Guinea-Bissau, one of the world’s poorest and most fragile countries, has a population of about 1.9 million. Guinea-Bissau borders Senegal to the north and Guinea to the south, and it’s Atlantic Ocean coast is composed of the Bijagós archipelago, with 88 islands. Despite its small size, Guinea-Bissau is host to a large variety of ethnic groups, languages, and religions.
Political Context
Guinea-Bissau has a history of political and institutional fragility dating back to its independence from Portugal in 1974. It is one of the most coup-prone and politically unstable countries in the world. Since independence, four successful coups have been recorded, with another 17 coups attempted, plotted, or alleged. Some progress has been made with the previous president, José Mário Vaz to be the first to complete a full term since independence. The 2019 presidential elections were followed by a political crisis that ended in April 2020 with ECOWAS recognition of Umaro Sissoco Embaló as President of the Republic. Following a political crisis and the dissolution of Parliament by President Embaló in May 2022, early legislative elections took place in June 2023. In December 2023, Parliament was dissolved and closed following a constitutional crisis, and a presidential initiative government was appointed. Early legislative elections are scheduled for November 24, 2024.
Economic Overview
Economic activity expanded by 5.2% in 2023, an upward revision from earlier forecasts due to strong agricultural production, increased investments and higher than anticipated artisanal fishing output. Despite this, inflationary pressures remained high as food and fuel prices put headline inflation at 7.2%. High import costs, together with challenges is exporting cashews, contributed to a significant terms-of-trade shock and kept the current account deficit wide, at about 8.7% of GDP. The fiscal deficit also faced pressures, as domestic revenues were constrained poor export performance and tax cuts while spending restraint was limited.
Growth will remain robust in 2024, at an estimated 5%. Cashew production will likely fall short of the 2023 output due to a plague affecting the crop, however increased activity in fisheries supports overall growth in agriculture. Stronger cashew exports and falling inflation, mostly driven by lower food prices, will support growth through exports and private consumption. Consequently, poverty is estimated to reduce to 23.4% in 2024 from 26.7% in 2023. Average headline inflation is estimated to fall to 3.5% in 2024, a sharp decline from 7.2% in 2023. The authorities have taken important steps to improve the fiscal position, including removal of unsustainable subsidies, stricter control of discretionary spending, and freezing hirings limiting wage bill growth. This, along with higher donor grants, could reduce the fiscal deficit to 4.4% in 2024 (from 8.1% in 2023), and contribute to lowering public debt to 77.5% of GDP (from 79.3% in 2023).
Economic activity is expected to average at 5% over the medium-term, with cashew exports as a key driver. Greater diversification in the energy mix and improved conditions for the government to renegotiate the existing Karpower contract, will reduce energy costs and stimulate the real sector. Continued commitment to fiscal consolidation could see the fiscal deficit fall to 3.4% of GDP in 2025, with public debt narrowing to 74.7% of GDP. Inflation is projected to continue falling to 2%.
The outlook is subject to downside risks from regional and international geopolitical developments, shocks to the cashew sector, domestic political instability, and climatic shocks. Risks associated with banking instability and the SOE sector also remain a threat to macro-financial stability. Reduced fiscal space leaves fewer resources for pro-poor government spending. Addressing inequality in the country also requires efforts to improve service delivery and enhance access to basic services. However, accelerating or even sustaining poverty reduction will be difficult if the major development challenges that constrain growth, inclusiveness, and sustainability are not addressed.
Last Updated: Oct 07, 2024
