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Thematic analysis: Structural transformation and natural resources

Author: Yannis Arvanitis

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  • With a growth rate estimated at 2.6% in 2014 (0.9% in 2013) and projected to be 3.9% in 2015, the economic upturn is continuing but remains heavily dependent on the socio-political climate, the performance of the cashew-nut sector and the absence of contagion by the Ebola virus from neighbouring countries.
  • Social and political normalisation allowed technical and financial partners to return and improved tax income, although the state’s ability to broaden its tax base, to manage its wage bill and to improve tax collection will remain determining factors in economic recovery over the medium term.
  • The social and human situation is worsening and social provision fails to meet needs because of the weakness of public resources.

After a period of transition, marked by a slowing of the economy, the return to constitutional order led to growth estimated at 2.6% in 2014, against 0.9% in 2013 and -1.5% in 2012. Supported by the return to political normalisation and the re-engagement of technical and financial partners, growth was also driven by cashew-nut exports, in contrast to 2013. However, this upturn in growth remains fragile because of the many structural problems, deficiencies in infrastructure and human resources and weak economic governance.

Growth could reach 3.9% in 2015 and 3.7% in 2016, depending on the socio-political climate, the outcome of the push for food production, the promotion of cashew-nut farming, as well as improvements in economic and fiscal governance. With one of the lowest tax burdens in the West African Economic and Monetary Union (WAEMU) zone and a high income-to-payroll ratio, the state’s ability to manage its fiscal resources and payroll will be crucial. Food security is still threatened by the unpredictability of the harvest; rice production is predicted to meet only three months’ needs in 2015. Moreover, the spread of the Ebola virus to Guinea-Bissau from neighbouring Guinea is a real threat that could halt development, with both economic and human consequences.

The fiscal situation has been helped by the return of technical and financial partners – who had withdrawn after the coup d’état – and the installation of a constitutional government. The resurrection of the fisheries agreements with the European Union and the disbursement of the first tranche of budgetary support in December 2014 improved the fiscal situation and had a positive impact on growth. The primary balance in 2014 should be around -2.0% of GDP, while inflation is expected to rise against a background of increasing demand, reaching 2.6% in 2015 and 2.4% in 2016.

The social situation remains precarious and the country has one of the lowest human development indicators. Health-care provision falls short of needs because of the state’s lack of funds and educational performance is below the regional average. In addition, many fiscal problems over the last few years have left a backlog of late payments and multiple strikes affected the 2013/14 school year.

Table 1: Macroeconomic indicators

 20132014(e)2015(p)2016(p)
Real GDP growth0.92.63.93.7
Real GDP per capita growth-1.50.21.61.3
CPI inflation0.80.62.62.4
Budget balance % GDP-1.4-2.1-3.9-3.4
Current account balance % GDP-4.1-0.5-0.8-1.2

Source: Data from domestic authorities; estimates (e) and projections (p) based on authors’ calculations.

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