BISSAU, February 17, 2023 — Strengthening governance, investing in human capital with a focus on education, and improving the business climate are key pillars for Guinea-Bissau to break out of the fragility cycle towards sustainable and inclusive growth and make progress on gender equality. These are the main recommendations of the Economic Update and the Country Economic Memorandum, two new reports launched by the World Bank in Guinea-Bissau.
With a history of political instability, Guinea-Bissau is characterized by institutional fragility, a weak human capital base, a “missing” private sector, and a poorly diversified economy highly vulnerable to shocks and dependent on a single cash crop of cashew. Despite the highest proportion of natural wealth per capita in West Africa, poverty and inequality remain high in Guinea-Bissau. Following the country’s economic slowdown in 2022, two-thirds of the population live below the international poverty line of US$1.90 a day, and one-third live in extreme poverty, on $1.25 or less a day.
“The COVID-19 pandemic and the impact of Russia’s invasion of Ukraine have revealed the vulnerabilities of the country’s economy to external shocks. It is important that Guinea-Bissau implement structural reforms over the medium term to support economic recovery and improve human capital and gender equality indicators, strengthening the country’s resilience”, said Anne-Lucie Lefebvre, World Bank Resident Representative in Guinea-Bissau.
In Guinea-Bissau, inflation more than doubled in 2022 due to the high costs of food and energy imports, which limited private consumption and contributed to slower economic growth. Weak cashew export performance has limited fiscal revenues, and higher-than-expected current expenditures, especially on wage bills, have led to high fiscal deficit and rising debt. However, the authorities are committed to fiscal consolidation to ensure medium-term sustainability, and despite the weak performance of the 2022 cashew campaign, the 2023 campaign is expected to be strong and support real economic growth at 4.5%.
“The analysis in the report is timely as the government embarks on a path of fiscal consolidation while continuing to adequately finance social sectors. Human capital development can help lay a solid foundation for improving gender equality at the national level and supporting long-term, sustainable, and inclusive growth. Human capital dividends for Guinea-Bissau include improved governance and public service delivery, new sources of income generation, job creation and economic diversification, as well as the development of a competitive workforce and improved opportunities for girls and women”, says Patrick McCartney, World Bank Country Economist and lead author of the Economic Update.
The reports present a comprehensive overview of the country’s economic sector and its constraints and offer recommendations for the post-COVID-19 development, focusing on policies that can stimulate a rapid recovery and support sustainable and inclusive growth.
“Gradual fiscal consolidation that leaves enough room for social expenditures and public investment is key to restoring debt sustainability and boosting growth. Fiscal consolidation should focus on rationalizing expenditure, especially on the wage bill, improving revenue and debt management, and on key structural reforms, particularly in the state-owned enterprise sector, to expand service delivery and act as a major driving force of economic diversification”, says Theo Thomas, World Bank Practice Manager for Macroeconomics, Trade and Investment in Western and Central Africa.