Guinean economy weathers Covid-19 shock: IMF

An International Monetary Fund (IMF) staff team, led by Ms. Clara Mira, held a virtual mission from April 14-28, 2021, to conduct the 2021 Article IV Consultation discussions with Guinea.

At the conclusion of the visit, Ms. Mira said the Guinean economy weathered the Covid-19 shock with strong growth of 7 percent in 2020, driven by a booming mining sector. However, despite the implementation of a swift and well-structured response plan, the pandemic took a significant toll on the non-mining economy, which accounts for over ¾ of total GDP and employs the vast majority of the population.

While the mining sector is expected to continue to bolster overall growth in 2021, Guinea is facing a twin health shock, with rising Covid-19 cases coupled with a recent new outbreak of Ebola, which fortunately appears localized and under control. As such, nonmining sector growth is expected to recover only gradually.

"In recent months, rising food prices and freight rates associated with Covid-related supply disruptions, as well as the impact of the loosening of the fiscal and monetary policies to respond to the pandemic, have driven overall inflation to above 12 percent.

The current account deteriorated as imports of management, freight, and telecommunications services spiked, mitigating the strength in the goods balance from strong mineral exports. Reserves have continued to rise gradually, reaching USD 1.3 bn at end2020. "The 2020 fiscal outturns reflect the impact of the implementation of the authorities' Covid-19 Plan de Riposte. Capital expenditure was under executed. Public debt reached 44 percent of GDP at end-2020, including due to the frontloading of the first disbursement of the loan for the Souapiti dam.

"The mission welcomes the authorities' stated objective of increasing domestic revenues over the next two years, including by introducing performance contracts, and recommended that the new Tax Code be promptly adopted. The mission was also encouraged by the recent efforts to digitalize taxation.

However, greater efforts will be needed to mobilize revenue from the mining sector. This will require application of the Mining Code to all new contracts and further work on transfer pricing issues. "The authorities are working on procuring Covid-19 vaccines, with some assistance from development partners, including the COVAX initiative. Development partners are expected to support Guinea's efforts to vaccinate a significant share of its population in 2021, providing grants and concessional loans.

"The mission also noted the need to continue reforms to improve the quality of expenditure by improving public investment management and public financial management, phasing out electricity subsides and gradually transitioning towards an automatic fuel price adjustment system.

The timing of the latter reforms should be carefully assessed, and implementation prudently phased and well-communicated, while support to the most vulnerable should be strengthened.

The savings from

the energy

sector reforms could be used to strengthen the social safety net system. Debt sustainability will need to be preserved by maintaining a prudent borrowing strategy. "The central bank took an appropriately accommodative stance during the pandemic. As the pandemic subsides, the authorities are encouraged to take action to bring inflation back to single digits through active liquidity management.

The Treasury's repayment of central bank advances would support the BCRG's efforts to reduce inflation. The mission commended the BCRG for its broadly consistent implementation of a rule-based FX intervention policy since November 2020, which has brought greater flexibility to the foreign exchange market. Furthermore, efforts to encourage digitalization and more inclusive access to financial services are beginning to bear fruit.