The Executive Board of the International Monetary Fund (IMF) approved a three-year loan of US$ 170 million to the Government of Guinea under the Extended Credit Facility (ECF) framework which will support the country’s 2016–20 National Social and Economic Development Plan.
The objective of the plan is to foster higher and broad-based growth, diversifying the economy and reducing poverty. “The Executive Board’s decision today enables an immediate disbursement of SDR 17.2 million (about US$24.3 million)”, said IMF’s Deputy Managing Director Mitsuhiro Furusawa in a statement published earlier this afternoon.
Priority is on macro stabilization
“The Guinean economy has rebounded from the adverse impact of the Ebola epidemic and growth momentum is expected to be sustained”, added Mitsuhiro Furusawa. “Going forward, the priorities are to preserve macroeconomic stability, reduce vulnerabilities, facilitate structural transformation and diversification, tackle widespread poverty, improve living standards, and promote good governance”, added the international body’s executive.
The ECF should assist the Guinean authorities in their effort to strengthen the country’s fiscal position as well as in creating “fiscal space” and “prudent external borrowing” in order to scale up public investment in infrastructure “while preserving debt sustainability”. The Government plan should thus mobilize additional tax revenues and “gradually phase out electricity subsidies” and strengthen social safety nets.
The IMF adds that accumulating international reserves will also build external buffers and strengthen resilience. “A prudent monetary policy will preserve moderate inflation while providing appropriate liquidity in the banking sector to ensure healthy credit provision to the private sector”, recommends Mitsuhiro Furusawa.
Economic growth remains below expectations
Guinea was recently hit by severe shocks but made significant progress towards recovery, managing to curb inflation and preserve international reserves despite adverse fiscal shocks and fiscal imbalances. The IMF, however, draws attention to the fact that economic growth remains below expectations, owing to the adverse impact of the Ebola epidemic in 2014–15 and the decline in commodity prices.
The former West African empire “is fragile” and is exposed to social risks and political instability, as poverty is pervasive and income and gender inequality are quite wide. “Preliminary data suggest that the incidence of poverty has increased to around 60 percent owing to the Ebola crisis, compared with an incidence rate of 55 percent in 2012 (65 percent in rural areas)”, calculates the IMF.
“Moreover, Guinea ranks at the bottom of the Human Development Index (183 out of 188 countries), average years of schooling is low at 2.6 years, infant mortality remains high, only 40 percent of girls are enrolled in secondary education (against 50 percent for boys), and women’s participation in the labor force is weaker than for men (75 percent against 85 percent for men)”.
Recent economic data show that Guinea’s current account deficit widened to 32 percent of GDP in 2016, financed by a surge in foreign direct investments (FDI) in the mining sector. While this is a positive, Guinea’s president Alpha Condé has always wanted his country to rely fundamentally on the agriculture sector.
Alpha Condé bets on the agro-industry
Let us remind the 5th Mining Symposium which was held in Guinea in May 2017. There the event was summarized so as to emphasize on the “lever of the mining sector for the transformation of the economy for the benefit of all actors”. Such statement, though clearly sensible intuitively, is contradicted by facts about FDI in the mining sector of poor countries, whose observations show that its effect on the economy are generally negative or insignificant if not destructive.
Alpha Condé is aware of this. During the symposium he indeed felt the urge to correct its own Mining minister after the introduction speech of the latter, putting the “fundamental lever” of the Guinean economy on the modernization of agriculture. “The main lever for the development of Guinea is the agro-industry. Mining is one lever but not the main one”, had insisted the Guinean president.
At the event Alpha Condé had reminded the audience, mainly made up of business people from the extractive sector, how he recently had to recover 800 mining licenses from people “who, ten years after their procurement, had no idea where the respective mines were located”
The African leader must see some relief in observing that the 100 percent surge in imports last year were somewhat mitigated by the rebound in agricultural product exports. More recently, during the first half of 2017, exports increased by 21 percent (year-on-year) thanks to a pick-up in bauxite production and the elimination of gold export taxes.