IMF Executive Board Approves US$38.4 Million Extended Credit Facility (ECF) Arrangement for Guinea-Bissau

IMF Executive Board Approves US$38.4 Million Extended Credit Facility (ECF) Arrangement for Guinea-Bissau

January 30, 2023

• The IMF Executive Board approved a new thirty-six-month arrangement under the Extended Credit Facility (ECF) for Guinea Bissau, in an amount of SDR 28.4 million (about US$ 38.4 million). The Executive Board’s decision will enable an immediate disbursement equivalent to SDR 2.37 million (about US$ 3.2 million).
• The objectives of Guinea-Bissau’s new Fund-supported program are securing debt sustainability while supporting the economic recovery, improving governance and reducing the risk of corruption, and creating fiscal space to sustain inclusive growth.
• The ECF arrangement is essential to improve donor and private sector confidence and catalyze much-needed concessional financing from the international community.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) approved today
a thirty-six-month

Extended Credit Facility

arrangement for Guinea-Bissau in the amount of SDR 28.4 million (about US$
38.4 million, or 100 percent of quota).

The IMF Executive Board decision enables an immediate disbursement of SDR
2.37 million (about US$3.2 million). Disbursements of the remaining amount
will be phased over the duration of the program, subject to two initial
quarterly reviews—to ensure close monitoring of reforms, followed by five
biannual reviews.

The ECF-supported program aims to anchor macroeconomic stability, putting
the budget back on track and ensuring medium-term debt sustainability,
while continuing progress on structural reforms initiated under the 2021-22

Staff Monitored Program

(SMP). It will provide a framework to assist the authorities in designing
and implementing effective policies to better address development
challenges such as enhanced education and health systems, promote inclusive
growth, and reduce poverty. Fiscal policy will aim to reduce the deficit
and debt in line with the West Africa Economic and Monetary Union
convergence criteria over the medium term through revenue mobilization,
expenditure rationalization, mitigation of fiscal risks and prudent
borrowing. Further action to enhance governance including to advance Anti
Money Laundering/Combating the Financing of Terrorism/ effectiveness will
improve the management of fiscal resources and public investment, increase
transparency and accountability, and counter corruption.

The program will also help catalyze much needed donor financing,
particularly in the form of grants and concessional loans, and support the
reduction of debt vulnerabilities.

Guinea-Bissau‘s program of economic policies and reforms implemented under
the 2021-22

Staff Monitored Program

helped maintain macroeconomic and public debt sustainability, as well as
strengthen public financial management (PFM) and governance in the public
sector. Real GDP growth is estimated to have slowed down to about 3½
percent in 2022. It has been negatively affected by lower-than-expected
cashew exports, which slowed mainly due to logistical constraints. The
surge in commodity prices associated with Russia’s war in Ukraine has added
renewed pressures on inflation, especially in food and fuel. Growth has
been supported by higher agricultural production, private sector investment
and relative political stability, which partially offset the impact of
higher cost-of-living and negative external shocks.

Following the Executive Board discussion on Guinea-Bissau, Mr. Li, Deputy
Managing Director and Acting Chair, issued the following statement:

“Guinea-Bissau demonstrated strong commitment to reform implementation in a
challenging environment through its satisfactory completion of a nine-month
Staff Monitored Program. Looking ahead, while the economy is expected to
rebound, the outlook is subject to significant downside risks related to
domestic weaknesses, long-standing fragility, volatility in cashew exports,
and spillovers from Russia’s war in Ukraine that could further impact food
and energy prices. The new Extended Credit Facility (ECF) arrangement
supports economic recovery and policies to create fiscal space for social
and priority spending, reduce debt vulnerabilities, and improve governance
and transparency.

“The program objectives include growth-supportive fiscal consolidation with
reforms to improve domestic revenue mobilization, strengthen public finance
management and wage bill control, mitigate fiscal risks, and safeguard
social and priority spending. The authorities are expected to make
significant progress in meeting the regional fiscal convergence criteria
and strengthening debt management by the end of the program period.

“Strengthening financial stability and intermediation, and addressing risks
in the financial system are also important. In this regard, tackling the
high level of non-performing loans and ensuring a timely and orderly
disengagement from the undercapitalized bank would be key.

“Implementing reforms to strengthen governance and anti-corruption
frameworks will be pivotal to the program’s success. The authorities have
implemented transparency commitments related to COVID-19 emergency
spending—including the publication of the third-party audit and the
beneficial ownership information. The authorities will also accelerate the
implementation of beneficial ownership disclosure, modernize the asset
declaration regime and improve the AML/CFT framework. Pursuing economic
diversification is also key to strengthening resilience and achieving
sustainable growth.

“The authorities are committed to the reform agenda to ensure fiscal
sustainability, strengthen governance and management of public resources,
mitigate fiscal risks, and rely on highly concessional financing. The
authorities’ engagement with the IMF through the ECF arrangement will
catalyze development partners’ support for resilient and inclusive growth.
Making use of IMF capacity development would also support the
implementation of reforms.”