Country Brief

Guinea-Bissau gained its independence from Portugal in 1974 after a protracted liberation war that resulted in the dislocation of about one-fifth of the population and the destruction of important economic infrastructure. The armed conflict of the years 1998 and 1999, followed by consecutive military coups in the following years, left a substantial part of the economic and social infrastructure in ruins, and contributed to intensifying the already widespread poverty. Although multi-party elections in 2004 and 2005 finally restored the country to a period of peace, Guinea-Bissau has become one of the poorest countries in the world, ranking 175 of 177 countries on the United Nations Human Development Index 2007/08. Guinea-Bissau has a population of about 1.6 million, with an economy based primarily on farming and fishing activities, representing about 63 percent of GDP. Agriculture generates 80 percent of livelihoods and 90 percent of exports (primarily through cashew nuts, the main export). The country has poor infrastructure and weak social indicators, and more than two-thirds of the population lives under the poverty line.

Political Context

Guinea-Bissau has struggled to restore stable civilian rule following the military coup of September 2003 and legislative and presidential elections of March 2004 and June-July 2005, respectively. With the appointment of a new government under Prime Minister Aristides Gomes in late 2005, Guinea-Bissau experienced fragile political stability since 2006, against a backdrop of persistent disputes among and within the main political parties. In March 2006, the parliament’s vote of no-confidence in the government led President Vieira to appoint Martinho N’Dafa Cabi as Prime Minister, as part of a national pact for political stability. The vote of no-confidence and the peaceful change in Government demonstrated a stronger democratic process in Guinea-Bissau. Parliamentary elections are scheduled for October 2008.

Economy

Guinea-Bissau’s economic performance during the 2000s has been poor and unstable: The main sources of government income are agricultural exports (cashew-nuts are Guinea-Bissau’s main export crop and principal source of revenues), implying high vulnerability to unfavorable weather conditions and cost of agricultural inputs, and donor-funded budget support. Other tax-related sources of income are not of important amounts. The country’s fiscal situation has been steadily deteriorating over the years due to a combination of weak revenues and a high wage bill. Continuously outstanding arrears for salaries of government employees are, at current, amongst the most pressing consequences of this situation. As the country’s rule of law institutions have also weakened, Guinea-Bissau has, in recent years, become a transit country for international drug trafficking between Latin America and Europe.

Here are some details to illustrate the situation: Although growth rates were quite considerable in 1999/2000 (7.6 and 7.5 percent), they fell abruptly to a rate of only 0.2 percent in 2001, and contracted by 7 percent during 2002. Although the agriculture sector grew by about 5 percent in 2003, real GDP contracted by 0.6 percent due to a significant contraction in the other sectors of the economy. Simultaneously, fiscal management deteriorated further with the public sector wage bill increasing from 7.4 percent of GDP in 2002 to 10 percent in 2003 and 11.3 percent in 2004.

The economic situation improved in 2004, helped by higher production of cashew nuts; the recorded production of cashew nuts reached a record level in 2004, increasing by more than 15 percent compared to the previous year. Large disbursements by the World Bank under the Economic Rehabilitation and Recovery Credit (closed in June 2004) and the United Nations (UN) contributed to higher economic activity, especially in the informal sector. As a result, real GDP increased by 2.2 percent in 2004, a significant turnaround from the contraction of the preceding three years.

This performance was sustained in 2005, as cashew nut exports continued to remain strong, with real GDP growing at 3.2 percent. The situation reversed in 2006: about half of the cashew nut production estimated at 110,000 tons remained unsold by end-October 2006 due to a 40 percent increase in the producer price by the government. Due to the weak cashew nuts campaign, and high international oil prices the year, the economy had grown at only 2.7 percent for the year as a whole.

Guinea-Bissau’s economy continued recovering on a modest level in 2007 (GDP growth: 2.5) and is expected to rebound modestly in 2008 (projected GDP growth: 2.1).

Guinea-Bissau’s limited electricity and water supply has been compounded by fuel shortages and the failure of the main electricity generators in the capital, Bissau. Emergency generators were purchased and installed with Bank support under an IDA-financed private sector development project. The Multi-sector infrastructure project which was declared effective at end August 2007 will also provide support for energy services. A Community Driven Development Project is being prepared for fiscal year 2009 which will help finance small emergency rehabilitation and income generating activities at the local level.

The country’s financial sector has developed since end-2005 with the opening of three additional financial institutions: the Regional Bank of Solidarity (BRS) specialized in microfinance activities; the Bank of Union (BDU); and Ecobank, which provides commercial credit services. As a member of the West African Economic and Monetary Union, Guinea-Bissau’s inflation rate has remained aligned with that of the other members, i.e., around 2 percent a year. The real exchange rate has been stable but has appreciated on average by about 1 percent per year vis-à-vis the trading partners due to a relatively stronger Euro.

Development Picture/Donor Coordination

The main development partners are European bilateral donors, the European Union, the African Development Bank, United Nations agencies, the World Bank and the International Monetary Funds (IMF).

The gravity of the economic and fiscal situation was a key topic for international and regional partners meeting with the Guinea-Bissau authorities at a “Security and Development” round-table meeting in Geneva in November 2006. At the roundtable, the Bissau-Guinean authorities presented a Poverty Reduction Strategy Paper and a Security Sector Reform plan seeking to raise US$538 million from donors. The donors commended the authorities of Guinea-Bissau for the progress with economic reforms and for finalizing the PRSP and the security sector reform plan. However, donor pledges of US$262.51 million fell short of the government’s overall goal. A donors conference held in Lisbon on December 19, 2007 raised $7 million to finance the program, and in particular to rehabilitate the prison in Bissau and give local police the means to combat drug trafficking and provide better security.

Donor disbursements for budget support in the 2 nd half of 2007 helped fill the government budget financing gaps to close the fiscal deficit. Coupled with the government’s progress in implementing fiscal reforms, this paved the way for the IMF to approve, in January 2008, an Emergency Post-Conflict Assistance (EPCA) program for an initial amount of US$ 2.8 million. The assistance supports the authorities' program for 2008 and is intended to help the country address the immediate challenges of restoring fiscal stability, building capacity for implementing policy, and regularizing relations with donors. The IMF's support through EPCA is a key part of a concerted international effort to provide financial assistance to Guinea-Bissau.

A positive perspective is the recent establishment of the mission in support of security sector reform by the EU Council and the launch of the UN Peace Building Commission’s initiative for Guinea-Bissau.

World Bank Group’s Role

On December 15, 2007, Guinea-Bissau reached the 30 percent threshold of Interim HIPC Debt Relief that had been approved by the Bank's Board at the time of the HIPC decision point (in 2000). On January 29, 2008, the Bank's Board of Executive Directors approved extension of Interim HIPC Debt Relief up to 50 percent. As a result, Guinea-Bissau will continue to receive interim debt relief from IDA over the next few years, which will help ensure that the country is able to implement the new IMF program (see above), the PRSP and other reforms to reach the HIPC Completion Point (estimated to be in 2010).

As of March 2008, the World Bank had approved a total of 27 projects for Guinea-Bissau, totaling about US$325 million equivalent. Total disbursements have been about US$315 million equivalent. The current portfolio consists of four projects with a commitment of US$51 equivalent, including: a Private Sector Rehabilitation and Development project; an HIV/AIDS Global Mitigation Support; a Coastal and Biodiversity Management project; and a Multi-sector Infrastructure Rehabilitation project. The Bank is supporting efforts to strengthen economic governance with a $1.3 million grant from the Low Income Countries Under Stress (LICUS) Trust Fund. The purpose of the grant is to strengthen economic governance and restore a sound and credible public finance management system. The grant is financing a combination of technical assistance and capacity building activities in the following areas: (i) budget preparation, execution, control, and reporting; (ii) customs and treasury management; and (iii) public procurement management. The grant is also supporting the implementation of the PRSP.

A Country Assistance Strategy (CAS) is being prepared for Board presentation in September 2008. The ISN was originally planned for Board discussion in 2007 but has been updated to reflect the PRSP and discussions with the authorities. In 2008, the Bank will complete a Social Sector Review, an Investment Climate Assessment, an Education Country Status Report, and a Diagnostic Trade Integration Study.

After an absence of almost six years due to political developments in the country, the International Finance Corporation (IFC) looks forward to re-engaging actively in the country. IFC’s strategy for Guinea-Bissau focuses on (a) working with the World Bank and the government on improving the investment climate in order to attract investors to the strategic sectors, such as infrastructure and agribusiness; (b) developing a PEP-Africa (Private Enterprise Partnership) Program for the cashew-nut sector for potential investment in processing plants; and (c) working with financial intermediaries to improve access of MSMEs to finance, as well as promote, IFC’s Global Trade Program to banks to facilitate trade. As of June 2007, IFC’s outstanding portfolio in Guinea-Bissau was US$280,000.

On July 12, 2006, Guinea-Bissau became the 168th member of the Multilateral Investment Guarantee Agency (MIGA). MIGA’s portfolio in Guinea-Bissau consists of two projects, in support of the country’s infrastructure and tourism sectors, with a combined gross exposure of $28.3 million. For one of these investments, issued to Sonatel of Senegal, the Agency has provided coverage of the investor’s equity and shareholder loan intended for the provision of high-quality telecommunication services that are critical to economic development in Guinea-Bissau. The project is aimed at both local business owners and consumers, and will provide Government revenues through license and monthly fees, as well as taxes. In the fourth quarter of FY08, MIGA expects to underwrite an investment in the tourism sector in Guinea-Bissau. The anticipated gross exposure from this project is $11.0 million.

Guinea-Bissau is not a World Bank Institute (WBI) focus country and is not an active participant in WBI programs.

Contacts

Mr. Madani M. Tall
Country Director (based in Dakar, Senegal)
Tel: (221) 33 849 50 10
Fax: (221) 33 849 50 27
Email: Mtall@worldbank.org

Ms. Joelle Dehasse
Acting Country Program Coordinator
Sr. Operations Officer
Tel: (202) 458 5437
Fax: (202) 473 5450
Email: jdehasse@worldbank.org

Ms. Antonella Bassani
Sector Manager
Poverty Reduction and Economic Management
Tel: (202 473 1468
Fax: (202) 473 8136
Email: abassani@worldbank.org

Ms. Barbara Weber
Sr. Operations Officer
Tel: (202)473 7893
Fax: (202) 473 5450
Email: bweber@worldbank.org

Ms. Carmen Pereira
World Bank Liaison Officer in Bissau
Tel: (245) 20 59 04
Fax: (245) 20 59 09
Email: cpereira@worldbank.org