IMF Staff Holds Review Mission to Guinea-Bissau
An International Monetary Fund (IMF) mission led by Felix Fischer visited Bissau during March 28—April 7, 2016 to conduct the combined first and second reviews under the Extended Credit Facility (ECF) arrangement.
Guinea Bissau's three-year ECF arrangement for SDR 17.04 million (about US$23.9 million or 120 percent of quota) was approved on July 10, 2015 (see Press Release No.15/331). It 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.
At the conclusion of the visit, Mr. Fischer issued the following statement:
“Guinea Bissau's economy is estimated to have grown by 4.8 percent in 2015 on account of a good cashew harvest and favorable terms of trade. Enhanced supply of electricity and water contributed to higher activity in the secondary and tertiary sectors. Consumer price inflation remains low, averaging 1.5 percent at end-2015.
“The economic outlook remains favorable, but risks are tilted to the downside. The ongoing recovery in economic activity and exports is expected to continue in 2016, with a projected real GDP growth rate of 4.8 percent. Inflation is expected to average 2.6 percent in 2016 and increase to 3.0 percent in 2017, consistent with rising economic activity supported by enhanced energy and water supply. Downside risks include lack of progress in structural reforms, including in the banking sector, and a related weakening of development partner support, as well as spending pressure in the aftermath of the political crises. On the upside, cashew nut export volumes and prices are expected to remain high, bolstering tax receipts and external balances.
“Discussions focused on the key objectives of the government's economic program, which 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 strengthening budgetary transparency as well as public investment and debt management, improving the compilation of statistics, and addressing governance and security reform issues.
“The government budget was under pressure in 2015, reflecting a shortfall in donor receipts and higher-than budgeted spending. Although revenue collection exceeded expectations, on account of vigilant tax administration and good cashew nut exports, non-wage current expenditures increased steeply during the year, driven by increasing use of non-regularized expenditures. Once the current political impasse is settled, it will be crucial for Parliament to approve a 2016 budget aligned with necessary medium-term fiscal consolidation.
“Preliminary information points to mixed progress in implementing structural measures. While the authorities implemented all expenditure measures, the elaboration of a strategic plan for improving working conditions of the tax authority and the implementation of a new small taxpayer regime are not yet completed. A key measure focused on improving the business environment for private sector growth–the audit of the Fund for the Industrialization of Cashew (FUNPI)–also still needs to be completed.
“Discussions for the completion of the combined first and second reviews are at an advanced stage. Discussions with the authorities will continue during the IMF Spring Meetings in Washington as they finalize their reform priorities and proceed with pending key actions to keep the program on track, notably on strengthening the banking sector.
“The mission met with President José Mário Vaz, Vice-President of the National Assembly Inacio Correia, Finance Minister Geraldo Martins, and Central Bank of West African States (BCEAO) National Director João Fadia; senior government and BCEAO officials, representatives of the financial sector, private sector, and development partners.
“The IMF mission wishes to express its gratitude to the authorities for the constructive discussions and hospitality during its visit to Guinea Bissau.”
 TheECFis a lending arrangement that provides sustained program engagement over the medium to long term in case of protracted balance of payments problems.