IMF preparing to lift Aid Suspension

The International Monetary Fund (IMF) could lift a suspension on payments aimed at helping Guinea-Bissau emerge from years of political turmoil following an evaluation mission this week, the institution’s country representative stated earlier this week. The IMF agreed a programme with Guinea-Bissau last year after 2014 elections drew a line under a coup two years earlier – one of a succession that have spawned chronic instability and helped make the West African country a haven for South American cocaine traffickers.

h3. Private Sector

Disbursements were suspended in June this year, however, after the government took on US$ 58.3m in bad loans from two private banks. Donors followed suit and suspended budget support for 2016 equal to around 2.1% of GDP. IMF representative Oscar Melhado said that the Fund welcomed a government decision to cancel the bailouts, whose value amounted to around 5.5% of GDP. “The only remaining obstacle is the refusal of the banks to accept the bad portfolio back into their books,” he said.

The IMF had argued the bailouts benefited the wealthiest citizens and foreign investors. Authorities had said they were needed to shield the private sector from bankruptcy. Monday was a public holiday and the banks, Banco da Africa Ocidental and Banco da União, were not available for comment. Melhado said the government should also commit to implementing prudent macro-economic policies and key structural reforms during the visit due to begin on Tuesday, which constitutes the first and second reviews of the IMF programme.

Substantial amounts could still be made this year if the reviews are approved by the IMF’s board in December.

h3. Civil Servants

Total donor contributions, including direct budget support and financing for targeted sectors and projects, typically make up around 80% of Guinea-Bissau’s budget. After the IMF freeze, Finance Minister Henrique Horta described the economic situation, including a budget deficit amounting to about 3.5% of GDP, as “catastrophic”. The government of Guinea, which is helping to mediate in its smaller Portuguese-speaking neighbour, said earlier this month that Guinea-Bissau would not be able to pay the salaries of civil servants and the security forces from October.

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