Press Release No. 95/71

Press Release: IMF Approves Third Annual Loan for Guinea under ESAF

December 20, 1995

Background

Over the past decade, Guinea made major strides in dismantling state controls over the economy by freeing business activity, restructuring or privatizing key public enterprises, and overhauling the tools of monetary policy. Policy implementation was weak in the early 1990s, but performance improved under the program supported by the second annual ESAF arrangement, and most targets for 1994 were met. Developments in the first half of 1995 were generally in line with the program, but in the second half of the year, fiscal and monetary policies were more expansionary than programmed, resulting in some pressures on the price level and on the exchange rate.

The Program for 1995-96

The objectives of the 1995-96 program are to raise real GDP growth to 4.6 percent in 1995 and to 4.7 percent in 1996, to stabilize the annual rate of inflation at 4 percent (one of the lowest in sub-Saharan Africa), to reduce the external current account deficit, excluding official transfers, to 8.6 percent of GDP in 1995, and 7.6 percent in 1996, from 9.3 percent of GDP in 1994, and to raise official reserves to the equivalent of 3.6 months of imports by 1996. Implementation of the program should also lead to a normalization of relations with creditors.

To achieve these objectives, fiscal policy will seek to lower the overall deficit from 7.2 percent of GDP in 1994 to 6 percent in 1995 and to 5.5 percent in 1996. This reduction is predicated on an increase in government nonmining revenue through reduced duty exemptions, strengthened tax administration, and a broadened tax base. The level of government expenditure will increase by one percentage point of GDP in 1996 and its composition will be altered to favor the social sectors and investments in infrastructure. Guinea also intends to pursue a tight monetary policy to keep inflation low.

Structural Reforms

Structural policies under the program aim at further broadening the scope for private sector growth. Accordingly, they focus on privatizing and reforming the parastatals, strengthening of the judiciary, revision of the development strategy for the mining sector, and reform of the civil service. In particular a complete inventory of the remaining government enterprises and an action plan for their restructuring, privatization, or liquidation is to be completed by the end of 1995.

Social Issues

Under the program, the 1996 budget is slated to raise expenditure on primary education and preventive health and sanitation by 10 percent in real terms. The primary school enrollment rate, which has increased from 29 percent in 1990 to about 43 percent at present, is targeted to rise further to 53 percent by the end of the decade. To meet this objective, some 2,400 teachers are to be recruited over the next five years. The 1996 budget will also include provisions for social safety net outlays for poverty alleviation, as well as for redundancy payments for the newly retrenched public sector employees. Over the medium term, the authorities will focus their poverty alleviation efforts on sustaining agricultural sector growth and improving the integration of the rural areas into the formal market economy.

The Challenge Ahead

The continued availability of technical assistance will be crucial to the success of Guinea's adjustment program. Substantial assistance needs remain in the areas of tax administration, monetary management, data collection, legal and judicial reform, and capacity building; those needs are being addressed as a matter of priority.

Guinea joined the IMF on September 28, 1963. Its quota² is SDR 78.7 million (about $117 million), and its outstanding use of IMF credit currently totals SDR 52 million (about $77 million).