The Executive Board of the International Monetary Fund (IMF) approved today emergency financial assistance under the Rapid Credit Facility (RCF)1 equivalent to SDR3.55 million (about US$5.24 million) for Guinea-Bissau to enable the authorities to meet their urgent balance of payment and fiscal needs. The Board’s approval enables the immediate disbursement of the full amount, which is equivalent to 25 percent of Guinea Bissau’s quota in the IMF.
The IMF financial assistance is aimed at restoring macroeconomic stability. It will help address urgent budgetary and balance of payments gaps, reduce poverty by resuming key government services and strengthen the capacity of the government of Guinea-Bissau. The Board’s approval of the RCF disbursement will also enable the authorities to engage in discussions with development partners’ regarding further assistance.
The newly elected government 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. In its first months, the new government started to rebuild government revenues, which, together with renewed donor assistance and the placement of treasury bills in the regional market, allowed for the elimination of almost all salary arrears. Economic activity is projected to gradually recover and grow by 2.5 percent in 2014.
Following the Executive Board discussion on Guinea-Bissau2, Mr. Min Zhu, Deputy Managing Director and Acting Chair, issued the following statement:
“The newly-elected government of Guinea-Bissau is taking action to confront the country’s economic and social challenges. After two years of economic disruption and worsening fiscal imbalances, the authorities have resumed many of the basic government functions, approved the 2014 budget, and cleared most of wage arrears incurred since 2013.
“To maintain macroeconomic stability, the government must continue with a prudent fiscal policy that limits spending to available resources and prioritizes it carefully. Clearing the still outstanding domestic arrears of 2013 and 2014 and all external arrears by year-end will be an important step to support the recovery. Going forward, the authorities should focus on preventing re-emergence of arrears by avoiding extra-budgetary expenditures and improving cash management. In this regard, the reinstatement of the treasury committee and the preparation of cash management plans are steps in the right direction.
“International financial support for Guinea-Bissau needs to be complemented by further efforts to mobilize domestic revenues and strengthen public financial management. Technical assistance from development partners to prioritize fiscal reforms, and boost implementation capacity will be crucial in the period ahead.
“The government’s intention to audit the operations of the national cashew fund is welcome. Abolition of this fund would have an immediate beneficial impact on household consumption. The authorities will need to elaborate more efficient and pro-poor alternatives to support agriculture and the cashew sector.
“The medium-term prospects for poverty reduction and economic development in Guinea Bissau hinge on addressing pervasive economic and political vulnerabilities. In addition to the security sector reform, this calls for structural reforms on a broad front to diversify the economy and improve governance and the business environment.”
1 The RCF provides immediate financial assistance with limited conditionality to low-income countries with an urgent balance of payments need. In this context, the economic policies of a member receiving RCF financing are expected to address the underlying balance of payments difficulties and support policy objectives including macroeconomic stability and poverty reduction. Financing under the RCF carries zero interest (until end 2014), has a grace period of 5.5 years, and a final maturity of 10 years. The Fund reviews the level of interest rates for all concessional facilities every two years.
2 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’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/eternal/np/sec/misc/qualifiers.htm
International Monetary Fund (IMF)