- For a second year in row, Guinea Conakry's GDP growth is expected to be far below population growth, thus increasing poverty. The year has started bad and only a reasonably good harvest can assure GDP growth. After the World Bank halted loan disbursements to Guinea earlier this year, Conakry authorities have turned to printing Guinean francs to be able to pay their bills.
The latest review of Guinea's economy by the International Monetary Fund (IMF), released today, gives little hope to Conakry authorities. Since 2003, Guinea's economic situation has rapidly deteriorated due to external shocks as well as poor macroeconomic management and the lack of progress in reforming governance and the economy, the report finds.
Annual real GDP growth slowed down from 4.2 percent in 2002 to an estimated 1.2 percent last year. This year, the IMF expects Guinea's real GDP to grow by up to 2.6 percent - but only if harvests are reasonably good and if there are no further external shocks to the economy. This is significantly below Guinea's estimated annual population growth of 3.0 percent - meaning that the country has a negative GDP per capita growth.
In 2003, this poor performance had been due to a reduction in manufacturing output caused by frequent outages in the supply of electricity and water, a reduction in construction, and a poor crop season caused by unfavourable rainfalls, the IMF found. There had further been an unfavourable investment climate associated with uncertainties during the run up to the December 2003 presidential elections and continued institutional weaknesses.
Also the Guinean monetary policy had proven a failure last year, causing an inflation rate of almost 15 percent. There had been a combination of lax liquidity management and excessive bank financing of a higher-than-projected government deficit, according to the IMF. While the government had continued its de facto fixing of the exchange rate, it had started relying on the banking system "to finance its cash deficit."
Guinea's economic outlook for 2004 was further plagued by poor performance in the first part of the year and by important risks, external as well as policy-related. "Assuming no deterioration in exogenous conditions - terms of trade, climate, and security - economic performance will be contingent upon the government's resolve to implement the emergency recovery programme it adopted in March 2004," the IMF review says.
Under the assumption that this programme really would be implemented, real GDP growth was projected to accelerate somewhat to 2.6 percent, "owing mostly to improved agricultural output and a slight pick up in the secondary sector."
The Fund's review places responsibility for the poor Guinean performance on the government's lack of reform. According to the assessment, "Guinea made very limited progress" under the IMF-guided economic recovery programmes covering 1997-2004. "Guinea's performance has been well below the country's great potential" when it came to reform the economy, the review said.
The IMF welcomed the emergency economic recovery programme adopted by Conakry authorities in March this year following "the serious deterioration" of Guinea's economic situation in 2003. However, the Fund considered that this package alone would "not be sufficient to put the economy back onto a solid growth trajectory."
Guinean authorities now needed to focus on structural reforms, strengthening the private sector and reform the banking sector. The IMF further stressed "the importance of ensuring the independence of the Anti-Corruption Commission." Under such conditions, there are also increased chances of renewed funding from the IMF and the World Bank.
The World Bank announced in June it had halted the disbursement of further loans to Guinea and suspended other projects following the government's failure to pay off debt servicing arrears of US$ 2.4 million. The Bank previously provided some US$ 30 million of budgetary support to Guinea each year. With the World Bank, also other donors and development partners have started withdrawing from Guinea.
According to the IMF report, Guinea urgently needed to address its heavy debt burden. The country's difficulties in servicing its external debt had also led to the suspension of interim debt relief under the HIPC programme. The Fund urged authorities to "eliminate external debt arrears and normalise relationships with creditors, and in this regard they welcomed in particular the renewed dialogue with the EU."
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