Economic performance in 2018 suffered from lower cashew income and weak domestic revenue mobilization; the draft budget for 2019 targets increased government revenue and a deficit below 3 percent of GDP; achieving budget targets will require tight expenditure control.
An International Monetary Fund (IMF) team led by Tobias Rasmussen visited Guinea-Bissau during January 14-18, 2019, to evaluate the draft 2019 budget and discuss developments in the financial sector.
At the end of the visit, Mr. Rasmussen issued the following statement:
Guinea-Bissau's economy came under pressure in 2018. Economic activity suffered from lower cashew production and prices. Cashew exports declined by about 25 percent and real GDP growth is estimated to have fallen to 3.8 percent in 2018 against roughly 6 percent a year during 2015�17. Lower growth and weak revenue collection led to missed fiscal targets. Notably, the fiscal deficit on commitment basis is estimated to have widened to about 5 percent of GDP against a target of 2.5 percent of GDP.
The draft budget for 2019 aims to consolidate public finances. It targets increased revenue and modest expenditure growth to bring the deficit below 3 percent of GDP, in line with the WAEMU criterion. The higher revenue is supported by steps to strengthen administration, including the recent passage of two new tax laws and reform of the customs brigade, as well as collection of stamp duty on air transport and adjustment of some tax rates.
The push to strengthen public finances is welcome though meeting the envisioned targets will require tight fiscal discipline and additional effort in some areas. The public water and electricity utility, EAGB, has been a longstanding drain on government funds and is likely to require further transfers to cover accumulated liabilities. Identifying offsetting savings and finalizing the planned reform of EAGB should be a top priority. The government capital budget is another pressure point, reflecting need for better alignment with underlying investment projects. Avoiding arrears and unregularized expenditures will be essential for sound public financial management.
Maintaining a conducive environment for private sector activity would support a pickup in economic growth in 2019. Ensuring a transparent and competitive cashew marketing season will be critical, starting with the announcement of a reference price consistent with international price developments. Addressing weaknesses in banks and ensuring compliance with prudential norms will be essential in maintaining a healthy financial sector.
The IMF remains committed to supporting good economic governance in Guinea-Bissau. The mission will not at this point conclude discussions on the pending sixth review of the ECF program but expects to return to Bissau as soon as possible after the legislative elections for discussions with the incoming government.
The IMF mission wishes to express its gratitude to the authorities for the constructive discussions and for their warm hospitality.rdquo;
The team met with President Joseacute; Maacute;rio Vaz, Prime Minister and Minister of Finance Aristides Gomes, Public Prosecutor General Bacari Biai, Central Bank of West African States (BCEAO) National Director Helena Nosolini Embaloacute;, other high-level officials, and representatives of the private sector and the donor community.
Source: International Monetary Fund (IMF)