IMF Mission Reaches Preliminary Agreement on ECF1 Arrangement for Guinea-Bissau

An International Monetary Fund (IMF) mission led by Mr. Paulo Drummond visited Bissau during January 12-27, 2010, to discuss the government’s medium-term economic program that could be supported by the IMF under the Extended Credit Facility (ECF). The mission met with President Bacai Sanha, Prime Minister Carlos Domingos Gomes, the Minister of Finance, Jose Mario Vaz, other ministers, the Director of the Banque Centrale des Etats de l’Afrique de l’Ouest, Joao Fadia, as well as representatives of the private sector, civil society, and the donor community.

At the conclusion of the visit, the mission issued the following statement:

“Despite the difficult external environment and a challenging political context, Guinea-Bissau made some progress in stabilizing its economy in 2009. Economic growth reached about 3 percent, driven by a favorable cashew harvest and a pick-up in construction activity; inflation slowed down, thanks to lower food and fuel prices, and budgetary stability was regained. Progress on structural reforms accelerated towards the end of last year, with government approval of an action plan for public financial management and enactment of the new investment code.

”With the objective of consolidating these gains and providing the basis for stronger economic growth and poverty alleviation, the government has defined a medium-term macroeconomic and structural reform program for 2010-2012, for which it is seeking support from the IMF under the ECF. The program focuses on strengthening public finances, by containing the domestic primary budget deficit below 4 percent of GDP per year through 2012, modernizing the public administration, and raising the quality of public services. It also seeks to promote job creation by removing impediments to private sector development and strengthen the provision of financial services.

“The mission was encouraged by progress in preparing public financial management reforms, and by the determination of the government to start moving the reform strategies for the civil service and the military and security sectors into concrete plans of action. The mission reached preliminary agreement with the government on the policies and targets to be monitored under the program, and emphasized that decisive implementation of the reforms will be critical to their success.

”The IMF Executive Board could consider the authorities’ request for an ECF by end-March 2010.“

The ECF is a concessional IMF facility for low-income countries. ECF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the country's Poverty Reduction Strategy Paper. ECF loans carry a zero interest rate until end-2011 and an annual interest rate [of no more than 0.5 percent] thereafter, and are repayable over 10 years with a 5½ -year grace period on principal payments.