Guinea-Bissau
Review of Performance Under the Program Supported by Emergency Post-Conflict Assistance and Request for Second Purchase Under Emergency Post-Conflict Assistance-Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Guinea-Bissau
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International Monetary Fund
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Publication Date:
01 Aug 2008
eISBN:
9781451815863
Language:
English
Keywords:
ISCR; CR; Emergency Post-Conflict Assistance; policy implementation; EPCA; Bissau; IMF's support; revenue collection; reference price; price inflation; financing gap; CFAF billion; EPCA purchase
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This paper reviews the performance of Guinea-Bissau Under the program supported by Emergency Post-Conflict Assistance (EPCA). Guinea-Bissau has made progress in stabilizing its fiscal situation under difficult circumstances and is moving steadily to implement structural reforms. Four of the six end-March quantitative indicators were met; the other two are expected to be met for the year as a whole. All structural indicators were implemented, albeit with some delay. The authorities recognize the importance of accelerating structural fiscal reforms to further build capacity and improve confidence in the economy.

Abstract

This paper reviews the performance of Guinea-Bissau Under the program supported by Emergency Post-Conflict Assistance (EPCA). Guinea-Bissau has made progress in stabilizing its fiscal situation under difficult circumstances and is moving steadily to implement structural reforms. Four of the six end-March quantitative indicators were met; the other two are expected to be met for the year as a whole. All structural indicators were implemented, albeit with some delay. The authorities recognize the importance of accelerating structural fiscal reforms to further build capacity and improve confidence in the economy.

I. Introduction

1. Guinea-Bissau is at a critical juncture. Its performance on the EPCA-supported program has been good. The fiscal situation improved in the first part of 2008, and it is making progress in advancing structural reforms, particularly in the areas of expenditure control and revenue collection. Donor support has resumed and economic confidence is improving. The political situation has been stable, although recent increases in food and fuel prices could reignite social unrest.

2. Food and fuel price shocks threaten to derail recent gains. Rising food and fuel prices are pressuring an already tight fiscal situation, while the impact on the external sector will be a much higher-than-expected current account deficit for 2008 (Box 1). The authorities have responded so far with fiscal measures, including import tax exemptions, that have somewhat alleviated the burden on the urban poor. The authorities have also agreed to offsetting revenue and expenditure measures to preserve the 2008 fiscal program, though timely donor support will be critical. A second EPCA purchase would help Guinea-Bissau absorb the recent pressures on the balance of payments, as well as catalyze even more donor support. It will also support the authorities’ efforts to consolidate a track record of sound policy performance and restore administrative capacity, which is necessary to initiate discussions of a new PRGF arrangement.

Macroeconomic Effects of Higher Food and Fuel Prices in Guinea-Bissau

Guinea-Bissau has been hard hit by rising international food and fuel prices, reflecting the country’s heavy reliance on food and fuel imports. The external current account deficit (excluding official transfers) is now expected to widen to some 17 percent of GDP in 2008 rather than the 12 percent initially estimated, with the larger deficit coming equally from higher food and fuel imports. Food price increases have already led to a sharp increase in overall inflation. There may also be a significant fiscal impact.

Food and Fuel: Weight in Different Sectors, 2007

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Poverty impact. Domestic food availability has been adequate so far. Food price increases, however, will hit the urban poor the hardest and thus jeopardize poverty reduction and perhaps reignite social tensions. Fuel price increases will also affect the urban poor through higher public and product transport costs.

Policy response. Since March 2008 all rice imports have been temporarily exempted from taxes,1 and customs fees have been reduced on rice and diesel imports—using below-market reference prices for taxation purposes.2 Compared to program projections, the direct revenue loss from lower tariffs is limited (about CFAF 0.6 billion).3 However, for a fragile post conflict country that at least in the short term has little capacity to raise revenues and is very vulnerable to unexpected resource shortfalls, including donor support, the loss in terms of potential revenue is significant. If reference prices were adjusted to reflect actual import costs and tariffs were kept unchanged, additional tax revenues of some CFAF 1.4 billion from rice imports and CFAF 1 billion from fuel imports could have been collected in 2008. These losses represent about 1 percent of GDP—10 percent of tax revenues—for the year. For the time being, there is limited capacity to replace the tariff reductions with more targeted social safety nets, such as cash transfers. With two-thirds of the population below the poverty line, the fiscal costs of a cash transfer program would be prohibitive in the tight fiscal situation, and there are serious capacity constraints to effectively carry-out this type of program. Over time, the government intends to promote subsistence agriculture, which is the main social safety net for the majority of the population. The authorities are discussing plans for expansion and diversification of agricultural production with the World Bank and other development partners.

1 Rice imports pay only WAEMU-related taxes (at a rate of about 2.5 percent). 2 The reference price for calculating import duties on fuel products has been about 77 percent of the estimated CIF price, while the reference price for rice import duties has remained unchanged from the 2007 level and is well below actual import prices. 3 The program assumed unchanged reference prices for rice and diesel imports for 2008 when making import tax projections.

II. Recent Developments and Program Performance

3. A gradual economic recovery has been underway since 2007, thanks in part to increased agricultural production as normal rains returned (Figure 1 and Table 1). Annual inflation, however, accelerated sharply at the end of 2007 and stayed high in early 2008 driven mainly by the recent surge in international food prices (Box 2). Broad money grew by 25 percent in 2007, somewhat faster than initially projected (Table 2). Central bank accumulation of foreign assets and higher credit to the private sector helped push up domestic liquidity. As expected, the external current account deficit (excluding official current transfers) narrowed to 12.5 percent of GDP in 2007, from 27 percent in 2006, reflecting higher exports of cashews, some from the previous year’s stock (Table 3).

Figure 1.
Figure 1.

Guinea-Bissau: Recent Macroeconomic Developments, 2000 - 08

Citation: IMF Staff Country Reports 2008, 266; 10.5089/9781451815863.002.A001

Sources: Guinea-Bissau authorities; and IMF staff estimates and projections.
Table 1.

Guinea-Bissau: Selected Economic and Financial Indicators, 2005–10

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Sources: Guinea-Bissau authorities, and IMF staff estimates and projections.

Projections based on population growth of 2.5 percent per year.

Change in percent of beginning-of-period stock of broad money.

Table 2.

Guinea-Bissau: Monetary Survey, 2005–10

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Sources: BCEAO, and IMF staff estimates and projections.
Table 3.

Guinea-Bissau: Balance of Payments, 2005–10

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Sources: BCEAO and IMF staff estimates and projections.

Based on updated staff projections for 2008.

Includes food aid and technical assistance to projects.

Excludes the financing gap, which BCEAO includes in the capital account.

Excludes 2008 EPCA drawings.

Sources of Inflation in Guinea-Bissau

Guinea-Bissau’s 12-month inflation rate rose to 9.3 percent by end-2007, from 3.2 percent at end-2006, driven mainly by a 14 percent rise in food prices. Annual inflation has remained high in 2008, at 9.1 percent at end-May, while food prices rose 15.5 percent during the period.

External vs. domestic factors.

Because Guinea Bissau relies heavily on imports, international price developments explain a large part of domestic price inflation, but recent evidence also points to domestic factors as possible causes of the recent spike in inflation. The trend since 2007 of inflation being higher in Guinea Bissau than in the region as a whole suggests the country’s inflation has a large idiosyncratic component. Prices for local goods were also higher than for imported goods throughout 2007. An econometric model estimated by staff shows that while increases in international prices did explain about 70 percent of total inflation in Guinea Bissau for 2005–07, domestic factors (broad money growth) accounted for about 30 percent in the last six months of 2007.

uA01bx02fig01

CPI, Food CPI and No Food CPI Year-on-Year Increase

(Percent Change)

Citation: IMF Staff Country Reports 2008, 266; 10.5089/9781451815863.002.A001

Policy implications. Liquidity growth in recent years has been largely associated with expansionary fiscal policy and heavy reliance on donor support. In future, prudent fiscal policies and close cooperation between fiscal and monetary authorities will be crucial to ensure timely sterilization of budgetary use of donor support and contain liquidity growth.

uA01bx02fig02

Annual Inflation in GNB

Classified by Product

Citation: IMF Staff Country Reports 2008, 266; 10.5089/9781451815863.002.A001

4. Fiscal performance in 2007 was weaker than expected. Unexpectedly high nonregularized expenditures 1 worsened the domestic primary deficit to 10.8 percent of GDP, about 1.5 percent of GDP larger than previously expected (Text Table 1 and Table 4). Measures are being taken to address the shortcomings in expenditure management (see ¶9).

Text Table 1.

Guinea–Bissau: Central Government Operations, 2005–08

(Percent of GDP)

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Sources: Guinea-Bissau authorities, and IMF staff estimates and projections.
Table 4.

Guinea–Bissau: Central Government Operations, 2005–08

(CFAF billions)

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Sources: Guinea-Bissau authorities, and IMF staff estimates and projections.

In 2008 includes World Bank debt relief, EPCA, and authorities’ measures to fill the financing gap.

Table 4.

Guinea–Bissau: Central Government Operations, 2005–08

(Percent of GDP)

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Sources: Guinea-Bissau authorities, and IMF staff estimates and projections.

Though donor budget support resumed in 2007, the government nonetheless had to reschedule most of the commercial debt that came due in 2007, and sizable domestic arrears accumulated.

5. Fiscal performance improved in early 2008. Four of six March quantitative indicators were met (domestic primary deficit, government revenues, domestic financing of the budget, and external nonconcessional borrowing) (MEFP2 Table 1). The domestic primary deficit for the first quarter was CFAF 3.8 billion, below the program target of CFAF 5.1 billion, because performance on both expenditures and revenues was better than expected. Current expenditures, especially on wages and goods and services, were held below programmed levels by about CFAF 0.6 billion through March, and revenues were higher by about CFAF 0.5 billion, mainly from higher taxes collected on imports that were delayed from 2007. Corporate taxes have also been higher-than-expected in early 2008, owing in part to improvements in collection procedures, while export taxes have been buoyant, as expected, reflecting a strong cashew campaign. The government is current on 2008 wages through May.

6. The quantitative indicators on payment of previous years’ arrears and new domestic arrears were missed but are expected to be met for the year as a whole. Because the government exceeded the amount of 2007 domestic arrears to be paid in the first quarter of 2008, current payments could not be fully met and new domestic arrears accumulated. The authorities issued a decree to avoid further payment of 2007 domestic arrears (MEFP ¶12) so as to remain within target for the year as a whole.

7. There were also administrative delays in disbursement of budget support in the first quarter.3 These, combined with the overpayment of previous arrears, forced the government to contract new short-term domestic commercial debt backed by the delayed donor disbursements.4 Compared to the adjusted March quantitative indicator, the amount of domestic financing was below target. However, the costs associated with commercial borrowing in terms of commissions and interest have budgetary implications for 2008.

8. Fiscal management is being strengthened. The March structural indicators were implemented although there was a slight delay in adopting the fiscal law that introduces better budget classification, in line with WAEMU regulations, and increased transparency and other improvements in the budget system (MEFP Table 2). An audit of domestic arrears for 2000–07 begun in May should facilitate their eventual clearance once additional donor resources are obtained.

9. The authorities are also going beyond the commitments of the EPCA-supported program to address weaknesses in fiscal areas. Besides ceasing to pay previous arrears they are also moving to tighten expenditure controls, open up the flow of information on treasury operations, clean up the payroll database, and identify possible sources of tax revenues (MEFP ¶12 and13).

III. Outlook and Policies for the Rest of 2008

A. Overview

10. Implementation of the 2008 program is challenging. The spike in inflation and delays in budget support have highlighted the continued fragility of Guinea-Bissau’s recent stabilization gains and its vulnerability to external shocks. In their program for the rest of 2008 (MEFP), the authorities commit themselves to taking the measures necessary to (i) contain inflation; (ii) consolidate recent fiscal gains and safeguard the 2008 fiscal program; and (iii) speed up efforts to reinforce revenue collection, expenditure controls, and accounting. The authorities count on significant amounts of donor financial and technical assistance for 2008. They are requesting a second EPCA purchase to support the program.

11. Guinea-Bissau continues to meet the Fund’s conditions for EPCA support. Namely, there are (i) indications of sufficient capacity and commitment on the part of the authorities for policy planning and implementation, despite continued disruptions to administrative and institutional capacity resulting from the conflict; (ii) persistent need to meet essential external payments, including payments to multilaterals; and (iii) evidence of continued concerted international support for the authorities’ program.

B. Macroeconomic Outlook

12. Although risks are tilted to the downside, the economic outlook for 2008 remains positive. Real GDP growth is still expected to increase to over 3 percent in 2008, based on a slight increase in cashew production and increasing construction activity. Inflation, on the other hand, is now expected to be higher than expected; given international price projections for food and fuel products, inflation for 2008 would average about 6 percent, compared to the projected 3.3 percent. The external current account deficit will also be higher-than-expected owing to higher food and fuel imports.5

C. Fiscal Policy

13. The 2008 fiscal program has been updated to take into account recent developments. The revised fiscal program (MEFP ¶19–21) assumes (i) unchanged revenues for the year—direct revenue losses from tax and customs exemptions would be offset by the higher revenues in the first quarter of 2008, while other revenues are expected to perform in line with the program; and (ii) higher domestic primary expenditures (by CFAF 1.3 billion) because of additional spending on elections. 6 The authorities also intend to maintain the nominal freeze of the wage bill for 2008 and are committed to staying current on wage payments. Labor unions and workers so far are demanding only that current wages are paid on time. As a result, the domestic primary deficit is now estimated to increase to CFAF 8.8 billion (before additional gap-filling fiscal measures), about CFAF 1.3 billion higher than expected but still substantially less than in 2007 (Figure 2). On the financing side, the program assumes higher net bank financing (by about CFAF 3.8 billion), mainly because of higher debt payments to the BCEAO,7 offset in part by more donor budget support (by CFAF 1.3 billion). The combined impact of the revisions will be higher gross financing needs by CFAF 3.8 billion.

Figure 2.
Figure 2.

Guinea-Bissau: Main Fiscal Indicators, 2000 - 08

Citation: IMF Staff Country Reports 2008, 266; 10.5089/9781451815863.002.A001

Sources: Guinea-Bissau authorities; and IMF staff estimates and projections.

D. Financing the Budget

14. To safeguard program objectives, understandings were reached during the mission on measures (about CFAF 5 billion) to fill the additional financing needs (Text Table 2) beyond those agreed under their program supported by the first EPCA purchase. These measures are also needed to compensate for shortfalls in CFA terms of US dollar–denominated external financing, including debt relief. The measures include (MEFP ¶ 24):

  • maintaining the expenditure saving already achieved in 2008 (CFAF 0.5 billion);

  • expenditure savings of CFAF 0.3 million from better payroll management;

  • recovery of CFAF 0.5 billion in tax arrears;

  • additional revenue of CFAF 0.5 billion from customs, sales taxes and nontax (licenses) sources; and

  • agreement with the BCEAO to reschedule CFAF 3.2 billion of the higher debt owed to the BCEAO.

Text Table 2.

Guinea-Bissau: Expected Financing of the 2008 Fiscal Program

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Source: IMF staff estimates and projections.

EPCA Jan-08 estimates

CFAF per US$ (EPCA): 495

CFAF per US$ (Review) 426.6

To demonstrate their commitment to the additional measures, the authorities have already collected some CFAF 0.2 billion in tax arrears. With these measures, the 2008 program is fully financed8 and the authorities can therefore request the second purchase under EPCA.

15. The authorities are committed to taking any further measures, if necessary, to find additional financing. As a last resort, they will reschedule part of the debt owed to domestic commercial banks (about CFAF 10 billion), which is currently scheduled to be paid in full in 2008.

E. Structural Reforms

16. The government intends to undertake structural measures by year-end that go beyond the commitments made for the EPCA-supported program. The measures focus on improving import processing and customs revenue collection and firming up treasury management (MEFP ¶ 27). To ensure that the fiscal reforms are effective and sustainable, the EPCA program will continue to be supported with technical assistance from, among others, West AFRITAC and AFRISTAT (MEFP Table 3).

17. In the monetary area, to better forecast liquidity, the government will work to improve coordination between the Minister of Finance and the monetary authorities. They will make efforts to ensure timely action to smooth the monetary impact of budgetary use of donor funds to finance government expenditures. The BCEAO will also step up its efforts to sterilize any excess liquidity.

F. Program Monitoring and Risks

18. The authorities’ MEFP contains revised quantitative and structural indicators through December 2008. A new quantitative indicator sets a ceiling on the amount of nonregularized expenditures. The program also sets out new structural indicators to facilitate policy implementation through 2008.

19. The main risks to the program are possible shortfalls and further delays in donor disbursements, social instability triggered by rising food and fuel prices, and pressures to exceed budgeted election outlays. The policy commitments the authorities have made, especially the additional revenue and expenditure measures, should help contain the risks. Paying civil servant wages on time will also help to alleviate social tensions.

IV. Medium-Term Outlook

20. To take into account recent food and fuel prices and medium-term prospects, the staff has updated the medium-term scenario (Text Table 3). The revised scenario assumes that international food and fuel prices will remain high for the next three to five years, although the rate of domestic price inflation is expected to moderate. Real GDP growth could still be sustained at about 3 percent over the medium term, assuming normal rains and an increase in cereal and cashew production. Over the medium term the external current account deficit will be somewhat higher than originally projected. The fiscal position is still expected to improve, assuming better fiscal controls and higher revenue.

Text Table 3.

Guinea-Bissau: Medium Term Scenario

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Sources: Guinea-Bissau authorities, and IMF staff estimates and projections.

V. Staff Appraisal

21. Guinea-Bissau has made steady progress in fiscal stabilization under difficult circumstances, and its policies are moving steadily in the right direction. The government’s revenue and expenditure efforts yielded encouraging results in the first part of 2008 and the primary fiscal deficit was kept below target through March.

22. Considering recent pressures, keeping the 2008 fiscal program on track will be challenging. The authorities need to fully implement the planned revenue and expenditure measures and resist pressures for additional spending on the coming parliamentary elections. The authorities also need to remain current on civil servant wages in order to minimize the social impact of the recent food and fuel prices. Timely disbursement of external concessional assistance will also be critical to avoid new domestic arrears or further recourse to high-cost borrowing from commercial banks. The authorities should continue to seek even greater donor assistance on highly concessional terms, preferably grants, particularly considering the food and fuel shocks.

23. The recent measures to reduce import tariffs is an appropriate short term response to higher food and fuel prices. Tariff reductions help mitigate price increases while also reducing inefficient trade distortions. It is also well-targeted as it focuses on the imports most important to the poor, namely rice. Over the longer-term, given the limited capacity to implement targeted social safety nets, the authorities need to focus on raising domestic agricultural production, especially subsistence agriculture. The authorities also need to focus on measures to boost revenues without relying on import tariffs.

24. Recent progress on structural reforms to strengthen fiscal management is encouraging. Staff supports the Guinea Bissau’s continuing efforts to strengthen customs administration and improve treasury operations. In particular, ensuring that all expenditure commitments are regularized within 48 hours, in line with established procedures, is crucial to restore confidence in how the economy is managed. The authorities should also ensure that the audit of domestic arrears is finalized as soon as possible and seek external assistance for their clearance. That would also help alleviate social tensions.

25. Guinea-Bissau continues to meet the requirements for Fund EPCA. Help in meeting current external payments is urgently needed, particularly given recent food and fuel price shocks. Yet despite the difficult circumstances, the country’s recent progress demonstrates that the authorities have the capacity to implement the program. They are determined to establish the track record necessary for a PRGF-supported program and for reaching the HIPC Initiative completion point. Assuming, therefore, that policy implementation may be even better in the coming months, discussions for a new PRGF arrangement might be possible later this year. Recognizing that a second EPCA purchase could help consolidate the recent gains, absorb the recent heightened strains on the balance of payments, and catalyze even greater international support, staff recommends approval of the authorities’ request for the second EPCA purchase.

Table 5.

Guinea-Bissau: Indicators of Capacity to Repay the Fund, 2007–131/

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Sources: IMF staff estimates and projections.

Includes the envisaged second EPCA purchase of SDR 1.775 million (12.5 percent of quota) in July 2008. No subsidization of EPCA purchase is assumed.

Total debt service includes IMF repurchases and repayments.

Assuming that the rate of charge on EPCA purchase is subsidized down to 0.5 percent per annum plus adjustment for deferred charges. Subsidization is subject to the availability of subsidy resources.

Appendix I

Bissau, May 22, 2008

Mr. Dominique Strauss-Kahn

Managing Director

International Monetary Fund

Washington D.C. 20431

U.S.A.

Dear Mr. Strauss-Kahn:

1. The attached Memorandum of Economic and Financial Policies (MEFP) sets out the objectives and policies that the government of Guinea Bissau intends to pursue for the remainder of 2008. They are consistent with the objectives of the program of economic and financial policies supported by the IMF’s Emergency Post-Conflict Assistance (EPCA) approved in January. Under the EPCA-supported program, the Government of Guinea Bissau has taken steps to stabilize an extremely difficult fiscal position, accelerate implementation of structural reforms, and improve financial relations with its international partners. The government’s program is an important step toward meeting the country’s medium-term objectives of reviving growth, reducing poverty, and achieving fiscal and external sustainability. Our economic reform efforts are being supported by the international community, including both traditional and nontraditional donors.

2. The fiscal situation has improved in the first part of 2008 after weaker than expected performance in 2007, and major progress is being made to advance structural reforms to strengthen fiscal management. Although real GDP growth was subdued in 2007, it is expected to improve in 2008. Annual inflation accelerated sharply at end-2007 and remained high in early 2008, driven mainly by the recent surge in international prices for food and oil.

3. Performance on the EPCA-supported program has been generally good. By the end of March 2008, four of six quantitative indicators were met. We expect that the two that were not met (payment of previous years’ arrears and new domestic arrears) will be met for the year as a whole. The structural indicators for end-March were met; despite a delay on one measure, it was met on May 19, 2008.

4. Guinea Bissau’s fiscal situation, however, remains very tight, and pressures are emerging, especially from the recent surge in world food and fuel prices. The government is nevertheless determined to take the measures necessary to maintain fiscal stability for the rest of the year and avoid accumulating new domestic arrears for the year as a whole. Our 2008 program envisages an acceleration of critical structural reforms, particularly in the areas of public expenditure management and revenue collection. These are key conditions for improving confidence in economic management and securing additional donor support.

5. In support of the government’s objectives and policies, we are requesting a second purchase of the EPCA in an amount equivalent to SDR 1.775 (12.5 percent of quota). We believe that the policies and measures set forth in the MEFP are adequate for achieving the objectives of the EPCA program, but we will take any further measures that may become appropriate for that purpose. In such cases, and before implementing any policies that might adversely affect the program, we will consult the Fund.

6. To assist the Fund in assessing progress on the program, we will continue to regularly provide information as detailed in the attached Technical Memorandum of Understanding (TMU). Moreover, we invite the staff of the Fund to continue to review our performance in the program quarterly, on the basis of the revised quantitative and structural indicators (Tables 1 and 2 of the MEFP) as well as overall implementation of the program.

Sincerely yours,

/s/

Issufo Sanhá

Minister of Finance

Attachments:

- Memorandum on Economic and Financial Policies

- Technical Memorandum of Understanding

Attachment I Guinea bissau Memorandum of Economic and Financial Policies

Bissau, May 22, 2008

I. Introduction

1. This Memorandum of Economic and Financial Policies (MEFP) supplements that of January 2008 and our Letter of Intent dated January 9, 2008. It describes (i) performance on the EPCA-supported program through March 2008; (ii) economic developments in 2007 and early 2008; and (iii) the government’s economic program for the remainder of this year. The policies set forth in this MEFP should help the government stay the course and achieve the objectives of the EPCA-supported program.

II. Recent Developments and Program Performance

2. Economic activity in 2007 was subdued, as expected, with real GDP growth at just 2.7 percent. The 2007 performance reflected mainly much lower production of rice and other cereals due to late and inadequate rains. This was partially compensated for by an increase in production and exports of cashew nuts following normalization of marketing arrangements.

3. Annual inflation accelerated sharply at end-2007 and remained high in early 2008 driven mainly by the surge in international prices for food and oil. The 12-month inflation rate rose to 9.3 percent at end-2007, from 3.2 percent at end-2006, and has remained high in 2008.

4. Monetary conditions remained stable in 2007. Broad money growth reached 25 percent, faster than initially projected. The accumulation of foreign assets by the central bank accounted for about 75 percent of the total increase. There was also a significant increase in credit to the private sector in 2007, equivalent to 29 percent of the increase in broad money growth as the domestic banking sector became more involved in the financing of the cashew nuts campaign. As expected, the external current account deficit (excluding official current transfers) narrowed to 12.5 percent of GDP, from 27 percent in 2006, reflecting higher exports of cashews.

5. Despite efforts to improve revenue collection, fiscal performance was weaker than expected in 2007. Tax revenues did improve markedly in the second half of 2007, after the government implemented its emergency fiscal program.9 However, this was not enough to offset higher expenditures, including a large amount of nonregularized expenditures, owing to continued weaknesses in expenditure management and control. As a result, the domestic primary balance worsened to CFAF 19.1 billion (10.8 percent of GDP) in 2007, from CFAF 12 billion (7.5 percent of GDP) in 2006. Measures are being taken to better control expenditures (¶ 12).

6. Fiscal performance improved in early 2008 and progress is being made to advance structural reforms, especially in fiscal management. Performance on the EPCA-supported program was generally good. By the end of March, four of six quantitative indicators were met (domestic primary deficit, government revenues, domestic financing of the budget, and external nonconcessional borrowing) (Table 1). The quantitative indicators on payment of previous years’ arrears and new domestic arrears were missed but the target for the year as a whole is achievable. The structural indicators for end-March were met with a delay on one measure (Table 2).

Table 1.

Guinea-Bissau: Quantitative Indicators for the Emergency Post-Conflict Assistance for 2008 Quarterly Targets 1/

(Cumulative, CFAF millions)

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Cumulative from January 1 of the corresponding year. The definition of the aggregates is provided in the Technical Memorandum of Understanding (TMU).

Floor. Defined as direct taxes (01.00.00) plus indirect taxes (02.00.00) plus fishing licenses (03.01.01).

Ceiling. If the disbursed amounts of EU fishing compensation are lower (higher) than programmed, the ceiling will be increased (lowered). For the programmed quarterly amounts of EU fishing compensation for 2008 see the TMU (¶ 11).

Ceiling. If the actual amount of external budgetary assistance (including EU fishing compensation) falls short of program forecasts, the ceiling will be increased for the full amount of the shortfall. For the programmed quarterly amounts of external assistance (including EU fishing compensation) in 2008 see the TMU (¶ 11).

Ceiling. At end-March, end-June and end-September, stock of accounts payables (rest-a-payer); at end-December, accounts payables accumulated during the current year (2008) and still outstanding one month after the end of the year in the case of wages and other personnel expenditures (including pensions) and three months after the end of the year, in the case of non personnel expenditures. The ceiling on the accumulation of new domestic arrears will be adjusted in line with available domestic financing of the budget. In particular, if the government is not able to increase (decrease) the domestic financing of the budget by the full amount of the shortfall (excess) in external budget support, the ceiling in the accumulation of new domestic arrears will be adjusted upward (downward) by that difference.

Ceiling. Includes arrears in wages, transfers, and goods and services previous to 2008 and outstanding as of January 1, 2008. If external financing specifically targeted to clear arrears is available, the ceiling will be increased for the full amount of the funds available.

Table 2.

Guinea-Bissau: Structural Benchmarks Under the Emergency Post-Conflict Assistance January 1, 2008—December 31, 2008

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7. Improved control of expenditure commitments on both wages and goods and services kept domestic primary expenditures below target by some CFAF [0.6] billion for the first quarter of 2008. Total revenues were higher than programmed by some CFAF 0.5 billion, reflecting mainly unexpectedly high tax revenues. Nontax revenues were in line with the program, although fishing revenues were lower than expected. The domestic primary deficit for the first quarter of 2008 was CFAF 3.8 billion, below the program target of CFAF 5.1 billion.

8. On the financing side, the government paid down more of 2007 domestic arrears than planned. The EPCA program allowed for a portion of 2007 domestic arrears (about CFAF 3.6 billion) to be repaid in 2008. The authorities, however, repaid most of this amount in the first quarter (mainly related to wages and medical and education supplies), during the legal complementary period for fulfilling previous year expenditure commitments, and thus exceeded the amount programmed for that period by about CFAF 2 billion. As a consequence, some new domestic arrears accumulated, exceeding the adjusted quantitative indicator for end-March. The authorities have since taken measures to avoid any further payment of 2007 domestic arrears (¶ 12) so as to remain within the target for the year as a whole.

9. At the same time, budget support expected in the first quarter of 2008 (about CFAF 7 billion), mainly from the World Bank, was not disbursed as scheduled for administrative reasons but are expected in the coming period. In the circumstances, to make up for financing shortfalls, the government resorted to contracting new short-term domestic commercial debt backed by the expected donor disbursements. Compared to the adjusted quantitative indicator for end-March, the amount of domestic financing was below target, but the costs associated with commercial borrowing in terms of commissions and interest have budgetary implications for 2008.10

10. The government has announced import tax exemptions in response to the food and fuel price pressures. Since March, all rice imports have been temporarily exempted from taxes. The government also established reference prices to calculate import duties for rice and diesel imports that are much lower than actual import prices. These measures are expected to alleviate some of the impact of higher import prices, particularly for rice, the main staple, on the most vulnerable groups, especially the urban poor, but will have a fiscal cost in terms of lost revenue for the year as a whole (see below).

11. Structural reforms to improve fiscal revenue collection and expenditure management have continued, with some delays. The Ministry of Finance created an Information Technology (IT) Department and began training staff (as expected for end-March). The Council of Ministers in May approved a new legal framework for the state budget classification system in line with WAEMU regulations (somewhat delayed compared to the program target of end-March). In May the authorities also launched an audit of domestic arrears for 2000–2007 (a structural indicator for end-April); the EU is paying the international firm that is conducting the audit.

12. The government has taken a number of other significant actions to address weaknesses in the fiscal areas, including issuing decrees to:

  • Cease payment of outstanding 2007 domestic arrears as of March 12.

  • Mandate that all expenditures should be paid only through the Treasury account at the BCEAO.

  • Outlaw the payment of any extrabudgetary expenditures unless they are previously authorized by the Minister of Finance and the Prime Minister, and regularize them within 48 hours.

  • Transfer to the BCEAO any remaining funds in Treasury accounts in commercial banks.

13. The government has also made notable progress in other areas to further improve fiscal management. The Ministry of Finance is currently installing new software to improve accounting and information flows of all Treasury operations (a structural indicator for end-June). The Ministry of Finance and the Ministry of Public Administration are on the final steps to merge the two payroll databases (a structural indicator for end-September). The government has also launched a financial audit, financed by the UNDP, of all government agencies that collect revenues, including state agencies (customs, fisheries, and mining); public enterprises (EAGB, APGB, and FISCAP); and parastatals (Guinetel, Guinea telecom, phosphate and petroleum companies, and ICGB). The audit will, among other things, confirm that levels transferred to the Treasury correspond to regulations, and identify areas where tax collection is currently below potential. The government is committed to adopt as soon as possible recommendations to capture potential revenues.

III. Economic Policies for the Remainder of 2008

14. The outlook for 2008 remains positive despite the macroeconomic challenges posed by recent developments. The government is committed to taking the measures necessary to maintain fiscal and economic stability for the remainder of 2008, contain inflationary pressures, and avoid accumulation of new domestic arrears for the year as a whole. We recognize that achieving these objectives will require vigorous and timely implementation of agreed policy measures and close cooperation between fiscal and monetary authorities. The government will continue to make every effort to speed up structural reforms, particularly in the areas of public expenditure management and revenue collection.

A. Macroeconomic Outlook

15. Real GDP growth is still expected to increase to over 3 percent in 2008, from 2.7 percent in 2007, which is markedly above the average of 2.2 percent for the last four years. A return of normal rains, a slight increase in cashew production, and increasing construction, mainly due to public works, is expected to underpin economic expansion in 2008.

16. Inflation, on the other hand, is now expected to be higher in 2008 than previously projected assuming continued high food and fuel prices. Given current international price projections for food and fuel products, inflation would average about 7 percent in 2008, compared to the initial projection of 3.3 percent. Unpredictably high import prices for food and fuel will also affect the country’s external position; the external current account deficit (excluding official transfers) is now expected to widen to 17 percent of GDP in 2008, compared to the 12 percent initially projected.

B. Fiscal Policy

17. The 2008 fiscal framework will remain very tight. A number of factors are adding pressure, such as (i) revenue loss from import tax exemptions; (ii) additional spending on coming elections; (iii) higher costs of domestic financing associated with the new borrowing in 2008 and higher than expected debt owed to the BCEAO; and (iv) losses in the CFA value of U.S. dollar-denominated external support, though these are partially offset by lower debt service on dollar-denominated debt.

18. Despite the pressures the government remains committed to reducing the domestic primary deficit to CFAF 8.8 billion (4.7 percent of GDP) in 2008 (before additional gap-filling fiscal measures), slightly higher than the deficit of CFAF 7.5 billion (4.1 percent of GDP) initially expected but still a substantial decline from 2007. For the remainder of the year, the government is determined to keep domestic expenditures within available resources, both domestic and external.

19. The larger deficit reflects mainly higher domestic primary expenditures (by CFAF 1.3 billion, 0.7 percent of GDP), reflecting mainly the cost of additional election expenditures. Specifically, the revised expenditure framework reflects the following:

  • Election expenditures will be higher by CFAF 1.3 billion because of payment of arrears from previous elections.11

  • The government will maintain its nominal freeze of the 2008 wage bill at CFAF 21.3 billion (before additional gap-filling fiscal measures). We also intend to consolidate the wage bill database to remove duplications in salary and pension payments for the same individual. The recent census of military personnel will also allow for more accurate payment of wages to military, which may result in budgetary savings.

  • The government will strictly control nonwage discretionary outlays by adhering to the procedures requiring that expenditures be paid only through the Treasury account at the BCEAO. We government will also ensure that any nonaccounted or nonregularized expenditures will be regularized within 48 hours so that they are fully reflected in the expenditures tables of the National Direction of Budget at the end of each month.

20. In other current expenditures, total interest costs should stay in line with program projections. Higher domestic interest will be offset by lower interest on external borrowing denominated in U.S. dollars.

21. The government intends to hold total revenues at CFAF 37.6 billion (20 percent of GDP) for 2008 as a whole. A number of offsetting factors are expected to impact 2008 revenue performance:

  • Import duties are expected to fall short of projections by some CFAF 0.6 billion (0.3 percent of GDP) because of the tax exemptions on rice imports.12

  • The shortfall in revenue from rice imports will be offset by the strong collection of non-import-tax revenues; tax revenues have already over performed by some CFAF 0.5 billion (0.3 percent of GDP) in the first quarter of the year and are expected to remain strong for the remainder of 2008.

  • Nontax revenues are expected to remain unchanged at CFAF 16.9 billion for 2008. The government will work to improve collection of fishing penalties and fishing licenses.

22. Budget support identified for 2008 is now estimated at CFAF 26.1 billion, some CFAF 1.3 billion higher than expected. The government confirmed with Guinea-Bissau’s external partners the amounts and timing of disbursements pledged for the remainder of 2008. The estimated budget support for 2008 includes new support from both traditional and nontraditional donors that more than compensates for shortfalls in some expected pledges and for losses in the CFA value of U.S. dollar-denominated support.

23. Domestic financing costs will be higher than the program expected (by CFAF 3.8 billion), reflecting mainly higher debt owed to the BCEAO in 2008.13 There are also some shortfalls in CFA terms compared to program expectations related to both external debt relief and the EPCA purchase.

24. As a result of all these developments there remains a financing gap of some CFAF 5 billion for 2008. Among measures to fill the gap are the following:

(i) Reduce expenditures by CFAF 0.5 billion by ensuring that the expenditure savings already achieved in the first quarter are translated into permanent cuts for the year as a whole.

(ii) To achieve expenditure savings of CFAF 0.3 billion, consolidate the government payroll database and remove duplications in salary and pension payments paid to the same civil servant.

(iii) Raise additional revenue (CFAF 0.5 billion) from customs, sales taxes, and non-tax revenues (licenses).

(iv) Recover tax arrears of CFAF 1.2 billion, including CFAF 0.7 billion already budgeted and CFAF 0.5 billion in additional efforts.

(v) Reschedule debt owed to the BCEAO in 2008 (CFAF 3.2 billion).

25. With these additional fiscal efforts (the above revenue and expenditure efforts total CFAF 2.5 billion), the domestic primary deficit should decline to CFAF 6.3 billion for 2008 (3.3 percent of GDP).14

26. These measures, along with the second EPCA purchase (SDR 1.775 million), should fully cover the financing gap and allow Guinea-Bissau to avoid accumulating domestic arrears for 2008 as a whole, a key fiscal objective. To the extent of any shortfalls in external financing in 2008, the government is committed to making further efforts to reschedule domestic debt to the extent possible. The government also intends to hold later this year a meeting to follow up on the November 2006 Round Table Conference to mobilize partners to support its development program, especially security sector and civil service reforms. If donor budget grants exceed the amount needed to finance the fiscal gap, priority will be given to using the resources to fully repay commercial debt, treasury bills, and audited domestic arrears, and to increase priority spending in social sectors above budgeted levels, in consultation with the Fund.

C. Structural Reforms in 2008

27. The government intends to undertake additional structural policies in the fiscal area for the remainder of 2008. These measures go beyond the commitments made already for the EPCA-supported program and focus on further strengthening revenue collection and improving public expenditure management. The additional measures planned:

(i) Upgrade the automated customs systems to ASYCUDA++ (Automated System for Custom Administration).

(ii) Sign a contract with a pre-shipment inspection agency (Audit Contrôle Expertise).

(iii) Revitalize the PNG Committee of the BCEAO and Ministry of Finance with weekly meetings to reconcile Treasury operations with BCEAO and domestic banks.

28. To the extent that inflationary pressures in Guinea Bissau reflect the increase in liquidity since 2007, the BCEAO will step up its efforts to sterilize excess liquidity in the market. The govenrment will also work to improve coordination between the Minister of Finance and the BCEAO to improve the latter’s liquidity forecasting and ensure timely action to smooth the monetary impact of use of donor funds to finance government expenditures.

D. Capacity Building and Technical Assistance

29. Capacity building remains a key complement to fiscal reform if we are to ensure that reform is effective and sustainable. Technical assistance needs continue in all areas of public financial management and in macroeconomic statistics (Table 3). The highest priority continues to be assistance to the Customs, Treasury, and Tax Departments and the debt unit. The IMF West AFRITAC and AFRISTAT are providing technical support to strengthen public financial management and tax collection, as well as improve statistics. The European Union and the World Bank, through its support to low-income countries under stress (LICUS), are also assisting with these reforms.

Table 3.

Technical Assistance Needs of the Ministry of Finance

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TA requested and under consideration.

TA in place.

First mission conducted in January 2005.

E. Program Monitoring

30. Monitoring of progress on the EPCA-supported program for the remainder of 2008 will be based on revised quantitative and structural indicators (see Tables 1 and 2). The quantitative indicators are (i) a floor on government revenue (tax and nontax); (ii) a ceiling on the domestic primary deficit; (iii) a ceiling on domestic financing of the budget; (iv) no new domestic arrears; (v) a ceiling on payment of previous arrears; (vi) no short- or long-term nonconcessional external borrowing; and (vii) a ceiling on nonregularized expenditures (new indicator). The quantitative indicators are based on the revised monthly treasury cash flow plan for 2008 (Table 4).15 Specific definitions and explanations are contained in the annexed Technical Memorandum of Understanding (TMU). The government will provide, on a timely basis, all necessary data to monitor the program, as indicated in the TMU.

Table 4.

Guinea-Bissau: Treasury Cash-Flow Plan 2008

(CFAF millions)

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31. To demonstrate their commitment to the success of the program, the government intends to take the following measures before August: (i) collect at least CFAF 300 million in tax arrears; (ii) regularize all nonaccounted expenditures for 2007 through April 2008 so that they are fully reflected in the expenditures tables of the National Direction of Budget; (iii) sign a contract with Audit Contrôle Expertise; and (iv) revitalize the PNG Committee of the BCEAO and Ministry of Finance with weekly meetings.

Attachment II Technical Memorandum of Understanding

Bissau, May 22, 2008

1. This memorandum describes the definitions of the quantitative indicators for the Program for 2008 to be supported by Emergency Post-Conflict Assistance (EPCA) (Table 2) of the Memorandum on Economic and Financial Policies (MEFP) in accordance with the understandings reached between the authorities of Guinea-Bissau and the staff of the IMF. It also specifies the agreed periodicity and deadlines for transmission of data to the staff of the IMF for program monitoring purposes.

I. Quantitative Indicators and Adjustors

A. Quantitative Indicators

2. The quantitative indicators are the following:

  1. cumulative floors on government revenue

  2. cumulative ceilings on the domestic primary fiscal deficit (on a commitment basis)

  3. cumulative ceilings on the change in net domestic financing of the budget

  4. cumulative ceiling on new domestic arrears of the government, including wage arrears

  5. ceiling on payments of previous years domestic arrears (before 2008)

  6. cumulative ceilings on new nonconcessional external debt contracted or guaranteed by the government

  7. cumulative ceiling on the amount of nonregularized expenditures

Quantitative indicators have been set for end-June, end-September, and end-December 2008, and their values are cumulative from January 1, 2008. Indicative targets for new nonconcessional external debt are continuous.

Definitions and computation

3. For EPCA purposes, the government is defined as the central government of Guinea-Bissau. This definition excludes public entities with autonomous legal personality whose budget is not included in the central government budget.

4. For the targeted ceiling presented in Table 1, government revenues include direct taxes, indirect taxes, and fishing licenses, as well as negotiated recovery of tax arrears and additional revenue efforts. The cash flow estimates are based on tax revenue and fishing license income originally programmed for 2008.

Table 1.

Quarterly Targets for Government Revenues and Other Current Expenditures, 2008

(Cumulative, CFAF millions)

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Source: Cash Flow 2008 revised

5. The domestic primary fiscal deficit on a commitment basis is based on the cash flow estimates provided in Table 4 of the MEFP. It is calculated as the difference between government revenue and domestic primary expenditure on a commitment basis. Government revenue includes all tax and nontax receipts and excludes external grants. Domestic primary expenditure consists of current expenditure plus domestically financed capital expenditure, excluding all interest payments and externally financed capital expenditures. Government commitments include all expenditure for which commitment vouchers have been approved by the Ministry of Finance; automatic expenditure (such as wages and salaries, pensions, utilities, and other expenditure for which payment is centralized); and expenditure by means of offsetting operations. The estimated domestic primary balances for the program period are provided in Table 2.

Table 2.

Estimates of the Quarterly Domestic Primary Balance, New Domestic Arrears, and Payment of Previous Years’ Arrears, 2008

(Cumulative, CFAF millions)

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Source: Table 4, MEFP

6. New domestic arrears of the government are defined as follows:

(i) At end-March, end-June, and end-September, the stock of account payables (rest-apayer).

(ii) At end-December, as accounts payables accumulated during 2008 and still outstanding one month after December 31 in the case of wages and salaries (including pensions), and three months after in the case of goods and services and transfers.

The targets for the program period are presented in Table 2.

7. Nonregistered expenditures are defined as follows: any Treasury outlay (including nontitularized expenditures, restitutions, etc.) not accounted for and therefore not reflected in the expenditures tables presented by the National Direction of Budget.

8. Previous year’s domestic arrears are defined as arrears in wages, transfers, and goods and services outstanding as of January 1, 2008. The targets for the program period are presented in Table 2. The program allows for partial payment of expenditure commitments related to 2007 that are still outstanding as of January 1, 2008, up to a maximum of CFAF 3.6 billion (see MEFP ¶ 14).

9. Net domestic financing of the budget is defined on the basis of the cash flow estimates in Table 4 of the MEFP. Bank financing consists of net changes in the balances of the treasury accounts at the BCEAO and at commercial banks (excluding balances in those accounts that are not available for budget financing, such as accounts that are held under double signature arrangements with donors) and the outstanding amounts of loans, including T-bills, from the BCEAO and commercial banks (local and regional). Domestic nonbank financing encompasses privatization receipts and any other domestic financial debt held outside the banking sector, other than new domestic arrears as defined above, that may arise. Table 3 provides the details.

Table 3.

Estimates of Domestic Financing by Quarter, 2008

(Cumulative, CFAF millions)

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Source: Table 2, MEFP

10. The indicators for external debt are cumulative ceilings on new nonconcessional external debt contracted or guaranteed by the government. External debt is defined as debt held by creditors outside the WAEMU region. For EPCA purposes, the definitions of “debt” and “concessional borrowing” are as follows:

  1. The indicator for external borrowing applies not only to debt as defined in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt, adopted by the Executive Board of the IMF on August 24, 2000, but also to commitments contracted or guaranteed for which value has not been received. For purposes of these guidelines, the term “debt” is understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services that requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being (i) loans, that is, advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers credits) and temporary exchanges of assets that are equivalent to fully collateralized loans, under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers’ credits, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and (iii) leases, i.e., arrangements under which property is provided that the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lesser retains the title to the property. For purposes of the guideline, the debt is the present value at the inception of the lease of all lease payments expected to be made during the period of the agreement, excluding those that cover the operation, repair, or maintenance of the property. Under this definition of debt, arrears, penalties, and judicially awarded damages arising from the failure to make payment on a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt. For the purposes of monitoring the EPCA, arrangements to pay over time obligations arising from judicial awards to external creditors do not constitute nonconcessional external borrowing.

  2. Loan concessionality is assessed on the basis of the commercial interest reference rates (CIRRs) established by the OECD. A loan is said to be on concessional terms if, on the date the loan is contracted, the ratio of the present value of the loan, calculated on the basis of the reference interest rates, to its nominal value is less than 50 percent (that is, a grant element of at least 50 percent). For debts with a maturity exceeding 15 years, the 10-year reference interest rate published by the OECD is used to calculate the grant element. For shorter maturities, the six-month market reference rate is used. Purchases from the IMF are excluded from this limit.

11. The concept of government for the purposes of the indicators on external debt is broader than the one used for the budget aggregates; it includes all debt that may ultimately be deemed to be a liability of the state. In addition to the government as defined in paragraph 3, the definition includes administrative public institutions, public enterprises authorized to contract, guarantee, or accommodate nonconcessional borrowing, scientific and technical public institutions, professional public institutions, industrial and/or commercial public institutions and local governments.

B. Adjusters

12. The following adjusters will be in effect:

The ceilings on domestic primary fiscal deficit will be adjusted upward (downward) for any shortfall (excess) in E.U. fishing compensation:17

  • The ceiling on the domestic primary deficit (on a commitment basis) will be increased (lowered) in case of lower (higher) than programmed disbursement of E.U. fishing compensation, for the full amount of the shortfall (excess). The program assumes the following amounts of E.U. fishing compensation (cumulative from January 1, 2008): by end-March CFAF 0 billions; by end-June CFAF 4.9 billions; by end-September CFAF 9.8 billions; and by end December CFAF 9.8 billion.

The ceilings on domestic financing and on new domestic arrears will be adjusted upward (downward) for any shortfall (excess) in external budgetary assistance (including E.U. fishing compensation),

  • The ceiling on domestic financing will be adjusted in line with the amount of external budget support (including E.U. fishing compensation). In particular, the ceiling will be increased (lowered) in the case of shortfall (excess) in external budget support, by the full amount of the shortfall (excess). The program assumes the following amounts of external budgetary assistance (including E.U. fishing compensation) (cumulative from January 1, 2008): by end-June CFAF 15.7 billions; by end-September CFAF 26.04 billions; and by end December CFAF 35.8 billion.

  • The ceiling on the accumulation of new domestic arrears will be adjusted in line with available domestic financing of the budget. In particular, if the government is not able to increase (decrease) the domestic financing of the budget by the full amount of the shortfall (excess) in external support, the ceiling on the accumulation of new domestic arrears of nonpersonnel expenditures will be adjusted upward (downward) by that difference.

II. Program Monitoring

13. To allow monitoring of the program, the Ministry of Finance will regularly report the following information to the staff of the IMF:

  • Detailed reports on revenue and expenditure by budget line and a completed summary table on central government operations (TOFE) (monthly, two weeks after the end of the month);

  • Data on any extrabudgetary expenditure (not included above), including: (i) incentives to tax collectors; (ii) restitutions to collecting agencies; and (iii) any other retentions operated by collecting agencies (DGA, DGCI, Fishing Ministry, etc.) (monthly, two weeks after the end of the month;

  • Tables on nonregularized expenditures (DNT) (monthly, two weeks after the end of the month);

  • Table on accounts payable broken down by budget category (wages, goods and services, transfers, other) (monthly, two weeks after the end of the month);

  • Previous years’ domestic arrears (including 2007): stock and clearance, broken down by budget category (wages, goods and services, transfers, other) (monthly, two weeks after the end of the month);

  • The monetary survey, the balance sheet of the central bank, and the balance sheet of the commercial banks (monthly, within six weeks after the end of the month);

  • A table with data on Treasury/Central Government outstanding loans (including short-term advances) from and deposits in local and regional commercial banks (monthly, two weeks after the end of the month);

  • Treasury Committee monthly reports (monthly, within 10 days after the end of the month);

  • The amount and terms of new external debt (concessional or not) contracted or guaranteed by the government (within four weeks after the end of the month);

  • A monthly table on disbursements of budget support (grants and loans) by donors (two weeks after the end of the month);

  • Indicators to assess overall economic trends, such as the household consumer price index and exports of cashew nuts (when such information becomes available);

  • A table with a description of the status of implementation of the structural indicators in Table 3 of the MEFP (within two weeks after the end of the month); and

  • Information on any type of financial assistance received and not programmed. This should be reported on a continuous basis.

14. The Ministry of Finance will provide the staff of the IMF with any other information that the Ministry or the staff of the IMF deem necessary for programmonitoring purposes.

15. The above data will be provided to the economist at the local office of the IMF in Bissau (Mr. Fonseca) for transfer to the African Department of the IMF in Washington.
1

Expenditures that have not progressed through the normal treasury accounting and reporting procedures and are not yet recorded as current expenditures.

2

Appendix: Memorandum of Economic and Financial Policies.

3

World Bank emergency assistance, the largest expected disbursement in the first quarter of 2008, was delayed due to the time required to process the necessary documents but has since begun to be disbursed.

4

The government contracted short-term commercial loans in the first quarter of 2008 amounting to CFAF 4.7 billion at effective annual interest rates of about 15 percent, including fees and commissions. The short-term loans are expected to be repaid in 2008, when the delayed donor support is disbursed.

5

The program assumes a level of external trade deficit that is financed by a large amount of exceptional transfers assumed for 2008, mainly official transfers, which are subject to a high degree of volatility in the timing of their disbursement. The trade deficit is also subject to revision based on international price developments. The remaining external financing gap for 2008 is equivalent to the fiscal financing gap and is assumed to be fully financed, including with EPCA.

6

The additional election expenditures relate to arrears from previous elections which were not previously anticipated to be paid in 2008. The election arrears will be audited, as part of the EU audit of all domestic arrears, before they are paid.

7

Debt owed to the BCEAO has been revised upwards to include payment of 2006 and 2007 arrears that were not previously included in 2008.

8

Guinea-Bissau will continue to accumulate sizeable payment arrears to sovereign and multilateral creditors (IMF Country Report No. 07/309). The authorities have already informed their external creditors of this situation (IMF Country Report No. 08/4).

9

Minimum Program for Restoration of Fiscal Stability, May 2007.

10

The government contracted short-term commercial loans in the first quarter of 2008 amounting to CFAF 4.7 billion at effective annual interest rates of about 15 percent, including fees and commissions. Part of the principal of the debt (CFAF 2.2 billion) has already been repaid plus a cost (interest and fees) of CFAF 100 million. The rest of the principal (CFAF 2.5 billion) is expected to be repaid in June when World Bank support is disbursed, plus an additional estimated cost of CFAF 156 million.

11

These arrears from previous elections will be included in the EU audit of all domestic arrears now underway.

12

Program projections of import tax revenues assumed reference prices used to calculate import duties on rice that are unchanged from 2007. The revised estimates, therefore, reflect only the shortfall related to tax exemptions. Revised projections assuming reference prices in line with actual import costs would yield substantially higher revenues for 2008.

13

Debt owed to the BCEAO has been revised upward to include payment of 2006 and 2007 arrears that were not previously assumed to be paid in 2008.

14

Revised quantitative indicator for end-2008.

15

The monthly cash flow plan also serves as an informal indicative framework for regular assessment of EPCA performance.

16

Audit financed by the European Union.

17

For the purposes of the TMU, the CFAF/US$ exchange rate was updated to 426,6 and the CFAF/Euro exchange rate is 656.

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Cover IMF Staff Country Reports
Guinea-Bissau: Review of Performance Under the Program Supported by Emergency Post-Conflict Assistance and Request for Second Purchase Under Emergency Post-Conflict Assistance-Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Guinea-Bissau
Author:
International Monetary Fund
Volume/Issue:
Volume 2008: Issue 266
Publisher:
International Monetary Fund
ISBN:
9781451815863
ISSN:
1934-7685
Pages:
48
DOI:
https://doi.org/10.5089/9781451815863.002
Figure 1.

Guinea-Bissau: Recent Macroeconomic Developments, 2000 - 08

CPI, Food CPI and No Food CPI Year-on-Year Increase

(Percent Change)

Annual Inflation in GNB

Classified by Product
Figure 2.

Guinea-Bissau: Main Fiscal Indicators, 2000 - 08