01/25/2021 | Press release | Distributed by Public on 01/25/2021 13:52
January 25, 2021
Washington, DC: The Executive Board of the International Monetary Fund (IMF) approved a disbursement under the Rapid Credit Facility (RCF) equivalent to SDR 14.2 million (about US$20.47 million, or 50 percent of quota) to help Guinea-Bissau meet urgent balance of payments and fiscal needs stemming from the COVID-19 pandemic.
The pandemic has had a significant impact on Guinea-Bissau's economy. It has disrupted economic activity and led to a deterioration in the external and fiscal position as a result of the lower external demand for cashew nuts and the domestic measures to contain the spread of the disease. The effects of these shocks are expected to persist in 2021, reflecting the need to sustain imports for essential consumption and investment to strengthen health sector capacities and infrastructure, which was further weakened by severe floods in September.
To alleviate the impact of the pandemic and preserve macroeconomic stability, the government has taken several actions to increase health spending, strengthen social protection to the most vulnerable and support the economically relevant cashew sector. The regional central bank, the Central Bank of West African States (BCEAO) for the West African Economic Monetary Union (WAEMU) has taken preemptive steps to better satisfy banks' demand for liquidity and mitigate the negative impact of the pandemic on economic activity. The weakened macroeconomic outlook has created urgent external and fiscal financing needs. The IMF financial support will contribute toward fulfilling the much-needed increase in health spending, social protection and investment to underpin the recovery.
Following the Executive Board discussion, Mr. Tao Zhang, IMF Deputy Managing Director and Acting Chair, made the following statement:
'Guinea-Bissau has been significantly affected by the COVID-19 pandemic, which has disrupted economic activity and led to a deterioration in the external and fiscal positions. The authorities' immediate priority has been to limit the impact of the pandemic and preserve macroeconomic and financial stability. Health spending was increased, and measures to protect the most vulnerable and support the agricultural sector are being implemented.
'Financial support from the international community is required, including under the IMF's Rapid Credit Facility (RCF), as well as debt service relief previously approved under the Catastrophe Containment and Relief Trust. Guinea-Bissau's participation in the G20 Debt Service Suspension Initiative would also provide additional resources.
'Given Guinea-Bissau's limited fiscal space and debt vulnerabilities, emergency assistance should be mostly in the form of grants and highly concessional loans. As the pandemic eases, the authorities are committed to put in place a fiscal consolidation program to ensure debt sustainability while addressing the country's vast developmental needs.
'The authorities are committed to reinforcing fiscal governance and transparency to ensure that the emergency RCF financing is spent appropriately. They will publish bi-monthly reports on pandemic-related expenditures and information on public procurement contracts and undertake an independent ex-post audit of crisis-mitigation spending. The authorities are also committed to pursuing their reform agenda and their engagement with the IMF through a staff-monitored program to build a sound track record toward a possible Extended Credit Facility arrangement.'