IMF Approves $3.15M Disbursement for Guinea-Bissau After Review

• The IMF Executive Board decision allows for an immediate disbursement of SDR2.37 million (about US$3.15 million) to Guinea-Bissau to help addressing financing needs and coping with a deteriorating external environment.
• The economy has grown by 4.2 percent in 2022 and should recover moderately to 4.5 percent in 2023 while inflation is expected to remain high.
• The authorities are taking measures to address the exogenous shocks and remain committed to strong policies and reforms.

Washington, DC : The Executive Board of the International Monetary Fund (IMF) completed today the second review under Guinea-Bissau'sExtended Credit Facility(ECF) arrangement. The completion of the review enables the disbursement of SDR2.37 million (about US$3.15 million) to help meet the country's balance-of-payments and fiscal financing needs amid challenges related to Russia's war in Ukraine, the substantial increase in the cost-of-living which is especially impacting the most vulnerable population, and the lingering impacts of the pandemic. This brings total disbursements under the ECF arrangement to SDR7.11 million (about US$9.46 million).

In completing the second review, the Executive Board also approved the authorities' request for a waiver for nonobservance of performance criteria on the floor on tax revenue, the ceiling on wages and the floor on the domestic primary fiscal balance. Furthermore, the Executive Board completed the financing assurances review and agreed on the rephasing of access to make two disbursements of SDR2.37 million on January 17 and April 17, 2024, instead of one single disbursement on April 17, 2024.

The economy has grown by 4.2 percent in 2022 and should recover only moderately to 4.5 percent in 2023. Growth has been negatively affected by low cashew exports and adverse external shocks which are weighing on Guinea-Bissau's socio-economic environment. The surge in food and oil prices adds pressures on annual inflation which is expected to remain high at 7.0 percent. Budget execution is facing pressures. The overall fiscal deficit remained at 5.9 percent of GDP in 2022. Based on provisional data, the public debt increased to 80.3 percent of GDP in 2022, because of higher-than-projected overall fiscal deficit, new government guarantees mainly to the public utility company and the recognition of cross-arrears owed to suppliers with non-performing loans at the undercapitalized bank. Revenue mobilization and expenditure containment remain pivotal to prevent risks to debt sustainability and access to external financing. In discussions with the mission team, the new government resulting from the winning coalition of the June 4, 2023, legislative election expressed its commitment to implementing the program reform agenda.

At the conclusion of the Executive Board's discussion, Mr. Okamura, Deputy Managing Director and Acting Chair, made the following statement:

"Guinea-Bissau has demonstrated commitment to program implementation under the Extended Credit Facility (ECF) arrangement. The reform agenda includes an ambitious fiscal consolidation to support inclusive growth, while preserving debt sustainability, and structural and governance reforms to strengthen institutional capacity. While the economic recovery is expected to continue, downside risks remain related to long-standing fragility constraints, uncertainty in the global economy with potential adverse spillovers on cashew exports and food and energy prices, and climate shocks. In that context, the authorities' strong program ownership and reform implementation would be critical to catalyze additional donor support.

"Program performance has been satisfactory. Five out of eight quantitative performance criteria (QPCs) for March 2023 were met. The government took corrective actions to address the missed targets, including strengthening expenditure controls, selling 5G licenses, and rationalizing tax expenditures to meet the end-2023 targets. Progress was made across the reform agenda and the authorities proposed four new structural benchmarks to accelerate the professionalization of the tax function, reintroduce expenditure controls, and improve the governance of state property. Adding a quarterly review this year will ensure close monitoring to better manage policies under high uncertainty.

"The authorities' commitment to fiscal consolidation to meet the regional convergence criteria is commendable. Such efforts, which would support fiscal and debt sustainability, include strengthening the governance and management of public resources, mitigating fiscal risks, and relying on highly concessional financing.

The successful implementation of reforms to strengthen governance and anti-corruption frameworks are pivotal to the program's success. The authorities have implemented transparency commitments related to COVID-19 emergency spending—including the publication of the third-party audit and beneficial ownership information of public contracts and made progress in the priority audits by the Audit Court. The authorities have also made progress in mitigating fiscal risks from the public utility company and remain committed to modernize the asset declaration regime and improve the AML/CFT framework. Further efforts are also needed to enhance economic diversification and ensure banking vulnerabilities are managed effectively. "