IMF Executive Board Approves Three-Year US$23.9 million Extended Credit Facility Arrangement for Guinea-Bissau and Concludes 2015 Article IV Consultation
The Executive Board of the International Monetary Fund (IMF) today approved a three-year SDR 17.04 million (about US$23.9 million, 120 percent of quota) arrangement under the Extended Credit Facility (ECF) for Guinea-Bissau and also concluded the 2015 Article IV consultation. The approval enables the immediate disbursement of an amount equivalent to SDR 2.84 million (about US$4.0 million, 20 percent of Guinea Bissau’s quota).
The authorities’ program, which is anchored on the government’s Strategic Plan for 2014–18, aims to consolidate the fiscal position through better expenditure management and enhanced revenue mobilization, deepen institutional reforms, mitigate vulnerabilities, and develop the private sector to support growth and job creation. The program focuses on improving the policy framework by addressing governance and security issues, strengthening budgetary transparency as well as public investment and debt management, and improving compilation of statistics.
Following the Executive Board discussion on Guinea-Bissau, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, made the following statement:
“Guinea-Bissau’s new government has taken important steps to foster political stability and resume stalled reforms. The authorities’ economic program involves appropriately ambitious goals, notably strengthening the fiscal position, safeguarding financial stability, and improving the business environment. Nonetheless, the challenges ahead remain significant, and include an underfunded security sector reform, significant infrastructure gaps, and widespread poverty. The success of the program hinges on a satisfactory implementation of the authorities’ policy commitments, broad popular support, and continued assistance from Guinea-Bissau’s development partners.
“The authorities’ focus on fiscal reforms to improve budget execution and public financial management is welcome. Enhancing revenue mobilization will be important to create fiscal space for badly needed infrastructure and social spending. An effective debt management calls for a prompt upgrade of current practices and continued reliance on concessional borrowing.
“The authorities’ decision not to deploy scarce public resources to shore up troubled banks is in line with international best practice and welcomed. Safeguarding financial stability calls for heightened supervisory vigilance in the period ahead as well as closer collaboration with the WAEMU Banking Commission.
“Structural reforms will be necessary to promote economic diversification and more inclusive growth. Stepped up efforts to improve the business environment, including broader access to financial services, should boost Guinea-Bissau’s competitiveness and help reduce poverty. A bold overhaul or closure of the fund to promote agricultural development, in line with the findings from an audit underway, could pave the way for vigorous private sector development in a key sector.”
The Board also completed the 2015 Article IV consultation with Guinea-Bissau.
In November 2014, the IMF approved support for Guinea-Bissau under the Rapid Credit Facility to meet balance of payments financing needs and to catalyze additional development partner support. Since then, the newly-elected government has taken action to confront the country’s economic and social challenges, and development partner support has been re-kindred. The authorities instituted quick-win measures, including the setting up of a Treasury management committee and diverse measures to enhance domestic revenue mobilization. To mobilize development partner support for their Strategic Plan, the government organized a donor roundtable in Brussels in March this year, which yielded significant pledges from development partners.
Economic growth recovered in 2014, consumer price inflation declined, and external balances improved while the fiscal position deteriorated slightly.
Executive Board Assessment
Executive Directors commended the authorities for their determination to foster political and macroeconomic stability. However, noting that Guinea-Bissau still faces significant socio-economic challenges, Directors emphasized the need for continued strong commitment to prudent policies and comprehensive reforms. They agreed that the resumption of financial support from development partners will be critical to improving the country’s economic prospects and reducing poverty.
Directors emphasized the importance of fiscal discipline and efficient public spending. They encouraged sustained efforts to strengthen revenue mobilization and create additional fiscal space to address Guinea-Bissau’s vast development shortfalls. In particular, Directors highlighted the need to strengthen public financial management, notably budget execution processes. They also called for continued progress with security sector reform.
Directors emphasized the importance of securing a sustainable fiscal position by seeking financing on highly-concessional terms. Prudent borrowing will be essential in the light of Guinea-Bissau’s large public investment plans and its vulnerability to shocks.
Directors agreed that financial sector stability is critical for growth. In this regard, they encouraged the authorities to reinforce the banking system especially by strengthening bank oversight and addressing non-performing loans. Steps to promote financial deepening in collaboration with the relevant monetary union institutions will also be important.
Directors stressed that structural reforms are necessary to bolster competitiveness and achieve diversified and inclusive growth. They agreed that, in order to boost private sector activity, priority should be given to enhancing the business environment, and improving infrastructure and access to financial services. Directors welcomed the audit of the fund to promote agricultural development, and encouraged the authorities to overhaul its governance and operations in light of the findings.
Directors stressed the importance of improving the quality and timeliness Guinea-Bissau’s economic statistics. They encouraged the authorities to improve coordination among the various institutions involved in data production and ensure that adequate resources are allocated to them.
Source: International Monetary Fund (IMF)