Country Report Guinea-Bissau October 2008

Outlook for 2009-10

With the November election fast approaching, an interim government has been appointed, which should see the country through the pre-election period. The government, which has implemented measures to address the economic crisis and curb corruption, has been successful in encouraging donors, led by the World Bank and the IMF, to resume support, although a full resumption of aid will only follow a definitive return to political stability. This will be crucial if Guinea-Bissau is to address its chronic fiscal deficit and low economic growth. Real GDP growth is forecast to rise from an estimated 3.3% in 2008 to 3.6% in 2009 and 3.8% in 2010, following a recovery in agricultural output and rising donor inflows. After rising in 2008, inflation is forecast to fall gradually to 3.8% in 2009 and 2.8% in 2010, owing to a recovery in food production and the tight monetary policy of the regional central bank. As a result of substantial inflows of donor funds, the current-account deficit is forecast to narrow from 4.3% of GDP in 2009 to 3.3% of GDP in 2010.

The political scene

Following the collapse of the government coalition and a ruling by the Supreme Court declaring the extension of the parliamentary mandate unconstitutional, the president, Joao Bernardo Vieira, has dissolved the National Assembly and appointed an interim government, led by a new prime minister, Carlos Correia. Meanwhile, an alleged coup attempt has again underlined the country's political fragility. Despite the political turmoil, the government has insisted that the legislative election will go ahead on November 16th.

Economic policy

The IMF has approved a final disbursal of US$2.9m under the emergency post-conflict assistance (EPCA) programme, commending the government's progress with macroeconomic stabilisation and structural reforms. The World Bank has granted Guinea-Bissau US$5m from the Global Food Crisis Response Programme to help to alleviate the impact of high food prices on the poor.

The domestic economy

Angola Bauxite is to invest US$500m in developing bauxite deposits in Boe, including the construction of a deepwater port in Buba and a railway line linking the mine to the port. The government has terminated the contract of Guinea-Bissau Phosphate Mining for the exploitation of the Farim phosphate deposit, claiming numerous breaches of contract.

Foreign trade and payments

The rising cost of transporting cashew nuts from the interior to the port of Bissau has started to impact on the level of exports.