Guinea-Bissau is one of the world’s poorest and most fragile countries. Following its independence from Portugal in 1974, Guinea-Bissau has suffered from frequent political upheaval and repeated economic shocks, leading it into a fragility and poverty trap that has made it difficult to achieve and sustain development outcomes.
In April 2012, a coup d’état reversed the social and economic gains that Guinea-Bissau had achieved in the previous few years, and once again pulled the country into a political and economic crisis. However, general elections were held in early 2014, restoring democratic order. There is a consensus among the international community that these elections provided a strong basis for reengaging, and there is now an urgent need to build on the progress made and support the government as it works to jumpstart development efforts aimed at reducing poverty reduction and boosting shared prosperity.
With high rates of voter registration and participation, the elections of April/May 2014 concluded with a win for the African Party for the Independence of Guinea and Cabo Verde (PAIGC). PAIGC’s candidate, José Mario Vaz, was elected president and was sworn in on June 23, 2014. However since the elections, tensions between the President Jose Mario Vaz and Prime Minister Domingos Simoes Pereira gradually escalated and, on August 12, 2015 the President dismissed Prime Minister Pereira and his Government. Following two months of political deadlock, a new government was sworn in on October 13, 2015. The new team is led by Prime Minister Carlos Correia, 81, a veteran of the struggle for independence, and is made up of 15 ministers and 14 secretaries of state.
At the beginning of 2015, growth in Guinea-Bissau picked up markedly, following the country’s transition back to democracy in mid-2014. While still lower than the average growth for the previous ten years, growth in 2014 was nonetheless a marked improvement over the economic outcomes of 2012-13. First, the economic recovery has been driven by better managed cashew campaigns: exports surged by 8.7% in 2015 in real terms, where raw cashew nuts account for 85% of the country’s exports. The 2015 cashew campaign, which runs from April through June, was considered a success, both in terms of volumes exported and strong prices. Since most households in Guinea-Bissau, especially the poor, rely on cashew production, the 2015 cashew campaign bodes well for poverty reduction. Second, the restoration of basic public services and investments propelled growth, supported by the resumption of donor financing. The African Union lifted its suspension on Guinea-Bissau and donors renewed their faith in Guinea-Bissau’s fiscal management when the IMF launched a Rapid Credit Facility in November 2014, followed by an Extended Credit Facility approved by the IMF Board on July 10, 2015. However, the dismissal of the government in August and the subsequent political deadlock raised questions whether progress has been sustained.
Early actions by the government—before it was removed in August 2015—demonstrate that progress is possible when there is political stability. Upon taking office, the government swiftly passed a retroactive budget for 2014 and prepared a 2015 budget in record time. Both were unanimously adopted by parliament. The government suspended the controversial and regressive ‘FUNPI surcharge’, an additional tax on export which the World Bank estimates to have increased poverty by 2%.
The new government also successfully strengthened domestic revenue mobilization, significantly increasing non-tax revenues (especially through fishing licenses), while also raising customs and tax revenues by 39% and 9% year-on-year respectively. In addition, structural reforms were put in place that tightened control over fuel imports, reduced tax exemptions, rehabilitated customs posts and intensified tax audits of large taxpayers. Combined, these actions have given a much-needed boost to public revenues. The government also succeeded in clearing all external arrears and a significant portion of domestic arrears. Budget support from a number of donors resumed and the international community pledged $1.5 billion in support to Guinea-Bissau at a donor roundtable held in Brussels in March 2015. Although over 50% of these additional resources were grants, public debt to finance the government’s development plan ‘Terra Ranka’ was expected to increase. Nevertheless, given that this debt would translate into growth, overall, the risk of debt distress remains moderate under the IDA-IMF Debt Sustainability Analysis.
Guinea-Bissau embodies some of the world’s toughest development challenges, combining acute and rising poverty with persistent fragility. Since its civil war in 1998/99, economic growth has barely exceeded population growth: per capita gross national income in 2013 was estimated at about $590. Official estimates for 2010 place moderate poverty ($2 PPP) close to 70%, higher than poverty in 2002, which was measured at 65E. Extreme poverty ($1 PPP) is also among the highest in the world, reaching 33% in 2010, up from 21% in 2002. Economic opportunities for poor households are limited. Three out of four households living in extreme poverty rely almost entirely on agriculture for income, consumption and barter. Most Millennium Development Goals (MDGs) are out of reach for Guinea-Bissau. There are serious infrastructure gaps, particularly in regards to the harbor, electricity, and water supply. The economy is heavily dependent on one cash crop – cashews – while rice and fuel are major imports, leaving the country vulnerable to fluctuating world prices in all three commodities.
Last Updated: Dec 09, 2015