Progress on the Staff-Monitored Program (SMP) reform agenda has continued since the first review in October 2021; Strengthening revenue mobilization and the yield of new taxes and ensuring expenditure containment remain essential to buttress debt sustainability and to support social and pro-growth spending; Macroeconomic stabilization, strong governance and transparency measures will contribute to securing concessional financing and grants from international partners and encouraging private investment.

An International Monetary Fund (IMF) staff team, led by Mr. Jose Gijon, held virtual and on-site meetings with the authorities, from November 30 to December 13, 2021, to conduct the second review of the 9-month Staff-Monitored Program (SMP). The review aimed at assessing the efforts being undertaken to build a policy track record towards an Extended Credit Facility (ECF) arrangement in 2022.

At the end of the visit, Mr. Gijon issued the following statement:

“The IMF team reached a staff-level agreement with the authorities on the completion of the second review of the SMP. The review is subject to IMF Management approval. Overall performance and progress on the reform program have been strong despite difficult socio-economic conditions exacerbated by the COVID-19 pandemic. Most structural benchmarks and quantitative targets assessed at end-September 2021 have been met.

“Despite this challenging context, Guinea-Bissau’s economic recovery continued through 2021 and the medium-term outlook is strengthening. Inflation should remain about 3 percent in line with the regional threshold of the Western Africa Economic and Monetary Union (WAEMU).

“The 2022 budget approved by the Parliament on December 9 is consistent with policy measures agreed between IMF staff and the authorities to secure key program objectives. These measures aim at bringing down the projected fiscal deficit to about 4.2 percent of GDP in 2022 and gradually converge to the WAEMU regional deficit norm of 3 percent of GDP by 2025. The fiscal strategy aims at reducing the level of some current spending, including on the wage bill and debt service, while strengthening the yield of taxes, including those newly introduced such as the tax on telecommunications, and the digitalization of tax collection.

“Macro-fiscal consolidation will help to avoid arrears and contain the level of public debt which is above the limit defined in the WAEMU convergence pact, and to create room for spending on priority and pro-growth areas such as health, education, and physical infrastructure. In this regard, the IMF staff supports the authorities’ decision to use the SDR 27.2 million allocation to Guinea-Bissau (about US$ 38.4 million) for early repayment of expensive external debt, and for COVID-19 related spending, including vaccination and improvement in health services. The authorities already managed to significantly increase the share of the target population fully vaccinated (about 35 percent in early December 2021).

“The success of the IMF program also hinges on a range of reforms aimed at enhancing public finance transparency, accountability and efficiency. This includes the completion and publication of an independent audit of COVID-19 spending as part of governance safeguards committed by IMF members that have received emergency financing such as the Rapid Credit Facility (RCF) disbursed to Guinea-Bissau in January 2021. The authorities are also formulating an amendment of the legal procurement framework to ensure the collection and publication of the names of the awarded companies and related beneficial ownership information, as well as ex-post reports on validation of delivery of goods and services. They are also preparing a reform of the asset declaration regime to fight corruption. Another critical governance reform of public finances is the gradual establishment of a Treasury Single Account. These efforts will help to encourage financial support from international partners and investment decisions from the private sector.

“IMF staff will continue to support the authorities’ efforts to reach out to other international partners to mobilize concessional financing and grants, and to support the reform program including through the provision of adequate capacity development.

“The IMF team met with H.E. President Sissoco Embaló, Prime Minister Nabiam, Vice-Prime Minister Sambú, Finance Minister Fadiá, BCEAO National Director Embaló, President of the Court of Auditors Baldé, and the High Commission for COVID-19. The team also met with officials from the Ministries of Finance, Economy, the National Directorate of the BCEAO, the National Institute of Statistics, the Financial Intelligence Unit and other officials. In addition, the team met representatives from various private and public sector enterprises, and from key international partners.

“The team thanks the authorities for their openness, and constructive discussions and looks forward to continuous close cooperation paving the way to an Extended Credit Facility (ECF) arrangement in 2022.”