The Executive Board of the International Monetary Fund (IMF) has approved an emergency financial assistance of $5.24 million to enable Guinea-Bissau meets its urgent balance of payment and fiscal needs.
The fund will help reconcile budgetary payment gaps, restore macroeconomic stability and key government services that are critical to reducing poverty and strengthening the government control.
“The newly-elected government of Guinea-Bissau is taking action to confront the country’s economic and social challenges. After two years of economic disruption and worsening fiscal imbalances, the authorities have resumed many of the basic government functions, approved the 2014 budget, and cleared most of wage arrears incurred since 2013,” read a statement from Min Zhu, Deputy Managing Director and Acting Chair of the IMF Executive Board.
“To maintain macroeconomic stability, the government must continue with a prudent fiscal policy that limits spending to available resources and prioritizes it carefully. Clearing the still outstanding domestic arrears of 2013 and 2014 and all external arrears by year-end will be an important step to support the recovery,” Min Zhu added.
Two years after the present government inherited these very difficult circumstances, real Gross Domestic Product (GDP) fell by 2 percent and poverty increased. These were attributed to a compression in social spending and accumulated external and domestic arrears.
The government has made attempts to rebuild its revenues and this, coupled with donor assistance and the placement of treasury bills in the regional market, has allowed for the elimination of most salary arrears. Economic activities, therefore, may grow by a projected 2.5 percent this year. “Going forward, the authorities should focus on preventing re-emergence of arrears by avoiding extra-budgetary expenditures and improving cash management. In this regard, the reinstatement of the treasury committee and the preparation of cash management plans are steps in the right direction,” The IMF Executive furthered.
“International financial support for Guinea-Bissau needs to be complemented by further efforts to mobilize domestic revenues and strengthen public financial management. Technical assistance from development partners to prioritize fiscal reforms, and boost implementation capacity will be crucial in the period ahead,” he concluded.
Guinea-bissau has had a long history of political instability. Since it gained independence in 1973, no elected president has successfully served a full five-year term, hampering the possibility of sustaining an economic resurgence.
By Emmanuel Iruobe
