Guinea-Bissau: Second Review Under the Extended Credit Facility Arrangement and Requests for a Waiver of Nonobservance of Performance Criteria, Rephasing of Access, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Guinea-Bissau

GUINEA-BISSAU IMFCountryReportNo.23/328 August2023 September2023 SECONDREVIEWUNDERTHEEXTENDEDCREDITFACILITYARRANGEMENTANDREQUESTSFORAWAIVEROFNONOBSERVANCEOFPERFORMANCECRITERIA,REPHASINGOFACCESS,ANDFINANCINGASSURANCESREVIEW—PRESSRELEASE;STAFFREPORT;ANDSTATEMENTBYTHEEXECUTIVEDIRECTORFORGUINEA-BISSAU InthecontextoftheSecondReviewUndertheExtendedCreditFacilityArrangementAndRequestsForAWaiverOfNonobservanceOfPerformanceCriteria,RephasingOfAccess,AndFinancingAssurancesReview,thefollowingdocumentshavebeenreleasedandareincludedinthispackage: APressRelease. TheStaffReportpreparedbyastaffteamoftheIMFfollowingdiscussionsthatendedonMay30,2023,withtheofficialsofGuinea-BissauoneconomicdevelopmentsandpoliciesunderpinningtheIMFarrangementundertheExtendedCreditFacility.Basedoninformationavailableatthetimeofthesediscussions,theStaffReportwascompletedonJuly6,2023. AStaffSupplementupdatinginformationonrecentdevelopments. AStatementbytheExecutiveDirectorforGuinea-Bissau TheIMF’stransparencypolicyallowsforthedeletionofmarket-sensitiveinformationandprematuredisclosureoftheauthorities’policyintentionsinpublishedstaffreportsandotherdocuments. Copiesofthisreportareavailabletothepublicfrom InternationalMonetaryFundPublicationServicesPOBox92780Washington,D.C.20090Telephone:(202)623-7430Fax:(202)623-7201 E-mail:publications@imf.orgWeb:http://www.imf.orgPrice:$18.00perprintedcopy InternationalMonetaryFundWashington,D.C. ©2023InternationalMonetaryFund PR23/299 IMFExecutiveBoardCompletestheSecondReviewundertheExtendedCreditFacilityArrangementforGuinea-BissauandApprovesUS$3.15MillionDisbursement TheIMFExecutiveBoarddecisionallowsforanimmediatedisbursementofSDR2.37million(aboutUS$3.15million)toGuinea-Bissautohelpaddressingfinancingneedsandcopingwithadeterioratingexternalenvironment. Theeconomyhasgrownby4.2percentin2022andshouldrecovermoderatelyto4.5percentin2023whileinflationisexpectedtoremainhigh. Theauthoritiesaretakingmeasurestoaddresstheexogenousshocksandremaincommittedtostrongpoliciesandreforms. Washington,DC–August30,2023:TheExecutiveBoardoftheInternationalMonetaryFund(IMF)completedtodaythesecondreviewunderGuinea-Bissau’sExtendedCreditFacility(ECF)arrangement.ThecompletionofthereviewenablesthedisbursementofSDR2.37million(aboutUS$3.15million)tohelpmeetthecountry’sbalance-of-paymentsandfiscalfinancingneedsamidchallengesrelatedtoRussia’swarinUkraine,thesubstantialincreaseinthecost-of-livingwhichisespeciallyimpactingthemostvulnerablepopulation,andthelingeringimpactsofthepandemic.ThisbringstotaldisbursementsundertheECFarrangementtoSDR7.11million(aboutUS$9.46million). Incompletingthesecondreview,theExecutiveBoardalsoapprovedtheauthorities’requestforawaiverfornonobservanceofperformancecriteriaonthefloorontaxrevenue,theceilingonwagesandtheflooronthedomesticprimaryfiscalbalance.Furthermore,theExecutiveBoardcompletedthefinancingassurancesreviewandagreedontherephasingofaccesstomaketwodisbursementsofSDR2.37milliononJanuary17andApril17,2024,insteadofonesingledisbursementonApril17,2024. Theeconomyhasgrownby4.2percentin2022andshouldrecoveronlymoderatelyto4.5percentin2023.GrowthhasbeennegativelyaffectedbylowcashewexportsandadverseexternalshockswhichareweighingonGuinea-Bissau’ssocio-economicenvironment.Thesurgeinfoodandoilpricesaddspressuresonannualinflationwhichisexpectedtoremainhighat7.0percent.Budgetexecutionisfacingpressures.Theoverallfiscaldeficitremainedat 5.9percentofGDPin2022.Basedonprovisionaldata,thepublicdebtincreasedto80.3percentofGDPin2022,becauseofhigher-than-projectedoverallfiscaldeficit,newgovernmentguaranteesmainlytothepublicutilitycompanyandtherecognitionofcross-arrearsowedtosupplierswithnon-performingloansattheundercapitalizedbank.Revenuemobilizationandexpenditurecontainmentremainpivotaltopreventriskstodebtsustainabilityandaccesstoexternalfinancing.Indiscussionswiththemissionteam,thenewgovernmentresultingfromthewinningcoalitionoftheJune4,2023,legislativeelectionexpresseditscommitmenttoimplementingtheprogramreformagenda. AttheconclusionoftheExecutiveBoard’sdiscussion,Mr.Okamura,DeputyManagingDirectorandActingChair,madethefollowingstatement: “Guinea-BissauhasdemonstratedcommitmenttoprogramimplementationundertheExtendedCreditFacility(ECF)arrangement.Thereformagendaincludesanambitiousfiscalconsolidationtosupportinclusivegrowth,whilepreservingdebtsustainability,andstructuralandgovernancereformstostrengtheninstitutionalcapacity.Whiletheeconomicrecoveryis 2 expectedtocontinue,downsiderisksremainrelatedtolong-standingfragilityconstraints,uncertaintyintheglobaleconomywithpotentialadversespilloversoncashewexportsandfoodandenergyprices,andclimateshocks.Inthatcontext,theauthorities’strongprogramownershipandreformimplementationwouldbecriticaltocatalyzeadditionaldonorsupport. “Programperformancehasbeensatisfactory.Fiveoutofeightquantitativeperformancecriteria(QPCs)forMarch2023weremet.Thegovernmenttookcorrectiveactionstoaddressthemissedtargets,includingstrengtheningexpenditurecontrols,selling5Glicenses,andrationalizingtaxexpenditure