Guinea has reached a staff-level agreement to receive up to $69 million (25 percent of Guinea’s IMF quota) in emergency financing through the IMF’s new Food Shock Window under the Rapid Credit Facility; This emergency financing will help Guinea address its urgent balance of payments needs related to the global food crisis. Guinea’s request will be discussed by the IMF’s Executive Board as soon as possible; Following Guinea’s Article IV consultation, IMF staff project growth to reach 4.7 percent in 2022, driven by continued strength in the mining sector, even as the non-mining sector grapples with the impact of the international price shock; Containing the effects of the price shock and cushioning its impact on food security is the key short-term policy priority.
An International Monetary Fund (IMF) staff team, led by Ms. Clara Mira, held a hybrid mission from October 4 – November 18, 2022, to conduct the 2022 Article IV Consultation discussions with Guinea, during which the authorities requested emergency financing under the IMF Rapid Credit Facility’s new Food Shock Window. At the end of the mission, Ms. Mira made the following statement:
“The pandemic impacted Guinea’s non-mining sector harder than expected. The war in Ukraine and the subsequent global food, fuel and fertilizer price shock and ensuing food insecurity, together with the period of political uncertainty, worsened the situation further. Nonetheless, mining sector growth remained resilient, driven by strong mining production, enabling overall growth to reach an expected 4.4 percent in 2021 and 4.7 in 2022.
“Average inflation is expected to remain at 12 percent in 2022, broadly the same level as in 2021, due mostly to rising food and petrol prices. A decline in central bank net credit to the government, made possible in part by the SDR allocation, and the appreciation of the Guinean Franc in the first half of 2022, prevented a further increase in inflation in 2022.
“Food insecurity has worsened since early 2022, with the number of people in acute food insecurity projected to reach over 11 percent by the end of the year. As a result of the spike in international prices, fertilizer prices increased by more than 300 percent. A potentially below-average harvest resulting from low use of fertilizers may lead to additional food insecurity in early 2023 and to higher food imports.
“Revenue performance in 2021 and the first half of 2022 was somewhat weaker than expected, despite the improvements observed in the first half of 2022. Non-mining revenue has yet to return to its pre-pandemic levels. Furthermore, food and fuel support measures led to significant foregone revenues—for the latter, of about 2.1 percent of GDP in 2022. Increased digitalization and improvements in tax collection, as well as large one-off payments to the government, have thus far helped compensate some of the foregone revenues.
“The authorities’ restraint in recurrent spending and the under-execution in the capital budget compensated the overall weaker revenue performance and helped reduce the overall fiscal deficit in 2022.
“The surge in commodity prices in 2022 is expected to have a net negative impact on Guinea’s overall balance of payments. While ongoing growth in mining output and export volumes compensates somewhat for this, the financing of the balance of payments appears more challenging.
“In this context, the IMF reached a staff-level agreement with Guinea on financial assistance under the Rapid Credit Facility through the IMF’s new Food Shock Window to help address Guinea’s urgent balance-of-payments need and rising food insecurity. The disbursement under the Food Shock Window, of SDR 53.6 million (about US$69 million or 25 percent of Guinea’s IMF quota), will contribute to mitigate the severe impact of the food crisis. It will also provide resources to support the most vulnerable through food and cash distribution, and finance interventions to improve the supply of fertilizers and support farmers.
“The mission welcomed the authorities’ efforts to refrain from additional central bank financing. It also encouraged the authorities to scale-up the social protection system. Down the road, the scaling up should support efforts to remove fuel and electricity subsidies, which are a drain on public resources and are highly regressive.
“The IMF mission encouraged the authorities to continue their efforts to mobilize domestic revenue –including from the mining sector and welcomed the bauxite transfer pricing reform—to create fiscal space to finance the pressing human capital and infrastructure development needs. Debt sustainability must be preserved by maintaining a prudent borrowing strategy and a cautious use of non-concessional finance.
“Additional reforms to boost diversification, strengthen governance, and improve the business climate will enable a more resilient and inclusive recovery in the challenging domestic and international context.”
The team met with the Minister of Economy and Finance Moussa Cissé, Minister of Budget Lanciné Condé, Central Bank Governor Karamo Kaba, and other senior officials, and representatives from the private sector, civil society, and the development partner community. The IMF mission wishes to express its gratitude to the Guinean authorities for the constructive discussions during the hybrid visit. IMF staff is now preparing to present to the IMF’s Executive Board for approval a report of the Article IV consultation and the authorities’ request for emergency financing through the IMF’s Food Shock Window as soon as possible.
Distributed by APO Group on behalf of International Monetary Fund (IMF).