Guinea-Bissau’s economy has slowed down in 2018. Economic growth is estimated to have declined to 3.8% in 2018, from 5.9% in 2017, due to lower cashew production caused by adverse weather conditions. Cashew exports declined by about 25%. Lower global cashew prices have also contributed to the lower cashew income. Fluctuations in international cashew prices continue to have significant growth and fiscal implications given the country’s high export concentration in cashew. Despite gradually rising fuel prices, inflation is estimated at 1.2% in 2018, reflecting the slowdown in domestic demand.
The fiscal situation remained weak due to low domestic revenue mobilization. The fiscal deficit deteriorated from 1.7% of GDP in 2017 to an estimated 5.1% in 2018 (on commitment basis), driven by weak tax revenue collection and increased capital spending. Tax revenue declined from 10.3% of GDP in 2017 to 9% in 2018, due to lower cashew income and a decrease in imports. Total government expenditure increased from 19.7% of GDP in 2017 to 21.8%, largely due to foreign-financed capital spending. Government expenditures on non-regularized expenditures (DNTs) resurfaced for the first time since end-2016. The fiscal deficit was financed mainly by treasury securities issuance on the regional market and foreign-currency project loans, mostly concessional.
Growth declined to 3.8% in 2018, mainly reflecting a substantial decrease in cashew production caused by adverse weather conditions and is expected to gradually rebound to 4.8% by 2020. This projection assumes an increase in domestic demand, underpinned by 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.
Given Guinea-Bissau’s history of fragility and upcoming elections, 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, reduce commitment to structural reforms, and discourage private investment. Risks associated with banking instability (high NPLs, undercapitalization, and unresolved bank bailout controversy) constitute 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: Apr 09, 2019