Overview

Country Overview

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 that have made it difficult to achieve and sustain development outcomes.

Political Context

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. These elections provided a strong basis for reengaging, and supporting 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 President Vaz and the Prime Minister, Domingos Simoes Pereira, gradually escalated and, on August 12, 2015, President Vaz 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.

Economic Overview

The economy expanded by 5.1% in 2015, up from 2.9% in 2014. A bumper cashew harvest supported by increased international demand for the commodity were the main factors underpinning the pickup in activities. The volume of cashew exported in 2015 is estimated at 175,000 tons, an increase of 30%. This coincided with an administrative increase in the local reference price for the commodity as prices rose by 25% on the international market. Since most households in Guinea-Bissau, especially the poor, rely on cashew production, the 2015 cashew campaign bodes well for poverty reduction.  Furthermore, 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 2015 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 Ranca’ 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.

Development Challenges

The economy is expected to expand in the range of 5 to 6% between 2016 and 2018. This is contingent on the materialization of the planned investments in critical infrastructure financed by the donor community. Output from the cashew sector is also expected to remain fairly robust, the impact of which will be offset by rising imports of capital goods. In this context, the deficit on the external current account is likely to worsen. Ongoing reforms, including revenue mobilization and attempts to improve the efficiency of public expenditures, are expected to keep the overall deficit in the range of 2 to 3% of GDP. Poverty ($1.9 per day at the international PPP 2011 poverty line) is projected to fall as growth following the 2012 political crisis has begun to pick up. GDP per capita growth is projected to be in the 1.9 to 2.9% range between 2015 and 2018, and could reduce poverty to around 66.3% in 2015 and 2016, and to 62.9 in 2018. 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.

In addition to the issue of fragility, addressing the allocative, technical and regressive inefficiencies in public spending by redirecting resources to areas that contribute to building the human, physical and institutional capital of the country, strengthening project appraisal capacity, and introducing equity-based formulas for budget allocation are key challenges over the near-term. There is also an urgent need to address rising inequality in the country through efforts to improve service delivery and enhancing the access to basic services. Equally important are efforts to address agricultural technology and market support systems that are likely to have a positive impact in the cashew sector. Further diversification, either through moving up the value chain in the cashew sector or capitalizing on other green shoots in the agriculture sector will be key to bolstering the resilience of the economy to shocks.

Last Updated: Apr 12, 2016

World Bank Engagement in Guinea-Bissau

Guinea-Bissau joined the World Bank in March 1977, three years after independence. The first operation was approved in 1979 for a road construction and restoration project. Since then, the International Development Association (IDA) has approved 43 projects for Guinea-Bissau amounting to about $511 million.

World Bank engagement in Guinea-Bissau for fiscal years 2015-2016 is based on a Country Engagement Note (CEN) approved in March 2015. The CEN is designed to provide immediate short-term support to the country, in order to consolidate the transition and restore basic services while assisting the government to design a more sustainable strategy for long term poverty reduction and greater shared prosperity. The CEN focuses on two key areas:

  • Building institutions and strengthening public sector capacity, to enable the government to provide a sound macro-fiscal environment and the infrastructure and legal and regulatory framework necessary to promote shared growth and attract investment.
  • Strengthening the provision of basic services to the poor in health, education, electricity and water with a view toward providing people with the services, resources, and skills they need to create and take advantage of economic opportunities.

The current active portfolio for Guinea-Bissau consist of five national IDA operations ($57.5 million), and two regional IDA operations ($84 million) for a total commitment amount of $141.5 million of which $107 million is undisbursed. The largest share of the portfolio is in energy (55%), followed by water (16%), social protection (14%), trade & competitiveness (6%), environment & fisheries (6%), and governance (3%). The World Bank has also supported non-lending activities in Guinea-Bissau such as a Public Expenditure Management and Financial Accountability Review (PEMFAR) and a Country Economic Memorandum (CEM).

International Finance Corporation (IFC)

Prior to the April 2012 coup, the International Finance Corporation (IFC) made significant progress in advancing the three following initiatives: a warehouse financing deal with a bank to facilitate the export of cashews, a joint World Bank PPP energy project entitled Electricidade e Águas de Guinea-Bissau (EAGB), and a joint World Bank investment climate reform program. All three projects were put on hold due to the political situation.

Last Updated: Apr 12, 2016

Emergency Food Security Support Project

At the request of the government of Guinea-Bissau, the World Bank implemented the Emergency Food Security Support Project (EFSSP) as a response to the 2008 international food price crisis. The objective of the project was to improve food security for the most vulnerable populations, including children, and increase smallholder rice production in project areas.

Under this project, the number of students receiving one meal a day on average was 14,102, 49% of whom were girls. The project also generated 285,000 work days against a target of 160,000 work days initially planned for the duration of the project. About 9,100 tons of paddy rice is estimated to have been produced on the rehabilitated rice land under the project, exceeding the project’s target of 7,500 tons.

The support of this project was strengthened by a second parallel operation funded by the European Union Food Crisis Rapid Response Facility Trust Fund (EUFRF). The food-for-work program under EUFRF dealt with the rehabilitation of rural feeder roads, which were critical to enhancing welfare by improving access to the project’s areas. Under this trust fund (now closed), the number of students receiving one meal a day on average was 28,030, 48% of whom were girls. The project generated 165,000 work days against a target of 162,000 work days planned. The direct beneficiaries under the food for work program were 7,310 participants and indirect beneficiaries were 43,860, with a total of 51,170 beneficiaries against a planned target of 18,900 beneficiaries at the end of the project. There has also been considerable progress in the rehabilitation of feeder roads. In February 2011, only 67 km of roads were completed. By the end of June 2011, 205 km of roads out of a total of 300 km, were completed.

Support for this project continued in 2015 with a $7 million trust fund from the Global Food Crisis Response Program (GFCR). The operation successfully achieved its four development objectives:

  • Providing one meal a day for 17,500 students for a period of 160 days and take home rations for 2,500 girl students for 160 days. The World Food Program (WFP) started the provision of school feeding on February 16, 2015 and completed on June 30, 2015. In total, the WFP provided one meal a day to 35,115 students of which 17,052 were female in 150 schools. Take home rations have benefitted 5,299 girls who received a total of 105.8 tons of rice.
  • Generation of employment for 250,000 work days (100 days per participant for 2,500 farmer participants) and provision of food rations to 17,500 direct and indirect farmer household beneficiaries under the food-for-work program to rehabilitate land.  Under this activity, there were 4,402 participants which translates into 30,814 beneficiaries.
  • Rehabilitation of 5,000 hectares of land for rice cultivation, of which 2,532 hectares were mangrove land and 2,769 hectares were low land.
  • Provision of agricultural inputs to at least 4,000 smallholder farmers involved in rice cultivation. 

Last Updated: Apr 12, 2016

Guinea-Bissau’s main development partners are the European Union (EU) together with European bilateral donors, the Economic Community of West African States (ECOWAS), the West Africa Economic Monetary Union (WAEMU), the West Africa Development Bank (BOAD), the African Development Bank (AfDB), the United Nations agencies, the World Bank Group and the IMF. Important emerging non-traditional donors are Angola, China, and Iran. 

Last Updated: Apr 12, 2016


LENDING

Guinea Bissau: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments