Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed today the sixth review under Guinea-Bissau's Extended Credit Facility (ECF) arrangement. The three-year arrangement, approved on January 30, 2023, aims to secure debt sustainability, improve governance, and reduce corruption while creating fiscal space for inclusive growth. The Executive Board granted an augmentation of access (140 percent of quota or SDR 39.76 million) on November 29, 2023.
The completion of the sixth review enables the disbursement of SDR 5.44 million (about US$7.3 million) to help meet the country's balance-of-payments and fiscal financing needs. This brings total disbursement under the arrangement to SDR 24.88 million (about US$ 33.44 million). In completing the sixth review, the Executive Board granted a waiver of nonobservance of the end-April 2024 quantitative performance criterion on the floor on social and priority spending and the continuous quantitative performance criterion on the ceiling on the accumulation of new external payment arrears. Furthermore, the Executive Board also completed the financing assurances review.
Economic growth is projected at 5 percent in 2024 and inflation should decline significantly from last year to reach 4.2 percent. The current account deficit is expected to narrow and reach 6.1 percent of GDP. The authorities remain committed to achieving the domestic primary deficit target of 1.2 percent of GDP in 2024 to put public debt on a firm downward trajectory. The authorities' commitment to a range of challenging policy reforms is starting to show some results, but the economy remains subject to important near-term risks, including a challenging socio-political climate.
At the conclusion of the Executive Board's discussion, Mr. Li, Deputy Managing Director and Acting Chair, made the following statement:
"Guinea-Bissau continues to face very challenging external and domestic environments. Terms-of-trade shocks and high inflation continue, while the tightening of regional financial conditions have raised borrowing costs. Despite these challenges, the Guinea-Bissau authorities continued to build consensus on critical reforms and maintained political and macroeconomic stability. It is also commendable that the authorities have restored orderly export processes of cashew nuts, which are essential for growth and fiscal revenue, and maintained strong fiscal consolidation measures. Continued commitment to the implementation of structural reforms and policies under the ECF arrangement will be critical to ensure debt sustainability, macroeconomic stability, and address the country's vast developmental needs.
"Program performance in the sixth review has improved. Seven out of nine Quantitative Performance Criteria (QPC) as well as all two Indicative Targets were met for April 2024. The QPC on external payment arrears as well as the continuous structural benchmark (SB) on debt service were missed due to technical arrears in external debt service. To avoid recurrence of external arrears, the authorities should strictly adhere to the revised continuous SB which incorporates a corrective action. The QPC on social priority spending was missed due to delayed external project grants, which are expected to materialize in coming months.
"Fiscal consolidation remains critical to reduce vulnerabilities and ensure debt sustainability and macroeconomic stability. This should be underpinned by strict rationalization of non-priority expenditure and revenue mobilization. To control spending pressures ahead of the legislative election in November 2024 and ensure achievement of the fiscal consolidation targets, expenditure controls through the Technical Committee of Arbitration of Budgetary Expenditure (COTADO) should be strengthened, and the containment of wage bill spending should continue. Revenue mobilization should focus on reducing tax expenditures and strengthening of revenue administration. The authorities should also continue to engage donors for additional budget support and grants to finance social priority spending. Moreover, it is important to strengthen debt management procedures to avoid the incurrence of technical arrears.
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"The authorities are implementing structural reforms which are pivotal to the program's success. Urgent actions should be taken to mitigate fiscal risks from the public utility company. The authorities should also continue advancing the disengagement of the undercapitalized bank, including through contingency planning. Moreover, further efforts are needed to improve governance, especially transparency in public procurement and beneficial ownership information, which are the essential steps to improve the anti-corruption and AML/CFT effectiveness."
