Press Release No. 08/185

Press Release: IMF Executive Board Completes First Review under PRGF Arrangement for Guinea, Increases Financial Assistance to Mitigate Food and Fuels Price Impact, and Approves US$28.7 Million Disbursement

July 28, 2008

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Guinea's performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement. The Board also approved an SDR 21.42 million (about US$34.9 million) augmentation in the arrangement to help Guinea cope with the recent external shocks from rising food and fuel prices. The completion of the review enables the disbursement of SDR 17.595 million (about US$28.7 million), which would bring total disbursements under the arrangement to SDR 24.48 million (about US$39.9 million), including part of the augmented amount.

The Executive Board also granted waivers of non-observance for two performance criteria related to net international reserves and external payments arrears, on the basis of remedial actions taken, and decided to modify the performance criteria for the next disbursement in view of the adverse external shock that Guinea is experiencing. The Board completed the country's financing assurances review under the arrangement as well.

The three-year PRGF arrangement for Guinea was originally approved by the Executive Board on December 21, 2007 (see Press Release No. 07/309) in an amount equivalent to SDR 48.195 million (about US$78.5 million). With the Board's approval of the augmentation today, the total amount of the arrangement will be equivalent to SDR 69.615 million (about US$113.4 million).

Following the Executive Board's discussion, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, said:

"Guinea's economic stabilization policies were successful in 2007. Inflation fell significantly and the economy began to recover from social turmoil early in the year. The basic primary fiscal surplus improved, and the authorities refrained from recourse to central bank financing.

"The large international fuel and food price shock is creating serious challenges to the short-term outlook. The government courageously raised local petroleum prices substantially early in the year and further measures to ensure the pass-through of world oil prices are planned for the period ahead. It will be important to target measures to alleviate the impact of higher food prices on the most vulnerable.

"To help absorb the effect of higher food and fuel prices on the balance of payments and accomplish the program objectives in 2008, including the rebuilding of foreign reserves, well-coordinated economic policies, and the mobilization of additional external assistance will be needed. The Fund has augmented financial resources to Guinea's PRGF arrangement. This, in conjunction with other donors' support, will help in mitigating the impact of the surge in oil and food prices.

"A proactive monetary policy will help manage liquidity growth and contain inflationary pressures. Continued fiscal adjustment can be achieved through improving revenue collection and containing the budget's exposure to loss-making public enterprises. Non-priority expenditures need to be curtailed to create the fiscal space for increased pro-growth and pro-poor spending.

"It will be important to accelerate structural reforms to achieve sustained private sector- and foreign direct investment-led growth and reduce poverty. Efforts to improve the management of Guinea's abundant natural resources will help the country benefit from the worldwide boom in commodity prices. The plans to improve public financial management, and to reform the central bank and enhance its independence are also important priorities.

"Continued implementation of the PRGF-supported program will help pave the way for Guinea to achieve the Completion Point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative and benefit from the Multilateral Debt Relief Initiative (MDRI). It will be important for the authorities to strengthen foreign exchange and debt management to avoid the recurrence of external arrears, and safeguard debt sustainability," Mr. Portugal said.

The PRGF is the IMF's concessional facility for low-income countries. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.