IMF Management has approved the second review of Guinea Bissau’s Staff-Monitored Program (SMP), which supports the government’s program of reforms aimed at supporting macroeconomic stability and debt sustainability, strengthening social policies, and enhancing public governance. The authorities have made satisfactory progress toward establishing a strong track record of policy and reform implementation—a key requirement for a transition towards a possible Extended Credit Facility (ECF) arrangement in 2022. It will be important to maintain good performance for the third and last review of the SMP, and for international partners to provide Guinea Bissau with sufficient support through its transition.

The Management of the IMF approved on January 31, 2021 the completion of the second review of Guinea Bissau’s SMP. ^[1]The SMP, which was approved on July 19, 2021 , supports the government’s home-grown program of reforms aimed at stabilizing the economy, improving competitiveness, and strengthening governance.

Guinea Bissau’s economic conditions are improving. After a modest GDP growth of 1.5 percent in 2020, growth is projected to accelerate to 3.8 percent in 2021 on the back of higher cashew nut production—Guinea-Bissau’s main export product, public investment in critical externally financed infrastructure, the gradual lifting of COVID-19 containment measures, and a gradual improvement in business confidence.

The authorities have made satisfactory progress on their reform program at end-September 2021 despite difficult socio-economic conditions compounded by the COVID-19 pandemic. In a context of very constrained resources, they have managed to achieve good vaccination rates by regional standards.

The fiscal position is projected to improve in 2021 though with a small increase in the stock of public debt. The overall fiscal deficit is projected to fall to 5.4 percent of GDP from 10.0 percent of GDP in 2020. This significant adjustment reflects the unwinding of pandemic-related effects, greater revenue mobilization and expenditure controls adopted in the context of the 2021 budget and the SMP. Fiscal consolidation is expected to continue creating fiscal space and crowding-in donor support to protect priority spending in education, health, pandemic-related expenditures, and key infrastructure investments. The stock of public debt is projected to slightly increase in 2021 mainly because of domestic currency depreciation and the rephasing of the clearance of legacy arrears.

The SDR allocation to the country was prudently used. The authorities decided to use the recent SDR 27.2 million allocation (about US$38.4 million) to buttress debt sustainability by anticipating service of non-concessional loans from the regional development bank due up to 2022, and cover COVID-19 related expenditures, including vaccination and improvement in health services.

Timely implementation of governance and transparency reforms are key to the SMP success and for addressing long-standing socioeconomic challenges. This includes measures to enhance fiscal governance, transparency and accountability including measures to strengthen expenditure control, tax and custom frameworks, the fight against corruption and mitigation of SOEs’ risks, notably those stemming from the water and electricity company. The amendment of the legal procurement framework to enable the collection and publication of beneficial ownership information and the modernization of the Asset Declaration Regime are also important ongoing reforms.

The IMF supports the implementation of these steps through the provision of capacity development in coordination with international partners. It also bolsters the authorities’ efforts to mobilize external concessional financing.