Guinea-Bissau, one of the world’s poorest and most fragile countries, has a population of about 1.8 million. Guinea-Bissau’s Atlantic Ocean coast is composed of an archipelago, the Bijagos, of more than 100 islands. It borders Senegal to the north and Guinea to the south and east, and despite its size, is host to a large variety of ethnic groups, languages, and religions.
Guinea-Bissau has a history of political and institutional fragility dating back to its independence from Portugal in 1974. The country is one of the most coup-prone and politically unstable countries in the world. Since independence, four successful coups have been recorded in Guinea-Bissau, with another 16 coups attempted, plotted, or alleged. In addition to military coups, frequent changes in government are another manifestation of the country’s political instability.
After nearly two years of political crisis, Aristides Gomes, former Prime Minister (2005-2007) was appointed new Prime Minister on April 17, 2018. In line with the 2016 ECOWAS-mediated Conakry Agreement, he was the “consensual” choice. Prime Minister Gomes, also leading the Ministry of Economy and Finance, has since formed an inclusive transitional cabinet and the National Assembly has resumed plenary meeting. Legislative and presidential elections are expected to take place in 2019.
Guinea-Bissau’s economy continues to expand despite political gridlock and the suspension of donor flows to the country. Economic growth reached 5.9% in 2017, largely reflecting high international cashew prices and good cashew production. However, economic activity has slowed down in 2018 due mainly to lower cashew production, caused by adverse weather, and declining cashew prices. Fluctuations in international cashew prices continue to have significant growth and fiscal implications given the country’s high export concentration in cashew. Inflation is expected to gradually pick up with the pace of economic activities, increased capital spending, and rising global oil prices but should remain well below 3%. The fiscal situation is still strained by political instability and the suspension of budget support.
Available information points to a continued consolidation in central government operations in response to the suspension of budget support by donors (approximately 2% of gross domestic product (GDP). Improved revenue mobilization and tighter control of spending helped reduce the fiscal deficit to 1.5% in 2017, from 4.3% of GDP in 2016. Total expenditure declined from 21% of GDP in 2016 to about 20% in 2017, mainly reflecting a decline in transfers to State-owned enterprises. Project grants increased by 46% in 2017, while budget support remains subdued. Government operations were funded primarily from regional resources.
Real GDP growth is expected to slow down to 4.7% (2.2% in per capita terms) in 2018, primarily due to lower cashew production and a slowdown in global cashew prices, and gradually rebound to about 5.2% by 2020. This projection assumes relatively high cashew prices, improvements in electricity supply, and increased investment in road and other key infrastructure. It is also assumed that the political stability would be maintained. Inflation is expected to rise slightly in view of higher global oil prices and rising domestic demand, but it should remain below 3% over the medium-term. This growth path also reflects the assumption of a recovery in electricity and water generation.
Given the history of fragility in Guinea-Bissau, the outlook is uncertain, with pronounced risks to growth and poverty reduction. The reliance on cashew nuts for economic livelihood exposes two-thirds of the population to terms-of-trade shocks. Further diversification, either through moving up the value chain—with agricultural technology and market support systems—or through capitalizing on other green shoots in the agriculture sector will be key to bolstering the resilience of the economy. The resurgence of political tensions in the run-up to the 2018 legislative and 2019 presidential elections may cause fiscal slippages, discourage private investment, and impede economic growth. Risks associated with banking instability (high NPLs, undercapitalization, and unresolved bank bailout controversy) could further hamper private sector growth.
In addition, a sharper-than-expected rebound in oil prices would put pressure on the current account and leave less resources for pro-poor government spending. Government needs to anticipate these risks and mitigate their impact on the poorest populations. Addressing high inequality in the country also requires efforts to improve service delivery and enhance access to basic services. However, accelerating or even sustaining the pace of poverty reduction will be difficult if the political situation remains unresolved, and if the major development challenges that constrain growth, inclusiveness, and sustainability are not addressed.
Last Updated: Nov 01, 2018