Press Release No. 19/156

IMF Staff Concludes Visit to Guinea-Bissau

May 10, 2019

• Guinea-Bissau’s fiscal position remains under stress, with a significant financing gap for 2019.
• There is promising movement towards settling disputes relating to the government-voided bank bailout of 2015.
• The authorities expressed strong interest in a new IMF-supported program.

An International Monetary Fund (IMF) team, led by Tobias Rasmussen, visited Guinea-Bissau during May 6-10, to assess the fiscal situation, discuss developments in the financial sector, and explore the authorities’ interest in a new IMF arrangement.

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

“Guinea-Bissau’s fiscal position remains under stress. Due primarily to higher than planned expenditures, the government deficit in early 2019 was significantly larger than envisioned in the draft budget. The deficit was also much larger than the same period in 2018, where it for the year as a whole reached an estimated 5.1 percent of GDP on commitment basis. At the same time, financing pressures have grown, resulting in a rising balance of unpaid bills. On current course, the financing gap for 2019 is estimated at about 3 percent of GDP. While higher cashew output should help raise real GDP growth from the estimated 3.8 percent in 2018 to about 5 percent in 2019, lower cashew prices imply downside risks to economic activity and government revenue collection.

“Discussions focused on steps to ensure fiscal sustainability and strengthen public financial management. A comprehensive combination of increased revenue mobilization, tightened spending, and identification of additional financing will be needed to reduce the deficit, ensure timely payment of salaries and other obligations, and stem increases in public debt. A first step would be to revive the Treasury Committee, which would help control spending. Next, the incoming government—still not in place after the March 10 elections—will need to pass a budget for 2019 that should aim to bring the deficit back within the 3 percent of GDP WAEMU criterion as soon as possible.

“Discussions also covered developments in the financial sector where there is promising movement towards settling disputes relating to the government-voided bank bailout of 2015. The associated uncertainty and capitalization challenges have impeded financial sector development for several years and were an important factor behind the decline in bank credit to the economy observed in 2018. Plans for an amicable settlement of the dispute and accompanying recapitalization of one bank are now advancing rapidly. If successfully completed, this would provide important support for financial stability and long-term growth.

“The authorities expressed strong interest in an IMF-supported program. Conditional upon robust action to stabilize the fiscal situation in the coming months, the mission could return to Bissau in September for discussions with the incoming government on a new Extended Credit Facility (ECF) arrangement.

“The IMF mission wishes to express its gratitude to the authorities for the constructive discussions and for their warm hospitality.”

The team met with President José Mário Vaz, Prime Minister and Minister of Finance Aristides Gomes, Central Bank of West African States (BCEAO) National Director Helena Nosolini Embaló, President of the African Party for the Independence of Guinea and Cape Verde (PAIGC) Domingos Simões Pereira, other high-level officials, and representatives of the private sector and donor community.