Press Release No. 14/437

Press Release: IMF Mission and Guinea-Bissau Reach Staff-level Agreement on Financial Assistance Under The Rapid Credit Facility

September 25, 2014

An International Monetary Fund (IMF) mission, headed by Mr. Felix Fischer, visited Bissau, Guinea-Bissau, from September 15-25, 2014 and reached agreement with the authorities on an emergency program that could be supported by the IMF’s Rapid Credit Facility (RCF)¹. Subject to IMF management approval, the staff-level agreement is expected to be submitted to the IMF Executive Board for its consideration in early November. Under the arrangement, Guinea-Bissau would be able to access up to SDR 3.55 million (about CFAF 2.7 billion, or US$5.4 million).

At the end of the mission, Mr. Fischer issued the following statement:

“The newly elected government of Guinea-Bissau inherited very difficult conditions. After two years of economic disruption, eroded government revenues, a compression in social spending and accumulated external and domestic arrears, real gross domestic product (GDP) fell by 2 percent and poverty increased markedly. The share of the rural population facing severe food insecurity increased from 20 to 40 percent.

“The new government has placed treasury bills in the regional market and has started to rebuild government revenues, which allowed for the elimination of all salary arrears. Economic activity is projected to gradually recover from the internal and external shocks of the past two years and real GDP is projected to grow by 2.5 percent in 2014. Inflation through July 2014 was negative (-0.6 percent), but is expected to turn positive by the end of the year in the context of a recovery in domestic demand.

“Cashew exports and farm gate prices have recovered substantially so far in 2014, but official export levels are lower than last year because of increased smuggling through neighboring countries, partly as a result of a high surcharge on cashew exports aimed at financing a poorly managed cashew industrialization fund (FUNPI). The mission welcomes the government’s decisions to conduct an external audit on FUNPI and to explore more efficient and pro-poor alternatives to promote the cashew sector. Difficulties in past cashew campaigns and weak risk management practices have led to a high level of nonperforming loans in the banking system, a situation which the authorities intend to tackle with the help of IMF technical assistance.

“The authorities of Guinea-Bissau and the IMF mission reached staff-level agreement on a macro-fiscal framework and a set of economic and structural policies and measures aimed at restoring macroeconomic stability, help address urgent budgetary and balance of payments gaps and reduce poverty by resuming key government services.

“Guinea-Bissau’s urgent balance of payments and budgetary needs should be addressed by a combination of measures aimed at: (i) restoring budgetary discipline by keeping spending under control and by radically improving tax and customs revenue collections through improved controls and reduced exemptions; (ii) avoiding any new arrears and clearing existing arrears in a phased manner; and (iii) improving the business environment to foster job creation and make growth more inclusive.

“The submission of a draft 2014 budget to parliament and the government’s plans to speedily prepare the 2015 budget are important steps in the normalization of fiscal discipline. The resumption of fiscal structural reforms is critical to improve the quality of spending, increase accountability, and rebuild domestic fiscal revenues. The mission welcomed recent progress with salary payments of civil servants through the banking system and the Government's intention to establish a high-level Treasury committee to improve treasury management and monitor and prioritize budget execution. Implementing security sector reform remains a key requirement for durable internal stability.

“The mission held discussions with His Excellency, the President of Guinea-Bissau JosérMario Vaz; the Prime Minister Mr. Domingos Simões Pereira; the Minister of Economy and Finance Mr. Geraldo Martins; the National Director of the Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO) Mr. João Fadia, other senior officials, Members of Parliament, and representatives from the private sector and development partners.

“The mission takes this opportunity to thank the Bissau-Guinean authorities for their cooperation and the candid and constructive discussions that took place.”

Background:

IMF Rapid Credit Facility Factsheet

¹ The RCF is a lending arrangement that provides rapid financial support in a single, up-front payout for low-income countries facing urgent financing needs.