Guinea-Bissau, one of the world’s poorest and most fragile countries, has a population of about 1.9 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. Held in December 2019, the last Presidential elections were followed by a political crisis, as the defeated candidate, Domingos Simões Pereira, alleging existence of fraud and irregularities, filed a motion to challenge the election results which decision by the Supreme Court is still pending. In April 2020, ECOWAS, followed by the European Union, recognized the election of Umaro Sissoco Embalo as President of the Republic and called for the appointment of a new Prime Minister and government based on the results of the legislative elections of March 10, 2019. Outcomes of these legislatives elections indicate a configuration of the political picture, with no absolute majority. However, after the Parliamentary session held on June 29, 2020 a new majority seems to be in place after the approval of the de facto Government’s program.
· Growth reached 4.6% (2.2%in per capita terms), from 3.8% in 2018. The recovery was supported by higher cashew output and higher electricity production due to newly installed power generation capacity. However, growth remained below the potential rate of 5% as pre-election political uncertainty weighed on economic activity. The negative output gap exerted a downward pressure on inflation, which remained low at 0.5%. The overall fiscal deficit increased from 4.8% of GDP in 2018 to 5% in 2019, mainly owing to higher recurrent spending. Tax revenue increased marginally from 8.8% of GDP in 2018 to 9.1% in 2019, due to the pickup in economic activity. However, this was largely offset by weaknesses in customs and non-tax revenue. On the expenditure side, total government spending increased from 19.5% of GDP in 2018 to 23% in 2019.
· Growth is projected to decline to -1.5% (-3.8% in per capita terms) in 2020, as lockdown put in place since the beginning of the COVID-19 pandemic weighs on domestic demand and global cashew demand and price decline. Domestic consumption and investment would be severely affected by the lockdown. Higher public spending to support people and firms affected by the crisis, largely financed by external sources, would help prevent a sharper growth contraction. Inflation is projected to rise from 0.5% in 2019 to 1.1% in 2020, mainly reflecting pressures on food prices caused by negative global supply disruption effects and amplified by local supply shocks.
The outlook is subject to substantial downside risks. Renewed political instability could cause fiscal slippages and exacerbate the already difficult business environment. Substantially lower cashew prices or quantities exported would also pose a risk given the high export concentration in cashew. The persistence of the COVID-19 crisis could adversely affect household income and increases their risk of falling into poverty. Risks associated with banking instability also remain a threat to macro-financial stability.
A steep increase in oil prices would also put pressure on the external current account balance and leave less resources for pro-poor government spending. 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: Jul 15, 2020