Progress on the Staff-Monitored Program (SMP) reform agenda has been satisfactory despite difficult socio-economic conditions compounded by the COVID-19 pandemic; Ensuring revenue mobilization and expenditure containment, including in the wage bill, will help to create room for spending on critical social and pro-growth areas, and to buttress debt sustainability; Strict control on budgetary execution, strong governance and transparency measures will contribute to securing concessional financing and grants from international partners and encourage private investment.

An International Monetary Fund (IMF) staff team, led by Mr. Jose Gijon, held virtual meetings with the authorities, from September 28 to October 11, 2021, to conduct the first review of the 9-month Staff-Monitored Program (SMP). The review is aimed at assessing the efforts being undertaken to build a policy track record towards a possible Extended Credit Facility (ECF) arrangement in 2022.

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

“The authorities and IMF staff have discussed policies and reforms that underpin the SMP. Structural benchmarks and most quantitative targets have been met. Based on overall performance on the implementation of the reform package, a staff-level agreement has been reached on the completion of this first review subject to IMF management approval.

“The authorities have made satisfactory progress on their reform program despite difficult socio-economic conditions compounded by the COVID-19 pandemic. In a context of very constrained resources, they have managed to achieve relatively high levels of vaccination compared to other Sub-Saharan African countries.

“Despite the persistence of the COVID-19 pandemic, economic recovery continued in 2021 and the medium-term outlook remains strong. Inflation should remain subdued and below the 3 percent regional threshold of the Western Africa Economic and Monetary Union (WAEMU). The fiscal budget deficit is expected to be contained to 5.2 percent of GDP in 2021, in line with the program objectives.

“The IMF team and authorities agreed on policy measures for the 2022 budget to secure key program objectives. These measures should enable the projected fiscal deficit to be brought down to about 4 ½ percent of GDP in 2022 and gradually converge to the WAEMU regional deficit norm of 3 percent of GDP by 2025.

“The IMF team and the authorities also agreed that for the program to be successful, policy priorities should focus on macro-fiscal sustainability. This will help to create room for spending on critical emergency and pro-growth areas such as health, education, and physical infrastructure.

“The team recommends that budget execution in 2021 and the design of the 2022 budget avoid any arrears accumulation and the use of expensive non-concessional borrowing, against the background of a level of public debt already above the limit defined in the WAEMU convergence pact. This entails focusing on revenue mobilization and expenditure containment measures, including more efficient management so as to contain any increase of the wage bill and lower debt interest payment (representing respectively 80 and 20.5 percent of tax revenue in 2020). Attracting external grants will be key to cover government current expenses.

“In this context, Guinea Bissau’s authorities decided to use most of the recent SDR 27.2 million allocation to Guinea Bissau (about US$ 38.4 million) to buttress debt sustainability by repaying non concessional debt, notably to BOAD, and allocate the remaining amount to supporting COVID-related spending, including vaccination and improvement in health services.

“The success of the IMF program also hinges on meeting strong governance commitments aimed at enhancing public finance transparency, accountability and efficiency. These measures aim to guarantee that expenditure decisions which are likely to impact the budget are exclusively authorized by the Ministry of Finance in accordance with existing legislation. The objective of other governance and transparency measures is that budgetary allocations related to COVID-19 are spent appropriately and consistent with the commitments of the Rapid Credit Facility (RCF) disbursed in January 2021. This entails the completion of an independent audit of crisis-mitigation spending. The related report will be published along with regular expenditure reports, procurement contracts mentioning awarded companies and beneficial owners, as well as ex-post reports on validation of delivery of goods and services. The IMF supports the implementation of these steps through the provision of adequate capacity development.

“IMF staff will continue supporting the authorities’ efforts to reach out to other international partners to mobilize concessional financing for the reform program.

“The IMF team met with H.E. President Sissoco Embaló, Vice-Prime Minister Sambú, Finance Minister Fadiá, BCEAO National Director Embaló, President of the Court of Auditors Baldé, and High Commissioner for COVID-19 Robalo. The team also met with officials from the Ministries of Finance, Economy, Public Administration, the National Directorate of the BCEAO, the National Institute of Statistics, the FIU and other officials. In addition, the team met representatives from development partners.

“The team thanks the authorities for their openness, and constructive discussions and looks forward to continuing very close cooperation in the period ahead.”