Guinea Bissau: IMF Mission Concludes Article IV Consultation and Reaches Staff Level Agreement on Financial Assistance under the ECF

An International Monetary Fund (IMF) mission led by Felix Fischer visited Bissau from April 23 to May 05, 2015, to conduct discussions for the 2015 Article IV consultation¹ and to discuss possible financial support from the IMF. The mission reached staff-level agreement on an economic program that, subject to approval by IMF Management and the Executive Board, could be supported by the Extended Credit Facility arrangement (ECF)². Access could be up to SDR 17.04 million (about US$23.9 million), 120 percent of Guinea-Bissau’s quota, over a period of three years. Consideration by the Executive Board is tentatively scheduled for early July 2015.

“The mission held discussions with His Excellency, the President of Guinea-Bissau José Mario 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 États de l’Afrique de l’Ouest (BCEAO) Mr. João Fadia; other Ministers and senior officials; and representatives from the private sector and development partners.

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

“Political unity, a more favorable external environment and initial measures taken by the new government have helped restore macroeconomic stability. After two difficult years, Guinea-Bissau’s economy has grown by an estimated 2.5 percent in 2014, driven by higher cashew prices, more reliable energy provision, and an uptick in construction and telecommunications in the second half of the year. Prices remained stable. Results achieved with support by the IMF’s Rapid Credit Facility³ have been largely satisfactory and exceeded expectations in some key areas. In particular, measures to limit the use of fuel subsidies, improve compliance by large taxpayers, and step up customs controls to reduce fraud and under-invoicing resulted in a considerable increase in government revenue by nearly 4 percent of GDP to 12 percent of GDP in 2014. The resumed support by international partners helped the government to settle all external arrears and almost all domestic arrears from 2013 and 2014, and contributed to the narrowing of the external current account deficit from about 4.7 to 1.2 percent of GDP. The outlook for 2015 also appears encouraging. Strong international and producer cashew nut prices, infrastructure investment and better energy provision should boost economic growth to 4.7 percent this year, while inflation would remain low and the current account balance stable.

“The mission welcomes the government’s ambitious medium-term agenda which will support economic growth and strengthen public financial management, while safeguarding macroeconomic stability. Key elements of the government’s plan focus on building infrastructure and encouraging industrialization and urban development. These objectives will be supported by measures to strengthen fiscal and macroeconomic management: The tax authority would take actions to strengthen tax compliance, e.g. by increasing controls and inspections of large and medium size companies, and to broaden the tax base, while tax exemptions would be reviewed. While pursuing urgently needed investments, the authorities would carefully plan new projects and finance them only on highly concessional terms. To improve treasury management, transparency and budgetary controls, the authorities plan to take steps towards the creation of a Treasury Single Account and will continue strengthening their treasury committee. The authorities also intend to overhaul their weak debt management.

“Guinea-Bissau’s development plan is also strongly supported by its international partners. At the March 2015 roundtable in Brussels, partners pledged resources amounting to US$1.5 billion, including for the government’s recently started security sector reform, a key element to safeguard political stability and security in the country.

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

¹ Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country authorities.

² The ECF is a lending arrangement for low-income countries – where conditional disbursements are typically phased over three years – that provides sustained engagement over the medium to long term, in case of protracted balance of payments problems.

³ 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.