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.

Following the restoration of constitutional government, through elections in 2014, there was about a year of relative stability and apparent cooperation between the President, Jose Maria Vaz, and the Prime Minister, Domingos Simoes Pereira. However, despite both coming from the same party, the African Party for the Independence of Guinea and Cape Verde (PAIGC), this partnership collapsed in August 2015, renewing political instability. The current government, led by Baciro Dja (also PAIGC), is the country’s fourth since the elections in 2014, and is in a minority in a parliament dominated by PAIGC. Political gridlock, occasioned by severe political divisions within the PAIGC, and with the government, undermine political stability and delay much needed resources and reforms.

The Economic Community of West African States (ECOWAS) mediated an agreement in early September 2016, providing a possible way out of the current political deadlock. The agreement details a six-point plan, including: a round-table with all concerned stakeholders, including PAIGC dissidents, civil society, etc.; a new “inclusive” government; constitutional reform to address the overlapping roles of the president and prime minister; reform of security and defense sectors; agreement monitoring and the withdrawal of ECOWAS forces from Guinea-Bissau within 6 months. No timeline was given for the formation of the new government or who will be the prime minister.

Economic Overview

Guinea Bissau’s economy continues to expand in spite of political gridlock and the suspension of donor flows to the country. Following growth of 4.9% in 2015, real gross domestic product (GDP) growth is projected at above 5% in 2016, based on preliminary information suggesting a good 2016 cashew season. The prices of 350-450 FCFA per kilogram of cashews for producers and $1,400 on average for exports were also very positive.  Inflation is expected to pick up with the pace of economic activities but should remain below 3%. The fiscal situation is still strained by political instability and the suspension of budget support.

Available information for the first quarter of 2016 points to a sharp consolidation in central government operations in response to the suspension of grants by donors (approximately 2% of GDP) to realize a deficit of 1.9% of GDP. Project grants fell by 57% accounting for most of the 24% decline in total revenues. Locally funded capital projects were frozen while those activities funded by external sources were cut in half. Government operations were funded primarily from domestic and regional sources.

The controversial government bailout of two commercial banks (equivalent to almost 6% of GDP) has not been fully resolved. The constitutional court is yet to rule on the legality of the transaction, but the current administration has declared the contract null and void and requested that the banks implement corrective steps to unwind the transaction in their balance sheet. The West African Economic and Monetary Union (WAEMU) Banking Commission – the supervisory authority with responsibility to assess the health of financial institutions - is yet to intervene, but both banks will likely need to be recapitalized, should the transaction be reversed.

Development Challenges

Real GDP growth is projected to average 5% over 2016-2018.  The pickup in growth reflects the assumption that output from the agriculture sector will remain fairly robust and that political stability is achieved to allow for a return of donor financing that would support a recovery in the secondary sector. 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 highly uncertain, with pronounced risks to growth and poverty reduction. This is tied to the assumption of stability and the return of donor funding in an environment where inefficiencies in public spending persist. This prevents resources flowing to areas that contribute to building the human, physical and institutional capital of the country. The reliance on cashew nuts for economic livelihood, exposes two-third of the population to terms of trade shocks. Further diversification, either through moving up the value chain, addressing agricultural technology and market support systems, or capitalizing on other green shoots in the agriculture sector will be key to bolstering the resilience of the economy to shocks. Failure to introduce urgently needed reform measures to strengthen project appraisal capacity and introduce equity-based formulas for budget allocation could delay the gains from fiscal and economic improvements. Addressing high inequality in the country also requires efforts to improve service delivery and enhance the 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.

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.

Last Updated: Oct 06, 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 four national IDA operations ($65.6 million), and two regional IDA operations ($84 million) for a total commitment amount of $149.6 million. 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: Oct 06, 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.

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: Oct 06, 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: Oct 06, 2016


LENDING

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

*Amounts include IBRD and IDA commitments