Guinea-Bissau: Request for Disbursement Under the Rapid Credit Facility-Staff Report; Press Release; and Statement by the Executive Director for Guinea-Bissau

Summary: KEY ISSUES Context: In 2012 and 2013, Guinea-Bissau suffered a severe balance of payments shock as the international price of raw cashew nuts—the main export product—fell by about 20 percent per year. The economic hardship was aggravated by the suspension of most donor support and an increase in institutional weaknesses in the wake of a military coup in 2012. During this period, GDP fell by 2 percent, revenue ratios declined, expenditure control weakened, and poverty rose (the share of rural population facing severe food insecurity increased from 20 to 40 percent). Following elections in April-May 2014, a democratically-elected government—fully recognized by the international community— took office in early July. Institutional capacity has been severely eroded over the last few years. Rebuilding this capacity will need to be carefully prioritized and will take time. Request for disbursement under the Rapid Credit Facility (RCF): The authorities have requested assistance under the RCF (in an amount equivalent to SDR3.55 million or 25 percent of quota) to help address the urgent balance of payments and fiscal financing needs for 2014. The RCF would also catalyze the resumption of donor support and initiate necessary medium-term reforms to strengthen public financial management and formulate a medium-term reform strategy that could create the conditions necessary for a possible arrangement under the Extended Credit Facility (ECF) in 2015. Main policy commitments: • Restore fiscal discipline and normalize government operations: Adopt and publish a prudent budget for 2014 and prepare the 2015 budget. Introduce a high-level treasury committee to enhance fiscal controls and prepare a monthly cash flow plan. • Resume the implementation of fiscal structural reforms: Strengthen tax and customs administration procedures to improve tax revenues and streamline tax exemptions. • Restore conditions for sustained economic growth: Prepare a medium-term country strategy, including measures aimed at improving the business environment, increasing financial deepening, and promoting the development of the cashew sector.

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