Country Report Guinea September 2008

Outlook for 2008-09

The president, Lansana Conte, will reassert his control over government now that he has sacked the reformist prime minister, Lansana Kouyate, and replaced him with a loyal member of the old guard, Ahmed Tidiane Souare. There is a strong possibility that this could lead to some form of political upheaval, even a military coup, as frustration with the government, which is blamed for falling living standards, is high. Wide-ranging fiscal, monetary, economic and political reforms have now in effect come to an end, and the poverty reduction and growth facility (PRGF), which runs from July 2007 to June 2010, is expected to go off-track. A scarcity of goods, particularly food, and high international oil prices will keep average inflation high, at 30% in 2008 and 25% in 2009. The current-account deficit will narrow from 11.5% of GDP in 2008 to 9.8% in 2009, in line with targeted donor support and slower import growth.

The political scene

An army mutiny that started in late May has resulted in violent clashes that left three people dead, and has been followed by a police mutiny, reflecting the increased willingness of the security forces to challenge the government, using force if necessary. A new cabinet has been appointed that includes Mr Conte's allies, neutral technocrats and some members of the opposition; it is largely expected to abide by the president's conservative agenda.

Economic policy

The IMF's first review of Guinea's PRGF has reported some progress in 2007 in improving fiscal and monetary discipline, although targets for net international reserves and adjusting fuel prices were missed. The Fund has agreed to new economic targets for 2008 that the current regime looks highly unlikely to meet.

The domestic economy

Prices for rice, the food staple, have risen sharply along with petrol prices, causing food shortages in the interior. Rio Tinto's concession in the iron-ore rich Simandou region in south-east Guinea has reportedly been cancelled, along with the management contract of the US company, Alcoa, for Guinea's largest bauxite mining operation, Compagnie des bauxites de Guinee (CBG). Meanwhile, the government has been developing closer relations with China, which is interested in developing the country's bauxite and iron ore resources.

Foreign trade and payments

The IMF has warned that Guinea's current-account deficit will widen by an additional US$190m in 2008, owing to higher food and fuel import prices, and that it will require balance-of-payments support from donors.