerizing the budget expenditure monitoring system and strengthening financial controls to prevent fraudulent activity.

7. In mid-1997, the government addressed problems in the banking sector by first ordering audits of four banks in difficulties and preventing two of them from extending new loans. On the basis of these audits, one bank, the Banque Internationale pour l'Afrique en Guinée (BIAG), was closed in November 1997. Its liquidation has been orderly, and, at end-December 1997, most of the small depositors had been reimbursed in full. Large depositors are being compensated in full with government securities of one or two year maturity. The shareholders of three other banks were asked to inject adequate fresh capital. The government also initiated the rehabilitation of the National Social Security Fund (CNSS). An operational audit of the CNSS uncovered management weaknesses and concluded that its financial viability was undermined by large arrears in contributions, particularly from public enterprises. In response to these findings, the government tightened the management of resources, and, in preparation of further reforms, ordered a financial audit of the CNSS’s accounts as of end-1997.


III.  Macroeconomic Objectives and Policies for 1998-2000

8. The primary objective of the Guinean government for 1998-2000 is to lay the groundwork for sustained and diversified economic growth, based on a larger role for the private sector. To achieve this objective, the government has set up a program encompassing a number of interrelated elements, such as: (i) restructuring and rehabilitating the framework of government to ensure that the state can fulfull its proper role as partner and catalyst rather than as economic transactor and obstacle to economic growth; (ii) reviewing the legal and regulatory framework with the aim of attracting private investors; (iii) reforming the judiciary in order to strengthen the performance of the justice system as a whole; and (iv) rehabilitating the banking system.

9. The macroeconomic objectives of the government’s program for the period 1998-2000 are as follows: (1) achieving economic growth in real terms averaging 5.5 percent per year; (2) keeping inflation below 4 percent per year; (3) reducing the external current account deficit (excluding official transfers) from 8 percent of GDP in 1997 to approximately 6 percent by the year 2000 in an effort to raise official reserves from the equivalent of 3 months of imports in 1997 to about 3½ months of imports at end-2000. Investment is expected to continue its recovery, reaching 24.0 percent in the year 2000 as compared to 21.4 percent in 1997, with private investment increasing from 15.4 percent to 16.6 percent of GDP. This increase in investment should be entirely financed by higher domestic savings as the domestic saving rate is expected to move from 17 percent in 1997 to over 21 percent of GDP in the year 2000.

A.  Fiscal Policy

10. The government sector is expected to account for the increase in domestic saving, thanks to improved collection of budgetary revenue, which is a prerequisite for raising priority public expenditure, eliminating external arrears, staying current on external debt service, and reducing the government’s debt to the banking system. This increase should also help to ease the government’s reliance on external assistance. Accordingly, the authorities aim to raise the domestic primary surplus from 2.8 percent of GDP in 1997 to 4.3 percent of GDP by 2000. Given the weak prospects for government revenue from bauxite and aluminum (where prices continue to be uncertain), the authorities will step up their efforts to mobilize nonmining revenue, which is expected to increase from 8.2 percent of GDP in 1997 to around 10 percent of GDP in 2000.

11. Consistent with the macroeconomic framework, the program for 1998 is designed to raise the domestic primary surplus to about 3 percent of GDP (compared to 1.3 percent and 2.8 percent in 1996 and 1997, respectively), eliminating remaining external payments arrears and reducing the stock of domestic payments arrears as well as the government’s debt to the banking system. To achieve this objective, total government revenue should increase to 11.6 percent of GDP, building on the improvement recorded in 1997 (11.1 percent) compared to 1996 (10.1 percent). This improvement will be attributable to the full-year impact of the measures implemented in 1997 and early 1998, as well as from the improved management of the tax and customs administrations. The budget deficit target, on a commitments basis and excluding grants, has been set at 5.9 percent of GDP for 1998. Expenditure will increase by at least 5 percent in real terms, covering the cost of restructuring banks in difficulty and the needs of priority sectors (the share of the latter in nonwage recurrent expenditure will increase from 25 percent in 1997 to 29.2 percent in 1998). The wage bill will be limited to GF 185 billion. This nominal increase of 8 percent in relation to 1997, which includes no general wage increase, is attributable to the full-year impact of the 8 percent wage revaluation granted in September 1997, the resumption of payments of bonuses where duly warranted, and new recruitment in the education and health sectors. However, the wage bill is falling slightly in relation to total revenue.

12. The programmed improvement in nonmining revenue is expected to be achieved through strengthened implementation of measures already in place, such as the VAT and the expansion of the taxable base. All VAT exemptions not envisaged in the law have been abolished. Similarly, imports that are tax-exempt under the Vienna Convention are henceforth subject to a quota system, and the imports of mining companies not directly connected with their production processes will become subject to tax under ordinary law (the VAT in particular). In addition, the government will step up its efforts to curb the fraudulent import and distribution of petroleum products through closer scrutiny of institutions authorized to procure fuel on a tax-exempt basis. In this respect, the oil depots of the Guinean Bauxite Company (CBG) will be managed by the Société générale de pétroles (SGP). Imports by nongovernmental organizations will continue to be subject to strict scrutiny. The upturn in nonmining revenue will also be generated by improvements in the yield of nontax revenue, notably user fees charged by the state (from the fisheries sector, in particular) and revenue generated by government agencies. The reorganization of revenue collection agencies will be furthered with the creation of a property tax division at the National Tax Directorate. This division will manage the new unified real estate tax (contribution foncière unique), for which collection operations will commence in 1998. Customs revenue should improve as a result of the reform of the customs tariff initiated in January 1998, which is expected to stimulate trade. Tougher measures against smuggling, the enforcement of the program for safeguarding customs revenue, and action to further streamline customs exemptions should also help increase customs revenue.

13. With respect to government expenditure, the government has established a Medium-Term Expenditure Framework (MTEF) to serve as a basis for programming and budget preparation. The government has accordingly identified four priority sectors: education, health, rural development (agriculture, fisheries, and animal husbandry), and road infrastructure. The MTEF will allow the government to allocate scarce budget resources in a more rational fashion. The MTEF, launched in the 4 pilot sectors in 1997, is fully reflected in the 1998 budget. It includes the following stages: (a) identifying medium-term strategic sectoral objectives, accompanied by verifiable performance indicators; (b) translating these objectives into priority sectoral action programs incorporating current and capital expenditure; (c) costing these programs; (d) establishing binding medium-term sectoral "envelopes" for the four sectors, reflecting established priorities; and (e) allocating the budget for the year on the basis of priority programs.

14. To ensure the success of this new approach in preparing and monitoring the budget, and managing government expenditure in general, the government has established a system and framework of incentives designed to obtain: (a) a political commitment, at the interministerial level, to adopting and implementing the tough decisions entailed by government expenditure restructuring; (b) a commitment on the part of sectoral ministry decision-makers to showing proper regard for program prioritization and achieving efficiency in costs and budget execution; (c) a commitment on the part of all those involved in the budget process to adhering to budget allocations; and (d) a commitment to enhancing expenditure monitoring and control. In order to enhance the efficiency of the budget process, action will also be taken to improve the flow of information to sectoral ministries and expenditure control agencies, the government, the National Assembly, and civil society as a whole.

15. The annual establishment of budget envelopes for particular sectors takes account of mandatory expenditure, e.g., regular wage payments to staff, servicing of debt and arrears, the domestic contribution to projects supported by foreign aid, expenditure on water, electric power, and telephone, and last but not least, adequate funding for the revenue-collecting departments. Beginning in early FY 1998, the government will implement a plan for clearing its arrears vis-à-vis the private sector, for which the audit was completed in January 1998. In order to curb the wage bill, the government will pursue a wage policy that takes account of the available resources, with the aim of reducing the share of the wage bill in total expenditure by 2000. However, special effort will be made to improve the working conditions of judges and officers of the judiciary in a manner compatible with efforts to strengthen the performance of the justice system in line with the objectives described in paragraphs 31-32 below. In order to curb the rapid growth of pension-related expenditure, the government will carry out, during the first half of 1998, a study assessing the viability of the government pension system. Moreover, help mitigate the growing cost of pension payments on the budget, contributions will be required from government employees starting in early 1999, to be directly withheld from their salaries. In addition, the restructuring of the CNSS will be furthered to ensure that private sector workers’ pensions are protected.

16. In order to achieve a visible and lasting improvement in the budget process, the government has embarked upon a package of reforms, some of which have already been launched. These involve: (a) an audit of Treasury accounts for 1996 and 1997 in order to ensure that final budget accounts [loi de règlement] can be prepared on a regular basis; (b) ensuring compliance with budget implementation procedures; (c) enhancing coordination among the various government units to ensure the collection and consistency of budget data, including financing; (d) improving the transparency and flow of information inside and outside government; (e) promulgating a decree to specify a nomenclature for expenditure-supporting documents; (f) ensuring compliance with and enforcement of laws and regulations governing expenditure and accounting procedures; (g) upgrading the performance indicators by having them include information on externally funded projects and counterpart funds, as well as the financing of the balance of government operations; (h) computerizing the expenditure process, from the commitment stage to the payment stage, including strict compliance with government procurement procedures (these measures will be complemented by efforts to bring all ministerial departments on line, thereby facilitating the accessibility of information); (i) revising the system of Treasury accounts and the general accounting regulations; and (j) reforming the financial control process.

17. These measures geared to introducing greater transparency into the budget process should enable a gradual return to normal budget procedures while controlling expenditure and minimizing the risk of misappropriation of resources. Rigorous enforcement of these measures will be guaranteed by the control system already in place. In addition, the new budget nomenclature, which took effect with the 1998 budget law, is expected to simplify the functional analysis of expenditure.

18. To enhance the effectiveness of government expenditure, government procurement regulations and a set of measures to enhance contractual arrangements have been implemented. In addition to the new government procurement code adopted in 1997, steps have been taken to: (i) prevent the splitting up of expenditure into smaller lots; (ii) limit the use of private agreements and codicils, which are burdensome and nontransparent; and (iii) compensate for the lack of information among economic transactors by creating a publication dealing with procurement issues. To facilitate the work of government procurement personnel and thereby reduce turnaround times, standard bidding packages have been prepared. These materials are being presented in workshops to train personnel in charge of the financial and administrative operations of spending ministries and project leaders. These training/education workshops will be expanded to include suppliers (e.g., small- and medium-scale enterprises), and the heads of public enterprises. Finally, an annual program for monitoring government contracts was put in place in January 1998. It will make it possible to track the status of any individual contract on a daily basis, and thereby prevent any slippages.

B.  Public Investment Program (PIP)

19. In the context of implementing the MTEF, the government initiated efforts aimed at: (a) selecting projects based on a macroeconomic framework and high-priority medium-term objectives and programs to ensure inter- and intra-sectoral efficiency and sustainability; (b) gearing the size of the PIP to the resources available to finance recurrent costs; and (c) a rigorous programming of counterpart fund requirements to improve project execution. In addition to and in support of the investment expenditure reform program already underway, the government will take the following actions: (i) revising the classification of investment expenditure in the budget to track such expenditure by source and type using the computer-based system; (ii) rationalizing of institutional structures involved in investment budget programming and execution; and (iii) reinforcing project appraisal and monitoring capacities.

C.  Monetary Policy and Financial Sector Reform

20. The main objectives of monetary policy will be to contain inflation (less than 4 percent annually), which should contribute to the stabilization of the exchange rate. This will be implemented by the Central Bank of the Republic of Guinea (BCRG) through the control of reserve money growth. The monetary program for 1998 projects a 9 percent expansion of the money stock. This is consistent with the growth target for the BCRG's net foreign assets, which are expected to total US$143.2 million at end-1998. At the programmed domestic primary surplus, monetary expansion is designed to allow for an increase in bank credit to the private sector. The necessary accumulation of the BCRG’s net official reserves therefore requires an initial reduction in its gross domestic assets, which will be facilitated by the programmed gradual reduction of government borrowing from the banking system, and will give the private sector access to sufficient credit to conduct its operations. This will also lead the BCRG to change its policy toward the interbank foreign exchange market (in which it will no longer intervene on a regular basis as its intervention is now dictated by the absolute necessity of attaining its net official reserves objective), and to allow the GF exchange rate to be market determined. Consequently, it is essential for the exchange rate policy that interest rates remain positive in real terms. The BCRG will continue to base its control of banking system liquidity on the use of indirect instruments. The adjustment of the interest rate applicable to BCRG advances to the government to the market rate in the second quarter of 1998 and the use of securities issued in connection with the conversion of permanent advances in its open market operations will strengthen the central bank's capacity to fulfill its mission effectively. Likewise, to encourage private savings, treasury bills will also be made available to the public through the issuance of certificates having a face value within the reach of the general public.

21. Despite the reforms introduced since 1994 in the context of the World Bank financial sector adjustment credit, the banking system is still limited in depth and fragile. It has thus far been unable to respond satisfactorily to the private sector's development needs, owing to the lack of competition and to the precarious state of certain banks. Government recourse to bank financing, which has been rising steadily in recent years, led to the issuance of high-yield treasury notes to banks to mop up commercial banks’ liquidity so as to control the money stock and, therefore, inflation. This has prevented the private sector from obtaining credit that banks might otherwise have granted. The projected reduction of government commitments to banks should allow for the reorientation of available bank resources toward the private sector. The planned improvement in the judicial system and a decline in interest rates are expected to improve the allocation of resources to productive sectors.

22. The difficult financial position of four banks led the authorities to introduce a restructuring plan for the sector consisting of: (i) the decision to liquidate the Banque Internationale pour l'Afrique en Guinée (BIAG); (ii) an invitation to the shareholders of the three other banks to recapitalize them in order to shore up their capital base in a manner consistent with the pursuit of their activities. The banks in difficulty will be restructured during the first six months of 1998. To ensure the effectiveness of these reform measures, a bank restructuring monitoring committee was created to monitor proper execution of the restructuring plans and the operations to recover contested claims.

23. To ensure the financial health of the Guinean banking system and to boost its competitiveness, the government will also strengthen banking supervision in light of the Basle Committee principles and, through the central bank, will ensure that banks are strictly supervised and that financial institutions comply with the prudential regulations. In particular, to facilitate supervision, the BCRG has developed a unified chart of accounts for insurance companies, while the unified chart of accounts for commercial banks will be implemented for the accounts of 1999. In accordance with a plan developed in December 1997, the government sold some of its UGAR shares. Finally, the license to operate recently granted to a new bank, the restructuring of credit institutions experiencing difficulties, and the strict supervision by the BCRG, will increase the efficiency of the banking system and allow for the diversification of its financial services.

D.  External Sector Policy

24. The pursuit of a flexible exchange rate policy by the BCRG, together with strict compliance with the fiscal and monetary objectives of the program, should result in stabilization of the exchange rate at a level conducive to the continued competitiveness of the Guinean economy. It should also allow Guinea to accumulate a comfortable level of exchange reserves, which would give it the resources to deal with any exogenous shock. To promote more flexibility, the BCRG clearly encouraged banks to actively seek foreign exchange in the informal private sector and, as of end-February 1998, eliminated the 0.25 percent commission it had been collecting on banks' internal foreign exchange operations. In addition to the admission of exchange bureaus to the interbank foreign exchange market, this policy is expected to result in rapid integration of the formal and informal foreign exchange markets and to give the private sector better access to foreign exchange.

25. Guinea accepted the obligations of Article VIII of the IMF Articles of Agreement in 1995, and reaffirms its commitment to meet its balance of payments objectives without increasing quantitative or administrative restrictions. Efforts to harmonize certain customs duties with neighboring countries were undertaken in 1998. A more detailed study of trade policies is being carried out with the assistance of the World Trade Organization (WTO) to further the regional harmonization of trade practices with WTO rules. Finally, the government will take the necessary steps to improve the reception of, and information provided to, investors upon their arrival.

E.  Balance of Payments and External Financing

26. Pursuit of the fiscal policies established for 1998-2000, as well as strict implementation of the structural reforms described in this document and in the attached matrix, should make it possible for Guinea to reduce the current external account deficit (excluding official transfers) from 8 percent of GDP in 1997 to 6 percent in 2000 (Table 2). A sustained increase in the volume of nontraditional exports is expected to result from the structural measures in progress, particularly in the agricultural and mining sectors. This expansion should more than compensate for the relative stagnation of bauxite and aluminum exports, the international prices of which are not expected to increase significantly. In terms of value, the annual growth rate of exports is expected to reach 10 percent on average; imports are also expected to expand at an average of 8 percent annually over the period.

27. Guinea's external current account deficit, excluding official transfers, is expected to amount to US$834 million during 1998-2000. In addition to repayment of US$271 million of the country’s external debt and reduction of the arrears on such debt (US$688 million), the program calls for a net accumulation of official reserves amounting to US$112 million to maintain the equivalent of 3½ months of imports of goods and nonfactor services at end-2000. At the same time, financial inflows during this period are projected at US$1,019 million, including US$368 million in official transfers and US$62.1 million in investment and other private capital. This leaves a financing gap during the period of US$887.1 million. To close it, the government will receive US$56 million from multilateral institutions, including US$25 million from IDA under the SAC III in 1998, as well as other bilateral and multilateral financial assistance totaling US$45 million. Moreover, the government intends actively to seek the rescheduling of its external debt with bilateral creditors, on terms at least as favorable as those granted by the Paris Club during the February 1997 rescheduling. With regard to Russia, negotiations have begun to reschedule the Guinean debt in the light of Russia’s joining the Paris Club in September 1997. The government also expects to make two drawings under the ESAF and to mobilize new resources to cover any residual financing gap.

28. Regarding its external debt, Guinea will continue to seek concessional financing exclusively. To restore normal relations with its creditors, the government agrees to honor all of its external debt service obligations on a regular basis. Guinea also agrees to finalize, during the first half of 1998, the bilateral debt relief agreements accorded the country by several of its creditors. With respect to its commercial debts, the government will, with World Bank support, conclude negotiations to repurchase such debt. The cost of this operation (US$14 million) is being financed with French, Swiss, and Norwegian cofinancing under the IDA debt reduction facility, plus Japanese cofinancing, which was used to organize the operation. Finally, Guinea will continue to seek an agreement with those of its creditors with whom it still has obligations under inoperative bilateral payment agreements, with a view to rescheduling them on terms at least as favorable as those accorded by the Paris Club agreement in 1997.

F.  Debt Sustainability Analysis

29. At end-1997, the stock of Guinea’s external debt was estimated at US$3.1 billion, or about 80 percent of GDP. Of this amount, about US$0.7 billion were principal and interest in arrears. The latter comprised mainly arrears to Russia and non-Paris Club creditors, and arrears on commercial debt. The net present value (NPV) of total external debt amounted to some US$2.3 billion, implying an average grant element of 28 percent. [The average grant element of total external debt excluding arrears was estimated at 35 percent.] About 49 percent of the debt is owed to multilateral creditors (including the Fund); IDA is by far the largest single creditor, holding more than 60 percent of multilateral claims on Guinea. The Fund’s share of multilateral debt is 6.5 percent. The NPV value of multilateral debt, about US$780 million at end-1997, was less than 100 percent of the three-year average of exports of goods and services. With Russia’s accession to the Paris Club, these bilateral creditors accounted for close to 80 percent of official bilateral debt at end-1997. Apart from Russia, other significant Paris Club creditors are France, United States, Japan, and Italy. Among non-Paris Club creditors, only China, Argentina, Korea and Egypt held some of their end-1997 claims as non-overdue obligations: other creditors’ claims were fully in arrears. Commercial debt claims were also mostly in arrears.

30. Analysis of Guinea’s debt service capacity, in the context of its balance of payments, indicates that the debt burden will decline steadily in the medium- and long-term and that the country will be able to honor its external debt obligations. Under the baseline scenario, the current account deficit (including grants) would be gradually reduced from almost 5 percent of GDP in 1998 to 2 percent in 2007 and under 2 percent thereafter. The NPV of debt-to-exports ratio would decline from 207 percent in 1998 to under 200 percent in 1999 (i.e., prior to the stock-of-debt operation). The ratio would then further fall to 124 percent in 2008 and to 92 percent in 2017. In GDP terms, the stock of debt would be reduced from 80 percent in 1997 to 68 percent in 1998, and to 37 percent in 2017. The debt service ratio, after debt relief, would peak at about 14 percent in the year 2000, in part reflecting the increase in interest on rescheduled debt that would have to be paid immediately under the stock-of-debt operation; however, the ratio would then decline to under 10 percent by 2007 and to 8 percent by 2017. The share of multilateral debt would rise from 49 percent to 63 percent in NPV terms, reflecting the long maturities and grace periods of these loans. The fiscal burden of external debt is also projected to become lighter, not least because of the projected increase in the revenue-to-GDP ratio from 11 percent in 1997 to 17 percent in 2012 and thereafter. The NPV of debt-to-revenue ratio is therefore projected to decline from 372 percent in 1998 to 176 percent in 2008 and to 116 percent in 2017. Nevertheless, Guinea’s external position entails a number of risks, relating primarily to lower-than expected export prices for bauxite and aluminum, the supply response of the nonmining export sector, and the country’s access to concessional financing.


IV. Sectoral Policies

A.  Judicial System Reforms

31. The government is determined to move ahead with a comprehensive program of legal and judicial reform in order to establish an enabling environment to public and private investment. While the major elements of such judicial reform will be developed in the next twelve months with assistance from the World Bank, steps have been taken to facilitate the settlement of disputes through voluntary arbitration. In this vein, the government has prepared the framework for the establishment of a Chamber of Arbitration to be launched in the next few months. The proposed chamber will consist of a board whose members are elected by private sector representatives to be assisted by six professional jurists as advisers. The government will also revise the legal code (Code d’Organisation et de Compétence Judiciaire) with a view to streamlining procedural rules so as to foster a speedy disposition of enrolled cases. Also, full-court rulings will be instituted for commercial disputes so as to guarantee the plaintiff’s rights and enhance the security of investments. The government will also redouble its efforts aimed at upgrading expertise of the courts on commercial and economic matters.

32. The government is also determined to implement the following measures: (a) adopt and implement an action plan to improve the working conditions of judicial system personnel; (b) introduce transparency in legal proceedings by, inter alia, systematically reporting on cases pending judgment, regularly publishing court decisions (Guinea’s Bulletin de Justice appears regularly), and broadening public knowledge of legal issues through long-term media campaigns; (c) boost the capacity of the legal system through the ongoing training of judges, legal professionals, and legal representatives; and (d) increase the awareness of government representatives (including ministers, governors, prefects, mayors, police, and constabulary) of the limits of their responsibility without interfering in judicial affairs. As a result of these reforms, the respective role of criminal investigation and public prosecution is clearly delineated. Also, attorneys are now permitted to be present during the examination of their clients by the criminal investigation office, and the public prosecutor's office. To enable it to fulfill the above tasks more efficiently, the government has increased budget appropriations to this sector.

B.  Public Enterprise Reform

33. The government will continue its policy of divesting public enterprises. In 1998-2000, the government will reduce both the size and the budgetary cost of the public enterprise sector by continuing the divestiture operations included in various sectoral projects and by boosting the efficiency and financial position of enterprises and public utility companies remaining in the government’s portfolio.

34. In cooperation with the World Bank and with its assistance, the government will (a) conduct an exhaustive inventory of all enterprises in which it still has holdings; and (b) prepare a program for government divestiture of enterprises yet to be privatized, including a specific timetable. To tighten the financial management of public enterprises, the government will devise a plan to settle cross debts between the government and public enterprises and will inventory direct and indirect subsidies in the sector and take the necessary steps to minimize their share of the budget.

C.  Administrative Reforms

35. The government's administrative reform policy for 1998-2000 consists essentially of strengthening its management capacity to ensure that human resources are used efficiently to improve the provision of user services. Accordingly, the following steps are being taken: (a) updating of civil service personnel management regulations; (b) strengthening of the system for the ongoing training and development of existing staff; (c) continuation of efforts to consolidate civil service records, including strengthening the capacity of the administrative management department; (d) creation of a civil service social security system; (e) control of new recruitment in the civil service; (f) reform of labor legislation to promote private investment; (g) raising of moral standards in the management of public services by combating corruption; and (h) enhancement of the skills of available human resources and their renewal.

D.  Agricultural Sector

36. To promote agricultural development, the government has again updated its agricultural policy, which was examined jointly by Guinea’s civil society and foreign partners in a roundtable discussion. This policy is based on a definition of the respective roles of the government, the private sector, and decentralized local entities and encourages a greater contribution from private enterprises to agricultural sector development. More specifically, the government has taken steps to encourage (a) the development and maintenance of rural infrastructures (unpaved roads, wetland improvements, and village water projects); (b) rational management of natural resources; (c) improvement of market conditions to promote more effective marketing of products, especially export products; (d) strengthening of the cooperative movement, particularly the development of producers' organizations; (e) reform of the legal framework, especially as it pertains to land use; (f) decentralization of government personnel management to boost efficiency in the provision of agricultural services; and (g) establishment of an effective system for the supply and distribution of inputs and the training of producers. To rationalize public expenditure in this sector, a reorganization program based on a redefinition of the key functions of the Ministry of Agriculture, Water, and Forests (MAEF) will be implemented. Moreover, a detailed study of the human resources needed to fulfill the MAEF's new functions will be carried out and its recommendations implemented.

37. The government will also continue its policy of supporting activities in the agricultural sector aimed at: (a) promoting the creation of small and medium-sized enterprises; (b) establishing a rational and workable rural credit system; (c) improving rural infrastructures and their maintenance, particularly the network of unpaved rural roads, village water projects, hydro-agricultural improvement, and rural markets; continuing efforts are also under way to enhance the capacity of rural development corporations to design, prepare, execute, and follow up community development plans; (d) developing activities with high agricultural export potential; (e) protecting the environment and promoting a more rational use of natural resources; and (f) furthering rural land management efforts.

E.  Fisheries Sector

38. With a 350 kilometer coastline, a dense drainage network, one of the largest continental shelves in the West African subregion, and the upwelling area (zone résurgence) afforded by its geographic location, Guinea enjoys superior fishing resources. Consequently, the fisheries sector could play an important role in the national economy in terms of creating jobs, contributing to food security, increasing national revenue, and promoting the industrial sector.

39. In support of the adjustment measures undertaken in the sector, a major effort was made to improve resource management and protection, the rational development of fisheries, and the consolidation of the sector's finances. This effort led to the introduction of a fisheries monitoring, follow-up, inspection, and surveillance system as a result of the creation of the National Fisheries Science Center of Boussoura and the National Fisheries Surveillance and Protection Center, as well as the institutional strengthening of the Ministry of Fisheries and Livestock. The creation of these two centers increased public awareness of resources and helped strengthen surveillance activities. Growth on the order of 10 percent is currently observed in this sector. Despite the results obtained and considering the country's fishing potential, the existing measures should be reinforced.

40. To that end, the government is determined to implement an action plan aimed at: (a) a rapid and effective improvement in fisheries surveillance; (b) intensification of fisheries research activities; (c) support for the development of nonindustrial fishing; (d) support for the construction of infrastructure to store, process, and package fish products; (e) support for enhancing the skills of workers in the sector; and (f) support for the development of continental fishing through multidisciplinary research, water resources legislation and development in fishing zones, and the supply of inputs.

F.  Mining Sector

41. The government has instituted an ambitious program of reforms, the objectives of which can be summarized in two points. First, in regard to the institutional, legal, and regulatory environment, a new mining policy was defined, and a new Mining Code was promulgated; this more liberal code is aimed at restoring competitiveness to the mining sector through an enabling tax system, stabilized over the term of mining rights. Second, in regard to the promotion of private investment, the government, assisted by the World Bank and the French technical assistance agency, has initiated a program entitled "Program for the Promotion of Investment in the Mining Sector"; according to its assigned objectives, this program is expected to result in completion of a geological map of Guinea on a scale of 1:200,000, constitution of a reliable databank on the sector, harmonization of all legislation governing the sector, strengthening of the institutional framework, restructuring of mining enterprises, and training of staff. The government has also decided to divest itself of its mining companies and thus reduce its role as an owner and operator in this sector, at the same time it will strengthen its role as a regulator and intermediary.

42. This new framework has made it possible to attract to Guinea major companies that are interested not only in bauxite and aluminum but also in other minerals (such as gold, diamonds, iron, and nickel). Against this backdrop, the principal mining companies (CBG, FRIGUIA, and SBK) must be restructured to make them full-fledged companies, each with a single category of shareholders and an autonomous senior management accountable only to its board of directors. These restructuring operations, which include cost-cutting measures, have started to bear fruit and will be continued over the next few years. In this process, the government has recruited a financial advisor (an investment bank), with whose help it will endeavor to complete a study of the role of the National Agency for Management of Mining Infrastructures (ANAIM), and seek to identify management methods appropriate for the fully state-owned SBK.

43. In a more enabling environment, the government will promote large mining projects in the iron and aluminum subsectors and will establish the infrastructures needed for their successful implementation (including a trans-Guinean railway and a deep-water mining port). In regard to taxes, enterprises in the sector will be granted exemptions from value-added taxes (VAT) during the prospection, construction, and expansion phases; such exemptions will apply to foreign subcontractors and to imports relating to mining or the processing of minerals. Local subcontractors are liable for VAT.

G.  Energy Sector

44. Although technical conditions have improved in the electric power sector through an appreciable increase in the supply of electricity and enhanced efficiency in the distribution network, the financial position of the sector remains serious and the sector requires rapid institutional reform and financial restructuring. The objectives of the sectoral reform have not been achieved, in particular because of the sector’s poor performance, which is mainly the result of difficulties encountered in implementing the subcontracting agreement signed in 1994 between the asset holding company (ENELGUI) and the electric company (SOGEL). In the circumstances, the government has decided to shift from the current arrangement to a genuine long-term concession, which will more clearly define the roles of those involved and create greater incentives created for the new concessionaire, as well as establish minimum investment requirements.

45. With this in mind, the government has set up an interministerial committee and will obtain the help of a financial and technical advisor to manage this process, with a view to installing the new concessionaire early in 1999 on the basis of open competitive bidding procedures. In the meantime, operations in 1998 would be governed by Codicil 2 to the Convention currently under negotiation, which is to be signed in January 1998. The government has already decided to close down ENELGUI when the transitional period elapses upon the installation of the new concessionaire, and to set up a regulatory body. The liquidation of ENELGUI will ipso facto render the current arrangement null and void and therefore lead to the demise of SOGEL, at least in its current configuration. Simultaneously, the government will, with its own initiatives, create the conditions necessary for increased involvement by private operators and investors in the sector. In this context, new legal and regulatory provisions will be enacted to encourage private sector investment in electricity production for the Conakry region and the main centers. In the meantime, the government plans to implement a program to supply power to inland towns, covering about ten regional centers, in 1998.

46. For the years to come, the government will place emphasis on developing Guinea’s hydro-electric potential as a preferred source of power, with the aim of incurring relatively low power production costs over time. In regard to the supply of power to rural areas, the government, with World Bank support, has set up a village electrification pilot program, which is to be launched in 1998 in one of the six targeted villages. These measures, which are expected to help increase the viability of enterprises in the sector, will be further developed, especially in regard to invoicing and cost recovery.

H.  Education Sector

47. With the support of donors and lenders, considerable progress has been made in the education sector: larger allocations have been made of budgetary resources, imbalances have been reduced in the sharing of such resources among the education subsectors and between rural and urban areas, and enrollment ratios for girls (35.5 percent in 1996/97, compared with 25.7 percent in 1993/94) have improved.

48. In accordance with a new education sector policy statement published in May 1995, the government will continue to accelerate education sector development, in particular by taking the following measures: (a) reorientation of resources toward primary education, with a view to increasing the gross primary school enrollment ratio from its current level of 51 percent (compared with 29 percent in the early 1990s) to 60 percent by 2000; and (b) improvement in the quality of teaching through a set of innovative measures for schools, particularly in regard to the supply of school books, ongoing teacher training, pupil health and nutrition measures, and a detailed assessment of the knowledge acquired by pupils.

49. The effort to raise the primary school enrollment ratio, in particular for girls, will require the hiring of at least 1,600 new teachers (contractual or staff) per year over the next three years. The subsector of higher education and scientific research is being restructured and streamlined with a view to adapting to changes in employment priorities and greater budgetary constraints. This restructuring of higher education and research (adopted in March 1996 by means of the PADES) will involve improving the quality and relevance of education at the institutes of higher education (IES), introducing cost-recovery measures, increasing teacher workloads, and making a greater investment in state-of-the-art communications and information systems. The large number of pupils at the primary level is increasing pressure at the secondary level. The strategy in this subsector is to implement a policy to deal with the rise in numbers, so that efforts can be stepped up to improve the quality of teaching and streamline the use of human resources.

50. Ministerial policy in regard to technical education and vocational training will be formulated with the following main focuses: (a) technical training, starting from the end of the primary education cycle; (b) the training of high-level technicians in advanced technologies; and (c) training and refresher courses for workers. An effort will be made to integrate the policies adopted for the three sectors.

I.  Health and Population

51. Despite the improvement in policies and the good results achieved in some areas (e.g., immunization and prenatal care), the resources allocated to the health sector are still very inadequate, and health indicators remain low in Guinea compared with other sub-Saharan African countries. To meet the major challenges in this sector, the government will take the following measures: (a) increase its nonwage expenditure on health, ensure the efficient use of such expenditure, and improve its allocation to health districts or district health directorates and basic health units; (b) improve primary health care, including action to control contagious and nutritional diseases, particularly in isolated regions; (c) continue the decentralization process and update and implement the staff reassignment plan, with a view to improving resource management and ensuring continuity of care; (d) promote greater participation by local governments in the formulation of health policies and in the financing and management of health units; (e) develop human resources; (f) ensure complementarity between the public and private sectors, as well as intersectoral collaboration; (g) develop and computerize the health system, with a view to improving planning and management; (h) improve reproductive health programs; and (i) promote behavior conducive to good health, particularly among young people. Other government priorities include the identification of new sources of funding, for example, forms of prepayment on a small scale (mutual associations), the promotion of private sector development, and more efficient use of the resources provided by donors and lenders. The government will also embark, during the period 1998–2000, on a broad-based communications campaign to heighten public awareness of primary health care. In the pharmaceuticals subsector, the government will take steps to improve the supply and distribution of generic essential drugs. In addition, it is committed to privatizing the central pharmacy. The authorities will also strengthen the legislation governing the subsector so as to ensure its effectiveness.

52. Population problems are severe in Guinea. The government is conscious of the macroeconomic and social consequences of demographic growth, and is fully committed to resolving this problem. The authorities also recognize the need to broaden the scope of available family planning services and to include them in the system of primary health care. In this regard, the government recently (in 1992) formulated a comprehensive national population policy (updated in 1996) with a view to controlling the rate of population growth, and it is preparing a program for population and reproductive health programs.

J.  Environmental Problems

53. Guinea’s development cannot be sustained unless the significant environmental problems faced by the country are solved. Some of these problems (e.g., the unhealthy conditions of the towns owing to the lack of trash collection and waste water treatment services, the lack of drinking water in both urban and rural areas, and air pollution, mainly from mining activities) have harmful effects on the health of the public. The degradation of natural resources as a result of soil erosion, deforestation, and the decline in fishing resources are a threat to production levels, particularly in agriculture, and therefore represent an obstacle to medium- and long-term economic growth. Operations are under way to improve the urban environment and the supply of drinking water in urban and rural areas. In addition, sectoral policies (in agriculture and mining, in particular) and their implementation increasingly include aspects and actions necessary to improve resource use and sustainability. The government will improve and monitor implementation of the current regulations in favor of environmental safety and protection, as well as the specifications and quality of products in petroleum sector operations. The government is also committed to promoting the sound management of timber resources by local people, and encouraging the use of nonpolluting replacement fuels in urban areas. On the basis of a national action plan for the environment (PNAE) approved in September 1994, priority areas have been selected for action. The authorities will set up an operational unit within the National Environmental Directorate to monitor implementation of the PNAE. This unit will be made responsible for establishing the strategic framework and indicators (after consultation with all the parties concerned) in the priority areas established by the PNAE and for continuously monitoring the indicators, so that it can at any time suggest any necessary changes or measures to the planners.

K.  Urban Development

54. Guinea, like neighboring countries, has experienced a high rate of urban growth, which has had an immediate impact on the national economy, the social fabric, and the environment. As part of its urban development policy, the government will improve access for the majority of the urban population to urban services and infrastructure, while at the same time establishing long-term mechanisms to encourage (a) better planning of priority investments; (b) a clearer distribution of responsibilities for programming, implementation, monitoring, and regulation, and a more important private sector role in the supply and management of services; (c) user participation, together with that of central and local governments, in the financing of equipment; and (d) the financing of maintenance equipment by the users. The creation of urban institutions and the assumption of responsibility by local authorities (municipalities) for urban infrastructures can be expected to make local authorities, taxpayers, and beneficiaries more accountable. The government intends to implement a program for the management of solid waste, the maintenance of secondary infrastructures, and the mobilization of local resources. In addition, the government will continue to implement land use and development measures intended to reduce the imbalance between Conakry and the rest of the country, as well as the disparities among regions. Within this framework, the preparation of master plans for development and urban growth will be continued. The government will also set up appropriate institutions, mechanisms, and regulations for implementation of the housing policy, in particular to ensure private sector involvement in the production of housing. To this end, the government will carry out a study on the implementation of mechanisms for financing housing.

L.  Road Infrastructure

55. The new policy on road infrastructure is focused primarily on continuous maintenance of roads and the increasing involvement of users in the financing and management of roads. The overall objectives are (a) to open up the hinterland and connect it with the capital; (b) to establish links between the main areas of production and consumption; and (c) to maintain contacts with neighboring countries in the context of subregional economic integration and the objective of gaining access to the sea for landlocked countries.

56. The main strategies adopted for achieving these objectives are (a) to increase knowledge about the sector; (b) to fit infrastructure into its environment through the use of terminals and the implementation of appropriate road transportation regulations; (c) to ensure the continuity and safeguarding of road maintenance financing; (d) to strengthen and reallocate national capacities by decentralizing road management resources, responsibilities, and competencies and setting up a coherent system of human resource development; (e) to formulate a national roads doctrine; and (f) to set up a new, redesigned road fund.

57. The government has also adopted principles to ensure that road maintenance needs are met in a sustained manner. The government will create a redesigned so-called second-generation road maintenance fund in order to provide stable, routine financing for road maintenance works. This fund will involve the upstream input of road users in its management, and it will be based on the following principles: (a) the fund will be legally and financially autonomous; and (b) the fund will have its own resources, collected from road users, in accordance with cost-allocation principle. These resources will have to increase gradually so that all maintenance needs can be met.

M.  Water Supply and Sanitation

58. The government’s objectives in this area are (a) to alleviate the effects of poverty and improve public health by providing greater public access to drinking water and inexpensive sanitation services; (b) to encourage private sector participation to ensure the viability of the system; and (c) to develop the sector’s planning capabilities. To achieve these aims, the government will implement a water supply and sanitation strategy, in collaboration with nongovernmental organizations, the private sector, and local governments, by means of demand-driven pilot programs aimed at maximizing the impact and use of existing facilities for the supply of drinking water and sanitation in rural areas. This strategy will be based on the following principles (a) decentralization and beneficiary participation in the decision-making process in all phases of formulation of the rural water supply and sanitation project; (b) the financial contribution of the communities in question to the initial investment and their participation in kind in the completion of the works; and (c) the responsibility of local governments for operations and maintenance. The third water project negotiated in 1997 will facilitate the achievement of better results in the sector. At the completion of the "Seven Towns" project, the number of towns supplied with drinking water will have increased from 18 to 25. The water sector will consolidate these performances to a large extent in 1998, through the implementation of various projects to expand networks and promote low-cost connections.

N.  Improvement of Statistics and Macroeconomic Management

59. As part of the effort to improve statistics and macroeconomic management, specialized technical assistance missions were sent to Guinea in 1994–95 by the IMF Statistics Department to improve monetary, government finance, and balance of payments statistics. Also, the IMF again provided assistance to the central bank by sending it a senior advisor. In addition, an expert in tax administration was placed in the office of the Minister of Economy and Finance from 1995 to 1997. The World Bank, for its part, intervened in the context of the reform of the financial and judicial sectors, in coordination with bilateral donors and lenders such as the United States Agency for International Development and France; the latter also offered its technical support in the customs and fiscal areas. However, for the next three years, Guinea still needs additional technical assistance to improve its statistics system, to remedy the current inadequacies and ensure a firm basis for effective monitoring of the country’s economic situation and its macroeconomic management.

60. In the area of statistics, efforts must be made to rectify the methodological weaknesses in the national accounts, to broaden their scope and that of the consumer price index (CPI), and to improve the quality of government finance, balance of payments, and foreign debt statistics. The rehabilitation of the ASYCUDA customs information system will help improve foreign trade statistics. In the area of economic planning, human and financial resources are needed, especially to strengthen the National Planning Directorate, which is responsible for establishing the macroeconomic framework and defining the country’s overall economic, social, and cultural development policy. This strengthening will consist of: (a) improving projection tools; (b) perfecting data collection; and (c) recruiting macroeconomists and high-level statisticians. Strengthening of the Guinean administration’s institutional capacities is also one of the most pressing needs. Contacts have already been made with the World Bank, which is expected to include a capacity-building component in the Country Adjustment Strategy (CAS) for Guinea.