Heightened political tension may dent business climate in Guinea-Bissau, IMF warns

Bissau, Guinea-Bissau (PANA) – Strong growth of government revenue and contained expenditure, sharply narrowed Guinea-Bissau’s overall fiscal deficit on commitment basis from 4.7 percent of GDP in 2016 to 1.5 percent in 2017, according to the International Monetary Fund (IMF).

Besides a broadly positive economic outlook, a planned scaling up of public investment should help address gaps in critical infrastructure, including in electricity provision, said an IMF team on Monday after a two-week visit to the West African country.

Led by Tobias Rasmussen, the team had discussions with authorities in Bissau focused on maintaining fiscal discipline and mobilizing revenue to enable increased investment and other priority spending to support inclusive growth; maintaining debt sustainability; and safeguarding financial sector stability.

They also discussed the fifth review of Guinea-Bissau’s IMF-supported programme under the Extended Credit Facility (ECF) and the authorities’ request for one-year extension of the arrangement.

The three-year arrangement for Guinea-Bissau, amounting to US$23.5 million, was approved by the IMF Executive Board on 10 July 2015.

Mr. Rasmussen said the Board is slated to consider the staff report on the fifth ECF review and programme extension in early June 2018. Upon approval, about US$4.4 million would become available to Guinea-Bissau.

“All quantitative performance criteria and indicative targets for the fifth review were met, and structural reforms are advancing albeit with some delay in places. The mission welcomed the authorities’ continued commitment to the programme and its objectives of entrenching macroeconomic stability and advancing structural reforms to support strong and broad-based economic growth,” Mr Rasmussen explained in a statement made available to PANA.

“Economic activity has remained buoyant, supported by high cashew prices, increased investment, and prudent economic management. Real GDP growth for 2017 is estimated at 5.9 percent, with inflation averaging 1.1 percent and an external current account deficit of 0.5 percent of GDP.”

Credit extension has, however, been subdued, with continued high levels of non-performing loans and lingering challenges from the voided bank bailout of 2015, the IMF team reported.

At the same time Guinea-Bissau’s terms of trade have deteriorated, with higher prices of oil imports and prospects for cashew exports looking less favourable than last year. Moreover, heightened political tensions since the fall of government in January, should they persist, would hamper policy implementation and dent the business climate, the team warned.

“To help ensure continuation of the positive economic trends it will be important to extend progress made in disciplined economic management,” Mr. Rasmussen suggested. “The scaling up of investment will require close coordination among agencies involved and better integration into budget processes.”

In the IMF team’s view, maintaining a sound financial sector in light of the high level of non-performing loans calls for a strengthening of banking supervision and enforcement of prudential norms.

In addition, the team has recommended more stable, transparent, and market-driven policies towards business, especially in the dominant cashew sector, in order to promote private sector development.
-0- PANA AR/MA 3April2018

03 april 2018 09:58:32

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