The bailout is aimed at restoring macroeconomic stability in the country by addressing budgetary and the balance of payment gaps, strengthening government’s capacity and to reduce poverty by resuming key government services.
The IMF explained that Guinea-Bissau’s newly elected government inherited difficult conditions due to eroded government revenues, compression in social spending as well as external and domestic arrears.
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The country’s gross domestic product (GDP) fell by two per cent while poverty increased significantly.
“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 wage arrears incurred since 2013,” said Min Zhu, IMF’s deputy managing director and acting chair.
“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.”
Going forward, Zhu said that the government should avoid extra-budgetary expenditures in order to prevent the re-emergence of arrears and to improve cash management.
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“In this regard, the reinstatement of the treasury committee and the preparation of cash management plans are steps in the right direction.”
Zhu also called for technical assistance from development partners in order to prioritise fiscal reforms and boost implementation capacity.
The IMF has also welcomed the government’s intention to audit the operations of the national cashew fund.
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“Abolition of this fund would have an immediate beneficial impact on household consumption. The authorities will need to elaborate more efficient and pro-poor alternatives to support agriculture and the cashew sector,” said Zhu.
“The medium-term prospects for poverty reduction and economic development in Guinea Bissau hinge on addressing pervasive economic and political vulnerabilities. In addition to the security sector reform, this calls for structural reforms on a broad front to diversify the economy and improve governance and the business environment.”