Press Release No. 12/73

Press Release: IMF Concludes Fourth ECF Review Mission to Guinea-Bissau

March 12, 2012

An International Monetary Fund (IMF) mission led by Mr. Paulo Drummond visited Guinea-Bissau during March 1–14, 2012. The mission assessed performance for the fourth review under the Extended Credit Facility (ECF) approved in May 2010 (see Press Release No. 10/185)¹, agreed with the authorities on economic policies for the remainder of 2012. The mission met with interim President Raimundo Pereira, Prime Minister Carlos Gomes Jr., Minister of Presidency of the Council of Ministers and in-office Prime Minister Adiato Djaló Nandigna, Minister of Finance José Mario Vaz, Minister of Economy Helena Embaló, National Director of the Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO) João Fadía, and other government officials. The mission also held discussions with representatives of the private sector, civil society, the donor community, and other development partners.

At the conclusion of the visit, Mr. Drummond issued the following statement:

“Guinea-Bissau made further progress in stabilizing its economy in 2011. Economic growth reached 5.3 percent, driven by exceptional prices for cashew (the predominant export) and a robust cashew harvest. Budgetary and balance of payment stability were sustained. On the inflation front, rising import prices of food and fuel pushed average headline inflation to 5 percent last year, but core inflation remained moderate.

“Performance under the ECF-supported program continues to be satisfactory. All performance criteria at end-December were observed, and most structural benchmarks for the fourth review were met. Further progress is needed in areas of extending the unification of payroll system to all ministries and preparing a plan to manage the country’s natural resources. All quantitative targets for end-December were also met. The budget outturn in 2011 was satisfactory with no recourse to domestic financing.

“Despite a more challenging international environment, the growth outlook for 2012 is favorable. Growth is projected to moderate to 4½ percent in 2012, reflecting a stabilization of the international cashew prices. Domestic economic activity will be supported by sustained cashew production, the restoration of the public investment program, and buoyant construction activity. Headline inflation is projected to moderate to 3½ percent driven by lower prices of food imports. However, with rising international fuel prices, inflation will remain above the West African Economic and Monetary Union (WAEMU) convergence norm. If the external environment is to weaken further, economic growth would be harmed through channels such as exports and remittances. Political stability and improved security will continue to be critical for economic activity.

“The objectives of the 2012 fiscal program are unchanged: keep current-year spending within available resources; mobilize more revenues; reduce implicit customs subsidies and exemptions; and tighten controls. However, budget execution this year is being affected by unanticipated spending pressures: the cost of the presidential election and other under-budgeted expenditures. While the additional spending has been mostly matched by higher revenue and budget support, the government identified offsetting measures to keep the overall deficit unchanged with no recourse to domestic financing. The government will closely monitor fiscal developments and it is committed to make adjustments as needed to achieve its fiscal objectives.

“Staying on course and moving ahead with economic reforms continue to be critical for sustaining growth and reducing poverty. The priorities in 2012 are deepening fiscal reforms by mobilizing more revenue and strengthening public financial management, including tax administration and debt management; improving the business climate and removing impediments to private sector development; and modernizing the public administration and improving public services.

“The IMF's Executive Board is scheduled to consider the fourth review of Guinea-Bissau’s economic program under the ECF in June 2012. The mission looks forward to meeting with the authorities during the Spring Meetings in April and wishes to thank the Guinea-Bissau authorities and its other counterparts for the constructive and cooperative discussions that took place in Bissau.”

¹ The ECF is a concessional IMF facility for low-income countries. ECF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the country's Poverty Reduction Strategy Paper. ECF loans carry a zero interest rate until end-2011 and an annual interest rate of no more than 0.5 percent thereafter. The loans are repayable over 10 years with a 5½ -year grace period on principal payments.